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
| ☑ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20162018
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 | New York Stock Exchange 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.
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 |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act: Yes ☑ 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 ☑
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 ☑ 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 filer | ☑ | Accelerated filer | ||||||
| Non-accelerated filer | 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 ☑
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):
YesAct. ☐ No ☑
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 ☑ | 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
With thousands of hotels
in more than 100 countries,
our purpose is to provide
True Hospitality for everyone.
Holiday Inn London – Watford Junction, United Kingdom
The Strategic Report on pages 2 to 4551 was
approved by the Board on 2018 February 2016.2019.
George Turner, Company Secretary
IHG | 1 |
We have a diverse portfolioare one of differentiatedthe world’s leading hotel companies and our purpose is
to provide True Hospitality for everyone. By recognising and respecting
people and creating great guest experiences, we offer hotel brands
that are well known and loved by millions of guests and preferred by owners. Through
our global reach we ensure True Hospitality also extends to our people,
the environment and local communities all around the world. Whatever their needs, we have the right hotel brands for both our guests and owners.
With our asset-light business model, we predominantly manage and franchise hotel brands, and grow our business by ensuring we have the right offer for both guests and owners, whatever their needs. Focused on high-growth industry segments and geographies, our strategy involves strengthening our Central to our success are the relationships we have with our employees, guests, and third-party hotel | owners. Our focus is |
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Upscale
Luxury
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| IHG |
Financial highlights
Total revenue
$4,337m(+6.4%)
2017: $4,075ma
Revenue from reportable segmentsb
$1,933m(+11.7%)
2017: $1,730ma
Operating profit
$566m(-22.3%)
2017: $728ma
Operating profit from reportable segmentsb
$816m(+7.7%)
2017: $758ma
Total gross revenue in IHG’s Systemb
$27.4bn(+6.6%)
2017: $25.7bn
Underlying fee revenue growthb
+6.5%
2017: +4.7%a
Total underlying operating profit growthb
$47m(+6.2%)
2017: $56ma
Revenue per available room (RevPAR) growth
+2.5%
2017: +2.7%
Our scale
We predominantly franchise our brands and manage hotels on behalf of third-party hotel owners; our focus is therefore on building preferred brands and strong revenue delivery systems.
Total hotels (rooms) in the IHG System
5,603
(836,541)
2017: 5,348 (798,075)
Franchised hotels (rooms)
4,615
(576,979)
2017: 4,433 (552,834)
Managed hotels (rooms)
965
(253,566)
2017: 903 (241,370)
Owned, leased and managed lease hotels (rooms)
23
(5,996)
2017: 12 (3,871)
Total hotels (rooms) in the pipeline
1,859
(270,948)
2017: 1,655 (244,146)
Where we operate
Group revenue from reportable
segments 2018($1,933m)b
Group operating profit from
reportable segments 2018($816m)b
Number of rooms (836,541)
| a | restated to reflect the adoption of IFRS 15 (see pages 109 to 113) in the Financial Statements. |
| b | Use ofNon-GAAP measures |
In addition to performance measures directly observable in the Group Financial Statements (IFRS measures), additional financial 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 36, and reconciliations to IFRS figures, where they have been adjusted, are on pages 172 to 175.
Total underlying operating profit growth and underlying fee revenue growth are stated at constant currency.
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| 3 |
Strategic Report
Final dividend
78.1¢
to be paid on 14 May 2019
(2017: 71.0¢)
Full-year dividend
Five-year progress (¢)
Return of funds
Since March 2003, the Group has returned over $11 billion of funds to shareholders by way of special dividends, capital returns and share repurchase programmes.
Since 2014:
entral to IHG’s long-term success has been our commitment to evolve, adapt and innovate in order to keep improving, and in 2018 we took significant steps to strengthen the execution of our strategy and lay the foundations for faster growth.
Whilst the world’s changing economic, political and societal landscape means we will always operate amid challenges – from competing tensions of globalisation and nationalism, to climate change – the prospects for our industry remain strong. A growing global economy, expanding middle class, increasing disposable incomes and cheaper air travel all underpin exciting growth prospects. Ready to meet that demand is a heavily competitive marketplace vying to serve increasingly high consumer expectations around service, experience and technology.
At IHG, we are well placed to capitalise. Our successful asset-light strategy and focus on distinctive hotel brands that meet guest needs and deliver strong owner returns is a proven one. This is illustrated by our global scale, the millions of guests choosing our brands, the many long-standing owner relationships we have, and our respect within the investment community for delivering strong, consistent shareholder returns. However, as we operate in a landscape of increasing choice for consumers and investors, we continue to seek opportunities to execute our strategy in quicker, more targeted and effective ways.
This was the focus of 2018: introducing clear strategic initiatives that strengthen our brand portfolio and loyalty programme; our work with owners; how we use our scale, resources and technology to drive industry-leading net rooms growth over the medium term; and deliver our purpose of providing True Hospitality for everyone.
To enable these initiatives, we have made necessary large-scale functional, cultural and personnel changes that will transform our organisation and provide a stronger platform for future success. Encouragingly, whilst an acceleration in our growth rate is a long-term commitment, our best openings and signings performance in a decade, alongside strong financial results, shows we are already having an impact.
Focus on growth
As a Board, we want to ensure that a focus on accelerated growth adheres to the high-quality principles we uphold as a business. This means maintaining our discipline, committing resources in keeping with our strategic direction, and working with owners who share our values. Operating in this responsible way is central to IHG’s long-term track record of delivering high-quality, sustainable growth for all our stakeholders.
A key role of the Board is to challenge and support the business in its corporate decision making, and we have a breadth of diversity, skills and experience to draw upon in order to add value to the decisions we make as a company. We strongly believe that different perspectives enrich a business and we recognise the importance of gender balance too, with more than a third of our Board being female and half of our committees chaired by women.
| 4 | IHG | Annual Report and Form 20-F 2018 |
“Our focus in 2018 has been strengthening the execution of our strategy, and laying the foundation for faster growth”.
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We know that,In addition to be truly successful, we mustcollaborating as a Board with senior leadership on the implementation of organisational changes in 2018, significant moves to strengthen our brand portfolio were also on the agenda, with the $39 million acquisition of a 51% stake in Regent Hotels & Resorts in July, and an agreement to rebrand and operate a collection of high-quality properties in the UK. Both deals, and our recent acquisition of Six Senses Hotels Resorts Spas, illustrate IHG’s commitment to strengthening our luxury presence.
In what was his first full year as Chief Executive Officer, Keith Barr has shown a great ability to lead the business and engage external stakeholders during a significant period of change. On behalf of the Board, I would like to congratulate Keith and his leadership team on injecting a fresh energy into IHG, and a renewed focus on how we deliver sustainable, high-quality growth. We achieve thisworking collectively at speed to drive growth through attractive brands and strong owner support. Illustrative of IHG’s inclusive approach is a passionate commitment to instillinglaunch a share plan for corporate colleagues outside of IHG’s effective culturesenior leadership. The plan, which is subject to shareholder and valuesregulatory approval, recognises the role that all corporate colleagues play in IHG’s success and our wayspromise to ensure they have the opportunity to benefit as our Company grows.
Managing risk
Operating a business in more than 100 countries requires a considered and agile approach to managing risks associated with our industry and evolving business model, actively taking opportunities to pursue growth and managing risks carefully where we have less tolerance for uncertainty. Reflecting this and the Board’s responsibility to uphold the highest ethical standards and corporate governance, we regularly review areas for improvement, training and development.
In 2018, the Board attended presentations on key corporate governance, consumer, technology and cybersecurity themes, and spent time reviewing opportunities to further increase transparency and enhance IHG’s trusted reputation through changes related to the 2018 UK Corporate Governance Code.
On cybersecurity in particular, an external risk assessment was undertaken, which focused on industry specific issues, our current capabilities, recent progress and a forward-looking plan that will remain in focus in 2019.
It’s important to remember that our scale also brings many opportunities. Not only does it allow us to manage volatility and continue to grow our business, but it also provides a valuable platform to care for the environment and give back to local communities within which we operate. This is extremely important to IHG. Contributing to a broader social purpose is something our colleagues are passionate about, and we know the actions we take are increasingly followed by a wider range of working,stakeholders, from guests and maintaining our deep commitmentcorporate clients to conducting business responsibly – a principle that guides the behaviourinvestors.
We’re proud of our colleagues,commitments in this area, and builds trust with consumers and investors.whether it’s by helping hotels better manage their carbon footprint, creating a chance to build a career in hospitality, or offering support in times of disaster, it’s important to everyone at IHG that we help.
Shareholder returns
Our close, trusted relationships with our owners, together with our internationally-renowned brands, people, scale and systems, is a powerful combination that continues to deliver outstanding long-term shareholder value.
I am pleased to announce that the Board is recommending a final dividend of 64.078.1 cents per ordinary share, an increase of 11 per cent10% on the final dividend for 2015, resulting2017. This results in a full yearfull-year dividend of 94.0114.4 cents per share, up 11 per cent10% on 2015. The2017. During the year, the Board has also proposedapproved a $400$500 million special dividend with share consolidation, which will takewas paid to shareholders in January 2019. This takes the total funds returned to shareholders since 2003 to $12.8 billion. With$13.6 billion, representing value through both our asset-light strategy concludingprogramme of asset sales (which concluded in 2015, it is important to note that nearly $5 billion of the total returns has come from IHG’s underlying operations, illustrating2015), and the strength of our cash generative business model and ability to deliver sustaineddrive organic growth.
Thank you
I spent timeWe continue to grow our business in alla way that ensures shareholder returns do not come at the expense of other stakeholders. Guided by our regions during the year and visited brands across our portfolio. During this time, I had the opportunitysuccessful strategy, we’re able to meet many ofinvest in initiatives that drive growth, create a rewarding culture for our colleagues, and have seen first-handdeliver strong returns for owners, all whilst delivering on our commitments to shareholders. As a Board, we will continue in 2019 to promote and instill the many improvementsculture, values, systems and controls that we are making to our brands. I have also spent time with our owners, as well as representatives of the IHG Owners Association, to share ideas, discuss new projects and, alongside our Executive Committee, ensure that we maintain our excellent working relationships.make this possible.
I am very proud of all the achievements we have made in 2016. The work being done by our colleagues day in, day out, to deliver the real hallmarks of our distinctive brands, and bring each of them to life, is truly outstanding. Their passion and enthusiasm has been a driving factor in our strong – and improving – satisfaction scores (Guest Love), and has fuelled further demand from our owner community, illustrated by another strong year of hotel openings and signings. As we head into 2017, I would like to sincerely thank all colleagues for their tireless effortshard work and commitment to create great guest experiences,IHG and our brands in 2018, and our owners and investors for their continued confidence in our business and commitment to driving success.business.
Patrick Cescau
ChairmanChair
| 5 |
Strategic Report
Chief Executive Officer’s review
Key 2018 highlights
Total room signings
98,814
The highest number in a decade
New brands
2
Regent Hotels & Resorts and voco™ added to brand portfolio
Total room openings
56,343
The highest number in a decade
IHG Concerto™
5,603
Global roll out to all hotels
 | n almost two decades spent with IHG, I have seen the Company reach many milestones, but the pace and scale of achievements delivered in 2018 mark a period of important change, and an ambition to ensure our already successful business is best | |
| equipped to reach its enormous potential. | ||
As one of the world’s leading hotel companies, we already have a family of much-loved brands, a strong loyalty proposition, outstanding hotels, talented teams, and long-standing owner relationships in key markets globally. These elements are the foundation upon which we have executed a clear and effective strategy, helping to significantly grow our business in recent years and create substantial returns for all our stakeholders.
When I became Chief Executive Officer in July 2017, it was with a clear vision to make our strategy work harder, by strengthening our brands, guest experiences and owner proposition. Enabling these are reorganised functions, freed-up capacity and a sharp focus on prioritised initiatives that together will further increase our competitiveness and accelerate our growth, adding more high-quality hotels to our system at a faster pace.
As a result, there has been change within our business in 2018, and it is a real testament to all our colleagues that we made such huge progress, whilst still driving strong operational and financial performance.
Accelerating our growth
As of January 2018, we combined our Asia, Middle East and Africa operating region with Europe, in order to allow us to better use our scale, share best practice, and increase investment in specific markets.
More broadly, we moved to a new organisational structure that allows us to work faster and more effectively as one global team. Two changes formed a key part of this work. Firstly, the integration of our Commercial and Technology functions to help maximise revenue delivery and bring new products and services to market faster. Secondly, the creation of a new Global Marketing Organisation which combines our brand, loyalty and marketing capabilities. This change puts our full might behind new global teams responsible for driving the growth and performance of our mainstream, upscale and luxury brands.
Using our new organisational framework, we outlined a series of strategic growth initiatives in February 2018, funded by a reinvestment of $125 million in annual cost savings by 2020. These initiatives focus on optimising our brand portfolio; enhancing hotel revenue delivery through digital and technological innovation that enriches the guest experience; improving our owner proposition across development, hotel openings and performance; and strengthening our IHG Rewards Club loyalty programme through personalisation and powerful partnerships.
Financial performance
While our initiatives are multi-year focused, significant progress in 2018, supported by new ways of working, contributed to a strong annual performance. We delivered a 6% increase in underlying operating profit and our best performance for openings and signings in a decade, leaving us well positioned for future growth.
Our Holiday Inn® BrandFamily remains IHG’s growth engine, and represented almost half of total signings in 2018. Driving this demand is our continued use of consumer and owner
| 6 | IHG | Annual Report and Form 20-F 2018 |
“UnderpinningAnother key highlight in 2018 was the successgrowth of Kimpton Hotels & Restaurants, where we doubled signingsyear-on-year, and secured a presence in 14 countries, including locations in London, Bangkok, Tokyo and Mexico City. Equally impressive was the continued phenomenal demand for our newest mainstream brand, avid hotels, which has 171 hotels in the pipeline and one property already open. On top of that we celebrated openings of our 200th InterContinental, and 100th Hotel Indigo.
To help accelerate our growth, we’ve been clear that we will capitalise on opportunities for our portfolio too, and the acquisition of a majority stake in Regent Hotels & Resorts was a key moment. Regent is a well-respected brand at the top tier of luxury, where we know many owners want to work with IHG. We have repositioned the brand to appeal to modern luxury travellers, and we are excited about the prospect of growing its portfolio from six hotels to more than 40 in the years ahead.
sit at the very top tier of our luxury offer, and our plans to launch a newall-suites upper midscale brand into the US later this year.
Transformational technology
As well as the right brands, guests and owners want the right technology, and the global rollout in 2018 of IHG Concerto™ was a significant milestone.
This cloud-based technology platform, which includes our industry-leading Guest Reservation System, allows us to bring together all our core hotel systems, providing the right mix of technology, data and functionality needed to improve stay experiences and help owners drive revenue and performance. In 2019, we will develop a second phase focused on enhancing the reservation experience, with hotels able to highlight attributes they know guests value, from a particular room size to specific views.
Ensuring we offer the right platforms and experiences to deliver revenue to our hotels is crucial to our business. Digital revenue, which is our lowest cost booking channel, grew by 13% in 2018 to $5.3 billion. Ensuring we find more ways to enrich everything from bookings to stays and marketing, whilst placing the utmost importance on data privacy and security, remains a significant priority for IHG.
“Supported by our people,
strategic initiatives and positive
industry trends, we are confident
in our prospects.”
We also launched our new upscale brand, voco, which offers a different avenue of growth for IHG and is already attracting strong interest. The brand will principally focus on conversion opportunities and work with owners of high-quality hotels looking to quickly take advantage of a strong brand and systems to drive growth. We’ve already opened two hotels and have another eight in the pipeline.
Supporting growth of both our Kimpton and voco brands was the deal in May to rebrand and operate a collection of UK portfolio properties – an agreement which made IHG the leading luxury hotel operator in that market.
Continuing this momentum, in February 2019 we announced the $300 million acquisition of Six Senses Hotels Resorts Spas, which will
Special culture
The scale of change achieved alongside our performance has not been without challenges but as I have travelled around our business, the enthusiasm of colleagues to embrace change encapsulates IHG’s special culture, and we continue to focus heavily on keeping people informed and supported.
We are proud to have been recognised as a 2018 Aon Global Best Employer for a second consecutive year, and listed in the 2018 Hampton Alexander Review as one of the top 10 FTSE 100 companies for female representation across our Executive Committee and direct reports. We place huge importance on our diverse and inclusive culture; and several initiatives led by a newly formed Global D&I Board, which I chair, will ensure further progress.
For any company, having the right strategy, structure and growth initiatives in place is of course crucial, but we recognise that ensuring we grow in a responsible way is equally important. Embedded in our business are a range of standards, policies and programmes that engender the right culture among our hotels, offices and suppliers, and helps us have a positive impact on the environment and local communities within which we operate.
Ensuring this is achieved across our operations, we embarked on 2018-2020 Responsible Business Targets during the year, which broadens our focus to areas of environmental sustainability, community impact, our people and procurement. This ranges from providing hospitality skills training to thousands through our IHG® Academy, to helping our hotels reduce their carbon footprint and increasing the diversity of our senior leadership.
Supporting our targets around community impact, we also launched our new True Hospitality for Good programme, which gives colleagues greater involvement in the IHG charity partners they wish to support, and puts more focus on volunteering for great causes. Almost 140,000 colleagues took part in the programme in 2018, helping support charities working to offer education and skills in hospitality, or providing disaster relief efforts globally.
We were delighted to be named an industry leader in sustainability for a second consecutive year on the S&P Dow Jones Sustainability Indices, and more broadly to receive several notable awards that show the progress we continue to make as a business. These include HICAP’s Merger and Acquisition of the year award for our Regent deal, and InterContinental Hotels & Resorts being named the world’s leading hotel brand at the World Travel Awards for the 12th time.
Thank you
I truly appreciate the amazing work and efforts of all of our brandscolleagues in our hotels, corporate offices, and service centres globally. The energy and passion that they have put into delivering our purpose of providing True Hospitality is a focus on digital leadership. This involves us using new technologiesextraordinary. Thank you also to our owners for their partnership and dataconfidence in our brands.
Supported by our people, strategic initiatives and positive industry trends, our prospects for growth are strong and we look forward to deliver truly relevant experiences.”2019 with optimism.
Keith Barr
Richard Solomons
Chief Executive Officer
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IHG delivered another year of consistent, high-quality growth and strong financial and operational performance in 2016, led by the continued execution of our Winning Model.
This focus, brought to life by our talented colleagues and supported by strong owner relationships, enables us to successfully differentiate ourselves from the competition and meet the needs of our guests in an ever-changing consumer environment.
We made important progress against every element of our Winning Model. We built scale where it matters by broadening the global footprint of our brands in key markets, made important enhancements to our digital channels, significantly strengthened our direct-bookings offer for guests and owners, and further improved our industry-leading loyalty programme (see pages 16, 17 and 30).
Financial and operational highlights
Alongside this important work, we delivered strong underlying operating profit growth, signed the highest number of hotels since 2008, and closed the year with almost 5,200 open hotels in our portfolio. We remained focused on driving growth in markets where we see the greatest opportunities, and continued to build important momentum in this approach. IHG finished 2016 with a pipeline of 230,000 rooms, with approximately 90 per cent of them situated in our 10 priority markets. This represents a 14 per cent share of the active industry pipeline – more than three times our share of current supply – and illustrates our attractive prospects for strong, organic growth.
In what is an increasingly important space, we made excellent progress in driving digital growth across the business, strengthening our booking channels and leveraging our leading, data-driven marketing capabilities to engage with more guests in ways that are both relevant and most preferred. Digital revenue grew approximately eight per cent – driven by mobile, which delivered $1.6 billion in revenue. This channel alone now drives more traffic to our websites than desktop, with our award-wining app a key driver of this shifting trend. This is particularly important and helpful for our owners, with increased direct bookings delivering more low-cost revenue.
Brands-led business
The increasing global demand from guests and owners for our portfolio of brands is extremely encouraging. Throughout the year, we made real progress, be it by entering new markets or securing flagship locations, or by introducing important enhancements to service and design that are making a positive difference to the guest experience and helping attract new business.
In InterContinental Hotels & Resorts’ 70th anniversary year, we strengthened its position as the world’s largest luxury hotel brand with a significant global marketing campaign, more iconic openings, improved service training and the highest number of hotel and room signings since 2008.
Illustrating our ability to successfully grow and develop some of our newer US brands, we celebrated taking Kimpton Hotels & Restaurants global, signing a deal in Paris and opening a property in Grand Cayman. In 2017, the brand will debut in Europe, opening a hotel in Amsterdam. We also doubled the size of our lifestyle brand, EVEN Hotels, to six open hotels, added more to the pipeline and signed a deal to launch the brand in Australia and New Zealand.
For our Crowne Plaza Hotels & Resorts brand, we established a new global identity and service style to help to further build on its industry-leading position in many of our markets around the world. Using this as a foundation, we announced the Crowne Plaza Accelerate programme – a $200 million investment programme designed to deliver an improved performance in The Americas through enhanced service and marketing that better resonates with the modern business traveller.
Delivering our strategy
Underpinning the success of all our brands is a focus on digital leadership. In 2016, we made strong progress in enhancing the Guest Journey (Dream, Plan, Book, Stay and Share), building more rewarding loyalty relationships, and strengthening our competitive advantage, by leveraging the latest technology.
Following a successful trial, we rolled out Your Rate by IHG Rewards Club globally, providing access to exclusive, preferential rates to loyalty members booking through our direct channels. This has led to higher direct bookings, delivering better-quality revenue to our hotels, and a rise in membership enrolments. We also
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Chief Executive Officer | ||
| IHG | Annual Report and Form 20-F 2018 | Strategic Report | Chief Executive Officer’s review | 7 |
| Strategic Report |
| Industry overview | ||
| From growing consumer demand for branded hotels, to an expanding middle class and greater disposable incomes, we operate in an industry with growth potential. |
The global hotel industry is a $525bn industry, made up of 18 million rooms. 54% of rooms are affiliated with a global or regional chain (‘branded’), up from 50% in 2012, and 46% are unaffiliated (‘independent’). The top five hotel groups, IHG, Marriott, Hilton, Wyndham and Accor account for 25% of market share, up from 19% in 2012, and for 58% of the global development pipeline of hotels in planning or under construction.
In what is a fragmented market, competitor pressures in the branded space are intensifying as all major players pursue growth strategies through acquisitions, organic growth or diversification. As the digital landscape has evolved, consumer choice of where to stay and how to book has developed and hotel companies compete in an environment that includes Online Travel Intermediaries and alternative lodging solutions, such as peer-to-peer home rental companies and serviced apartments.
a Source: STR, Inc b Source: Oxford Economics | ||
| 8 | IHG | Annual Report and Form 20-F 2018 | |
Growing consumer demand for branded experiences requires hotel companies to continue to find new ways to work with owners and partners to meet expectations. Owners recognise the strength of a branded offer, and in addition to traditional opportunities, are looking for ways to affiliate with a brand through light-touch conversions orlow-cost construction techniques, combined with features that reduce operating costs. The recent addition of multiple new brands bybig-branded players illustrates the level of capacity in the market and industry appetite. Over the last decade, IHG has added our wellness focus brand, EVEN Hotels, a brand tailored to the Chinese consumer, HUALUXE, and following acquisition, expanded Kimpton in the global luxury space. We have also launched avid hotels in the mainstream segment, upscale brand voco, which is principally focused on conversions, and acquired both Regent and Six Senses Hotels Resorts Spas in the top tier of the luxury segment. This reflects a continued strategic focus on offering more tailored experiences to a diverse guest base in the highest opportunity segments and markets. The consumer landscape continues to evolve – from millennials seeking increasingly unique and authentic experiences, to baby boomers with money and time to travel, both of whom increasingly expect technology to aid, inform and enrich their stays. From intuitive booking apps, chatbots, and mobilecheck-in/check-out, to smart artificial intelligence assistants and seamless wifi, today’s guests expect technology to be integrated into many areas of the travel experience. To meet this trend, the ability of hotel companies to work in partnership with the right technology providers has become increasingly important. IHG has made good progress in this area: from bespoke online payment solutions to Artifical Intelligence Smart Rooms in some of our InterContinental hotels, which allows guests to use voice commands to control opening the curtains through to ordering room service; and the development of IHG Studio with our avid brand, which allows seamless direct casting of entertainment from guest smart devicesto in-room TVs. Data generation, storage and use has never been as prevalent and important as it is today. Cloud storage has further changed the game, giving accommodation providers easy access to real-time diverse data, that enables a more personalised and efficient service. Operationally it allows providers to use data to tailor guest experiences faster, and drive a more personalised relationship with them. With this trend comes a growing responsibility to handle data responsibly, respecting consumer preferences and rights. IHG is a pioneer in data-centric technology innovation, from loyalty to reservations and hotel solutions. See IHG Concerto™ case study on page 21 for more details. Strategic Report In 2018, we evolved our marketing function to adopt a comprehensive global approach to marketing and brand development activities. This included organising our brands into mainstream, upscale and luxury segments, in order to maximise efficiencies, better focus resources and drive performance. With a purpose to provide True Hospitality for everyone at our core, the changes we have made leave us better equipped to keep our existing brands fresh and relevant, and to broaden our portfolio as we create the optimum mix of options for both our guests and owners. Alongside a strong loyalty proposition, innovation and technology, and enhanced operational solutions for our owners, we are providing the foundations for industry-leading net rooms growth over the medium term. Reflecting the early impact of our changes, we delivered our best openings and signings performance in a decade in 2018. Mainstream IHG is the clear global leader within the mainstream segment, with 16% of existing global market share by rooms and 25% of the pipeline. Our mainstream brands operate across the midscale and upper midscale market segments, from full service hotels offering full-service facilities, to extended stay Building on our mainstream strength, in February 2019 we announced plans to launch into the US a newall-suites upper midscale brand, targeted at an underserved $18 billion industry segment. 1,224 Open hotels 288 Pipeline hotels Holiday Inn Express® Our Holiday Inn Express brand offers guests simpler, smarter travel experiences. Demand for our industry’s largest brand by rooms continues to grow, helped by new guest room designs and an enhanced breakfast offer that are leading to greater satisfaction scores. In China, the brand’s tailored franchise model has contributed to record growth in 2018, with 71 hotels signed. 2,726 Open hotels 784 Pipeline hotels Industry performance in 2018 Lodging industry RevPAR in Greater China increased by 3.7% via growth in both demand and average daily rate. RevPAR has now increased for the last two years, as supply growth continues to slow, whilst average daily rate has continued to rise. Supply increase in 2018 (3.8%) was the lowest in the last 19 years. Tier 1 city RevPAR grew 5.1% for 2018, led by 5.0% increase in average daily rate. Tiers 2, 3 and 4 saw moderate RevPAR growth below 3%. Tier 2 saw the largest increase in demand (6.5%) while tier 1 saw the smallest (2.4%). Whilst supply growth slowed in Greater China overall, certain areas continued to see strong increases, including Mainland China (4.0%) and Macau (3.5%). Demand was also the strongest in those areas with Mainland China increasing 4.8% and Macau increasing 7.5%. Hong Kong RevPAR grew 10.6% led by an average daily rate increase of 9.7% for the year. Regional highlights Franchise growth IHG’s regional performance in 2018 IHG’s comparable RevPAR in Greater China increased by 12 months ended 31 December 2016 2016 $m 2015 $m 2016 vs 2015 % change 2014 $m 2015 vs 2014 % change Americas hotel and room count Total number of hotels 3,925 Total number of rooms 487,993 The Americas System size increased by 85 hotels (8,418 rooms) to 3,925 hotels (487,993 rooms) during 2016. 188 hotels (23,535 rooms) opened in the year, compared to 183 hotels (22,942 rooms) in 2015. Openings included 128 hotels (15,680 rooms) in the Holiday Inn brand family, representing 66.6% of the region’s openings. 103 hotels (15,117 rooms) were removed from The Americas System in 2016, demonstrating our continued commitment to quality, compared to 104 hotels (14,709 rooms) in 2015. 37.3% of 2016 room removals were Holiday Inn rooms in the US (30 hotels, 5,638 rooms) compared to 44.0% in 2015 (31 hotels, 6,466 rooms). Change over 2015 Change over 2015 Analysed by ownership type a Includes 25 Holiday Inn Resort properties (6,791 rooms) and 26 Holiday Inn Club Vacations properties (7,601 rooms) (2015: 23 Holiday Inn Resort properties (5,902 rooms) and 16 Holiday Inn Club Vacations properties (5,231 rooms)). Americas pipeline Total number of hotels in the pipeline 945 Total number of rooms in the pipeline 102,451 At 31 December 2016, The Americas pipeline totalled 945 hotels (102,451 rooms), representing an increase of 80 hotels (6,067 rooms) over the prior year. Strong signings of 332 hotels (37,038 rooms) were ahead of last year by seven hotels, but lower by 617 rooms. The majority of 2016 signings were within the Holiday Inn brand family (204 hotels, 21,826 rooms) and our extended-stay brands, Staybridge Suites and Candlewood Suites (93 hotels, 9,130 rooms). 64 hotels (7,436 rooms) were removed from the pipeline in 2016 compared, to 69 hotels (7,661 rooms) in 2015. Change over 2015 Change over 2015 Analysed by ownership type b Includes three Holiday Inn Resort properties (455 rooms) (2015: seven Holiday Inn Resort properties (1,657 rooms)). Greater China results Highlights for the year ended 31 December 2018 Comprising 391 hotels (115,313 rooms) at 31 December 2018, Greater China represented approximately 14% of the Group’s room count. The majority of rooms in Greater China operate under the managed business model. Revenue from the reportable segmenta increased by $26m (22.2%) to These increases in fee business revenue and Highlights for the year ended 31 December 2017 Revenue from the reportable segmentaand operating profit increased by $5m (4.5%) to $117m and by $6m (13.0%) to $52m respectively and on These increases in Greater China reportable segment includes revenue and operating profit before exceptional items, excluding System Fund revenues and expenses and reimbursement of costs, for the fee business. Operating profit from reportable segments before central overheads excludes exceptional items, System Fund revenues and expenses, reimbursement of costs, and central overheads, to assist understanding of the relative contribution of IHG’s regions to the Group. Underlying revenue and underlying operating profit both exclude System Fund revenues and expenses, reimbursement of costs, the impact of owned asset disposals, 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 pages 172 and 173). Strategic Report Performance continued Greater China continued Greater China hotel and room count Hotels Includes six Holiday Inn Resort properties (1,726 rooms) (2017: six Holiday Inn Resort properties (1,820 rooms)). Total number of hotels 391 Total number of rooms 115,313 The Greater China System size increased by 63 hotels (13,774 rooms) in 2018 to 391 hotels (115,313 rooms). 77 hotels (18,812 rooms) opened, our highest ever and 34 hotels (8,242 rooms) higher than 2017. Recent growth in the region has focused on tier 2 and 3 cities, which now represent approximately 67% of our open rooms. 47 Holiday Inn brand family hotels (9,090 rooms) were added in the year, compared to 33 hotels (7,184 rooms) in 2017. 14 hotels (5,038 rooms) were removed in 2018 compared to seven hotels (2,053 rooms) in 2017. Greater China pipeline Hotels Includes eight Holiday Inn Resort properties (2,711 rooms) (2017: seven Holiday Inn Resort properties (2,380 rooms)). Total number of hotels in the pipeline 341 Total number of rooms in the pipeline 77,923 At 31 December 2018, the Greater China pipeline totalled 341 hotels (77,923 rooms) compared to 294 hotels (71,684 rooms) at 31 December 2017. Signings (142 hotels, 29,130 rooms) were the highest ever, representing an increase of 20.3% (4,929 rooms) from the prior year. 99 hotels (17,958 rooms) were signed for the Holiday Inn brand family, including 71 franchised Holiday Inn Express hotels. 18 hotels (4,079 rooms) were removed from the pipeline in 2018, compared to 20 hotels (5,975 rooms) in 2017. Central Central results 2018 vs 2017 2017 vs 2016 Highlights for the year ended 31 December 2018 Net operating loss increased by $41m (31.3%) compared to 2017. Central revenue, which mainly comprises technology fee income, increased by $13m (8.3%) to $170m (an increase of $12m (7.6%) at constant currency), driven by increases in both comparable RevPAR (2.5%) and IHG System size (4.8%). Gross costs increased by $28m (10.8%), partly impacted by $2m of adverse foreign exchangea and driven by reinvestment of a portion of savings delivered elsewhere in the business and higher healthcare costs. Net operating loss before exceptional items increased by $15m (14.7%) to $117m (a $14m or 13.7% increase to $116m at constant currency). Highlights for the year ended 31 December 2017 The net operating loss increased by $8m (6.5%) compared to 2016. Central revenue, which mainly comprises technology fee income, increased by $10m (6.8%) to $157m (an increase of $11m (7.5%) at constant currency), driven by increases in both comparable RevPAR (2.7%) and IHG System size (4.0%). Gross costs decreased by $11m (4.1%), benefiting from the impact of $4m of foreign exchangea and the impact of our cost management programme. Net operating loss before exceptional items decreased by $21m (17.1%) to $102m (an $18m or 14.6% decrease at constant currency). The impact of movements between the previous year’s average exchange rates and actual average rates in 2018. Other financial information System Fund In the year to 31 December 2018, System Fund revenues decreased by 0.7% from $1,242m to $1,233m (2016: $1,199m). The primary driver was a favourable adjustment in 2017 (as restated) relating to a change in the actuarial assumptions around the ultimate rate of consumption of IHG Rewards Club points (‘breakage’). This adjustment was immaterial in 2018. This is largely offset by an underlying growth of 6.3% in assessment fees and contributions from hotels, reflecting increased RevPAR and System size, and increased revenue relating toco-branding agreements. The Group operates a System Fund to collect and administer cash assessments from hotel owners for the specific purpose of use in marketing, the Guest Reservation Systems, and hotel loyalty programme. The Fund also receives proceeds from the sale of loyalty points under third-partyco-branding arrangements. The Fund is not managed to generate a profit or loss for IHG, although anin-year surplus or deficit can arise, but is managed for the benefit of hotels in the IHG System with the objective of driving revenues for the hotels. Reimbursement of costs In the year to 31 December 2018, reimbursable revenue increased 6.2% from $1,103m to $1,171m (2016: $1,046m), primarily due to an increase in the number of managed hotels in the Americas driving additional payroll cost. Cost reimbursements revenue represents reimbursements of costs incurred on behalf of managed and franchised properties and relates, predominantly, to payroll costs at managed properties where we are the employer. As we record cost reimbursements based upon costs incurred with no added mark up, this revenue and related expenses has no impact on either our Exceptional items Pre-tax exceptional items are treated as exceptional by reason of their size or nature and are excluded from the calculation of adjusted earnings per ordinary share as well as otherNon-GAAP measures (see page 36) in order to provide a more meaningful comparison of performance and can include, but are not restricted to, gains and losses on the disposal of assets, impairment charges and reversals, and restructuring costs (for more information see page 124). 2018pre-tax exceptional items totalled a charge of $104m. The charge included: $18m of litigation costs primarily relating to a material settlement agreed in respect of a lawsuit filed against the Group in the Americas region, together with associated legal fees; $56m relating to reorganisation costs (see below); $15m arising from the termination of the US funded Inter-Continental Hotels Pension Plan and $15m relating to the acquisition of the Regent Hotels and Resorts brand and associated management contracts (‘Regent’), the UK portfolio and Six Senses Hotels Resorts Spas (‘Six Senses’). On 1 July 2018, the Group completed the acquisition of a 51% controlling interest in an agreement with Formosa International Hotels Corporation (‘FIH’) to acquire Regent. On 25 July 2018, the Group completed a deal to operate nine hotels under long-term leases from Covivio (formerly Foncière des Régions), which operated under the Principal and De Vere Hotels brands. An additional leased hotel was added to the portfolio on 13 November 2018, bringing the total to ten (‘UK portfolio’) at 31 December 2018. Two further leased hotels were added on 14 February 2019. On 12 February 2019, the Group completed the acquisition of Six Senses for $300m paid in cash. Reorganisation costs In September 2017, the Group launched a comprehensive efficiency programme funding a series of new strategic initiatives to drive an acceleration in IHG’s future 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 $103m was incurred in 2018 (2017: $45m)), including amounts charged to the System Fund. The exceptional cost charged to the Group income statement in 2018 of $56m includes consultancy fees of $25m and severance costs of $18m. Strategic Report Performance continued Other financial information Net financial expenses Net financial expenses increased by Financing costs included $48m (2017: $44m) of interest costs on the public bonds and $20m (2017: $20m) in respect of the Taxation The effective rate of tax on profit before exceptional items and System Fund was 22% (2017: 29%). Excluding the impact of prior year items, the equivalent tax rate would be 23% (2017: 30%). This rate is higher than the average UK statutory rate of 19% (2017: 19.25%), due mainly to Taxation within exceptional items totalled a credit of $27m (2017: credit of $88m). This included a current tax credit of $11m on reorganisation costs, a $5m current tax credit in Net tax paid in 2018 totalled $68m (2017: $172m). The 2018 tax paid was less than 2017 principally due to IHG pursues an approach to tax that is consistent with its business strategy and its overall business conduct principles. This approach seeks to ensure full compliance with all tax filing, payment and reporting obligations on the basis of communicative and transparent relationships with tax authorities. Policies and procedures related to tax risk management are subject to regular review and update and are approved by the IHG Audit Committee. The Group’s Approach to Tax document is available on IHG’s website at www.ihgplc.com/responsible-business Tax liabilities or refunds may differ from those anticipated, in particular as a result of changes in tax law, changes in the interpretation of tax law, or clarification of uncertainties in the application of tax law. Procedures to minimise risk include the preparation of thorough tax risk assessments for all transactions carrying material tax risk and, where appropriate, material tax uncertainties are discussed and resolved with tax authorities in advance. As a result of its business profile as a hotel manager, and also as a residual legacy from prior acquisitions, IHG does have a small number of subsidiaries in jurisdictions commonly portrayed as tax havens. IHG manages such subsidiaries on a basis consistent with its business principles (for example, by making some foreign incorporated companies UK tax resident or by operating others so that local profits are commensurate with local activity). IHG’s contribution to the jurisdictions in which it operates includes a significant contribution in the form of taxes borne and collected, including taxes on its revenues and profits and in respect of the employment its business generates. IHG earns approximately 75% of its revenues in the form of franchise, management or similar fees, with over 82%of IHG-branded hotels being franchised. In jurisdictions in which IHG does franchise business, the prevailing tax law will generally provide for IHG to be taxed in the form of local withholding taxes based on a percentage of fees rather than based on profits. Costs to support the franchise business are normally incurred regionally or globally, and therefore profits for an individual franchise jurisdiction cannot be separately determined. Dividends The Board has proposed a final dividend per ordinary share of 78.1¢. With the interim dividend per ordinary share of 36.3¢, the full-year dividend per ordinary share for 2018 will total 114.4¢, an increase of 10% over 2017. On 19 October 2018, the Group announced a $500m return of funds to shareholders by way of a special dividend and share consolidation. The special dividend ($2.621 per ordinary share) was paid on 29 January 2019. IHG pays its dividends in pounds sterling and US dollars. The sterling amount of the final dividend will be announced on 26 April 2019 using the average of the daily exchange rates from 23 April 2019 to 25 April 2019 inclusive. See page 17 for details of IHG’s dividend policy. Earnings per ordinary share Basic earnings per ordinary share decreased by 34.0% to 184.7¢ from 279.8¢ in 2017 whilst adjusted earnings per ordinary share and underlying earnings per ordinary share increased by 19.4% to 292.1¢ and by 18.8% to 290.5¢ respectively. Share price and market capitalisation The IHG share price closed at £42.37 on 31 December 2018, down from £47.19 on 31 December 2017. The market capitalisation of the Group at theyear-end was £8.1bn. Liquidity and capital resources Sources of liquidity In November 2018, the Group issued a€500m, 2.125% euro bond repayable in May 2027. The bond extends the maturity profile of the Group’s debt. Currency swaps were transacted at the same time the bonds were issued in order to swap the proceeds and interest flows into pounds sterling. The currency swaps fix the bond debt at £436m, with interest payable semi-annually at a rate of 3.5%. This is in addition to £400m of public bonds which are repayable on 28 November 2022, £300m repayable on 14 August 2025 and £350m repayable on 24 August 2026. The Group is further financed by a $1.275bn revolving syndicated bank facility (the Syndicated Facility) and a $75m revolving bilateral facility (the Bilateral Facility) which mature in March 2022, both of which were undrawn at theyear-end. The Syndicated and Bilateral Facilities contain the same terms and two financial covenants; interest cover; and net debt divided by operating profit before exceptional items, depreciation and amortisation and System Fund revenue and expenses. The Group is in compliance with all of the financial covenants in its loan documents, none of which is expected to present a material restriction on funding in the near future. Financial covenants will not be affected by the adoption of IFRS 16 ‘Leases’. Additional funding is provided by the99-year finance lease (of which 87 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 $104m (2017: $110m), which were matched by an equivalent amount of cash and cash equivalents under the Group’s cash pooling arrangements. Liquidity and capital resources continued 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 forday-to-day cash management purposes and are managed daily as closely as possible to a zero balance on a net basis for each pool. Overseas subsidiaries are typically in a cash-positive position, with the most significant balances in the US and Canada, and the matching overdrafts are held by the Group’s central treasury company in the UK. Net debt of $1,530m (2017: $1,851m) is analysed by currency as follows: 2018 $m 2017 $m 2018 includes the impact of currency swaps. Cash balances at 31 December 2018 include $502m of the proceeds from the euro bond invested in short-term deposits and repurchase agreements. Cash and cash equivalents include $2m (2017: $3m) that is not available for use by the Group due to local exchange controls. In January 2019, $500m was returned to shareholders via a special dividend. Information on the maturity profile and interest structure of borrowings is included in notes 20 and 22 to the Group Financial Statements. Information on the Group’s approach to allocation of capital resources can be found on pages 16 and 17. The Group had net liabilities of $1,077m at 31 December 2018, ($1,301m, restated at 31 December 2017). Cash from operating activities Net cash from operating activities totalled $666m for the year ended 31 December 2018, an increase of $89m on the previous year, reflecting the benefit of lower cash tax (see page Cash flow from operating activities is the principal source of cash used to fund the ongoing operating expenses, interest payments, maintenance capital expenditure and normal dividend payments of the Group. The Group believes that the requirements of its existing business and future investment can be met from cash generated internally, disposition of assets, and external finance expected to be available to it. Cash from investing activities Net cash outflows from investing activities decreased by $17m to $189m, reflecting a lower level of expenditure on IHG Concerto in the current year and a $43m investment in one of the Group’s associates in 2017, offset by Avendra sale proceeds of $75m received last year. In the current year, $38m was spent on the acquisition of businesses and aone-off distribution of $32m was received from a joint venture. The Group had committed contractual capital expenditure of $136m at 31 December 2018 (2017: $104m). Cash used in financing activities Net cash from financing activities totalled $86m, which was $532m higher than 2017, primarily due to a $133m increase in borrowings, including the issue of a new €500m long-term bond, offset by repayment of other borrowings and the cash outflow from the $400m special dividend paid in 2017. Off-balance sheet arrangements At 31 December 2018, the Group had nooff-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on the Group’s financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. Contingent liabilities Contingent liabilities include performance guarantees with possible cash outflows totalling $42m, guarantees over the debt of equity investments of $43m and outstanding letters of credit of $29m. The Group may also be exposed to additional liabilities resulting from security incidents. See note 30 to the Group Financial Statements for further details. Contractual obligations The Group had the following contractual obligations outstanding as of 31 December 2018. See table below. Total amounts $m Less than 1 year $m After 5 years Repayment period classified according to the related facility maturity date. Excluding bank overdrafts. Mainly represents the minimum lease payments related to the99-year lease (of which 87 years remain) on InterContinental Boston. Payments under the lease step up at regular intervals over the lease term. See note 28 to the Group Financial Statements for futher details. 12 months ended 31 December 2016 Includes a commitment to spend $33m on the acquired UK portfolio (see note 11 to the Group Financial Statements for further details) within two and a half years of the acquisition date. Relates to the acquisitions of Regent and the UK portfolio (see note 11 to the Group Financial Statements for further details). 2016 $m 2015 $m 2016 vs 2015 % change 2014 $m 2015 vs 2014 % change Europe hotel and room count Total number of hotels 677 Total number of rooms 110,069 During 2016, Europe System size increased by 17 hotels (3,358 rooms) to 677 hotels (110,069 rooms). The Group opened 24 hotels (4,188 rooms) in Europe in 2016, compared to 36 hotels (5,493 rooms) in 2015. Seven hotels (830 rooms) left the Europe System in the period, compared to 23 hotels (2,990 rooms) in the previous year. Change over 2015 Change over 2015 Analysed by ownership type Europe pipeline Total number of hotels in the pipeline 137 Total number of rooms in the pipeline 23,954 The Europe pipeline totalled 137 hotels (23,954 rooms) at 31 December 2016, representing an increase of 24 hotels (3,422 rooms) over 31 December 2015. New room signings reached their highest level since 2007 with 60 hotels (9,554 rooms), an increase of 12 hotels (728 rooms) from the prior year. Signings included 17 hotels (2,790 rooms) in Germany, a record number of signings for the third year running and 12 hotels (1,952 rooms) in the UK. 12 hotels (1,944 rooms) were removed from the pipeline in 2016, compared to 13 hotels (1,694 rooms) in 2015. Change over 2015 Change over 2015 Analysed by ownership type Governance At IHG, we recognise the importance of maintaining the highest standards of corporate governance which supports our culture, our values and our commitment to conducting business responsibly. Good corporate governance underpins a successful business and recognises the importance of all stakeholders. The Board oversees the long-term strategic aims of the Group and is responsible for the leadership of the Group, ensuring our actions are in keeping with the strong ethics and values that shape our culture and deliver long-term, sustainable value for our stakeholders. Focus areas and activities During 2018, the Board and Executive leadership team worked together in a constructive and effective collaboration to develop our shared commitment to our strategy, with growth as the central focus. Our two day Annual Strategy Meeting concentrated on the competitive landscape and dynamics, our performance and progress against our growth plans, and the potential challenges ahead. During the year, the Board regularly reviewed progress against strategic and operational goals, ensured that risk management controls (in line with the Group’s risk appetite) were incorporated within key decisions and that the impact on key stakeholders was considered. Culture featured prominently on the Board agenda, as the Board believes that continuing to evolve our culture (and continuing to focus on diversity and the talent pipeline) is critical for the long-term. The increasing challenge posed by cybersecurity meant that the Board strengthened governance and oversight of cyber risk. The conclusions of an independent external assessment of vulnerabilities and cybersecurity maturity and a forward-looking action plan were presented to the Board, and regular Board updates provided. Other key focus areas in 2018 included (i) a review of changes in corporate governance regulations; (ii) compliance with the hosting and processing of personal data requirements under GDPR; and (iii) reporting and disclosure requirements to support greater transparency, including those relating to the UK Gender Pay Gap. Governance framework The Board delegates certain responsibilities to the Audit, Corporate Responsibility, Nomination and Remuneration Committees (the Principal Committees) to assist in ensuring that effective corporate governance permeates throughout the business. We have reviewed the new 2018 UK Corporate Governance Code (the 2018 Code) and The Companies (Miscellaneous Reporting) Regulations 2018, to determine how we can further enhance our governance processes. Our Principal Committees’ Terms of Reference have been amended and we are assessing processes to ensure effective Board engagement with our workforce. This work will continue into 2019 and we will report on our compliance with the 2018 Code next year. The Audit Committee has this year been focused on risk and assurance, given changes to the organisational structure and the programme of strategic initiatives, and overseeing the external audit tender process; the Corporate Responsibility Committee has been focused on the delivery of targets for 2018-2020 and the continuing development of our responsible business approach; the Nomination Committee has been focused on the composition and diversity of the Board and the continuing development of our diversity and inclusion framework; and the Remuneration Committee has been focused on ensuring that the delivery against our strategic objectives are appropriately incentivised. Board culture and composition We have a disciplined approach to Board composition to ensure that the Board collectively has the appropriate skills, competencies, diversity of style, gender and perspective, as well as geographical representation to effectively contribute and add value. Last year we identified the need to increase our US representation and appointed Elie Maalouf to the Board as a result. As Chief Executive Officer of the Americas, Elie is responsible for IHG’s largest operating region and details of the induction process for Elie can be found on page 62. Training, development and Board performance review The training and development needs of each Director are regularly reviewed. During 2018, Directors received training on a variety of topics, further details of which can be found on page 62. We continue to run our three-year Board evaluation cycle and in 2018, as part of our internal Board effectiveness review, we confirmed that the Board processes were operating effectively. We also conducted anotherpeer-to-peer Chair andNon-Executive Director assessment. Further details can be found on page 63. Compliance and our dual listing As a dual-listed company with a premium listing on the London Stock Exchange and a secondary listing on the New York Stock Exchange, we are required to file an Annual Report in the UK and a Form20-F in the US. To ensure consistency of information provided to both UK and US investors, we have again produced a combined Annual Report and Form Looking forward We recognise the importance of good corporate governance in 12 months ended 31 December 2016 2016 $m 2015 $m 2016 vs 2015 % change 2014 $m 2015 vs 2014 % change AMEA hotel and room count Total number of hotels 280 Total number of rooms 76,051 The AMEA System size increased by 13 hotels (3,478 rooms) to 280 hotels (76,051 rooms) as at 31 December 2016. Openings decreased by five hotels (2,139 rooms) to 17 hotels (4,473 rooms) in 2016. Four hotels (995 rooms) were removed from the AMEA System in 2016, compared to eight hotels (1,915 rooms) in 2015. Change over 2015 Change over 2015 Analysed by ownership type AMEA pipeline Total number of hotels in the pipeline 149 Total number of rooms in the pipeline 39,643 At 31 December 2016, the AMEA pipeline totalled 149 hotels (39,643 rooms) compared to 147 hotels (38,216 rooms) at 31 December 2015. Hotel signings in AMEA were at their highest since 2008 with 42 hotels (10,551 rooms), an increase of seven hotels although a fall in terms of rooms (1,890 rooms) from the level seen in 2015. Signings in 2016 included 23 hotels (5,934 rooms) in the Holiday Inn brand family and eight InterContinental hotels (1,737 rooms). 23 hotels (4,651 rooms) were removed from the pipeline in 2016, compared to eight hotels (1,959 rooms) in 2015. Change over 2015 Change over 2015 Analysed by ownership type b Includes five Holiday Inn Resort properties (1,256 rooms) (2015: four Holiday Inn Resort properties (1,071 rooms)). 2016 $m 2015 $m 2016 vs 2015 % change 2014 $m 2015 vs 2014 % change Greater China hotel and room count Total number of hotels 292 Total number of rooms 93,022 The Greater China System size increased by 27 hotels (7,513 rooms) in the year to 292 hotels (93,022 rooms). 29 hotels (7,938 rooms) opened during 2016, three hotels and 1,442 rooms lower than 2015. Recent growth in the region has focused on tier 2 and 3 cities, which now represent approximately 65% of our open rooms. 17 Holiday Inn brand family hotels (3,773 rooms) were also added in the year, compared to 19 hotels (4,567 rooms) in 2015. Two hotels (425 rooms) were removed in 2016 compared to eight hotels (2,065 rooms) in 2015. Change over 2015 Change over 2015 Analysed by ownership type Greater China pipeline Total number of hotels in the pipeline 239 Total number of rooms in the pipeline 64,028 At 31 December 2016, the Greater China pipeline totalled 239 hotels (64,028 rooms) compared to 205 hotels (58,784 rooms) at 31 December 2015. Signings (82 hotels (18,669 rooms)) were the highest since 2007 in terms of hotel count but decreased from 19,516 rooms in 2015. 63 hotels (13,472 rooms) were signed for the Holiday Inn brand family, including 20 franchised Holiday Inn Express hotels since launching the new franchise model in May. Overall, the Holiday Inn Express brand pipeline increased to 95 hotels (20,205 rooms). 19 hotels (5,487 rooms) were removed from the pipeline in 2016, compared to 18 hotels (5,690 rooms) in 2015. Change over 2015 Change over 2015 Analysed by ownership type b Includes six Holiday Inn Resort properties (1,820 rooms) (2015: three Holiday Inn Resort properties (820 rooms)). 2016 $m 2015 $m 2016 vs 2015 % change 2014 $m 2015 vs 2014 % change System Fund assessments Highlights for the year ended 31 December 2015 In the year to 31 December 2015, System Fund income increased by 7.2% to $1,573m primarily as a result of a 6.3% increase in assessment fees and contributions from hotels resulting from increased hotel room revenues, reflecting increases in RevPAR and IHG System size. Continued strong performance in co-branded credit card schemes drove the 13.3% increase in proceeds from the sale of IHG Rewards Club points. 2016 $m 2015 $m 2016 vs 2015 % change 2014 $m 2015 vs 2014 % change Patrick Cescau 18 February 2016 $m 2015 $m Total amounts committed Less than 1 year 1–3 years 3–5 years After 5 years We are committed to maintaining the highest standards of corporate governance. Our governance framework is led and The Board and its Committees The Board The Board is supported by its Principal Committees, namely the Audit Committee, Corporate Responsibility Committee, Nomination Committee and Remuneration Committee, to assist it in carrying out its functions, overseeing the delivery of strategic objectives and driving sustainable value for shareholders and considering the impacts on, and interests of, key stakeholders. Details of how Management Committees Operational matters, routine business and information disclosure procedures are delegated by the Board to Management Committees. The Executive Committee The General Purposes Committee is chaired by an Executive Committee member and attends to business of a routine nature The Disclosure Committee is chaired by the Group’s Financial Controller and ensures that proper procedures are in place for More information on our Board and Committees website atwww.ihgplc.com/investorsunder Corporate governance. Appointment date Committee appointments Audit Committee Corporate Responsibility Committee Nomination Committee Remuneration Committee Ian Dyson was unable to attend one Remuneration Committee meeting due to a prior commitment. Malina Ngai was unable to attend one Corporate Responsibility Committee meeting and one Remuneration Committee meeting due to a prior commitment. In principle the Chair attends all Committee meetings, and the full Board attends the relevant sections of the Audit Committee meetings when results and risk management processes and controls are discussed and considered. Corporate Governance continued Patrick Cescau Non-Executive Chair 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 Chair of Unilever PLC, Vice-Chair of Unilever NV and Foods Director, following a progressive career with the company, which began in France in 1973. Prior to being appointed to the board of Unilever PLC and Unilever NV in 1999, as Finance Director, he was Chair of a number of the company’s major operating companies and divisions, including in the US, Indonesia and Portugal. He was formerly a Senior Independent Director andNon-Executive Director of Pearson plc and Tesco PLC, and a Director at INSEAD. Board contribution:Patrick has held board positions for nearly 16 years in leading global businesses and brings extensive international experience in strategy, brands, consumer products, and finance. As Chair, Patrick is responsible for leading the Board and ensuring it operates in an effective manner, and promoting constructive relations with shareholders and wider stakeholders. As Chair of the Nomination Committee, he is responsible for reviewing and making recommendations on the Group’s leadership needs. Other appointments: Currently a Senior IndependentNon-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. Keith Barr Chief Executive Officer (CEO) Appointed to the Board: 1 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. In this role, he led IHG’s global brand, loyalty, sales and marketing functions, and oversaw IHG’s loyalty programme, IHG® Rewards Club. Prior to this, Keith was CEO of IHG’s Greater China business for four years, setting the foundations for growth in a key market and overseeing the launch of the HUALUXE® Hotels and Resorts brand. Board contribution: Keith is responsible for the executive management of the Group and ensuring the implementation of Board strategy and policy. Other appointments:Keith is a graduate of Cornell University’s School of Hotel Administration and is currently a member of its Cornell SC Johnson College of Business Dean’s Advisory Board. Paul Edgecliffe-Johnson Chief Financial Officer (CFO) 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 and Tax, and Head of Hotel Development, Europe. Paul also acted as Interim Chief Executive Officer of the Europe, Middle East and Africa region (prior to the reconfiguration of our operating regions). Board contribution: Paul is responsible, together with the Board, for overseeing the financial operations of the Group and setting its financial strategy. Other appointments:Currently aNon-Executive Director of Thomas Cook Group plc. Elie Maalouf Chief Executive Officer, Americas Appointed to the Board: 1 January 2018 Skills and experience: Elie was appointed Chief Executive Officer, Americas in February 2015, with nearly 15 years’ experience working in a major global franchise business. He joined the Group having spent six years as President and Chief Executive Officer of HMSHost Corporation, a global travel and leisure company, where he was also a member of the board of directors. Elie brings broad experience spanning hotel development, branding, finance, real estate and operations management as well as food and beverage expertise. Prior to joining IHG, Elie was Senior Advisor with McKinsey & Company from 2012 to 2014. Board contribution: Elie is responsible for business development and performance of all hotel brands and properties in the Americas region and brings a deep understanding of the global hospitality sector to the Board. Other appointments: Currently a member of the American Hotel & Lodging Association Executive Committee of the Board and the US Travel Association CEO Roundtable. Elie also sits on the Investment Advisory Council of the U. S. Department of Commerce. In addition, Elie serves as a member of the Global Advisory Council at the University of Virginia Darden School of Business and is a board member of the Atlanta Committee for Progress. Dale Morrison Senior IndependentNon-Executive Director (SID) Appointed to the Board: 1 June 2011 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. Dale’s role as Senior IndependentNon-Executive Director is fundamental to the successful operation of the Board. Other appointments:Currently aNon-Executive Director of International Flavors & Fragrances Inc., andNon-Executive Chair of Marlin 1 (holding company for Young’s Seafood International Holdings Ltd.). Anne Busquet IndependentNon-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. 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:Anne is currently the President of AMB Advisors, an independent consulting firm, and Managing Director at Golden Seeds LLC, an angel investment company. She also serves on the boards of Pitney Bowes, MTBC and Elior Group and on the advisory boards of JEGIand SheSpeaks. Ian Dyson IndependentNon-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 Board contribution:Ian has gained significant experience from working in various senior finance roles, predominantly in the retail, leisure and hospitality sectors. Ian became Other appointments:Currently aNon-Executive Jo Harlow IndependentNon-Executive Director Appointed to the Board: 1 September 2014 Board contribution:Jo has over 25 years’ experience working in various senior roles, predominantly in the branded and technology sectors. Jo became Chair of the Remuneration Committee on 1 October 2017, and as such she is responsible for setting the remuneration policy. Jo is also a member of the Nomination Committee. Other appointments:Currently a member of the Supervisory Board of Ceconomy AG, and aNon-Executive Director of Halma plc and J Sainsbury plc. Luke Mayhew IndependentNon-Executive Director Appointed to the Board: 1 July 2011 Board contribution:Luke has over 30 years’ experience in senior roles in the branded sector and was Remuneration Committee Other appointments:Currently a Senior Independent Director of DFS Furniture Jill McDonald IndependentNon-Executive Director Appointed to the Board: 1 June 2013 Board contribution:Jill has Other appointments:Currently Managing Director, Clothing, Home and Beauty, at Marks and Spencer plc. Malina Ngai IndependentNon-Executive Director Appointed to the Board: 1 March 2017 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 Chair of the Hong Kong Retail Management Association. Corporate Governance continued In addition to Keith Barr, Paul Edgecliffe-Johnson and Elie Maalouf, the Executive Committee from 1 January 2019 comprises: Chief Appointed to the Executive Committee: Claire has Key responsibilities:These include all aspects of our brands, loyalty strategy and programmes, sponsorships, strategic partnerships, insights and analytics and marketing execution. Jolyon Bulley Chief Executive Officer, Greater China Appointed to the Executive Committee: 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 and Marketing for Australia, New Zealand and South Pacific in 2003, relocated to Singapore in 2005 and held positions of Vice President Operations South East Asia and India, Vice President Resorts, and Vice President Operations, South East and South West Asia. Jolyon graduated from William Angliss institute in Melbourne with a concentration on Tourism and Hospitality. Key responsibilities:These include Yasmin Diamond Executive Vice President,Global Corporate Affairs Appointed to the Executive Committee: April 2016 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 communications, Yasmin was Publicity Commissioner for the 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 Chief Executive Officer, Appointed to the Executive Committee: Skills and experience: Ranjay Radhakrishnan Chief Human Resources Officer Appointed to the Executive Committee: December 2016 Skills and George Turner Executive Vice President, Appointed to the Executive Committee: January 2009 Skills and experience:George joined IHG in 2008 and spent a decade as IHG’s EVP, General Counsel and Company Secretary, with responsibility for corporate goverance, risk and assurance, corporate responsibility and information security. He is a solicitor and qualified to private practice in 1995. Prior to joining the Group, George spent over 10 years with Imperial Chemical Industries PLC, where he held Changes to the Executive Committee Nicolette Henfrey Executive Vice President, General Counsel and Company Secretary Appointed to the Executive Committee: February 2019 (joined the Group: 2001) Skills and experience: Nicolette joined IHG in 2001, and was appointed Deputy Company Secretary in August 2011, during which time she worked very closely with the Board, Executive Committee and wider organisation to ensurebest-in-class delivery and compliance across our legal and regulatory areas. Nicolette is a solicitor and prior to joining IHG worked for Linklaters in London and Findlay & Tait (now Bowman Gilfillan) in South Africa. She will be appointed as Company Secretary from 1 March 2019. Key responsibilities: These include overseeing our approach to corporate governance, risk management, insurance, regulatory compliance, internal audit, legal Eric Pearson Corporate Governance continued The discussed technological agility and The Board held eight scheduled meetings during the year, and individual attendance is set out on page Time is set aside at the start and end of During 2018, the Board Area of discussion Discussion topic Area of discussion Discussion topic Investor relations, stakeholder engagement and communications Annual Strategy Meeting – March 2018 The Board The 2018 Annual Strategy Meeting was held in London and the priorities for the Group. This assessment led to a discussion regarding the priorities for the Group going forward and in particular, on all of the initiatives supporting the continuation and delivery of our continued ambition for growth. Each Board member received a full briefing in advance of the Annual Strategy Meeting to ensure they had the time to reflect on the key information ahead of engaging in the We The Board’s engagement with shareholders The SID 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 To enable as many shareholders as possible to access conferences and presentations, telephonedial-in facilities Governance Corporate Governance continued Engagement with stakeholders continued in advance and live audio webcasts AGM The AGM is an opportunity for shareholders to vote on certain aspects of Group The General Meeting A General Meeting was held on 11 January 2019 to consider the consolidation of IHG’s share capital and seek authority to purchase our own shares. Shareholders were encouraged to attend and participate in this meeting and all resolutions were passed. Further details can be found atwww.ihgplc.com/investors under Shareholder centre in the AGMs and meetings section. Shareholder services Stakeholder engagement During the year, the Board also engaged with a number of our key stakeholders, including: In addition, members of Director induction, training and development New Director inductions All new Directors, upon appointment, undergo a comprehensive and formal induction programme which is tailored to Elie Maalouf was appointed an Executive Director on 1 January 2018. Having been Chief Executive Officer of the Americas since February 2015, Elie already had a thorough understanding of the Group’s business model and strategies and had already participated in a number of Investor Relations events. 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: Ongoing Director training and development We believe that an ongoing and progressive training programme enables all Board members to fully understand the Group’s business and operations and how it interacts with the ever changing external landscape. The Chair continues to review the training and development needs with each Director on a regular basis and the Board is made aware of training opportunities. Board and Committee meetings are regularly used to update Directors on developments in the environment in which the business operates andin-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. Focus trends and areas in 2018 included corporate governance changes, consumer and technology developments and information security and cybersecurity trends and developments. In addition, Directors are encouraged to attend external training events to update their skills and knowledge. Board meetings continue to be held at IHG Board effectiveness evaluation Board performance 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. In accordance with the Code, we rotate a three-year Board evaluation cycle with an external Board evaluation taking place every three years. Dr Tracy Long of Boardroom Review Limited, an external facilitator with no connection to IHG, completed our external evaluation in 2016. The intention is to complete the next external evaluation in 2019 and therefore during 2018, the Board completed an internal evaluation. The evaluation this year was conducted by the Chair and the SID through a confidential, structured interview process. The key topics covered in the evaluation included: The feedback from Executive Directors about the Board’s performance was incorporated into the assessment process. Following the analysis of the results, it was concluded that the Board operates effectively, with high levels of engagement and participation as a Board, good interaction with all members of the Executive Committee and an open and transparent relationship with management below the Executive Committee level. The Board concluded that the topics covered in the agenda items over the year were well balanced, giving the Board an appropriate overview of the key items facing the business, supporting regular and engaged discussion and enabling the Board to monitor the progress against delivery of the Group’s strategic objectives. This is also bolstered by thetwo-tiered approach to the agenda focussing on operational and strategic objectives both for the short and longer term. Cybersecurity, talent, diversity, consumer-facing digital trends and maintaining pace with the changing competitive landscape were identified as areas for continued focus. The Board also concluded that the Principal Committees continued to bewell-led, highly engaged and effective. Directors’ performance evaluation In addition to the Board evaluation process outlined above, internal performance evaluations of Directors were undertaken during 2018 in order to enhance the accountability and effectiveness of each Director. Feedback was collected for each Director’s peer review by the Chair and SID through an interview format, with a mix of structured interview questions and a more open-ended discussion. Board members were asked to provide comments on their fellow Directors’ preparedness, contribution, strengths and weaknesses, industry and company understanding and opportunity for development. The summary of the feedback was reviewed by the Chair and the SID before being communicated to each Director. The assessment of the performance of the Chair was led by the SID. The Chair’s evaluation consisted of interviews with theNon-Executive Directors, discussing: The CEO evaluation was led by the Chair in a process involving all Directors by means of a structured interview process. Key areas of focus included: The length of tenure ofNon-Executive Directors continues to be reviewed as part of the Directors’ performance evaluation process. Both Luke Mayhew and Dale Morrison have served on the Board for more than six years and, as such, were subject to particular review. It was concluded that both Luke and Dale continue to contribute effectively and to demonstrate commitment to the role including devoting the necessary time. Directors’ additional appointments and time commitments also form part of the internal performance evaluation process. Any potential additional appointments are thoroughly discussed with the Chair before being accepted, with the time commitment required for each role being carefully assessed. During 2018, particular attention was paid to Ian Dyson, Anne Busquet and Jo Harlow’s commitments, as well as Paul Edgecliffe-Johnson’s time commitment to hisNon-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, but add value to their perspective and ability to constructively challenge management. As a result, it was concluded that all Directors continue to perform their duties effectively, dedicating sufficient time to the Company to discharge their responsibilities effectively. Governance Corporate Governance continued The Committee continues to play a key role within IHG’s corporate governance framework, supporting the Board in matters relating to internal control, risk management and financial reporting. Key duties and role of the Committee Key objectives and summary of responsibilities The Audit Committee The Committee’s role, responsibilities and The Committee’s key responsibilities and focus over the year have been: The ToR are available Membership and attendance at meetings Details of the Committee’s membership and attendance at meetings are set out on page Non-Executive Reporting to the Board Following each Committee meeting, the Committee Chair updates the Board Effectiveness of the Committee The effectiveness of the Committee is monitored and assessed regularly by the Focus areas and activities 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 The Committee recognises the importance of understanding changes in accounting policies and practice, and The Committee continued to The Committee received early drafts of the Annual Report and Form20-F The Committee 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. Significant matters in the 2018 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 Issue/Role of the Committee Conclusions/Actions taken Accounting for the System Fund Given significant changes to the In forming a conclusion on the appropriateness of the System Fund accounting the Committee met with senior finance management to review and evaluate the At each Committee meeting the Committee reviewed the status and results of Accounting for IHG Rewards Club With the adoption of IFRS 15 the accounting for the IHG Rewards Club In forming a The Committee further reviewed the 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 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 At each meeting during the year, the Committee considered a report detailing all material litigation Exceptional items The Group exercises judgement in presenting exceptional items. The Committee reviews and challenges the classification of items as exceptional based on their materiality or nature. The Committee considered the consistency of the treatment and nature of items classified as exceptional over the last five years and discussed the items disclosed as exceptional. The Committee reviewed and challenged the significance, timing and nature of the exceptional items disclosed in note Acquisitions of Regent and UK portfolio Acquisition accounting involves judgement in establishing the fair values of The Committee considered the Governance Corporate Governance continued Audit Committee Report continued Internal control and risk management The Board is responsible for determining the nature and extent of the principal risks it is willing to take in achieving its strategic objectives and ensuring that sound risk management and internal control systems are maintained, with an appropriate culture embedded throughout the organisation. The Committee supports the Board by 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: As part of the Committee’s review of the internal control and risk management systems, key financial, operational and compliance controls across the business continue to be monitored and tested throughout the year. The Committee assesses the approach to Sarbanes-Oxley Act 2002 (SOX) compliance in accordance with our US obligations and reviews reports on the progress of the SOX programme at each meeting. The Committee considers the Group’s treasury and tax strategy policies annually and, during 2018 approved changes to the Group Treasury Policy and the Group’s published ‘Approach to Tax’. Our Approach to Tax document is available at Having reviewed the internal control and risk management systems throughout the year, the Committee concluded that the Group has an effective system of risk management and internal controls, and that there are no material weaknesses in the control environment and no significant failings or weaknesses. Principal risk areas The Committee has a schedule forin-depth reviews into specific principal risk areas over the year, in addition to the regular risk management review. During 2018, the Committee considered in particular: Further details of our principal risks, uncertainties and review process can be found on pages 26 to 30. Relationship with external auditor A detailed audit plan was received from EY at the beginning of the audit cycle for the The Committee regularly reviewed the significant audit risks Non-audit services The independence and objectivity of thenon-audit services provided by EY to the Group are safeguarded by IHG’s Audit andNon-Audit ServicesPre-Approval Policy. The policy is reviewed by the Audit Committee annually, and The policy requires thatpre-approval is obtained from the Audit Committee for all services provided by the external Auditor before any work can IHG is committed to maintainingnon-audit fees at a low level and During 2018, an Audit Quality Review Team from the FRC undertook an inspection of EY’s audit of the Group’s 2017 Financial Statements. As part of that process, the Committee Chair shared his and the Board’s view of the quality of the EY audit. The Committee considered the final inspection report, which did not raise any significant findings, and discussed the results and agreed actions with the lead audit partner. The Committee agreed with the overall assessment which was consistent with its own view of the quality and effectiveness of the external audit. Risk and Assurance – Internal Audit The Committee discusses such as the hotel control environment and approach to regulatory compliance. Following consideration, the Committee Governance and The Committee is responsible for reviewing the Group’s Code of Conduct (which is reviewed and approved annually) and related policies. In Whistleblowing The Committee regularly reviewed the Group’s In preparation for the Looking forward During 2019, the Committee will Ian Dyson Chair of the Audit Committee External auditor – Appointment of Ernst & Young LLP (EY) and audit tender The Committee assessed EY’s performance during the year, including its independence, effectiveness and objectivity, and considered the appointment of its external Auditor, including the requirements for putting the audit out to tender as set out in EU and Competition and Markets Authority legislation. After due consideration, the Committee recommended there-appointment of EY as the Auditor of the Group. EY has been our Auditor since IHG’s listing in April 2003 and of the Group’s predecessor businesses dating back to 1988. As part of its annual review, the Committee determines the independence of the external auditor, considering, among other things, its challenge to management and level of professional scepticism, the amount of time passed since a rotation of audit partner and the level ofnon-audit work that it undertakes, details of which can be found on page 66. 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 2018. There was a new UK audit manager during the year. Another part of the Committee’s annual review, completed by the Committee, is to consider the effectiveness of the relationship between EY and management. This included the completion of feedback questionnaires by the Committee members and 54 senior IHG employees. Feedback was requested on a number of topics including independence, assignment management and communication. The Committee also received reports from EY on its independence. No significant issues were raised in the annual review of the auditor performance and effectiveness and, as a result, the Committee concluded that EY continues to provide an effective audit and maintain independence and objectivity. The Committee is satisfied with the external audit process as a whole and therefore recommended the reappointment of EY to the Board. During 2018, tender participants have been selected, and the design of the selection criteria has been established. In addition, apre-approval process fornon-audit services provided by the participant firms has been agreed and the identification process of currentnon-audit services has been completed. Lead partners from the participating firms have been selected and the publicly available audit quality inspection reports, in both the UK and the US, have been reviewed and the implications for the audt tender considered. The ‘Statutory audit services market study’, published by the Competition & Markets Authority, and the report issued by Sir John Kingman, have both been reviewed with adjustments made to the tender plan where appropriate. The audit tender will launch in the second quarter of 2019. To ensure each firm has the right level of information, a data room will be established and work is already underway to determine which items are being included in the data room. Each firm will participate in a series of management meetings, with the objective that they will build their best proposition. The tender process for strictly prohibited services will be run after the external audit tender, to allow sufficient time to select new providers and transition services to another firm. Thesub-committee will oversee the plan to manage the transition of these services. 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 ofnon-audit services. Corporate Governance continued Corporate Responsibility Committee Report 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 impact on the environment, social, community and human rights issues, its approach to sustainable The Committee’s role, responsibilities and The ToR are available atwww.ihgplc.com/investors under Corporate governance in the Committees section. The Committee’s key responsibilities and focus areas over the year have been: Membership and attendance at meetings Reporting to the Board The Committee Effectiveness of the Committee The effectiveness of the Committee is monitored and assessed regularly by the Focus areas and activities The Committee Responsible Business targets for 2018-2020 During 2018 the Committee Further information on our responsible business programmes and our approach to human rights can be found on pages 22 to 25. Stakeholder engagement The Committee assessed the Group’s stakeholder engagement activity, focusing this year on the approach to charity partnerships and engagement with local community organisations, and also supported the recommendation to transition theon-going support of the IHG Foundation (see page 24), in favour of the True Hospitality for Good programme. Looking forward We continue to recognise the importance of environmental, social and governance considerations to all our stakeholders and we are committed to delivering against our Responsible Business targets through our programmes and initiatives. Jill McDonald Chair of the Key duties and role of the Committee Key objectives and summary of responsibilities The The Committee’s role, responsibilities and The ToR are available The Committee’s key responsibilities and focus areas during the year have been: Membership and attendance at meetings 55. All members Reporting to the Board The Committee makes recommendations to the Board for all Effectiveness of the Committee The effectiveness of the Committee is monitored and assessed regularly by myself, as Focus areas and activities Board and Committee composition Leadership development and executive succession planning During the year, the Committee continued to review the development plans for the Executive Committee and senior management positions in order to ensure the development of a diverse pipeline for succession. An assessment of our senior leaders was completed in 2018 and presented to the Committee for discussion and consideration as part of a regular review of succession planning. UK Corporate Governance Code changes and workforce engagement The Committee reviewed the Diversity With a presence in more than 100 countries globally, we Following the establishment of the Diversity and Inclusion Board (D&I Board) last year, we continue to We continue to deliver against our D&I Policy and are committed to our 2018-2020 Responsible Business Diversity target, as noted on page 23. As of 31 December 2018, 36% of the Board were female and two of our Principal Committees are chaired by women. In addition, 41% of senior operational leaders are now women, indicating our continued commitment to Looking forward The Committee Patrick Cescau Chair of the Nomination Committee 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 This should be read in conjunction with the The Board considers that the Group has complied in all material respects with the Code for the year ended 31 December A. Leadership The role of the Board The Board The Board met eight times this All Directors are covered by the Group’s directors’ and officers’ liability insurance policy (see page Divisions of responsibility The separate roles of the Chief Executive Officer The As well as building and maintaining an effective Board, Patrick Cescau leads the operation and governance of the Board and its Committees. The Non-Executive Directors Senior Independent Non-Executive Director Dale Morrison was appointed as Senior Independent Non-Executive Director on 31 May 2014. He is available to liaise with shareholders who have concerns that they feel have not been addressed through the normal channels of the After each Board meeting, Non-Executive Directors and the Further information on each of these roles can be found on our website atwww.ihgplc.com/investors under Corporate B. Effectiveness The 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. Details of the skills and experience on the Board can be found on page 56 and 57. Potential conflicts of interest are reviewed Appointments The Nomination Committee leads the appointment of new Directors to the Board and senior executives in accordance with its Terms of Reference (available on our website atwww.ihgplc.com/investorsunder 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 Commitment Non-Executive Director terms of appointment outline IHG’s time commitment expectations required to fulfil their role. Executive Directors are not permitted to take on more than one external non-executive directorship or The Development The Information and support The Evaluation Re-election All of the Directors retire and seek election or re-election at each AGM. Performance evaluations of all Directors, including the Chair, are carried out on an annual basis. Directors’ biographies are set out on pages C. Accountability Financial and business reporting The Statement of Directors’ Responsibilities (including the Board’s statement confirming that it considers that the Annual Report and Form 20-F, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s position and performance, business model and strategy) is set out on page The status of IHG as a going concern is set out in the Directors’ Report on page The statement from our Auditor, Ernst & Young LLP, about its reporting responsibilities is set out on pages Risk management and internal control The Board determines the nature and extent of the risk the organisation is willing to take in achieving its strategic objectives. A robust assessment of the principal risks facing the Group was carried out, including those risks that would threaten the Group’s business model, financial performance, solvency or liquidity (see pages 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 FRC guidance on risk management, internal control and related financial and business reporting. Further details are set out in the Strategic Report on pages Details of the Directors’ assessment of the prospects of the Group are set out on page Audit Committee and Auditor The Audit Committee is comprised entirely of Independent Non-Executive Directors (see page The Committee D. Remuneration The level and components of remuneration The Remuneration Committee’s activities during The Information on Paul Edgecliffe-Johnson’s appointment as a Non-Executive Director of Thomas Cook Group plc is set out on page 81. Procedure The Remuneration Committee is responsible for developing policy on executive remuneration and fixing remuneration packages of Directors. Further details are set out on During E. Relations with shareholders Dialogue with shareholders The Board engage actively with both institutional and retail shareholders to promote mutual understanding of objectives and ensure that their views are communicated to the Board as a whole. The Board also strives to understand the views of other key stakeholders and these are considered in board discussions and decision-making. See Constructive use of the AGM The AGM is a key opportunity for the Board to engage with Shareholders. The Notice of Meeting will be sent to shareholders and will be available 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 Remuneration at IHG – the wider context Governance Directors’ Remuneration Report Remuneration Committee Chair’s statement We will review our Directors’ Remuneration Policy 2018 results 2018 saw a year of positive performance for IHG, in which our new regional operating structure was embedded and our programme of savings and reinvestment began to deliver results. Above target performance was delivered in respect of EBIT and net system size growth and excellent progress was made on our strategic objective to deliver annual cost savings of $125m by 2020. As a result, awards for the Executive Directors under the 2018 Annual Performance Plan (APP) were 84.1% of their respective maximum potential payouts. The 2016/18 Long Term Incentive Plan (LTIP), granted in 2016, vested at a level of 45.4% of the maximum potential award as a result of achievements in relative Total Shareholder Return and rooms growth. However, the three-year RevPAR performance fell short of threshold. As noted in last year’s report, the 2018/20 LTIP cash flow target is disclosed in this report on page 83. Changes to the Board and Executive Director responsibilities Elie Maalouf was appointed to the Board on 1 January 2018. The remuneration arrangements for Elie were determined in accordance with our approved Directors’ Remuneration Policy (DR Policy). Looking forward, as we continue to embed structural changes in the business, the roles of two of our Executive Directors are being expanded to generate greater impact. In addition to his duties as Chief Financial Officer, Paul Edgecliffe-Johnson will take ownership of Strategy, including our ongoing programme of savings and reinvestment. Elie Maalouf will take accountability for Global Customer Development, providing oversight of the Global Sales organisation, as well as our owner management and services strategy, in addition to his position in our largest region as Chief Executive Officer, Americas. The additional compensation for these expanded roles is explained on page 83. Other areas of focus for the Remuneration Committee Matters discussed by the Remuneration Committee in 2018 included ongoing reviews of existing incentive schemes and measures; an overview of the Company’s international mobility policy; and the introduction of an employee share plan, which will extend the alignment of employee and shareholder experience throughout IHG’s corporate employee population. Given the continued importance of growth and the reinvestment of achieved savings targets, the strategic measures which make up 30% of the short-term growth incentive plan target for Executive Directors will remain as in 2018. The annual System size growth measure in the APP focuses on key short-term growth targets and supplements the longer-term aims encompassed in the separate rooms growth target under the LTIP. LTIP measures and weightings for the 2019/21 cycle remain as per the 2018/20 cycle and details, including the prospective disclosure of the cash flow target for the 2019/21 cycle, are shown on page 83. The Committee also commenced a detailed review of the DR Policy during 2018 in light of our renewed focus and the increased pace with which we are executing our strategy to deliver high-quality, sustainable growth and superior returns for shareholders. We must ensure that remuneration drives the right behaviours and actions; is structured to sufficiently reward the achievement of our most important and stretching strategic goals; and incentivises senior executives to stay with IHG and successfully drive our growth ambition. As a UK listed company, we must also consider Government and stakeholder engagement and a newly revised Corporate Governance Code (the new Code). As guidance and practice continue to evolve in this area, we will take all factors together as we continue our review into 2019 and put our DR Policy to shareholders in 2020. In terms of the remuneration aspects of the 2018 Code, we explain on pages 74 to 77 how some of the new responsibilities have already been undertaken by the Committee as part of our existing approach to remuneration governance and good practice; and how we will extend our remit to embrace other important areas of change, such as the review of wider workforce remuneration policies and practices, and take these into account in setting executive remuneration. In respect of compliance with specific provisions of the 2018 Code, we have not historically included a mandatory holding period following the three-year performance period and vesting of LTIP shares. This is in line with the practice of our main competitors in the US, where both performance and longer-term vesting conditions are also less common. However, we note that the new Code and related guidance from UK stakeholders set out an expectation of a five-year period between the grant and release of LTIP shares. As such, under the terms of the existing DR Policy, the Committee has determined that a two-year post-vest holding period will apply for Executive Directors in respect of the 2019/21 LTIP cycle. Future policy in this area will be addressed as part of our 2019 review. Further details of our current position in relation to key aspects of the 2018 Code, including shareholding guidelines and requirements during and after employment and IHG’s UK pension benefit structure, are shown in the ‘Wider context’ section on pages 74 to 77. As mentioned last year, now that the statutory calculation is known, this section also includes the CEO Pay Ratio data for IHG in the United Kingdom. About this report We The full DR Policy is available atwww.ihgplc.com/investorsunder Corporate governance and was approved at the Annual General Meeting (AGM) on 5 May 2017. The How to use this report Within the Directors’ Remuneration Report we have used colour coding to denote different elements of remuneration. The colours used and the corresponding remuneration elements are: 50% cash and 50% deferred shares Audited information Content contained within a tinted panel highlighted with an ‘Audited’ tab indicates that all the information within the panel is audited. The The table below shows the Keith Barra, Chief Executive Officer Value (£000) Elie Maalouf, Chief Executive Officer, Americas Value (£000) Key for potential Maximum = Fixed pay and maximum award under APP and LTIP Target = Fixed pay and on-target award for APP (115%) and 50% of maximum LTIP vesting Minimum = Fixed pay The 2018 and Directors’ Remuneration Report Remuneration at IHG – the wider context Remuneration Committee remit The Committee has reviewed wider workforce remuneration and related policies on an ad-hoc basis. For example, given our global scale and growth agenda, the Committee reviewed IHG’s updated International Mobility policy during 2018. This is an important aspect of remuneration for our globally mobile population as we develop the skills and experience of our employees working in specialist functions around the world. During 2019, the Committee will commence a formal rolling programme of reviewing all aspects of remuneration and related policies for the wider workforce in terms of alignment with executive remuneration and IHG’s culture, values and strategy. Remuneration Committee The Committee has historically taken a wider view of the remuneration matters that it considers necessary to carry out its role in relation to executive pay than has been required under the 2018 Corporate Governance Code (the new Code). The new Code, issued in the summer of 2018, puts more formal obligations on the Board and its Committees in respect of remuneration and wider employee relations and employment practices. The accountability for some of these responsibilities, such as the review of workforce remuneration and related policies and the setting of remuneration for the Executive Committee, will be with the Remuneration Committee. Indeed, the Committee already has the latter responsibility at IHG. We show in this section some of the relevant remuneration governance topics already addressed by the Committee, as well as selected topics that will be addressed as we review the DR Policy this year. Compliance with Corporate Governance Code The existing approved DR Policy is already in line with a great majority of the new Code in relation to remuneration. Our policy on long-term incentives does not currently impose a compulsory holding period for shares which vest after the three-year performance period. As explained on page 75, the Committee has determined that a two-year holding period will apply for Executive Directors in respect of the 2019/21 plan cycle. On pensions, our current Directors’ Remuneration Policy, supported by shareholders in 2017, provides for Executive Director pension contributions of up to 30%. The current CEO has received a company pension contribution of 25% since appointment in 2017. The CFO has volunteered to receive a pension contribution reduced from 30% to 25% of salary, effective April 2019. Following the recent guidance given in the new Code and subsequent input from other external stakeholders, the Committee will review Executive Director pension provision as part of the wider review of the Directors’ Remuneration Policy taking place in 2019. 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 the current contribution rates Maximum matching contribution (up to %) 30 (25 for new CEO and 25 for CFO from April 2019) Corporate bands 6–8 and hotel employees Figures based on a Pensions Commission study carried out in 2014. This shows that, although the recommended salary replacement ratio in retirement is lower for high earners (50% of pre-retirement salary vs 80% in the Long term incentives – vesting and holding period The new Code includes a provision that shares earned under long term incentive plans, such as our LTIP, should be subject to a total vesting and holding period of five years or more. Under our existing DR Policy, LTIP shares are granted subject to performance conditions measured over a period of at least three years, and the The Committee has the discretion under both the short and long-term incentive arrangements to override formulaic outcomes. 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. Malus and clawback Provisions are in place to withhold or recover sums or share awards under specific circumstances in which it would be appropriate to do so, including misconduct likely to result in significant reputational damage to the Company, a Shareholding post-cessation of employment Prior to the introduction of post-employment shareholding requirements under the new Code, we introduced a condition under our DR Policy for the full guideline minimum shareholding requirement to continue for six months after cessation of employment and 50% of the requirement to continue for an additional six months. We will further consider our Executive Director shareholding requirements in light of the new Code and developing practice and guidelines as part of the review of our DR Policy in 2019. Wider workforce remuneration and policies 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. There is a strong alignment at all levels 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. All employees are rewarded for meeting objectives aligned to our strategy, although the mix and weighting of particular objectives may differ depending on an individual’s role or grade. Our Strategic Model (pages 18 to 20) and Key Performance Indicators (pages 31 to 35) have 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, for example net system size growth is a measure under all corporate employees’ short-term incentive plans; Stretching and measurable targets for all performance conditions reward employees for the successful delivery of the objectives set by the Committee. Details of those set in respect of Executive Directors’ 2018 remuneration are shown in the ‘At a glance’ section on page 73 and measures for 2019 incentive plans are covered on page 83; A range of strategic metrics is set each year, which can reduce annual incentive payouts if minimum conditions are not met. For 2018, at least 4 out of 10 global metrics had to be achieved before the net system size growth achievement could be counted for short-term incentive plan purposes; and Additional measures are in place to ensure poor performance is not rewarded, such as payout restrictions based on Governance Directors’ Remuneration Report Remuneration at IHG – the wider context continued CEO Pay Ratio disclosure As mentioned in last year’s Annual Report, although it is not yet compulsory to include a CEO Pay Ratio in the Annual Report on Directors’ Remuneration, now that the statutory calculation method has been set out in legislation, we include this below. Whilst this information may add value to the Committee over time, ratios will differ significantly between companies, even within the same industry, depending on demographics and business model. For example, our ratio may differ from other leisure and hospitality companies which do not follow the same largely franchised UK business model under which the majority of hotel employees are not directly employed by IHG. The 2018 ratio will also be impacted by the CEO’s LTIP award, as this was originally granted in 2016 in respect of his prior role and salary. What drives the difference in pay between our CEO and other employees? Pay ratios reflect how remuneration arrangements differ as responsibility increases for more senior roles within the organisation, for example: Financial year ending 31 December 2018 Identifying percentile UK employees Option C has been selected for the identification of the percentile employees as, under this method, we are able to produce the most accurate total remuneration figure for all UK employees on a basis comparable with the statutory reporting for Executive Directors and using the data available at the time of producing the Annual Report. Specifically, this involves: Calculating the pay ratio Option C requires three UK employees to be identified as the equivalent of the 25th, 50th and 75th percentile. Having identified these employees, the 2018 total remuneration is calculated on the same basis as the CEO single total figure of remuneration. The only exception being that the Overall Performance element of the APP bonus applicable to the relevant employees is assumed to be the respective target value, as the actual value is not known at the time of producing the Annual Report. The 2018 salary and benefits figures for the percentile employees included in the above ratios are: Alignment of incentives with business strategy and culture Link to strategy Remuneration outcomes at IHG are linked to our strategic business objectives, which are focused on the delivery of 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. The ‘At a glance’ section of this report shows the outcomes for 2018 and the link between performance outcomes and pay for this year. The link to our Strategic Model for each measure linked to remuneration outcomes in 2018 is shown below: Savings for reinvestment Optimise our preferred portfolio of brands for owners and guests Culture and behaviours Remuneration structures are designed to provide a link between an individual’s contribution and the organisation’s culture and values as well as its strategic aims, while providing the flexibility to keep pace with IHG’s changing priorities: All corporate employees are eligible for a bonus and a significant proportion (up to 40%) of the target award for employees below the Executive Committee is based on an Overall Performance measure aligned to strategic goals, behaviours and personal development; and Overall Performance achievements are also a key driver in the consideration of salary increases for all employees. In addition, a global employee recognition programme enables colleagues to recognise and reward each other for achievements which exemplify either our values or the cultural behaviours necessary to underpin the Company’s long-term success. Diversity and inclusion We have a global diversity and inclusion strategy, led by a Global Diversity and Inclusion Board (D&I 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 D&I Board. In addition to these focused efforts to create value for IHG through increased diversity and inclusion, it is the Company’s policy to comply with international, national and local regulatory requirements and, where required, take any affirmative action as stipulated by local laws. In respect of remuneration, this includes undertaking the UK Gender Pay Gap analysis. Governance Directors’ Remuneration Report continued Annual Report on Directors’ Remuneration This Annual Report on Directors’ Directors’ Remuneration Policy (DR Policy) was implemented in and the resulting payments each of the Executive Directors received. This report is subject to an advisory vote by shareholders at the 2016 £000 2016 £000 2015 £000 2014/16 £000a Single total figure of remuneration – Executive Directors Executive Directors 2016/18 cycle (value of shares) £000 Figures for 2017 figures for There is no comparative data for Elie Maalouf is paid in Notes to single figure table Fixed pay Keith Barr and Paul Edgecliffe-Johnson did not participate in any IHG pension plan in Sterling values have been calculated using an exchange rate of $1=0.75 Other:Keith received a lump sum of £500,000 in July 2017 and a further £150,000 in July 2018 to Variable pay Operation Award levels Net system size growth was also dependent on achieving at least 4 out of 10 of the global metrics for 2018. The threshold award was subject to Outcome for The performance measures for the APP Actual Actual EBIT is operating profit Operating profit (at actual exchange rates) $815.5m Awards for Executive Director Salary as at 31 December £000 Salary as at £000 Award as % of salary Elie Maalouf is paid in US dollars and the sterling equivalent is calculated using an exchange rate of $0.75 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 Starwood was retained as a The share price Outcome for The performance measures for the Directors’ Remuneration Report continued Annual Report on Directors’ Remuneration continued AUDITED LTIP Net rooms supply and RevPAR growth were measured by reference to the three years ending 30 September The share price of 4,193p used to calculate the 2016/18 LTIP cycle value shown in the single-figure table is the average over the final quarter of 2018. Executive Director Total value of award £000 aGranted prior to appointment to the Board. Other outstanding awards During 2017, awards were granted under the 2017/19 LTIP cycle and made to each Executive Director over shares with a maximum value of 205% of salary using the closing mid-market share price in the table below. These are in the form of conditional awards over Company shares and do not carry the right to dividends or dividend equivalents during the vesting period. Executive Director Award date Maximum shares awarded Market £ Face value of award Number of shares 2017 2017 2017 Keith Barr received an increased award, pro-rated from 1 July 2017, for the 2017/19 LTIP in accordance with the DR Policy £42.57 per share. Market £ Number of shares if minimum The vesting date for these awards is the day after the announcement of our Annual The performance measures are as agreed in the AUDITED During Market £ Number of shares if minimum Market price £ Face value of award at grant The vesting date for these awards is the day after the announcement of our Annual The performance measures are as agreed in the 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. 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. Percentages are calculated using the number of shares held outright and the 31 December 2018 share price of 4,237p. From 2018, the full guideline shareholding requirements continued for six months, and 50% of the requirements for a further six months, post-cessation of employment. Shares and awards held by Executive Directors as at 31 December 2018: % of salary In line with Policy, Keith Barr’s and Elie Maalouf’s shareholding requirement are 300% and 200% of salary respectively, and they are required to meet this within five years of appointment. They are expected to hold all shares earned (net of any share sales required to meet tax liabilities), until the shareholding requirement is achieved. Paul Edgecliffe-Johnson sold shares on 9 August 2018 at a share price of £47.00, and at the time held in excess of the 200% shareholding requirement. The share price at 31 December 2018, used for this calculation, has resulted in the below minimum shareholding requirements. 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 Shares and awards held by Executive Directors as at 31 December Number of shares held outright APP deferred share awards LTIP share awards Total number of shares and awards held No Executive Director is entitled to any Defined Benefit pension or related benefit from IHG. Payments to past Directors – benefits Sir Ian Prosser Sir Ian Prosser, who retired as a Director on 31 December 2003, had an ongoing healthcare benefit of Other information relating to Directors’ remuneration Non-executive directorships of other companies Paul Edgecliffe-Johnson has This appointment is permitted under the £000 £000 benefit £000 £000 £000 £000 78. No Fees (£000) Total (£000) Non- Executive Director Committee appointments Non-Executive Director Service contracts and notice periods for Executive Directors A final dividend for 2017 of An interim dividend of 27.7p per ordinary share (36.3¢ per ADR) was paid on 5 October 2018 to shareholders on the Register of members at the close of business on 31 August 2018. 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 2018, assuming dividends are reinvested, compared with the TSR performance achieved by the FTSE 100 and global hotels indices. All indices are shown in sterling. This data is sourced directly from Thomson Reuters Datastream by Bank of America Merrill Lynch for IHG. Chief Executive The table below shows the Chief Executive Officer’s single figure of total remuneration for the 10 years to 31 December 2018. For Keith Barr, the 2017 figure, in respect of the period 1 July to 31 December 2017, includes a one-off cash payment for relocation costs in lieu of benefits received whilst on international assignment prior to CEO position, fully explained in the 2017 report. For Richard Solomons, the 2014 figure includes a one-off cash payment in respect of pension entitlements which was fully explained in the 2014 report. In respect of period 1 January to 30 June 2017. Percentage change in remuneration of Chief Executive Officer We believe that a group comprised of UK-based employees is an appropriate comparator for salary and taxable benefits because the structure and composition of remuneration for that group most closely reflects that of the UK-based Chief Executive Officer. The table below shows the percentage change in the remuneration of the Chief Executive Officer compared with UK employees between 2017 and 2018. The salary figure for the UK employee population has been calculated using the 2018 budget for the annual pay review, taking into account any promotions/market adjustments made during the year. The taxable benefits figure is based on P11D taxable benefits for tax years ending 5 April 2017 and 2018 and therefore relates to Richard Solomons, as no comparative data is available for Keith Barr. For the annual incentive, a group of executives, who report directly to the CEO, is used as a comparator group as they are subject to the same performance measures as the CEO. The chart below sets out the actual expenditure of the Group in 2018 and 2017, showing the differences between those years. Further information, including where 2017 figures have been reinstated, can be found on the Group Financial Statements starting on page 96 and the accompanying notes. For 2017, the total distributions to shareholders included a special dividend of 156.4p per share. See page 36 for Non-GAAP definitions. Implementation of Directors’ Remuneration Policy in 2019 This section explains how the DR Policy will be applied in 2019. Salary: Executive Directors Directors’ salaries are agreed annually in line with the DR Policy. The following salaries will apply from 1 April 2019. The salary increases for Paul Edgecliffe-Johnson and Elie Maalouf above are comprised of a 3% performance-related increase(which is fully in line with that applied to the wider workforce), and a 7% and 5% increase respectively in respect of additional responsibilities Elie Maalouf is paid in US dollars and his annual base salary for 2018 and 2019 is shown in US dollars. The sterling equivalent values calculated using an exchange rate of $1 = £0.75 are: 2018 - £564,000; and 2019 - £609,150. Keith Barr was appointed to the Board and the role of Chief Executive Officer effective from 1 July 2017. 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 full year in role, an increase higher than that of the corporate UK and US employee population has been agreed by the Remuneration Committee for 2019. The changes to Paul Edgecliffe-Johnson and Elie Maalouf’s salaries reflect the expanded responsibilities explained in the Remuneration Committee Chair’s Statement on page 72. LTIP and APP performance measures and targets LTIP The measures for the 2019/21 LTIP cycle are as per the 2018/20 cycle and the Directors’ Remuneration Policy available on the Company website,www.ihgplc.com/investorsunder Corporate governance. The performance measures and weightings, together with the full cash flow target disclosures for the 2018/20 cycle as referenced in last year’s report, are shown below. 1.63 bn 2.18 bn 1.87 bn 2.49 bn APP The 2019 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 The Achievement against target See page 36 for Non-GAAP definitions. Directors’ Remuneration Report continued Annual Report on Directors’ Remuneration continued Single total figure of remuneration: Non-Executive Directors Fees £000 Taxable benefits £000 Total £000 membership key and attendance. Benefits: For Non-Executive Directors, benefits include taxable travel and accommodation expenses to attend Board meetings away from the Incentive awards: Non-Executive Directors are not eligible Pension benefit: Non-Executive Directors are not eligible for any pension contributions or benefit. Shares held by Non-Executive Directors as at 31 December 2018: number of shares The Non-Executive Directors who held shares are listed in the The fees for Non-Executive Directors are reviewed and agreed annually in line with the DR Policy. The fee levels for 2019 will be as follows: Non-Executive Directors’ letters of appointment and notice periods Non-Executive Directors have letters of appointment, which are available upon request from the Company Secretary’s office. Patrick Cescau, All Non-Executive The ToR are available on IHG’s website at www.ihgplc.com/investors under Corporate governance. The Committee’s key focus areas during the year have been: Membership and attendance at meetings Details of the Committee’s membership and attendance at the meetings are set out on page 55. During 2018 the Committee was supported internally by the Chair, the Group’s CEO and CFO, and the heads of Human Resources and Reward as necessary. All attend by invitation to provide further background information and context to assist the Committee in its duties. They are not present for any discussions that relate directly to their own remuneration or where their attendance would not be appropriate. Reporting to the Board The Committee Chair updates the Board on all key issues raised at Committee meetings. Papers and minutes for each meeting are also circulated to all Board members for review and comment. Stakeholder engagement The Committee participated in active dialogue with the Finance Reporting Council (FRC) prior to the publication of the 2018 Corporate Governance Code and subsequently consulted a number of major shareholders to discuss potential changes to the Company’s executive remuneration practices in the context of the revised principles outlined in the 2018 Code. Effectiveness of the Committee The effectiveness of the Committee is monitored and assessed regularly by myself, as Chair of the Committee, and by the Chair of the Board. The composition, qualifications and experience of the members of the Committee are compliant with the provisions of the new Corporate Governance Code and the ToR have been updated to formally document that compliance. The Committee concluded that it remains effective. Other focus areas and activities The focus areas and activities discussed by the Committee during 2018 were: review and approval of performance outcomes and set targets for 2018; 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 2018 as independent advisers. Fees of £168,743 were paid to PwC in respect of advice provided to the Committee. 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 upon request. 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. Looking forward The Committee will complete a comprehensive review of the Directors’ Remuneration Policy in 2019, taking into consideration the changing strategic focus and competitive environment of the Company, as well as the additional requirements and expectations resulting from external regulation and increased shareholder scrutiny of executive remuneration arrangements. Voting at the Company’s AGMs There is no binding vote in respect of the DR Policy at the 2018 AGM as it remained unchanged from 2017. The outcome of the votes in respect of the DR Policy and Report for 2014 to 2018 are shown below: Jo Harlow Chair of the Remuneration Committee 18 February 2019 Statements 88 95 96 96 97 98 101 102 103 109 115 116 Hotel Indigo – Durham, United Kingdom 86 Group Financial Statements Statement of Directors’ Responsibilities Financial Statements and accounting records The Directors are required to prepare financial statements for the Company and the Group at the end of each financial year in accordance with all applicable laws and regulations. Under company law 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 Disclosure Guidance and Transparency Rules The Board confirms that to the best of its knowledge: UK Corporate Governance Code Having taken advice from the Audit Committee, the Board considers that this Annual Report and Form 20-F, taken as a whole, is fair, balanced and understandable and that it provides the information necessary for shareholders to assess the Company’s performance, business model and strategy. Disclosure of information to Auditor The Directors who held office as at the date of approval of this report confirm that they have taken steps to make themselves aware of relevant audit information (as defined by Section 418(3) of the Companies Act 2006). None of the Directors are aware of any relevant audit information which has not been disclosed to the Company’s Auditor. Management’s report on internal control over financial reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Group, as defined in Rule 13a–15(f) and 15d–15(f) under the Securities Exchange Act of 1934 as a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. The Group’s internal control over financial reporting includes policies and procedures that: 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 Based on this assessment, management has concluded that as at 31 December During the period covered by this document there were no changes in the Group’s internal control over financial reporting that have materially affected or are reasonably likely to materially affect the effectiveness of the internal controls over financial reporting. The Group’s internal control over financial reporting at 31 December For and on behalf of the Board [THIS PAGE IS INTENTIONALLY LEFT BLANK] [THIS PAGE IS INTENTIONALLY LEFT BLANK] [THIS PAGE IS INTENTIONALLY LEFT BLANK] [THIS PAGE IS INTENTIONALLY LEFT BLANK] [THIS PAGE IS INTENTIONALLY LEFT BLANK] [THIS PAGE IS INTENTIONALLY LEFT BLANK] Independent Auditor’s US Report Report of To the Board of Directors and the 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 We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Group statement of financial position of the Company as of 31 December 2018 and 2017, and the related Group statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended 31 December 2018, and the related notes, and our report dated 18 February 2019 expressed an unqualified opinion thereon. Basis for opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s report on internal control over financial reporting. Our responsibility is to express an opinion on the We conducted our audit in accordance with the standards of the Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorisations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. ERNST & YOUNG LLP London, England Report of To the Board of Directors and the 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 In our opinion, the We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), 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 Company’s predecessor businesses since 1988. London, England Before $m Exceptional (note 5) $m Before $m Exceptional (note 5) $m Total $m Before $m Exceptional (note 5) $m Total $m Group Financial Statements Restated for the adoption of IFRS 15 and other presentational changes (see pages 109 to 114). Notes on pages part of these Financial Statements. Gains on valuation of available-for-sale financial assets, net of related tax charge of $nil (2015: $nil, 2014: $1m) Exchange gains/(losses) on retranslation of foreign operations, net of related tax charge of $3m (2015: charge of $1m, 2014: credit of $1m) Fair value gain reclassified to profit on disposal of available-for-sale financial asset Exchange losses reclassified to profit on hotel disposal Re-measurement (losses)/gains on defined benefit plans, net of related tax credit of $4m (2015: charge of $4m, 2014: credit of $7m) Tax related to pension contributions Group statement of comprehensive income Gains on valuation of available-for-sale financial assetsb, net of related tax charge of $nil (2017: $3m, 2016: $nil) Fair value gains reclassified to profit on disposal of available-for-sale financial assetsb Gains on cash flow hedges, including related tax credit of $1m (2017: $nil, 2016: $nil) Costs of hedging Hedging gains reclassified to financial expenses Exchange gains/(losses) on retranslation of foreign operations, including related tax credit of $2m (2017: net of related tax credit of $1m, 2016: net of related tax charge of $3m) Losses on equity instruments classified as fair value through other comprehensive income, including related tax charge of $2m (2017: $nil, 2016: $nil) Re-measurement gains/(losses) on defined benefit plans, net of related tax charge of $4m (2017: $nil, 2016: credit of $4m) Deferred tax charge on defined benefit plans arising from significant US tax reform Equity holders of the parent Non-controlling interest Restated for the adoption of IFRS 15 (see pages 109 to 113). IFRS 9 has been applied from 1 January 2018. Under the transition method chosen, comparative information has not been restated. Notes on pages 103 to 161 form an integral part of these Financial Statements. Group Financial Statements continued Group statement of changes in equity Capital redemption reserve $m Shares share trusts IHG share- $m Non- $m Total equity $m Equity share $m Capital $m Shares held by employee share trusts Currency $m IHG share- $m Non- controlling $m Gains on valuation of available-for-sale financial assets Gains on cash flow hedges Costs of hedging Hedging gains reclassified to financial expenses Exchange gains on retranslation of foreign operations Fair value gain reclassified to profit on disposal of available-for-sale financial asset Losses on equity instruments classified as fair value through other comprehensive income Re-measurement gains on defined benefit plans All items above are shown net of tax. Notes on pages part of these Financial Statements. Capital redemption reserve $m Shares share trusts IHG share- $m Non- $m Total equity $m Gains on valuation of available-for-sale financial assets Exchange losses on retranslation of foreign operations Exchange losses reclassified to profit on hotel disposal Re-measurement gains on defined benefit plans Tax related to pension contributions Equity share capital Shares held by employee share trusts Gains on valuation of available-for-sale financial assets Fair value gain reclassified to profit on disposal of available-for-sale financial asset Exchange losses on retranslation of foreign operations Re-measurement losses on defined benefit plans Deferred tax charge on defined benefit plans arising from significant US tax reform All items above are shown net of tax. Notes on pages part of these Financial Statements. Group Financial Statements Group Financial Statements continued Equity capital $m Capital redemption reserve $m Shares share trusts $m Retained $m IHG equity Non- controlling interest $m Total $m Gains on valuation of available-for-sale financial assets Exchange gains on retranslation of foreign operations Re-measurement losses on defined benefit plans Tax related to pension contributions Group statement of changes in equity continued Capital redemption Shares share trusts Currency translation Non- controlling Gains on valuation of available-for-sale financial assets Fair value gain reclassified to profit on disposal of available-for-sale financial assets Exchange gains on retranslation of foreign operations All items above are shown net of tax. Notes on pages part of these Financial Statements. 2016 $m 2015 $m Group statement of 2016 $m 2015 $m Restated for the adoption of IFRS 15 (see pages 109 to 113). Signed on behalf of the Board, Paul Edgecliffe-Johnson 18 February 2019 Notes on pages 103 to 161 form an integral part of these Financial Statements. Group Financial Statements Group Financial Statements continued Restated for the adoption of IFRS 15 (see pages 109 to 113). Notes on pages 103 to 161 form an integral part of these Financial Statements. General information This document constitutes the Annual Report and Financial Statements in accordance with UK Listing Rules requirements and the Annual Report on Form 20-F in accordance with the US Securities Exchange Act of 1934. The Consolidated Financial Statements of InterContinental Hotels Group PLC (the Group or IHG) for the year ended 31 December Significant accounting policies Basis of preparation The Consolidated Financial Statements of IHG have been prepared on a going concern basis and under the historical cost convention, except for Presentational currency The Consolidated Financial Statements are presented in millions of US dollars reflecting the profile of the Group’s revenue and operating profit which are primarily generated in US dollars or US dollar-linked currencies. In the Consolidated Financial Statements, equity share capital, the capital redemption reserve and shares held by employee share trusts are translated into US dollars at the rates of exchange on the last day of the period; the resultant exchange differences are recorded in other reserves. The functional currency of the Basis of consolidation The Consolidated Financial Statements comprise the Financial Statements of the 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 Foreign currencies Transactions in foreign currencies are translated to functional currency at the exchange rates ruling on the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated to the functional currency at the relevant rates of exchange ruling on the last day of the period. Foreign exchange differences arising on translation are recognised in the income statement except on foreign currency borrowings that provide a hedge against a net investment in a foreign operation. These are taken directly to the currency translation reserve until the disposal of the net investment, at which time they are recycled against the gain or loss on disposal. The assets and liabilities of foreign operations, including goodwill, are translated into US dollars at the relevant rates of exchange ruling on the last day of the period. The revenues and expenses of foreign operations are translated into US dollars at average rates of exchange for the period. The exchange differences arising on retranslation are taken directly to the currency translation reserve. On disposal of a foreign operation, the cumulative amount recognised in the currency translation reserve relating to that particular foreign operation is recycled against the gain or loss on disposal. 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: All depreciation is charged on a straight-line basis. Residual value is re-assessed annually. Property, plant and equipment are tested for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. Assets that do not generate independent cash flows are combined into cash-generating units. If carrying values exceed their estimated recoverable amount, the assets or cash-generating units are written down to the recoverable amount. Recoverable amount is the greater of fair value less costs of disposal and value in use. Value in use is assessed based on estimated future cash flows discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses, and any subsequent reversals, are recognised in the income statement. On adoption of IFRS, the Group retained previous revaluations of property, plant and equipment which are included at deemed cost as permitted by IFRS 1 ‘First-time Adoption of International Financial Reporting Standards’. Business combinations and goodwill On the acquisition of a business, identifiable assets and liabilities acquired are measured at their fair value. Contingent liabilities Group Financial Statements Accounting policies continued assumed are measured at fair value unless this cannot be measured reliably, in which case they are not recognised but are disclosed in the same manner as other contingent liabilities. The measurement of deferred tax assets and liabilities arising on acquisition is as described in the general principles detailed within the ‘Taxes’ accounting policy note on page The cost of an acquisition is measured as the aggregate of the fair value of the consideration transferred. Contingent and deferred consideration is remeasured at fair value at each reporting date with changes in fair value recognised in profit or loss. Goodwill is recorded at cost, being the difference between the fair value of the consideration and the fair value of net assets acquired. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses and is not amortised. Goodwill is tested for impairment at least annually by comparing carrying values of cash-generating units with their recoverable amounts. Impairment losses relating to goodwill cannot be subsequently reversed. Transaction costs are expensed and are not included in the cost of acquisition. Intangible assets Brands Externally acquired brands are initially recorded at cost if separately acquired or fair value if acquired as part of a business combination, provided the brands are controlled through contractual or other legal rights, or are separable from the rest of the business, and the fair value can be reliably measured. Brands are amortised over their estimated useful lives (and tested for impairment if there are indicators of impairment) or tested for impairment at least annually if determined to have indefinite lives. The costs of developing internally generated brands are expensed as incurred. Management contracts Management contracts acquired as part of a business combination are initially recorded at the fair value attributed to those contracts on acquisition. 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. 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 On initial recognition, the Group classifies its financial assets Financial assets which are held to collect contractual cash flows and give rise to cash flows that are solely payments of principal and interest (SPPI) on the principal outstanding are subsequently measured at amortised cost. Interest on these assets is calculated using the effective interest rate method and is recognised in the income statement as interest income. The Group recognises a provision for expected credit losses for all debt instruments held at amortised cost. Where there has not been a significant increase in credit risk since initial recognition, provision is made for defaults that are possible within the next 12 months. Where there has been a significant increase in credit risk since initial recognition, provision is made for credit losses expected over the remaining life of the The Group has elected to irrevocably designate equity investments as FVOCI when they meet the definition of equity under IAS 32 ‘Financial Instruments: Presentation’ and The Group does not currently hold any financial assets, other than derivatives, which are measured at fair value through profit or Policy prior to 1 January 2018 Management determines the classification of financial assets on initial recognition and they are subsequently held at amortised cost (loans and receivables) or fair value (available-for-sale Financial assets are assessed for impairment at each period-end date. In the case of an equity investment Trade receivables Policy from 1 January 2018 Trade receivables are recorded at their original amount less provision for expected credit losses. The Group has elected to apply the simplified version of the expected credit loss model permitted by IFRS 9 in respect of trade receivables, which involves assessing lifetime expected credit losses on all balances. The Group has established a provision matrix that is based on its historical credit loss experience by region and may be adjusted for specific forward-looking factors. The carrying amount of the receivable is reduced through the use of a provision account and movements in the provision are recognised in the income statement within cost of sales. When a previously provided trade receivable is uncollectable, it is written off against the provision. Balances which are more than 180 days past due are considered to be in default and are written off the ledgers but continue to be actively pursued. Adjustments to this policy may be made in specific circumstances. At each reporting date, the Group assesses whether trade receivables are credit-impaired, for example if the customer is in significant financial difficulty. Policy prior to 1 January 2018 Trade receivables are recorded at their original amount less provision for impairment. It is the Group’s policy to provide for 100% of the previous month’s aged receivables balances which are more than 180 days past due. Adjustments to the policy may be made due to specific or exceptional circumstances. The carrying amount of the receivable is reduced through the use of a provision account and movements in the provision are recognised in the income statement within cost of sales. When a previously provided trade receivable is uncollectable, it is written off against the provision. Cash and cash equivalents Cash comprises cash in hand and demand deposits. Cash equivalents are short-term highly liquid investments with an original maturity of three months or less that are readily convertible to known amounts of cash and subject to insignificant risk of changes in value. In the statement of cash flows, cash and cash equivalents are shown net of short-term overdrafts which are repayable on demand and form an integral part of the Group’s cash management. Assets held for sale Assets and liabilities are classified as held for sale when their carrying amount will be recovered principally through a sale transaction rather than continuing use and a sale is highly probable and expected to complete within one year. For a sale to be highly probable, management need to be committed to a plan to sell the asset and the asset must be actively marketed for sale at a price that is reasonable in relation to its current fair value. Assets designated as held for sale are held at the lower of carrying amount at designation and fair value less costs to sell. Depreciation is not charged against property, plant and equipment classified as held for sale. Offsetting of financial assets and financial liabilities Financial assets and financial liabilities are offset and the net amount is reported in the Group statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis or to realise the assets and settle the liabilities simultaneously. To meet these criteria, the right of set-off must not be contingent on a future event and must be legally enforceable in all of the following circumstances: the normal course of business, the event of default and the event of insolvency or bankruptcy of the Group and all of the counterparties. Bank and other borrowings Bank and other borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs. They are subsequently measured at amortised cost. Finance charges, including the transaction costs and any discount or premium on issue, are recognised in the income statement using the effective interest rate method. Borrowings are classified as non-current when the repayment date is more than 12 months from the period-end date or where they are drawn on a facility with more than 12 months to expiry. Derivative financial instruments and hedging Derivatives are initially recognised and subsequently re-measured at fair value. The method of recognising the re-measurement depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. Changes in the fair value of derivatives which have either not been designated as hedging instruments or relate to the ineffective portion of hedges are recognised immediately in the income statement. Documentation outlining the measurement and effectiveness of any hedging arrangement is maintained throughout the life of the hedge relationship. Interest arising from currency derivatives and interest rate swaps is recorded in either financial income or expenses over the term of the agreement, unless the accounting treatment for the hedging relationship requires the interest to be taken to reserves. Cash flow hedges Financial instruments are classified as cash flow hedges when hedging exposure to variability in cash flows that are attributable to either a highly probable forecast transaction or a particular risk associated with a recognised asset or liability. Changes in the fair value are recorded in other comprehensive income and the cash flow hedging reserve to the extent that the hedges are effective. When the hedged item is recognised, the cumulative gains and losses on the related hedging instrument are reclassified to the income statement. Net investment hedges Financial instruments are classified as net investment hedges when they hedge the Group’s net investment in foreign operations. Changes in the fair value are recorded in other comprehensive income and the currency translation reserve to the extent that the hedges are effective. The cumulative gains and losses remain in equity until a foreign operation is sold, at which point they are reclassified to the income statement. Self insurance Liabilities in respect of self insured risks include projected settlements for known and incurred but not reported claims. Projected settlements are estimated based on historical trends and actuarial data. Provisions Provisions are recognised when the Group has a present obligation as a result of a past event, it is probable that a payment will be made and a reliable estimate of the amount payable can be made. If the effect of the time value of money is material, the provision is discounted using a current pre-tax discount rate that reflects the risks specific to the liability. An onerous contract provision is recognised when the unavoidable costs of meeting the obligations under a contract exceed the economic benefits expected to be received under it. In respect of litigation, provision is made when management consider it probable that payment may occur even though the defence of the related claim may still be ongoing through the court process. Group Financial Statements Accounting policies continued 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 Judgement is used when assessing the extent to which deferred tax assets, particularly in respect of tax losses, should be recognised. Deferred tax assets are therefore recognised to the extent that it is regarded as probable that there will be sufficient and suitable taxable profits (including the future release of deferred tax liabilities) in the relevant legal entity or tax group against which such assets can be utilised in the future. For this purpose, forecasts of future taxable profits are considered by assessing the Group’s forecast revenue and profit models, taking into account future growth predictions and operating cost assumptions. Accordingly, changes in assumptions to the Group’s forecasts may have an impact on the amount of future taxable profits and therefore the period over which any deferred tax assets might be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the periods in which the asset or liability will be settled, based on rates enacted or substantively enacted at the end of the reporting period. Where deferred tax assets and liabilities arise in the same entity or group of entities and there would be a legal right to offset the assets and liabilities were they to reverse, the assets and liabilities are also offset on the Group statement of financial position. Similarly, if there is no legal right to offset assets against liabilities, the assets and liabilities are not offset. Retirement benefits Defined contribution plans Payments to defined contribution schemes are charged to the income statement as they fall due. Defined benefit plans Plan assets are measured at fair value and plan liabilities are measured on an actuarial basis using the projected unit credit method, The service cost of providing pension benefits to employees, together with the net interest expense or income for the year, is charged to the income statement within ‘administrative expenses’. Net interest is calculated by applying the discount rate to the net defined benefit asset or liability, after any asset restriction. Past service costs and gains, which are the change in the present value of the defined benefit obligation for employee service in prior periods resulting from plan amendments, are recognised immediately the plan amendment occurs. Settlement gains and losses, being the difference between the settlement cost and the present value of the defined benefit obligations being settled, are recognised when the settlement occurs. Re-measurements comprise actuarial gains and losses, the return on plan assets (excluding amounts included in net interest) and changes in the amount of any asset restrictions. Actuarial gains and losses may result from: differences between the actuarial assumptions underlying the plan liabilities and actual experience during the year or changes in the actuarial assumptions used in the valuation of the plan liabilities. Re-measurement gains and losses, and taxation thereon, are recognised in other comprehensive income and are not reclassified to profit or loss in subsequent periods. Actuarial valuations are carried out on a regular basis and are updated for material transactions and other material changes in circumstances (including changes in market prices and interest rates) up to the end of the reporting period. Revenue recognition Revenue is Fee business revenue Under franchise Under management agreements, the Group’s performance obligation is Application and re-licensing fees are Contract assets Amounts paid to hotel owners to secure management contracts and franchise agreements (‘key money’) are treated as consideration payable to a customer. A contract asset is initially recorded which is recognised as a deduction to revenue over the initial term of the contract. In a managed property, the Group acts as employer of the general manager and other employees at the hotel and is entitled to reimbursement of these costs. The performance obligation is satisfied over time as the employees perform their duties, consistent with when reimbursement is received. Reimbursements for these services are shown as revenue with an equal matching employee cost, with no profit impact. Certain other costs relating to both managed and franchised hotels are also contractually reimbursable to IHG and, where IHG is deemed to be acting as principal in the provision of the related services, the revenue and cost are shown on a gross basis. System Fund revenues The Group operates a System Fund (the Fund) to collect and administer cash assessments from hotel owners for the specific purpose of use in marketing, the Guest Reservation Systems and hotel loyalty programme. The Fund also receives proceeds from the sale of loyalty points under third-party co-branding arrangements. The Fund is not managed to generate a profit or loss for IHG, but is managed for the benefit of hotels in the IHG System with the objective of driving revenues for the hotels. Under both franchise and management Certain travel agency commission revenues within the Fund are recognised on a net basis, where it has been determined that IHG is acting as agent. In respect of the loyalty programme (IHG Rewards Club), the related performance obligation is to arrange for the provision of future benefits to members on consumption of previously earned reward points. Members have a choice of benefits: reward nights at an IHG hotel or other goods or services provided by third parties. Under its franchise and management contracts, IHG receives assessment fees based on total qualifying hotel revenue from IHG Rewards Club members’ hotel stays. The Group’s performance obligation is not satisfied in full until the member has consumed the points at a participating hotel or selected a reward from a third-party. Accordingly, loyalty assessments are deferred in an amount that reflects the stand-alone selling price of the future benefit to the member. The amount of revenue ultimately recognised is impacted by a “breakage” estimate of the number of points that will never be consumed. On an annual basis, the Group engages an external actuary who uses statistical formulae to assist in formulating this estimate. As materially all of the points will be either consumed at IHG managed or franchised hotels owned by third parties, or exchanged for awards provided by third parties, IHG is deemed to be acting as agent on consumption and therefore recognises the related revenue net of the cost of reimbursing the hotel or third-party that is providing the benefit. Performance obligations under the Group’s co-branding arrangements comprise: Fees from these agreements comprise fixed amounts normally payable at the beginning of the contract, and variable amounts paid on a monthly basis. Variable amounts are typically based on the number of points and free night certificates issued to members and the marketing services performed by the Group. Total fees are allocated to the performance obligations based on their estimated stand-alone selling prices. Revenue allocated to marketing and licensing obligations is recognised on a monthly basis as the obligation is satisfied. Revenue relating to points and free night certificates is recognised when the member has consumed the points or certificates at a participating hotel or has selected a reward from a third-party, net of the cost of reimbursing the hotel or third-party that is providing the benefit. Judgement is required in estimating the stand-alone selling prices which are based upon generally accepted valuation methodologies regarding the value of the licence provided, and the number of points and certificates expected to be issued. However the value of revenue recognised and the deferred revenue balance at the end of the year is not materially sensitive to changes in these assumptions. Contract costs Certain costs incurred to secure management and franchise contracts, typically developer commissions, are capitalised and amortised over the initial term of the related contract. These costs are presented as ‘Contract costs’ in the Group statement of financial position. Contract assets and contract costs are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. Share-based payments The cost of equity-settled transactions with employees is measured by reference to fair value at the date at which the right to the shares is granted. Fair value is determined by an external valuer using option pricing models. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which any performance or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (vesting date). The income statement charge for a period represents the movement in cumulative expense recognised at the beginning and end of that period. No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market or non-vesting condition, which are treated as vesting irrespective of whether or not the market or non-vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied. Leases Operating lease rentals are charged to the income statement on a straight-line basis over the term of the lease. Assets held under finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease, with a corresponding liability being recognised for the fair value of the leased asset or, if lower, the present value of the minimum lease payments. Lease payments are apportioned between the reduction of the lease liability and finance charges in the income statement so as to achieve a constant rate of interest on the remaining balance of the liability. Assets held under finance leases are depreciated over the shorter of the estimated useful life of the asset and the lease term. Disposal of non-current assets The Group recognises sales proceeds and any related gain or loss on disposal on completion of the sales process. In determining whether the gain or loss should be recorded, the Group considers whether it: Group Financial Statements Accounting policies continued Fair value measurement The Group measures Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value is measured by reference to the principal market for the asset or liability assuming that market participants act in their economic best interests. The fair value of a non-financial asset assumes the asset is used in its highest and best use, either through continuing ownership or by selling it. The Group uses valuation techniques that maximise the use of relevant observable inputs using the following valuation hierarchy: Level 1: Level 2: Level 3: For assets and liabilities measured at fair value on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. Further disclosures on the particular valuation techniques used by the Group are provided in note 23. Exceptional items The Group discloses certain financial information both including and excluding exceptional items. The presentation of information excluding exceptional items allows a better understanding of the underlying trading performance of the Group and provides consistency with the Group’s internal management reporting. Exceptional items are identified by virtue of either their size or nature so as to facilitate comparison with prior periods and to assess underlying trends in the financial performance of the Group and its regional operating segments. Exceptional items can include, but are not restricted to, gains and losses on the disposal of assets, impairment charges and reversals and restructuring costs. Critical accounting policies and the use of judgements, estimates and assumptions In determining and applying the Group’s accounting policies, management are required to make judgements, estimates and assumptions. An accounting policy is considered to be critical if its selection or application could materially affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the Financial Statements, and the reported amounts of revenues and expenses during the reporting period. Management consider 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 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 At 31 December Impairment testing – intangible assets with definite useful lives, The impairment testing of individual assets or cash-generating units requires an assessment of the recoverable amount of the asset or cash-generating unit. If the carrying value of the asset or cash-generating unit exceeds its estimated recoverable amount, the asset or cash-generating unit is written down to its recoverable amount. Recoverable amount is the greater of fair value less costs of disposal and value in use. Value in use is assessed based on estimated future cash flows discounted to their present value using a pre-tax discount rate that is based on the Group’s weighted average cost of capital adjusted to reflect the risks specific to the business model and territory of the cash-generating unit or asset being tested. The outcome of such an assessment is subjective, and the result sensitive to the assumed future cash flows to be generated by the cash-generating units or assets and discount rates applied in calculating the value in use. At 31 December At 31 December New accounting standards and presentational changes IFRS 15 ‘Revenue from Contracts with Customers’ With effect from 1 January 2018, the Group has adopted IFRS 15 ‘Revenue from Contracts with Customers’ which introduces a new five-step approach to measuring and recognising revenue from contracts with Prior to adoption of IFRS 15, The key changes resulting from the 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 Certain other costs relating to both managed and franchised hotels are also contractually reimbursable to IHG and where IHG is deemed to be acting as principal in the provision of the related services, the revenue and cost are shown on a gross basis under IFRS 15 in the lines ‘Reimbursement of costs’ and ‘Reimbursed costs’. Under Under Contract costs Contract costs related to securing management and Under Owned hotel disposals subject to a management contract Under Other adjustments, which are immaterial, include re-assessments of IHG’s role as principal in other revenue transactions and System Fund adjustments The Group Under IFRS 15, an entity is regarded as a principal if it controls a service prior to transfer to the In respect of the Group Financial Statements New accounting standards and presentational changes continued amount that reflects the stand-alone selling price of the future benefit to the member. As materially all of the points will be consumed at IHG managed or franchised hotels owned by third parties, IHG is deemed to be acting as agent on redemption and therefore recognises the related revenue net of the cost of reimbursing the hotel that is providing the hotel stay. The deferred revenue balance under IFRS 15 (31 December 2017: $1,057m) is higher than the points redemption cost liability that was recognised under previous accounting (31 December 2017: $760m) 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 as the Group performs its obligations over the term of the co-branding arrangement. Certain travel agency commission revenues within the Fund will be recognised on a net basis, where it has been determined that IHG acts as agent under IFRS 15. Under previous accounting, any short-term timing surplus or deficit in the Fund was carried in the Group statement of financial position within working capital. Under IFRS 15, the in-year Fund surplus or deficit is recognised in the Group income statement. Both the previous accounting treatment and the change on applying IFRS 15, (and the equivalent US GAAP standard), are consistent with other companies in the hotel industry. The Fund surplus of $158m at 31 December 2017 was derecognised resulting in a reduction in the Group’s net liabilities. IHG also records an interest charge on the accumulated balance of cash in advance of the consumption of IHG Rewards Club points. In 2017 these interest payments totalled $7m, and were recognised as interest income for the Fund and interest expense for IHG. The System Fund also benefits from the capitalisation of interest related to the development of the next-generation Guest Reservation System, which totalled $6m in 2017. As the Fund is now included on the Group income statement, these amounts are included in the reported net Group financial expenses. The System Fund accounting changes result in an increase in recorded revenue and expenses for the year ended 31 December 2017 of $1,217m and $1,251m respectively. However, since the Group has an agreement with the IHG Owners Association that the Fund is not managed to a gain or loss for IHG, any in-year profit or loss resulting from Fund activity is excluded from the calculation of underlying operating profit and adjusted earnings per share as the agreement is to spend these funds for the benefit of hotels in the System. Opening total equity at 1 January 2016 decreases from $319m to $(118)m (see page 100). The impact of adopting IFRS 15 and other presentational changes on previously reported line items in the Group Financial Statements is set out on the following pages. Impact of IFRS 15 and other presentational changes on the Group income statement As previously reported $m IFRS 15 – Core IHG $m IFRS 15 – System Fund $m Other changes (page 114) $m As restated $m Impact of IFRS 15 on the Group statement of comprehensive income As previously reported $m IFRS 15 adoption $m As restated $m Group Financial Statements New accounting standards and presentational changes continued Impact of IFRS 15 on the Group statement of financial position As previously reported $m IFRS 15 adoption $m As restated $m Impact of IFRS 15 on the Group statement of cash flows As previously reported $m IFRS 15 adoption $m As restated $m Impact of IFRS 15 on basic and diluted earnings per ordinary share As previously reported cents IFRS 15 adoption cents As restated cents IFRS 9 ‘Financial Instruments’ The Group has applied the retrospectively, except for hedge accounting. The new rules for hedge accounting will be applied prospectively in line with the requirements of the standard. The Group The only impact of Changes to the Group’s accounting policies resulting from the adoption of IFRS 9 are detailed on pages 104 and 105. Group Financial Statements New accounting standards and presentational changes continued Amendments to IFRS 2 From 1 January 2018 the Group Other changes In addition to the adoption of IFRS 15 and IFRS 9, these Financial Statements have been restated to reflect several other changes to the presentation of the Group’s financial results. Exceptional items Exceptional items, which were previously shown in a separate column of the Group income statement, are now presented as a separate line item, with detailed disclosure in note 6. New operating segments See note 2. Reporting of fee business results Revenue and operating profit from management and franchise agreements, together with regional and Central overheads, have been combined into one category, ‘fee business’, to more closely reflect the way the business is now reported as a result of the ongoing reorganisation (see note 2). Reporting of managed lease hotels The revenue and operating profit of managed lease hotels, previously reported as part of the Group’s managed operations, are now reported with owned and leased hotels. As the full results of these hotels are consolidated into IHG’s income statement, this gives a clearer view of the reported fee business revenues and profits. Overhead allocations Minor changes have been made to the basis for allocating overheads to the regional and central operating segments. InterContinental reservation fees and costs Reservation fees and costs associated with the InterContinental brand have previously been recognised in IHG’s income statement. These fees and costs have now been moved to the System Fund to align with the treatment of IHG’s other brand programmes. As this programme is not managed to make a profit or loss for IHG, there is no operating profit impact. Prior year comparatives have been restated to reflect these presentational changes and the impact on the Group income statement for the years ended 31 December 2017 and 31 December 2016 is as follows: Managed leases $m Total $m Managed leases $m InterContinental reservations $m Total $m New standards issued but not yet effective IFRS 16 ‘Leases’ The Group will adopt IFRS 16 ‘Leases’ with effect from 1 January 2019. IFRS 16 eliminates the classification of leases as either operating or finance leases for lessees 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. Management’s assessment of the impact of IFRS 16 is substantially complete; 90% of the Group’s lease liability relates to nine leases; 62% relating to hotels and 28% relating to offices. The Group will take the elections available under IFRS 16 not to apply the lease accounting model to intangible assets, leases which are considered low value or which have a term of less than 12 months. The Group will apply the full retrospective method of application. In respect of accounting for variable leases with guaranteed amounts, the guaranteed amount has been judged to be ‘in-substance fixed‘ and will be included in the lease liability under IFRS 16. If the results for the year ended 31 December 2018 had been reported under IFRS 16, the estimated impacts would have been as follows: These estimates are subject to further refinement as the implementation project is finalised. Other standards From 1 January 2019, the Group will also 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’; IAS 19 ‘Plan Amendment, Curtailment or Settlement’; and Other existing standards arising from the Annual Improvements to IFRSs 2015–2017 cycle. These amendments are not expected to have a material impact on the Group’s reported financial 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=£ 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=£ 2. Segmental information Following this reorganisation, the management of the Group’s operations, excluding Central functions, is organised within Americas; EMEAA; and These, together with Central functions, comprise the Group’s Central functions include costs of global functions including technology, sales and marketing, finance, human resources and corporate services; 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. The System Fund is not viewed as being part of the Group’s core operations as IHG is unable to profit from its activities. As such, its results are not regularly reviewed by the Chief Operating Decision Maker (CODM) and it does not constitute an operating segment under IFRS 8. Similarly, reimbursements of costs are not reported to the CODM and so are not included within the reportable segments. Segmental performance is evaluated based on operating profit or loss and is measured consistently with operating profit or loss in the Consolidated Financial Statements, excluding System Fund and exceptional items. Group financing activities and income taxes are managed on a Revenue 2018 $m 2017 Restated $m 2016 Restated $m Non-current tax receivable Deferred tax assets Current tax receivable Cash and cash equivalents Unallocated liabilities: Current tax payable Deferred tax liabilities Derivative financial instruments Loans and other borrowings Depreciation and amortisationa Share-based payments cost Share of losses/(profits) of associates and joint ventures Impairment charges a Included in the $96m of depreciation and amortisation is $54m relating to administrative expenses and $42m relating to cost of sales. Property, plant and equipment Intangible assets Investment in associates and joint ventures Other financial assets Greater China All items above relate to continuing operations. Non-current tax receivable Deferred tax assets Current tax receivable Cash and cash equivalents Current tax payable Deferred tax liabilities Derivative financial instruments Loans and other borrowings Depreciation and amortisationa Share-based payments cost Share of losses/(profits) of associates and joint ventures Impairment charges a Included in the $96m of depreciation and amortisation is $50m relating to administrative expenses and $46m relating to cost of sales. Property, plant and equipment Assets classified as held for sale Intangible assets Investment in associates and joint ventures Other financial assets 2. Segmental informationcontinued Profit Depreciation and amortisationa Share-based payments cost Share of losses/(profits) of associates and joint ventures 2018 $m 2017 Restated $m 2016 Restated $m 2018 $m 2017 Restated Derivative financial instruments Tax receivable Deferred tax assets Cash and cash equivalents 2018 $m 2017 Restated Loyalty and co-brand deferred revenue and other payables Loans and other borrowings Tax payable Deferred tax liabilities Deferred and contingent purchase consideration Group Financial Statements Notes to the Group Financial Statements continued 2. Segmental informationcontinued Other segmental information Americas $m EMEAA $m Greater China $m Central $m Group $m Depreciation and amortisationa Share-based payments cost Share of losses/(gains) of associates and joint ventures EMEAA $m Greater $m Central $m Group $m Depreciation and amortisationa Share-based payments cost Share of losses/(gains) of associates and joint ventures Impairment charges EMEAA $m Greater $m Central $m Group $m Depreciation and amortisationa Share-based payments cost Share of losses/(gains) of associates and joint ventures Impairment charges Included in the Year ended $m Year ended $m Year ended $m 2. Segmental informationcontinued Reconciliation of capital expenditure Americas $m EMEAA $m Greater China $m Central $m Group $m Property, plant and equipment Intangible assets Investment in associates and joint ventures Other financial assets EMEAA $m Greater $m Central $m Group $m Property, plant and equipment Intangible assets Investment in associates and joint ventures Other financial assets 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. System Fund revenues are not included in the geographical analysis as the Group does not monitor the Fund’s revenue by location of the hotel, or in the case of the loyalty programme, according to the location where members consume their rewards. 31 December $m 31 December $m Group Financial Statements Notes to the Group Financial Statements continued 2. Segmental informationcontinued 2018 $m 2017 Restated $m 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, 3. Revenue A description of the Group’s contracts with customers and its performance obligations under those contracts is contained on pages 106-107 and 109-110. Disaggregation of revenue The following table presents Group revenue disaggregated by type of revenue stream and by reportable segment: 2016 $m 2015 $m 2014 $m Wages and salaries Social security costs Pension and other post-retirement benefits: Defined benefit plans (note 25) Defined contribution plans Americas Europe Asia, Middle East and Africa Greater China Central Americas $m EMEAA $m Greater $m Central $m Group $m Greater $m Group $m Greater $m Group $m 3. Revenuecontinued Contract balances The following tables present information about trade receivables, contract assets, and deferred revenue: A trade receivable is recorded when the Group has issued an invoice and has an unconditional right to receive payment. In respect of franchise fees, base and incentive management fees, Central revenue and revenues from owned, leased and managed lease hotels, the invoice is typically issued as the related performance obligations are satisfied, as described on page 106. Contract assets Contract assets are recorded in respect of key money payments made to customers, normally at the beginning of the contract term, and payments under performance guarantees. These payments are recognised in the Group income statement as a deduction to revenue over the contract term and, in the Group statement of cash flows, key money payments are described as ‘contract acquisition costs’. Current Non-current Deferred revenue Deferred revenue is recognised when payment is received before the related performance obligation is satisfied. The main categories of deferred revenue relate to the Loyalty programme, co-branding agreements, and franchise application and re-licensing fees. Other $m Application & $m Current Non-current Other $m Application & re-licensing $m Other $m Total $m Current Non-current Group Financial Statements Notes to the Group Financial Statements continued 3. Revenuecontinued The table on the previous page does not include amounts which were received and recognised as revenue in the year. Amounts recognised as revenue were included in deferred revenue at the beginning of the year. Loyalty programme revenues, shown gross in the table on the previous page, are presented net of the corresponding redemption cost in the Group income statement. Other deferred revenue includes guest deposits received by owned, leased and managed lease hotels. Transaction price allocated to remaining performance obligations The Group has applied the practical expedient in IFRS 15 not to disclose the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied or partially unsatisfied as at the end of the reporting period for all amounts where the Group has a right to consideration in an amount that corresponds directly with the value to the customer of the Group’s performance completed to date (including franchise and management fees). Amounts received and not yet recognised related to performance obligations that were unsatisfied at 31 December 2018 are as follows: Contract costs Movements in contract costs, typically developer commissions, are as follows: Current Non-current 4. Staff costs and Directors’ emoluments Wages and salaries Social security costs Pension and other post-retirement benefits: Defined benefit plans (note 25) Defined contribution plans Costs borne by IHGa Costs borne by the System Fundb Costs reimbursed Employees whose costs are borne by IHG: Americas EMEAA Greater China Central Employees whose costs are borne by the System Fund Employees whose costs are reimbursed Includes $36m (2017: $13m, 2016: $1m) classified as exceptional relating to the comprehensive efficiency programme. Includes $21m (2017: $9m, 2016: $nil) relating to the comprehensive efficiency programme. More detailed information on the emoluments, pensions, share awards and shareholdings for each Director is shown in the Directors’ Remuneration Report on pages Includes $0.4m (2017: $0.5m, 2016: $nil) 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. Notes to the Group Financial Statements continued 2015 $m 2014 $m Kimpton integration costs Venezuelan currency losses Reorganisation costs Corporate development costs Kimpton acquisition costs Pension settlement cost UK portfolio restructuring Gain on disposal of hotels (note 11) Gain on disposal of investment in associate (note 14) Associates (note 14) Property, plant and equipment (note 12) 2017 Restated Acquisition and integration costsa Litigationb Reorganisation costsc Pension settlement costd Gain on disposal of equity securities measured at fair value (note 15) Associates (note 14) Americas EMEAA Greater China Central In 2018, relates to the acquisitions of Regent (see note 11), the UK portfolio (see note 11) and Six Senses (see note 33) and, in 2017 and 2016, related to the cost of integrating Kimpton into the operations of the Group. Primarily relates to a material settlement agreed in respect of a lawsuit filed against the Group in the Americas region, together with associated legal fees. In September 2017, the Group launched a comprehensive efficiency programme funding a series of new strategic initiatives to drive an acceleration in IHG’s future growth. The programme is centred around strengthening the Group’s organisational structure to redeploy resources to leverage scale in the highest opportunity markets and segments. The programme is expected to be completed in 2019. The cost includes consultancy fees of $25m (2017: $24m) and severance costs of $18m (2017: $8m). An additional $47m (2017: $9m) has been charged to the System Fund. Arises from the termination of the US funded Inter-Continental Hotels Pension Plan (see note In In The above items are treated as exceptional by reason of their size or nature, as further described on page 108. 2016 Restated Interest income and expense relate to financial assets and liabilities held at amortised cost, calculated using the effective interest rate method. Included within capitalised interest is $5m (2017: $6m, 2016: $4m) relating to the System Fund. The rate used for capitalisation of interest was The change in fair value relating to deferred and contingent purchase consideration relates to the acquisitions of Regent and the UK portfolio (see note 11). Tax on profit Current period Benefit of tax reliefs on which no deferred tax previously recognised Adjustments in respect of prior periods Current period Benefit of tax reliefs on which no deferred tax previously recognised Adjustments in respect of prior periods Origination and reversal of temporary differences Changes in tax rates and tax laws Adjustments to estimated recoverable deferred tax assets Adjustments in respect of prior periods Profit before exceptional items Exceptional items: Tax on exceptional items (note 5) Current period Benefit of tax reliefs on which no deferred tax previously recognised Adjustments in respect of prior periods Current period Benefit of tax reliefs on which no deferred tax previously recognised Adjustments in respect of prior periodsa Origination and reversal of temporary differences Changes in tax rates and tax lawsb Adjustments to estimated recoverable deferred tax assetsc Adjustments in respect of prior periodsa Profit before exceptional itemsd Exceptional items: Tax on exceptional items (note 6) Exceptional tax (note 6) In 2016, In Represents a Includes $94m (2017: $157m, 2016: $160m) in respect of US taxes. Notes to the Group Financial Statements continued and System Fundb Calculated in relation to total profits including exceptional items. Calculated in relation to profits excluding exceptional The System Fund results are, in general, not subject to taxation. In 2018, IHG recognised a benefit in respect of the offset of foreign taxes arising in 2018 against its 2017 tax. The Group does not anticipate such benefit in future periods, leading to an increase in irrecoverable tax by up to 2%ppts on to the underlying rate before exceptional items and System Fund. Before exceptional items and System Fund includes A reconciliation between total tax rate and tax rate before exceptional items and System Fund is shown below: Profit $m Tax $m Rate % Rate % Exceptional items and tax (note 6) System Fund revenues System Fund expenses Other Tax paid Total net tax paid during the year of A reconciliation of tax paid to the total tax charge in the income statement is as follows: Tax contingency movements are included within the current tax charge but do not impact cash tax paid in the year. The timing difference in 2016 8. Taxcontinued Current tax Within current tax payable is The calculation of the Group’s total tax charge involves consideration of applicable tax laws and regulations in many jurisdictions throughout the world. From time to time, the Group is subject to tax audits and uncertainties in these jurisdictions. The issues involved can be complex and disputes may take a number of years to resolve. Where the interpretation of local tax law is not clear, management relies on judgement and accounting estimates to ensure all uncertain tax positions are adequately provided for in the Group Financial Statements. This may involve consideration of some or all of the following factors: Strength of technical argument, impact of case law and clarity of legislation; Professional advice; Experience of interactions, and precedents set, with the particular taxing authority; and Agreements previously reached in other jurisdictions on comparable issues. The largest single contingency item within the current tax payable balance does not exceed $8m Deferred tax Other intangible Application fees and contract Deferred gains on Deferred gains on Restated for the adoption of IFRS 15 (see pages 109 to 113). Employee $m Intangible $m In 2017, release largely as a result of the impact of the new US transition tax charge. Primarily relates to provisions, accruals, amortisation and share-based Movements largely reflect the impact of significant US tax reform enacted in 2017. Deferred gains on investments represent Group Financial Statements Notes to the Group Financial Statements continued 8. Taxcontinued The closing balance is further analysed by key territory as follows: Employee $m Intangible $m Other intangible Application $m 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: Deferred tax assets Deferred tax liabilities 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: Unrecognised deferred tax 2016 $m 2015 $m 2018 $m 2017 $m 2018 $m 2017 $m a Primarily relates to costs incurred in prior years for which relief has not been obtained. a Primarily relates to costs incurred in prior years for which relief has not been obtained. 2018 $m 2017 $m 2018 $m 2017 $m 2021 2022 2023 2024 2025 After 2025 2016 $m 2015 $m 2016 $m 2015 $m 2016 2020 2021 2022 2023 After 2023 8. Taxcontinued Tax risks, policies and governance Information concerning the Group’s tax governance can be found in the Taxation section of the Strategic Report on page Factors that may affect the future tax charge Many factors will affect the Group’s future tax rate, the key ones being future legislative developments, future profitability of underlying subsidiaries and tax uncertainties. There are many potential future changes to worldwide taxation systems as a result of the potential adoption by individual territories of recommendations of the OECD’s Base Erosion and Profit Shifting project, and other similar initiatives being driven by governments and tax authorities. The Group continues to monitor activity in this area. 2016 $m 2015 $m 2014 $m Final (declared for previous year) Interim Special (note 27) Final The final dividend of In Group Financial Statements Notes to the Group Financial Statements continued Basic earnings per ordinary share is calculated by dividing the profit for the year available for IHG equity holders by the weighted average number of ordinary shares, excluding investment in own shares, in issue during the year. Diluted earnings per ordinary share is calculated by adjusting basic earnings per ordinary share to reflect the notional exercise of the weighted average number of dilutive ordinary share awards outstanding during the year. Adjusted earnings per ordinary share is disclosed in order to show performance undistorted by exceptional items, to give a more meaningful comparison of the Group’s performance. Additionally, following the adoption of IFRS 15 (see pages 109 to 113), earnings attributable to the System Fund are excluded from the calculation of adjusted earnings per ordinary share, as IHG has an agreement with the IHG Owners Association to spend Fund income for the benefit of hotels in the IHG System such that the Group does not make a gain or loss from operating the Fund. IHG also records an interest charge on the outstanding cash balance relating to the IHG Rewards Club programme. These interest payments are recognised as interest income for the Fund and interest expense for IHG. The Fund also benefits from the capitalisation of interest related to the development of the next-generation Guest Reservation System. As the Fund is included in the Group income statement, these amounts are included in reported Group net financial expenses. Given that all results related to the Fund are excluded from the calculation of adjusted earnings per ordinary share, these interest amounts are deducted from profit available for equity holders. Information concerning can be found in the Strategic Report on page Exceptional items before tax ($m) Tax on exceptional items ($m) System Fund revenues and expenses ($m) Interest attributable to the System Fund ($m) (note 7) Tax attributable to the System Fund ($m) Exceptional items before tax ($m) (note 6) Tax on exceptional items ($m) (note 6) Exceptional tax ($m) (note 6) Basic weighted average number of ordinary shares Dilutive potential ordinary shares 11. Acquisition of Regent On Regent is a leading luxury hotel brand which adds to IHG’s brand portfolio at the top end of the luxury segment. Put and call options exist over the remaining 49% shareholding in RHW which are exercisable in a phased manner from 2026. As the decision-making powers related to the remaining shares are not substantive in driving RHW’s returns and FIH do not share in any costs associated with the future development of the Regent brand, it has been determined that the Group has a present ownership interest in the Regent contributed revenue of If the acquisition had taken place at 1 January 2018, reported Group revenue would have been $9m higher, with no material difference to Consideration transferred The following table summarises the Comprises the present value of $13m payable in 2021 and $13m payable in 2024. Comprises the present value of the expected amounts payable on exercise of the put and call options, assuming $39m is paid in 2026 to acquire an additional 25% of RHW with the remaining 24% acquired in 2028 for $42m. The amount payable on exercise of the options is based on the annual trailing revenue of RHW, with a floor applied. The range of possible outcomes is $81m to $261m (undiscounted). The final put and call options are exercisable in 2033. The value of the contingent consideration is subject to periodic re-assessment as interest rates and RHW revenue expectations change. Identifiable assets acquired and liabilities assumed The fair values of the Brands Management contracts The goodwill is mainly attributable to the global growth opportunities identified for the acquired business. Goodwill is not expected to be deductible for income tax purposes. No contingent liabilities were recognised as a If new information obtained within one year of the date of acquisition about the facts and circumstances that existed at the date of acquisition identifies adjustments to the above amounts, then the accounting for the acquisition will be revised. Group Financial Statements Notes to the Group Financial Statements continued 11. Acquisition of businessescontinued UK portfolio On 25 July 2018, the Group completed a deal to operate nine hotels under long-term leases from Covivio (formerly Foncière des Régions), which operated under the Principal and De Vere Hotels brands. An additional leased hotel was added to the portfolio on 13 November 2018, bringing the total to 10 (UK portfolio) at 31 December 2018. Two further leased hotels were added on 14 February 2019. The deal establishes IHG as the leading luxury hotel operator in the The hotels contributed revenue of If the acquisition had taken place at 1 January 2018, reported Group revenue would have been $90m higher, with no material difference to The following table summarises the Subject to final agreement and receivable in early 2019. Comprises the present value of the above-market element of the expected lease payments over the 25 year lives of the hotel lease agreements. The undiscounted amount is $217m. The value of the contingent consideration has been assessed with the assistance of professional third party advisors and is subject to periodic re-assessment as interest rates and expected lease payments change. The above-market assessment has been determined by comparing the expected lease payments as a percentage of forecast hotel operating profit (before depreciation and rent) with market metrics, on a lease by lease basis. There is no floor to the Identifiable assets acquired and liabilities assumed The fair values of the identifiable assets and liabilities of the UK portfolio at the date of acquisition were as follows: The stamp duty liability was settled post-acquisition. The goodwill is attributable to the trading potential of the acquired hotel operations and growth opportunities. Goodwill is not expected to be deductible for income tax purposes. No contingent liabilities were recognised as a result of the acquisition. Included in trade and other receivables are trade receivables with a gross contractual value of $5m, which are expected to be collectable in full. The fair value of trade receivables approximates the book value of $5m. If new information obtained within one year of the date of acquisition about the facts and circumstances that existed at the date of acquisition identifies adjustments to the above amounts, then the accounting for the acquisition will be revised. 11. Acquisition of businessescontinued Cash flows relating to acquisitions 12. Property, plant and equipment Total $m The Group’s property, plant and equipment mainly comprises hotels, but also offices and computer hardware, throughout the world. The carrying value of property, plant and equipment held under finance leases at 31 December 25% Group Financial Statements Notes to 12. Property, plant and equipmentcontinued The table below analyses the net book value of the Group’s property, plant and equipment by operating segment at 31 December Greater $m Total $m Greater China $m Total $m 13. Goodwill and other intangible assets Total $m $m $m Restated for the adoption of IFRS 15 (see pages 109 to 113). Goodwill and brands During The Regent and Kimpton brands are both considered to have an indefinite life given their strong brand awareness and reputation, The Group tests goodwill and indefinite life intangible assets for impairment annually, or more frequently if there are any indicators that an impairment may have arisen. 13. Goodwill and other intangible assetscontinued 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: Goodwill $m Brands $m Goodwill $m Brands $m The goodwill relating to the Regent and UK portfolio acquisitions are included in the Group statement of financial position at their acquisition date fair value. Otherwise, the recoverable amounts of the CGUs The terminal growth rates and discount rates used, Discount rate 2016 % 2015 % 2016 % 2015 % 2018 2017 Terminal rate % Impairment was not required at either 31 December Software Software includes Substantially all software additions are internally developed. Management contracts Net book $m Net book $m The weighted average remaining amortisation period for all management contracts is Group Financial Statements Notes to the Group Financial Statements continued 14. Investment in associates and joint ventures Associates $m Total $m All associates and joint ventures are accounted for using the equity method. During the year, Barclay associate The Group held one material associate investment at 31 December In March 2017, the Group invested $43m in the 14. Investment in associates and joint venturescontinued Summarised financial information in respect of the Barclay associate is set out below: 31 December $m 31 December $m 31 December 2018 $m 31 December 2017 $m 12 months to $m 12 months to $m 12 months to 2018 $m 12 months to 31 December 2017 $m 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. Group Financial Statements 15. Other financial assets Current Non-current Equity securities InterContinental The Willard Washington DC InterContinental San Francisco InterContinental Grand Stanford Hong Kong Other Reported as ‘other operating income and expenses’ in the Group income statement. Equity securities were denominated in the following currencies: US dollars $91m (2017: $93m), Hong Kong dollars $16m (2017: $25m) and other currencies $9m (2017: $9m). On 13 December 2017, the sale of Avendra, LLC (Avendra) to Aramark Services, Inc., resulted in the Group receiving cash proceeds of $75m from its 6.29% interest in Avendra and the recording of a $73m exceptional gain in the Group income statement (see note 6). Prior to the sale, the Group’s investment in Avendra was included in unquoted equity shares. Avendra is a North American hospitality procurement services provider. Trade deposits and loans include deposits of Restricted funds include $25m placed in a shortfall reserve deposit which is held for the specific purpose of funding shortfalls in owner returns relating to the Barclay associate. No amounts required release from the deposit during the year. Other restricted funds largely comprise cash ring-fenced to satisfy insurance claims. The bank accounts pledged as security (£31m) are subject to a charge in favour of the members of the UK unfunded pension arrangement (see note 25). The movement in the provision for impairment of 16. Trade and other receivables Trade and other receivables 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: The ageing of trade and other receivables, excluding prepayments, at the end of the reporting period is: 2018 2017 Gross $m Provision $m Gross $m Provision $m Net $m Gross $m Credit loss allowance Trade and other receivables over 180 days past due are written off, but continue to be actively pursued. The credit risk relating to balances not past due is not deemed to be significant. The movement in the Group Financial Statements Notes to the Group Financial Statements continued 17. Cash and cash equivalents 2015 $m Cash at bank and in hand includes bank balances of For the purposes of the Group statement of cash flows, cash and cash equivalents comprise the following: 2015 $m Short-term deposits and repurchase agreements are highly liquid investments with an original maturity of three months or less. 18. Trade and other payables 19. Provisions Total $m 2016 $m 2015 $m Current Non-current Current Non-current See note 30 for a description of and further information on the 19. Provisionscontinued Provisions for insurance claims are mainly in respect of the 20. Loans and other borrowings Total $m Total $m Sterling US dollars Euros Other At 1 January $m At 31 December $m Exchange of principal Initial fee received At 1 January $m At 31 December $m Group Financial Statements Notes to the 20. Loans and other borrowingscontinued Unsecured bank loans Unsecured bank loans are borrowings under the Group’s Syndicated and Bilateral The Syndicated Facility comprises a $1,275m five-year revolving credit facility maturing in March The Bilateral Facility comprises a $75m revolving credit facility maturing in March A variable rate of interest is payable on amounts drawn under both facilities, which 2018. Finance lease obligations Finance lease obligations, which relate primarily to the 99-year lease (of which Minimum lease payments $m Present value of payments $m Minimum lease payments $m Present value of payments $m 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. €500m 2.125% bonds 2027 The 2.125% fixed interest euro bonds were issued on 15 November 2018 and are repayable in full on 15 May 2027. Interest is payable annually on 15 May. The bonds were initially priced at 99.53% of face value and are unsecured. Currency swaps were transacted at the same time the bonds were issued in order to swap the proceeds and interest flows into sterling (see note 22). 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 Total $m Total $m 2016 $m 2015 $m Within one year After two but before five years Utilised $m Unutilised $m Total $m Utilised $m Unutilised $m Total $m 2018 $m 2017 $m Utilised facilities are calculated based on actual drawings and may not agree to the carrying value of loans held at amortised cost. 21. Net debt 2016 $m 2015 $m 2018 $m 2017 $m Issue of long-term bonds Other new borrowings Long-term bonds repaid New borrowings repaid (Increase)/decrease in other borrowings Issue of long-term bonds, including effect of currency swaps Decrease/(increase) in other borrowings Finance lease obligations Increase in accrued interest (Increase)/decrease in accrued interest Exchange and other adjustments Information concerning can be found in the Strategic Report on page Group Financial Statements Notes to the Group Financial Statements continued 22. Financial risk management and derivatives Overview The Group is exposed to financial risks that arise in relation to underlying business activities. These risks include: foreign exchange risk, Market risk Foreign exchange risk The US dollar is the predominant currency of the Group’s revenue and cash flows. Movements in foreign exchange rates can affect the Group’s reported profit, net Foreign exchange hedging The Group uses short-dated foreign exchange swaps to manage sterling surplus cash and reduce US dollar borrowings whilst maintaining operational flexibility. At 31 December 2018, the Group held short-dated foreign exchange swaps with principals of $100m (2017: $30m). 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 £436m. These swaps were transacted at the same time as the€500m 2.125% bonds were issued in November 2018 in order to swap the bonds‘ proceeds and interest flows into sterling. Under the terms of the swaps, £436m was borrowed and€500m deposited for eight and a half years at a fixed exchange rate of £1 =€1.15. The fair value of These derivative financial instruments are recorded in the Group statement of financial position at Designated as a cash flow hedge. Designated as net investment hedges. Hedge of net investment in foreign operations Wherever possible, the Group matches the currency of its debt (either directly or via derivatives) to the currency of its net assets, whilst maximising the amount of US dollars borrowed to reflect the predominant trading currency. However US dollars are only borrowed to the extent that hedge accounting can be achieved. The Group designates certain foreign currency bank borrowings and currency derivatives as net investment hedges of foreign operations. The designated risk is the spot foreign exchange risk for loans and short-dated derivatives. The interest on these financial instruments is taken through financial income or expense. The maximum amount of foreign exchange derivatives held during the year as net investment hedges and measured at calendar quarter ends were short-dated foreign exchange swaps with principals of Hedge effectiveness is measured at calendar quarter ends. No ineffectiveness arose in respect of the Group’s net investment hedges during the current or prior year. Cash flow hedging Interest rate risk The Group is exposed to interest rate risk in relation to its fixed and floating rate borrowings. The Group’s policy requires a minimum of 50% fixed rate debt over the next 12 months. With the exception of overdrafts, Interest rate hedging If required, the Group uses interest rate swaps to manage the exposure. The Group designates interest rate swaps as cash flow hedges. No interest rate swaps were used to manage interest rate exposure during 22. Financial risk management and derivativescontinued 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 The impact of the strengthening in the euro against sterling on net liabilities is also shown, as this impacts the fair value of the currency swaps. 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 Liquidity risk The Group policy ensures sufficient liquidity is maintained to meet all foreseeable medium-term cash requirements and provide headroom against unforeseen obligations. Cash and cash equivalents is held in short-term deposits, repurchase agreements, and cash funds which allow daily withdrawals of cash. Most of the Group’s funds are held in the UK or US, although Medium and long-term borrowing requirements are met through committed bank facilities and bonds as detailed in note 20. Short-term borrowing requirements may be met from drawings under uncommitted overdrafts and facilities. The Syndicated and Bilateral The following are the undiscounted contractual cash flows of financial liabilities, including interest Less than $m More than $m Total $m Bank overdrafts Unsecured bank loans £400m 3.875% bonds 2022 £300m 3.75% bonds 2025 £350m 2.125% bonds 2026 Finance lease obligations Trade and other payables, excluding deferred revenue Provisions Forward foreign exchange contracts Bank overdrafts £250m 6% bonds 2016 £400m 3.875% bonds 2022 £300m 3.75% bonds 2025 Finance lease obligations Trade and other payables Provisions Forward foreign exchange contracts Less than $m Between 1 and 2 years $m Between 2 and 5 years $m More than $m Total $m Deferred and contingent consideration Bank overdrafts £400m 3.875% bonds 2022 £300m 3.75% bonds 2025 £350m 2.125% bonds 2026 €500m 2.125% bonds 2027 Finance lease obligations Trade and other payables Forward foreign exchange contracts Currency swaps hedging€500m 2.125% bonds 2027 outflows Currency swaps hedging€500m 2.125% bonds 2027 inflows Less than 1 year $m Between 1 and 2 years $m Between 2 and 5 years $m More than 5 years $m Total $m Bank overdrafts Unsecured bank loans £400m 3.875% bonds 2022 £300m 3.75% bonds 2025 £350m 2.125% bonds 2026 Finance lease obligations Trade and other payables Group Financial Statements Notes to the Group Financial Statements continued 22. Financial risk managementcontinued Credit risk Credit risk on treasury transactions is minimised by operating a policy on the investment of surplus cash that generally restricts counterparties to those with a BBB credit rating or better or those providing adequate security. The Group uses long-term credit ratings from Standard and Poor’s, Moody’s and Fitch Ratings as a basis for setting its counterparty limits. Short-term deposits The table below analyses the Group’s short-term deposits at 31 December 2018 by counterparty credit rating: Repurchase agreements The Group invests in repurchase agreements, which are fully collateralised investments, with a maturity of three months or less. The Group accepts only government or supranational bonds where the lowest credit rating is AA- or better as collateral. In the event of default, ownership of these securities would revert to the Group. The securities held as collateral are to protect against default by the counterparty. The table below contains information about the collateral held as security at 31 December 2018: 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, 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. 2015 $m Other financial assets Trade and other receivables, excluding prepayments Other financial assets Trade and other receivables, excluding prepayments 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 23. Fair value measurement Fair values The following table compares carrying amounts and fair values of the Group’s financial assets and liabilities: Carrying $m Fair value $m Carrying $m Fair value $m Other financial assets Trade and other financial receivables, excluding prepayments Carrying value $m Fair value $m Carrying $m Equity securities Derivatives Cash and cash equivalents Loans and other receivables: Other financial assets Trade and other receivables, excluding prepayments Deferred and contingent purchase consideration Finance lease obligations Unsecured bank loans Bank overdrafts Trade and other payables Provisions There are no other assets or liabilities measured at fair value on a recurring or non-recurring basis, or for which fair value is disclosed, other than as described in note 14. The fair value of cash and cash equivalents and bank overdrafts approximates book value due to the short maturity of the investments and deposits, and the fair value of other financial assets approximates book value based on prevailing market rates. The fair value of the unsecured bank loans approximates book value as interest rates reset to market rates on a frequent basis. The fair value of trade and other receivables, trade and other payables Fair value hierarchy The following table provides the fair value measurement hierarchy of the above assets and liabilities, other than those with carrying amounts which are reasonable approximations of their fair values: Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities. Level 2: other techniques for which all inputs which have a significant effect on fair value are observable, either directly or indirectly. Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data. Quoted equity shares Unquoted equity shares Group Financial Statements Notes to the Group Financial Statements continued 23. Fair value measurementcontinued Quoted equity shares Unquoted equity shares There were no transfers between Level 1 and Level 2 fair value measurements during the year and no transfers into and out of Level 3. The fair value of quoted equity shares and the bonds is based on their quoted market price. Derivatives are fair valued using discounted future cash flows, taking into consideration exchange rates prevailing on the last day of the reporting period and interest rates from observable swap curves. Currency swaps are measured at the present value of future cash flows estimated and discounted back based on quoted forward exchange rates and the applicable yield curves derived from quoted interest rates. Adjustments for credit risk use observable credit default swap spreads. Finance lease obligations relate primarily to the lease of InterContinental Boston, which is fair valued by discounting the future cash flows payable under the loan, which are fixed, at a risk adjusted long-term interest rate. The interest rate used to discount the cash flows at 31 December 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 Deferred and contingent purchase consideration are fair valued using the present value of the expected future payments, discounted using a risk adjusted discount rate. A 10% decrease in the discount rate would result in a $8m increase in the fair value of the consideration payable. The following table reconciles the movements in the fair values of Deferred and contingent purchase $m Other than in relation to cash pooling arrangements (see note 17), there are no financial instruments subject to enforceable master netting arrangements and other similar agreements that are not offset in the Group statement of financial position. 24. Reconciliation of profit for the year to cash flow from operations before contract acquisition costs 2015 $m Net financial expenses Income tax charge Depreciation and amortisation System Fund depreciation and amortisation Impairment Other exceptional items Other exceptional items (including System Fund) Equity-settled share-based cost Dividends from associates and joint ventures (Increase)/decrease in trade and other receivables Net change in loyalty programme liability and System Fund surplus System Fund depreciation and amortisation Increase/(decrease) in other trade and other payables Utilisation of provisions, net of insurance recovery Increase in trade and other receivables Increase in contract costs Increase in deferred revenue Increase in other trade and other payables Utilisation of provisions, net of charge (2016: net of insurance recovery) Retirement benefit contributions, net of costs Cash flows relating to exceptional items Contract assets deduction in revenue Other items 25. Retirement benefits UK Since 6 August 2014, UK retirement and death in service benefits are provided for eligible employees by the IHG UK Defined Contribution Pension Plan. Members, including those who have been auto-enrolled since 1 September 2013, are provided with defined contribution arrangements under this plan; benefits are based on each individual member’s personal account. The plan is HM Revenue The former defined benefit plan, the InterContinental Hotels UK Pension Plan, was wound up on 21 July 2015 following the completion of the buy-out and transfer of the defined benefit obligations to Rothesay Life on 31 October 2014. Residual defined benefit obligations remain in respect of additional benefits provided to members of an unfunded pension arrangement who were affected by lifetime or annual allowances under the former defined benefit arrangements. Accrual under this arrangement ceased with effect from 1 July 2013 and a cash-out offer in 2014 resulted in the extinguishment of approximately 70% of the unfunded pension obligations. The Company meets the benefit payment obligations of the remaining members as they fall due. A charge over certain ring-fenced bank accounts totalling £31m at 31 December US The Group continues to maintain the unfunded Inter-Continental Hotels Non-qualified Pension Plans and unfunded Inter-Continental Hotels Corporation Postretirement Medical, Dental, Vision and Death Benefit 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. 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’, are: US Post-employment US Post-employment benefits Settlement cost Settlement loss including transaction costs The settlement Re-measurement gains and losses recognised in the Group statement of comprehensive income are: 2018 2017 2016 Demographic assumptions Financial assumptions Experience adjustments The assets and liabilities of the schemes and the amounts recognised in the Group statement of financial position are: UK 2016 $m 2015 $m 25. Retirement benefitscontinued Assumptions The principal financial assumptions used by the actuaries to determine the benefit obligations are: US Post-employment benefits 2018 % Pre 65 (ultimate rate reached in 2023) Post 65 (ultimate rate reached in 2025) Pre-65 (ultimate rate reached in 2025) Post-65 (ultimate rate reached in 2024) Mortality is the most significant demographic assumption. The current assumptions for the UK are based on the S2PA ‘light’ year of birth tables with projected mortality improvements using the In both the UK and US, the assumptions have been revised during the year to reflect Relates to assumptions based on longevity (in years) following retirement at the end of the reporting period. Relates to assumptions based on longevity (in years) relating to an employee retiring in 2038. The assumptions allow for expected increases in longevity. Sensitivities Changes in assumptions used for determining retirement benefit costs and obligations may have Higher/ $m Higher/ $m A one percentage point increase in assumed healthcare costs trend rate would increase the accumulated post-employment benefit obligations as at 31 December Notes to the Group Financial Statements continued 25. Retirement benefitscontinued Movement in benefit obligation UK Funded plans Unfunded plans Movement in plan assets Movement in plan assets UK Company payments are expected to be The plan assets are measured at fair value and comprise the following: Global equities Bonds Property 25. Retirement benefitscontinued Estimated future benefit payments UK The reduction in future benefit payments arises from the termination of the Plan. 26. Share-based payments Annual Performance Plan Under the IHG Annual Performance Plan (APP), eligible employees (including Executive Directors) can receive all or part of their bonus in the form of deferred shares and/or receive one-off awards of shares. Deferred shares are released on the third anniversary of the award date. Under the terms of awards that are referred to in this note, a fixed percentage of the award is made in the form of shares. Awards under the APP are conditional on the participants remaining in the employment of a participating company or leaving for a qualifying reason as per the plan rules. The award of deferred shares under the APP is at the discretion of the Remuneration Committee. The number of shares is calculated by dividing a specific percentage of the participant’s annual performance-related award by the middle market quoted prices on the three consecutive dealing days immediately preceding the date of grant. A number of executives participated in the APP during the year and conditional rights over New plan rules for the APP were approved by shareholders at the AGM on 2 May 2014, and apply to awards made in respect of the 2015 and subsequent financial years. The new plan rules contain substantially the same terms as the superseded plan rules. Long Term Incentive Plan The Long Term Incentive Plan (LTIP) allows Executive Directors and eligible employees to receive conditional share awards, which normally have a vesting period of three years. Awards are normally made annually and, except in exceptional circumstances, will not exceed three times salary for eligible employees. The plan provides for the grant of ‘nil cost options’ to participants as an alternative to conditional share awards. During the year, conditional rights over New plan rules for the LTIP were approved by shareholders at the AGM on 2 May 2014, and apply to awards made in respect of the More detailed information on the performance measures for awards to Executive Directors is shown in the Directors’ Remuneration Report on pages Notes to the Group Financial Statements continued 26. Share-based paymentscontinued The Group recognised a cost of The Group uses separate option pricing models and assumptions depending on the plan. The following table sets out information about awards granted in Monte Carlo Simulation and Binomial valuation model Monte Carlo Simulation and Binomial valuation model The expected volatility was determined by calculating the historical volatility of the Company’s share price corresponding to the expected life of the share award. Movements in the awards outstanding under the schemes are as follows: Performance- of shares Restricted of shares Performance-related Number of shares The above awards do not vest until the performance and service conditions have been met. The weighted average share price at the date of exercise for share awards vested during the year was 27. Equity Equity share capital Nominal $m Number of shares Nominal value $m Share premium $m Equity share capital $m The authority given to the Company at the AGM held on On 23 February 2016, the Group announced a $1.5bn return of funds to shareholders by way of a special dividend and share consolidation. On 6 May 2016, shareholders approved the share consolidation on the basis of 5 new ordinary shares of 18 In October 2018, the Board proposed a The nature and purpose of the other reserves shown in the Group statement of changes in equity on pages 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 Other reserves Comprises the merger and revaluation reserves previously recognised under UK GAAP, together with the reserve arising as a consequence of the Group’s capital reorganisation in June 2005. Following the change in presentational currency to the US dollar in 2008, this reserve also includes exchange differences arising on retranslation to period-end exchange rates of equity share capital, the capital redemption reserve and shares held by employee share trusts. This reserve records movements in the Group Financial Statements Notes to the Group Financial Statements continued 27. Equitycontinued Cash flow hedging reserve The cash flow hedging reserve is analysed as follows: The value of currency swaps comprises the effective portion of the cumulative net change in the fair value of The costs of hedging Amounts reclassified from other comprehensive income to financial expenses comprise $1m net interest payable on the currency swaps and an exchange gain of $9m which has been offset with a corresponding loss on the€500m 2.125% bonds. Currency translation reserve This reserve records the movement in exchange differences arising from the translation of foreign operations and exchange differences on foreign currency borrowings and derivative 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 Treasury shares During 2018, 0.8m (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 during 2017 (2016: reduced by 1.7m during 2016 as a result of the 2016 share consolidation). At 31 December Non-controlling interest A non-controlling interest is equity in a subsidiary of the Group not attributable, directly or indirectly, to the Group. Non-controlling interests are not material to the Group. 28. Operating leases During the year ended 31 December Future minimum lease payments under non-cancellable operating leases are as follows: 2018 $m 2017 $m 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 The leases acquired with the UK portfolio acquisition (see note 11) include variable payments where rentals are linked to the performance of the hotels by way of reductions in rentals in the event that lower than target cash flows are generated by the hotels. In the event that rent reductions are not applicable, the Group’s exposure to this type of rental payment is £48m per annum over the remaining lease term of 25 years. Additional rentals, which are uncapped, are also payable calculated as a percentage of the profit earned by the hotels. Total future minimum rentals expected to be received under non-cancellable sub-leases are 29. Capital and other commitments 2018 $m 2017 $m Property, plant and equipment Property, plant and equipmenta Intangible assets Key money Includes a commitment to spend $33m on the acquired UK portfolio (see note 11) within two and a half years of the acquisition date. A loan facility of $5m (2017: $5m) has also There were no commitments to invest in 30. Contingencies and guarantees Security incidents The Group may also be exposed to investigations regarding compliance with applicable State and Federal data security standards, To date, four lawsuits have been filed against IHG entities relating to the Security Incidents. One of these has been withdrawn and a preliminary settlement, expected to be not more than $2m, has been agreed in respect of another lawsuit, although this is expected to be recovered from insurance. Tax Tax related developments during 2018 have confirmed that the Group no longer considers itself at risk of exposure to the outcome of the EU’s State Aid investigation into the UK’s Controlled Foreign Company rules. Other In limited cases, the Group may provide performance guarantees to third-party hotel owners to secure management contracts. At 31 December At 31 December The Group may guarantee bank loans made to facilitate third-party ownership of hotels From time to time, the Group is subject to legal proceedings the ultimate outcome of each being always subject to many uncertainties inherent in litigation. In particular, the Group is currently subject to the claims listed under ‘Legal proceedings’ on page At 31 December 2018, the Group had no other contingent liabilities (2017: $nil). 31. Related party disclosures There were no other transactions with key management personnel during the years ended 31 December Key management personnel comprises the Board and Executive Committee. Group Financial Statements Notes to the Group Financial Statements continued 31. Related party disclosurescontinued Related party disclosures for associates and joint ventures are as follows: In addition, loans both to and from the Barclay associate of $237m 32. System Fund 2016 $m 2015 $m 2014 $m Assessment fees and contributions received from hotels Proceeds from sale of IHG Rewards Club points Marketing IHG Rewards Club Payroll costs $m $m $m 2018 $m 2017 $m 2016 $m Restated for IFRS 15 (see pages 109 to 113). Loyalty programme revenue is shown net of Restated to reflect a wider definition of marketing costs. 33. Events after the reporting period On 12 February 2019, the Group completed the acquisition of Six Senses Hotels Resorts Spas (Six Senses), for $300m paid in cash. Six Senses is a leading operator of top tier luxury hotels, resorts and spas with a world-renowned reputation for wellness and sustainability. Six Senses will sit at the top of IHG’s luxury portfolio. The 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 “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) Alpha Kimball Hotel LLC (g) (k) American Commonwealth Assurance Co. Ltd. (m) Asia Pacific Holdings Limited (n) Barclay Operating Corp. BHMC Canada Inc. (o) BHR Holdings B.V. (p) BHR BHTC Canada Inc. (o) Blythswood Square Glasgow Hotel OpCo Ltd (n) BOC Barclay Sub LLC (g) Bristol Oakbrook Tenant Company (k) Café Biarritz (n) Cambridge Lodging LLC (g) Capital Lodging LLC (g) CF Irving Owner, LLC (g) (k) CF McKinney Owner, LLC (g) (k) CF Waco Owner, LLC (g) (k) Compañia Inter-Continental De Hoteles El Salvador SA (n) Crowne Plaza LLC (g) (k) Cumberland Akers Hotel LLC (g) (k) Dunwoody Operations, Inc. (k) Edinburgh George Street Hotel OpCo Ltd (n) Edinburgh IC Limited (s) EVEN Real Estate Holding LLC (g) (k) General Innkeeping Acceptance Corporation (b) Grand Central Glasgow Hotel OpCo Limited (n) Guangzhou SC Hotels Services Ltd. (t) H.I. (Ireland) Limited (u) HI Sugarloaf, LLC (g) 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 Holiday Inns (China) Ltd (ac) Holiday Inns (Chongqing), Inc. Holiday Inns (Courtalin) Holdings SAS (x) Holiday Inns (Courtalin) SAS (b) (x) Holiday Inns (England) Holiday Inns (Germany), LLC (g) Holiday Inns (Guangzhou), Inc. Holiday Inns (Jamaica) Inc. Holiday Inns (Middle East) Holiday Inns (Philippines), Inc. Holiday Inns (Saudi Arabia), Inc. Holiday Inns (Thailand) Ltd. (ac) Holiday Inns (UK), Inc. Holiday Inns Crowne Plaza (Hong Kong), Inc. Holiday Inns Holdings (Australia) Pty Ltd (aa) Holiday Inns Inc. (k) Holiday Inns Investment (Nepal) Ltd. (ac) Holiday Inns of America (UK) Holiday Inns of Belgium N.V. (ad) Holiday Pacific Equity Corporation (k) Holiday Pacific LLC (g) (k) Holiday Pacific Partners, LP (k) Hotel InterContinental London (Holdings) Limited (n) Hotel Inter-Continental London Limited (n) Hoteles Y Turismo HIH SRL (n) IC Hotelbetriebsfuhrungs GmbH (ae) IC Hotels Management (Portugal) Unipessoal, Lda (af) IC International Hotels Limited Liability Company (ag) IHC Buckhead, LLC (g) 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 (Myanmar) Ltd (ah) 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) IHG de Argentina SA (al) IHG ECS (Barbados) SRL IHG Franchising Brasil Ltda 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) 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) 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 InterContinental (PB) 3 Limited (n) InterContinental Brasil Administracao de Hoteis Ltda 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 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. InterContinental Hotels Group (New Zealand) Limited (an) InterContinental Hotels Group (Shanghai) Ltd. (bb) InterContinental Hotels Group Customer Services InterContinental Hotels Group do Brasil Limitada InterContinental Hotels Group Healthcare Trustee 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 Inter-Continental Hotels of San Francisco Inc. (k) Inter-Continental IOHC (Mauritius) Limited (bg) InterContinental Management France SAS (x) InterContinental Management Poland sp. z.o.o (cn) Group Financial Statements Notes to the Group Financial Statements continued 34. Group companiescontinued Fully owned subsidiariescontinued InterContinental Overseas Holding Corporation (k) KG Benefits LLC (g) KG Gift Card Inc. KG Liability LLC (g) KG Technology, LLC (g) KHP Washington Operator LLC (g) KHRG 11th Avenue Hotel LLC (g) KHRG 851 LLC (g) KHRG Aertson LLC (g) KHRG Alexis, LLC (g) KHRG Allegro, LLC (g) KHRG Argyle, LLC (g) KHRG Austin Beverage Company, LLC (g) KHRG Baltimore, LLC (g) KHRG Born LLC (g) KHRG Boston Hotel, LLC (g) KHRG Canary LLC (g) KHRG Cayman LLC (g) KHRG Cayman Employer Ltd. KHRG DC 1731 LLC (g) KHRG DC 2505 LLC (g) KHRG Donovan LLC (g) KHRG Employer, LLC (g) KHRG Goleta LLC (g) KHRG Gray LLC (g) KHRG Gray U2 LLC (g) KHRG Huntington Beach LLC (g) KHRG Key West LLC (g) (k) KHRG King Street, LLC (g) KHRG La Peer LLC (g) KHRG Miami Beach LLC (g) KHRG Muse LLC (g) KHRG NPC LLC (g) KHRG Onyx LLC (g) KHRG Palladian LLC (g) KHRG Palomar Phoenix LLC (g) KHRG Philly Monaco LLC (g) KHRG Pittsburgh LLC (g) KHRG Reynolds LLC (g) KHRG Riverplace LLC (g) KHRG Sacramento LLC (g) KHRG Savannah LLC (g) KHRG Schofield LLC (g) KHRG Sedona LLC (g) KHRG SFD LLC (g) KHRG South Beach LLC (g) (k) KHRG State Street LLC (g) KHRG Sutter LLC (g) KHRG Sutter Union LLC (g) KHRG Taconic LLC (g) KHRG Tariff LLC (g) (k) KHRG Texas Hospitality, LLC (g) KHRG Texas Operations, LLC (g) KHRG Tryon LLC (g) KHRG Vero Beach, LLC (g) KHRG Vintage Park LLC (g) KHRG VZ Austin LLC (g) KHRG Wabash LLC (g) (k) KHRG Westwood, LLC (g) KHRG Wilshire LLC (g) KHRG Zamora LLC (g) Kimpton Hollywood Licenses LLC (g) Kimpton Hotel & Restaurant Group, LLC (g) Kimpton Phoenix Licenses Holdings LLC (g) Kimpton Sedona Licenses LLC (g) Louisiana Acquisitions Corp. (k) Manchester Oxford Street Hotel OpCo Limited (n) Mercer Fairview Holdings LLC (g) (k) Met Leeds Hotel OpCo Limited (n) MH Lodging LLC (g) PML Services LLC (g) (as) Pollstrong Limited (n) Powell Pine, Inc. (k) Priscilla Holiday of Texas, Inc. PT Regent Indonesia (r) PT SC Hotels & Resorts Indonesia (bh) Regent Asia Pacific Hotel Management Ltd (bw) Regent Asia Pacific Management Ltd (cp) Regent Berlin GmbH (cq) Regent International Hotels Ltd (bw) Resort Services International (Cayo Largo) L.P. Russell London Hotel OpCo Limited (n) SBS Maryland Beverage Company LLC (g) (as) SC Hotels International Services, Inc. (k) SC Leisure Group Limited (n) SC SC Quest Limited (n) SC Reservations (Philippines) Inc. SCH Insurance Company (bi) SCIH Branston 3 (n) Semiramis for training of Hotel Personnel and Hotel Management SAE SF MH Acquisition LLC (g) (k) Six Continents Corporate Services Six Continents Holdings Limited (n) Six Continents Hotels de Colombia SA (bj) Six Continents Hotels International Limited (n) Six Continents Hotels, Inc. (k) Six Continents International Holdings B.V. (p) Six Continents Investments Limited (f) (n) Six Continents Limited (n) Six Continents Overseas Holdings Limited (n) Six Continents Restaurants Limited (n) SixCo North America, Inc. (w) Solamar Lodging LLC (g) Southern Pacific Hotel Corporation (BVI) Ltd. (v) Southern Pacific Hotels Properties Limited (v) SPHC Group Pty Ltd. (aa) SPHC Management Ltd. St David’s Cardiff Hotel OpCo Limited (n) The Grand Central Hotel Glasgow Limited (n) The Met Hotel Leeds Limited (n) The Principal Edinburgh George Street Limited (n) The Principal London Limited (n) The Principal Manchester Limited (n) The Principal York Limited (n) The Roxburghe Hotel Edinburgh Limited (s) Universal de Hoteles SA (bj) White Shield Insurance Company Limited (bk) Wotton House Hotel OpCo Limited (n) York Station Road Hotel OpCo Limited (n) 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) Regent Hospitality Worldwide, Inc. (51%) (bt) World Trade Centre Montreal Hotel Corporation (74.11%) (bl) Associates and joint ventures 111 East 48th Street Holdings LLC (19.9%) (g) (h) Alkoer, S. de R.L. de C.V. (50%) (h) (cg) BCRE IHG 180 Orchard Holdings LLC (49%) (g) (cf) Beijing Orient Express Hotel Co., Ltd. (16.24%) (bm) Blue Blood (Tianjin) Equity Investment Management Co., Limited (30.05%) (bn) Carr Clark SWW Subventure, LLC (26.67%) (g) (ca) Carr Waterfront Hotel, LLC (11.46%) (g) (h) (ca) China Hotel Investment Limited (30.05%) (i) (am) Desarrollo Alkoer Irapuato S. de R.L. de C.V. (50%) (cg) Desarrollo Alkoer Saltillo S. de R.L. de C.V. (50%) (cg) Desarrollo Alkoer Silao S. de R.L. de C.V. (50%) (cg) Gestion Hotelera Gestel, C.A. (50%) (c) (h) (ba) H.I. Soaltee Hotel Company Private Ltd (33.4%) (br) Hotel JV Services LLC Inter-Continental Hotels Saudi Arabia Limited (40%) (bs) NF III Seattle, LLC (25%) (g) (cc) Nuevas Fronteras S.A. (23.66%) (cd) Panacon (33.33%) (ce) President Hotel & Tower Co Ltd. (30%) (bu) Tianjin ICBCI IHG Equity Investment Fund Management Co., Limited (21.04%) (bv) 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 [THIS PAGE IS INTENTIONALLY LEFT BLANK] [THIS PAGE IS INTENTIONALLY LEFT BLANK] [THIS PAGE IS INTENTIONALLY LEFT BLANK] [THIS PAGE IS INTENTIONALLY LEFT BLANK] [THIS PAGE IS INTENTIONALLY LEFT BLANK] [THIS PAGE IS INTENTIONALLY LEFT BLANK] [THIS PAGE IS INTENTIONALLY LEFT BLANK] [THIS PAGE IS INTENTIONALLY LEFT BLANK] IHG| Annual Report and Form 20-F In addition to performance measures directly observable in the Group Financial Statements (IFRS measures), additional measures (described as Non-GAAP) are presented that are used internally by management as key measures to assess performance. Non-GAAP measures are either not defined under IFRS or are adjusted IFRS figures. Further explanation in relation to these measures can be found on page Underlying revenue and underlying operating profit Non-GAAP reconciliations The following tables: Reconcile the GAAP measures included in the Group Financial Statements to Group underlying revenue and underlying operating profit; 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; and Show underlying Group fee revenue and Group fee margin on both an actual and constant currency basisa 2016 $m 2015 $m IHG’s method for calculating the constant currency amounts of entities reporting in currencies other than US dollars is to translate the current period results into US dollars using the prior period’s exchange rate. For example, if a UK entity generated revenue of £100m in Highlights for the year ended 31 December 2018 (13 ) 2017 Restated $m Change % Change % Highlights for the year ended 31 December 2015 $m 2014 $m 2015 $m 2014 $m 2014 $m 2017 Restated $m 2016 Restated $m Change $m Other financial information continued The following table reconciles basic earnings per ordinary share to underlying earnings per ordinary share. 12 months ended 31 December 2018 $m 2017 Restated $m Significant liquidated damages Tax on significant liquidated damages Acquisition of businesses Interest relating to deferred and contingent purchase consideration on current year acquisitions System Fund revenues and expenses Interest attributable to the System Fund Tax attributable to the System Fund Exceptional items before tax Tax on exceptional items Exceptional tax Currency effect Net capital expenditure reconciliation The following table reconciles net cash from investing activities to net capital expenditure. 12 months ended 31 December 2018 $m Contract acquisition costs, net of repayments Tax paid on disposals System Fund depreciation and amortisation Acquisition of businesses, net of cash acquired Disposal receipts Distributions from associates and joint ventures System Fund depreciation and amortisation Capital expenditure: maintenance and key money Capital expenditure: recyclable investments Capital expenditure: System Fund investments Free cash flow reconciliation The following table reconciles net cash from operating activities to free cash flow. Contract acquisition costs, net repayments Purchase of shares by employee share trusts Capital expenditure: maintenance and key money Cash receipt from renegotiation of long-term partnership agreement Underlying interest reconciliation The following table reconciles net financial expenses to underlying interest. 2018 $m Financial income Financial expenses Interest payable on balances with the System Fund Capitalised interest relating to System Fund assets Additional Information Other financial information continued Revenue per Available room (RevPAR), average daily rate and occupancy RevPAR References to RevPAR, The following tables present RevPAR statistics for the year ended 31 December 2017. The comparison with Asia, Middle East and Africa (AMEA) RevPAR, average daily rate and occupancycontinued Fee business Owned, leased and managed lease Additional Information 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 Subsidiaries, joint ventures and associated undertakings The Group has over Directors For biographies of the current Directors see pages 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 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 Shares Share capital The Company’s issued share capital at 31 December During 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 Dividends In The sterling amount of the final dividend will be announced on Major institutional shareholders As at As at 31 December 2016 As at 22 February 2016 As at 16 February 2015 The number of shares and percentage of voting rights was determined at the time of the relevant disclosures made in accordance with Rule 5 of the DTRs and doesn’t necessarily reflect the impact of any share consolidation or any changes in shareholding subsequent to the date of notification that are not required to be notified to us under the DTRs. Total shown includes Total shown includes 311,085 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 Our current policy is to settle the majority of awards or grants under the Company’s share plans with shares purchased in the market or from shares held in treasury; however, the Board continues to review this policy. The Company’s share plans incorporate the current Investment Associations’ guidelines on dilution which provide that commitments to new shares or re-issue treasury shares under executive plans should not exceed 5% of the issued ordinary share capital of the The estimated maximum dilution from awards made under the Company’s As at 31 December 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 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. Colleague Share Plan The Company proposes to implement a Colleague Share Plan, subject to shareholder approval at the Company’s 2019 AGM. A summary of the proposed plan will be set out in the notice convening the Company’s 2019 AGM, which will be available atwww.ihgplc.com/investors under Shareholders centre in the AGMs and meetings section. Future business developments of the Group Further details on these are set out in the Strategic Report on pages 2 to 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 IHG employed the following as at 31 December See 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 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 For more information on the Group’s employment policies, including equal opportunities, employee communications and development, see pages 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 Reporting boundary 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. Includes all of our branded hotels but does not include emissions from Scope We report Scope 1, Scope 2 and Scope Scope 1 Scope 2 Scope 3 emissions are indirect emissions produced by the emitter activity, but owned and controlled by a different emitter from the one who reports on the emissions (e.g. our franchise estate). Methodology We have worked with external consultants to give us an up-to-date picture of IHG’s carbon footprint and to assess our performance over the past few years. The external consultants use a sampling and extrapolation methodology to estimate our GHG emissions. For 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 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: Further details on material contracts are set out on page Business relationships 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 Listing Rules – compliance with LR 9.8.4C 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 At the end of The Group’s fee-based model and wide geographic spread mean that it is well placed to manage through uncertain times, and our forecasts and sensitivity projections, based on a range of reasonably possible changes in trading performance, show that the Group should be able to operate within the level of its current facilities. After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future and, accordingly, they continue to adopt the going concern basis in preparing the Consolidated Financial Statements. Please see page By order of the Board, George Turner Company Secretary InterContinental Hotels Group PLC Registered in England and Wales, Company number 5134420 Additional Information The Company was incorporated and registered in England and Wales with registered number 5134420 on 21 May 2004 as a limited company under the Companies Act 1985 with the name Hackremco (No. 2154) Limited. In 2004/05, as part of a scheme of arrangement to facilitate the return of capital to shareholders, the following structural changes were made to the Group: (i) on 24 March 2005, Hackremco (No. 2154) Limited changed its name to New InterContinental Hotels Group Limited; (ii) on 27 April 2005, New InterContinental Hotels Group Limited re-registered as a public limited company and changed its name to New InterContinental Hotels Group PLC; and (iii) on 27 June 2005, New InterContinental Hotels Group PLC changed its name to InterContinental Hotels Group PLC and became the holding company of the Group. The Group formerly known as Bass, and then Six Continents, was historically a conglomerate operating as, among other things, a brewer, soft drinks manufacturer, hotelier, leisure operator, and restaurant, pub and bar owner. In 1988 Bass acquired Holiday Inn International and the remainder of the Holiday Inn brand in 1990. The InterContinental brand was acquired by Bass in 1998 and the Candlewood Suites brand was acquired by Six Continents in 2003. On 15 April 2003, following shareholder and regulatory approval, Six Continents PLC separated into two new listed groups, InterContinental Hotels Group PLC, comprising the hotels and soft drinks businesses, and Mitchells & Butler plc, comprising the retail and standard commercial property developments business. The Group disposed of its interests in the soft drinks business by way of an initial public offering of Britvic (Britannia Soft Drinks Limited for the period up to 18 November 2005, and thereafter, Britannia SD Holdings Limited (renamed Britvic plc on 21 November 2005), which became the holding company of the Britvic Group on 18 November 2005), a manufacturer and distributor of soft drinks in the UK, in December 2005. The Group now continues as a stand-alone hotels business. Recent acquisitions and divestitures Capital expenditure The Group is subject to a variety of inherent risks that may have an adverse impact on its business operations, financial condition, turnover, profits, brands and reputation. This section describes the main risks that could materially affect the Group’s business. The risks below are not the only ones that the Group faces. Some risks are not yet known to the Group and some risks that the Group does not currently believe to be material could later turn out to be material. The 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 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. 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. Additionally, the Group may be adversely impacted by increasing stakeholder expectations of corporate performance in relation to waste, water, climate change, or support to local communities. A decrease in the demand for business and/or leisure hotel rooms as a result of such events may have an adverse impact on the Group’s operations and financial results. In addition, inadequate planning, preparation, response or recovery in relation to a major incident or crisis may cause loss of life, prevent operational continuity, or result in financial loss, and consequently impact the value of our brands and/or the reputation of the Group. The Group is exposed to the risks of the hotel industry supply-and-demand cycle The future operating results of the Group could be adversely affected by industry overcapacity (by number of rooms) and weak demand due, in part, to the cyclical nature of the hotel industry, or other differences between planning assumptions and actual operating conditions. These conditions could result in reductions in room rates and occupancy levels, which would adversely impact the financial performance of the Group. The Group is subject to a competitive and changing industry The Group operates in a competitive industry and must compete effectively against traditional competitors such as other global hotel chains, local hotel companies and independent hotels to win the loyalty of guests, employees and owners. The competitive landscape also includes other types of businesses, both global and specific to certain markets, such as web-based booking channels (which include online travel agents and intermediaries), and alternative sources of accommodation such as short-term lets of private property. Failure to compete effectively in traditional and emerging areas of the business could impact the Group’s market share, System size, profitability and relationships with owners and guests. The hospitality industry has experienced recent consolidation and is likely to see this trend continue as companies seek to maintain or increase competitive advantage. Further consolidation by competitors may result in such competitors having access to increased resources, capabilities or capacity and provide advantages from scale of revenues and/or cost structures. The Group is exposed to risks related to executing and realising benefits from strategic transactions, including acquisitions and restructuring The Group 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 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, The Group is exposed to inherent risks in relation to changing technology and systems As the use of the internet, artificial intelligence, mobile and Additional Information Group information continued Risk factors continued such failure could adversely affect guest experiences, and the Group may lose customers, fail to attract new customers, incur substantial costs or face other losses. This could further impact the Group’s reputation in regards to innovation. (See also information security and data privacy risk factor.) The Group is reliant on the reputation of its existing brands and is exposed to inherent reputation risks Any event that materially damages the reputation of one or more of the Group’s brands and/or fails to sustain the appeal of the Group’s brands to its customers and owners may have an adverse impact on the value of that brand and subsequent revenues from that brand or business. In particular, if the Group is unable to create consistent, valued, and quality products and guest experiences across the owned, leased and managed lease, managed and franchised estates, or if the Group, its franchisees or business partners fail to act responsibly, this could result in an adverse impact on its brand reputation. In addition, the value of the Group’s brands could be influenced by a number of external factors outside the Group’s control, such as, but not limited to, changes in sentiments against global brands, changes in applicable regulations related to the hotel industry or to franchising, successful commoditisation of hotel brands by online travel agents and intermediaries, or changes in owners’ perceptions of the value of the Group. The Group is exposed to risks associated with its intellectual property Given the importance of brand recognition to the Group’s business, the protection of its intellectual property poses a risk due to the variability and changes in controls, laws and effectiveness of enforcement globally. 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 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 The scope and complexity of our technology infrastructure, including increasing reliance on third-party suppliers to support and protect our systems and information, as well as the rapidly evolving cyber threats, means that we are inherently vulnerable to physical damage, failures, disruptions, denial of service, phishing or other malware attacks, cyber terrorism and fraud, as well as human error, negligence and wilful misuse. Our franchisees and suppliers are also inherently vulnerable to the same risks. Lack of resilience and operational availability of these systems provided by the Group or third-party technology providers could lead to prolonged service disruption and might result in significant business interruption, impact the guest booking experience, loss of or theft of data, and subsequently adversely impact Group revenues, incur financial costs to remediate or investigate, lead to regulatory and/or contractual enforcement actions or lawsuits, and damage the Group’s reputation and relationships with hotel owners. The Group is exposed to a variety of risks associated with safety, security and crisis management There is a constant need to protect the safety and security of our guests, employees and assets against natural and man-made threats. These include, but are not limited to, exceptional events such as extreme weather, civil or political unrest, violence and terrorism, serious and organised crime, fraud, employee dishonesty, cyber crime, pandemics, fire, and day-to-day accidents, incidents and petty crime which impact the guest or employee experience, could cause loss of life, sickness or injury and result in compensation claims, fines from regulatory bodies, litigation, and impact reputation. Serious incidents or a combination of events could escalate into a crisis which, if managed poorly, could further expose the Group and its brands to significant reputational damage. The Group requires the right people, skills and capability to manage growth and change In order to remain competitive, the Group must employ the right people. This includes hiring and retaining highly skilled employees with particular expertise or leadership capability. The implementation of the Group’s strategic business plans could be undermined by failure to build and sustain a resilient corporate culture, failure to recruit or retain key personnel, unexpected loss of key senior employees, failures in the Group’s succession planning and incentive plans, or failure to invest in the development of key skills. Some of the markets in which the Group operates are experiencing economic growth and/or low levels of unemployment, 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 and increasing labour costs may threaten the A significant number of colleagues at our managed, owned, leased and managed lease hotels (approximately 23% in the US) are covered by collective bargaining agreements and similar agreements. If relationships with those colleagues or the unions that represent them become adverse, the properties we own, lease or manage could experience labour disruptions such as strikes, lockouts, boycotts and public demonstrations. Collective bargaining agreements representing approximately half of our organised colleagues in the US expired and were renegotiated in 2018 and we may be required to negotiate additional collective bargaining agreements in the future if more employees become unionised. Labour disputes, which are generally more likely when collective bargaining agreements are being renegotiated, could harm our relationship with our colleagues, result in increased regulatory inquiries and enforcement by governmental authorities and deter guests. Further, adverse publicity related to a Labour regulation and the negotiation of 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 The Group is exposed to the risks related to The Group is increasingly dependent upon the collection, usage, retention, 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 Cyber breaches increasingly appear to be an unfortunate reality for most firms and we therefore invest in trying to avoid them where reasonable and practical to do so – in recognition of the possible impact of cybersecurity breaches beyond data loss on operational performance, ransomware and regulatory actions/ fines, as well as the potential impact on our reputation. The threats towards the hospitality industry and the Group’s information are dynamic, and include The Group experienced cybersecurity incidents including; (a) at a number of Kimpton hotels that resulted in unauthorised access to guest payment card data (the Kimpton Security Incident); and (b) an incident that involved malware being installed on servers that processed payment cards used at restaurants and bars of 12 IHG managed properties (the Americas Security Incident), that the Group become aware of in 2016. These incidents resulted in the Group reimbursing the impacted card networks for counterfeit fraud losses and related expenses and becoming subject to investigations regarding compliance with applicable State and Federal data security standards, and legal action from individuals and organisations impacted by the Security Incidents. To date, four lawsuits have been filed against IHG entities relating to the Security Incidents. The legal and regulatory environment around data privacy and requirements set out by the For information of incidents relating to cybersecurity and The Group is required to comply with existing and changing regulations and act in accordance with societal expectations across numerous countries, territories and jurisdictions Government regulations affect countless aspects of the Group’s business ranging from corporate governance, health and safety, the environment, bribery and corruption, employment law and diversity, disability access, data privacy and information protection, financial, accounting and tax. Regulatory changes may require significant changes in the way the business operates and may inhibit the Group’s strategy, including the markets the Group operates in, brand protection, and use or transmittal of personal data. If the Group fails to comply with existing or changing regulations, the Group may be subject to fines, prosecution, loss of licence to operate or reputational damage. The reputation of the Group and the value of its brands are influenced by a wide variety of factors, including the perception of stakeholder groups such as guests, owners, suppliers and communities in which the Group operates. The social and environmental impacts of its business are under increasing scrutiny, and the Group is exposed to the risk of damage to its reputation if it fails to (or fails to influence its business partners to) undertake responsible practices and engage in ethical behaviour, or fails to comply with relevant regulatory requirements. The Group may face difficulties insuring its business Historically, the Group has maintained insurance at levels determined to be appropriate in light of the cost of cover and the risk profile of the business. However, forces beyond the Group’s control, including market forces, may limit the scope of coverage the Group can obtain and the Group’s ability to obtain coverage at reasonable rates. Other forces beyond the Group’s control, such as terrorist attacks or natural disasters, may be uninsurable or simply too expensive to insure. Inadequate or insufficient insurance could expose the Group to large claims or could result in the loss of capital invested in The Group is exposed to inherent uncertainties associated with brand development and expansion The Group has recently launched or acquired a number of new brands, such as Group information continued Risk factors continued The Group is exposed to an impairment of the carrying value of our brands, goodwill or other tangible and intangible assets negatively affecting our consolidated operating results We hold significant amounts of goodwill, intangible assets, property and equipment, and investments. We review the value of our goodwill and indefinite-lived intangible assets for impairment annually (or whenever events or circumstances indicate impairment may have occurred). Changes to estimated fair values could result from shifts in the business climate, the competitive environment, the perceived reputation of our brands (by guests or owners), or changes in interest rates, operating cash flows, market capitalisation, or developments in the legal or regulatory environment. Because of the significance of our goodwill and other intangible assets, we have previously incurred and may incur future impairment charges for these assets, which may require material non-cash charges to our results of operations, which could have an adverse effect on our financial results. The Group is exposed to fluctuations in exchange rates, currency devaluations or restructurings and to interest rate risk in relation to its borrowings The US dollar is the predominant currency of the Group’s revenue and cash flows. Movements in foreign exchange rates can affect the Group’s reported profit, net liabilities and interest cover. The most significant exposures of the Group are in currencies that are freely convertible. The Group’s reported debt has an exposure to borrowings held in pounds sterling. Conducting business in currencies other than US dollars exposes us to fluctuations in exchange rates, currency devaluations, or restructurings. This could potentially lower our reported revenues, increase our costs, reduce our profits or disrupt our operations. Our exposure to these factors is linked to the pace of our growth in territories outside the US and, if the proportion of our revenues grows, this may increase the potential sensitivity to currency movements having an adverse impact on our results. From time to time, the Group hedges a portion of forecast foreign currency income by taking out forward exchange contracts and also uses short-dated foreign exchange swaps to manage sterling surplus cash and reduce US dollar borrowings whilst maintaining operational flexibility. However, these arrangements may not eliminate foreign exchange risk exposures entirely, and involve inherent risks of their own, including management time, expertise and external costs. The Group is also exposed to interest rate risk in relation to its fixed and floating rate borrowings and may use interest rate swaps to manage the exposure. The Group’s operations are dependent on maintaining sufficient liquidity to meet all foreseeable medium-term requirements and provide headroom against unforeseen obligations Cash and cash equivalents is held in short-term deposits and cash funds which allow daily withdrawals of cash. Most of the Group’s funds are held in the UK or US, although $2m (2017: $3m) is held in countries where repatriation is restricted as a result of foreign exchange regulations. Medium and long-term borrowing requirements are met through committed bank facilities and bonds. Short-term borrowing requirements may be met from drawings under uncommitted overdrafts and facilities. The Group could be affected by credit risk on treasury transactions The Group uses long-term credit ratings from Standard and Poor’s, Moody’s and Fitch Ratings as a basis for setting its counterparty limits. In order to manage the Group’s credit risk exposure, the treasury function sets counterparty exposure limits using metrics including credit ratings, the relative placing of credit default swap pricings, tier 1 capital and share price volatility of the relevant counterparty. The Group trades only with recognised, creditworthy third parties. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In respect of credit risk arising from financial assets, the Group’s exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments. The carrying amount of financial assets represents the maximum exposure to credit risk. The Group is exposed to a variety of risks associated with its financial stability and ability to borrow and satisfy debt covenants While the strategy of the Group is to grow through activities that do not involve significant amounts of its own capital, the Group does require capital to fund some development opportunities, technological innovations and strategic acquisitions; and to maintain and improve owned hotels. The Group is reliant upon having financial strength and access to borrowing facilities to meet these expected capital requirements. The majority of the Group’s borrowing facilities are only available if the financial covenants in the facilities are complied with. Non-compliance with covenants could result in the Group’s lenders demanding repayment of the funds advanced. If the Group’s financial performance does not meet market expectations, it may not be able to refinance existing facilities on terms considered favourable. The Group’s financial performance may be affected by changes in tax rates The Group’s financial performance may be affected by changes in taxes, including as a result of US federal income tax reform and taxation and/or repatriation of income earned abroad, and governmental regulations that influence or set wages, prices, interest rates or construction and maintenance procedures and costs. Many factors will affect the Group’s future tax rate, the key ones being future legislative developments, future profitability of underlying subsidiaries and tax uncertainties. There are many potential future changes to worldwide taxation systems as a result of the potential adoption by individual territories of recommendations of the OECD’s Base Erosion and Profit Shifting project, and other similar initiatives being driven by governments and tax authorities. The Group continues to monitor activity in this area. Tax liabilities or refunds may also differ from those anticipated, in particular as a result of changes in tax law, changes in the interpretation of tax law, or clarification of uncertainties in the application of tax law. Directors’ and Executive Committee members’ shareholdings As at Number of shares held outright APP deferred share awards LTIP share awards (unvested) Total number of shares held Executive Committee member Executive Directors’ benefits upon termination of office All current Executive Directors have a rolling service contract with a notice period from the Group of 12 months. As an alternative, the Group may, at its discretion, pay in lieu of that notice. Neither notice nor a payment in lieu of notice will be given in the event of gross misconduct. Payment in lieu of notice could potentially include up to 12 months’ salary and the cash equivalent of 12 months’ pension contributions, and other contractual benefits. Where possible, the Group will seek to ensure that, where a leaver mitigates their losses by, for example, finding new employment, there will accordingly be a corresponding reduction in compensation payable for loss of office. Further details on the policy for determination of termination payments are included in the Directors’ Remuneration Policy, which is available on IHG’s website atwww.ihgplc.com/investorsunder Corporate governance in the Directors’ Remuneration Policy section. Additional Information Group information continued Description of securities other than equity securities Fees and charges payable to a depositary Category (as defined by SEC) Each person to whom ADRs are issued against deposits of shares, including deposits and issuances in respect of: • • Expenses incurred on behalf of ADR holders in connection with: • • • • • • • These fees are not currently being charged by the ADR Depositary. Fees and charges payable by a depositary JPMorgan Chase Bank N.A. (JPMorgan or the ADR Depositary) is the depositary for IHG’s ADR programme. The ADR Depositary’s principal executive office is at: J.P. Morgan Depositary Receipts, 4 New York Plaza, 12th Floor, New York, NY 10004, US. The ADR Depositary has agreed to reimburse certain reasonable Company expenses related to the Company’s ADR programme and incurred by the Company in connection with the ADR programme. During the year ended 31 December The Company’s Articles of Association (the Articles) were first adopted with effect from 27 June 2005 and were most recently amended at the AGM held on 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 Any matter in which a Director has a material interest, and which does not comprise a Permitted Interest, must be authorised by the Board in accordance with the procedure and requirements contained in the Articles. In particular, this includes the requirement that a Director may not vote on a resolution to authorise a matter in which Further, a Director may not vote in respect of any proposal in which The Directors have authority under the Articles to set their own remuneration (provided certain criteria are met). While an agreement to award remuneration to a Director is an arrangement with the Company that comprises a Permitted Interest (and therefore does not require authorisation by the Board in that respect), it is nevertheless a matter that would be expected to give rise to a conflict of interest between the Director concerned and the Company, and such conflict must be authorised by a resolution of the Board. The Director that is interested in such a matter may neither vote on the resolution to authorise such conflict, nor count in the quorum of the meeting at which it was passed. Furthermore, as noted above, the interested Director is not permitted to vote in respect of any proposal in which exceptions outlined above) nor may As such, a Director has no power, in the absence of an independent quorum, to vote on compensation to The Directors are empowered to exercise all the powers of the Company to borrow money, subject to the limitation that the aggregate amount of all monies borrowed by the Company and its subsidiaries shall not exceed an amount equal to three times the Company’s share capital and consolidated reserves, unless sanctioned by an ordinary resolution of the Company. Under the Articles, there are no age-limit requirements relating to a person’s qualification to hold office as a Director of the Company. Directors are not required to hold any shares of the Company by way of qualification. The Articles require annual retirement and re-election of all Directors at the AGM. Rights attaching to shares Dividend rights and rights to share in the Company’s profits Under English law, dividends are payable on the Company’s ordinary shares only out of profits available for distribution, as determined in accordance with accounting principles generally accepted in the UK and by the Companies Act. No dividend will bear interest as against the Company. Holders of the Company’s ordinary shares are entitled to receive such dividends as may be declared by the shareholders in general meeting, rateably according to the amounts paid up on such shares, provided that the dividend cannot exceed the amount recommended by the Directors. The Company’s Board of Directors may declare and pay to shareholders such interim dividends as appear to them to be justified by the Company’s financial position. If authorised by an ordinary resolution of the shareholders, the Board of Directors may also direct payment of a dividend in whole or in part by the distribution of specific assets (and in particular of paid-up shares or debentures of any other company). Any dividend unclaimed by a member (or by a person entitled by virtue of transmission on death or bankruptcy or otherwise by operation of law) after six years from the date the dividend was declared, or became due for payment, will be forfeited and will revert to the Company. Voting rights The holders of ordinary shares are entitled, in respect of their holdings of such shares, to receive notice of general meetings and to attend, speak and vote at such meetings in accordance with the Articles. Voting at any general meeting of shareholders is by a show of hands unless a poll, which is a written vote, is duly demanded. On a show of hands, every shareholder who is present in person or by proxy at a general meeting has one vote regardless of the number of shares held. Additional Information Group information continued Articles of Association continued On a poll, every shareholder who is present in person or by proxy has one vote for every share held by that shareholder. A poll may be demanded by any of the following: �� A proxy form will be treated as giving the proxy the authority to demand a poll, or to join others in demanding one. The necessary quorum for a general meeting is three persons carrying a right to vote upon the business to be transacted, whether present in person or by proxy. Matters are transacted at general meetings of the Company by the proposing and passing of resolutions, of which there are two kinds: An ordinary resolution requires the affirmative vote of a majority of the votes of those persons present and entitled to vote at a meeting at which there is a quorum. Special resolutions require the affirmative vote of not less than three quarters of the persons present and entitled to vote at a meeting at which there is a quorum. AGMs must be convened upon advance written notice of 21 days. Other meetings must be convened upon advance written notice of 14 days. The days of delivery or receipt of the notice are not included. The notice must specify the nature of the business to be transacted. The Board of Directors may, if they choose, make arrangements for shareholders, who are unable to attend the place of the meeting, to participate at other places. Variation of rights If, at any time, the Company’s share capital is divided into different classes of shares, the rights attached to any class may be varied, subject to the provisions of the Companies Act, with the consent in writing of holders of three-quarters in nominal value of the issued shares of that class or upon the adoption of a special resolution passed at a separate meeting of the holders of the shares of that class. At every such separate meeting, all of the provisions of the Articles relating to proceedings at a general meeting apply, except that the quorum is to be the number of persons (which must be two or more) who hold or represent by proxy not less than one-third in nominal value of the issued shares of that class. Rights in a winding-up Except as the Company’s shareholders have agreed or may otherwise agree, upon the Company’s winding up, the balance of assets available for distribution is to be distributed among the holders of ordinary shares according to the amounts paid up on the shares held by them: This distribution is generally to be made in cash. A liquidator may, however, upon the adoption of a special resolution of the shareholders, divide among the shareholders the whole or any part of the Company’s assets in kind. Limitations on voting and shareholding There are no limitations imposed by English law or the Articles on the right of non-residents or foreign persons to hold or vote the Company’s ordinary shares or ADSs, other than the limitations that would generally apply to all of the Company’s shareholders. Under EU law, many employees of Group companies are now covered by the Working Time Regulations which came into force in the UK on 1 October 1998. These regulations implemented the European Working Time Directive and parts of the Young Workers Directive, and lay down rights and protections for employees in areas such as maximum working hours, minimum rest time, minimum days off and paid leave. In the UK, there is in place a national minimum wage under the National Minimum Wage Act 1998, as amended. At 31 December otherwise, in the first year of their apprenticeships. This particularly impacts businesses in the hospitality and retailing sectors. Compliance with the National Minimum Wage Act is being monitored by the Low Pay Commission, an independent statutory body established by the UK None of the Group’s UK employees are covered by collective bargaining agreements with trade unions. Continual attention is paid to the external market in order to ensure that terms of employment are appropriate. The Group believes the Group companies will be able to conduct their relationships with trade unions and employees in a satisfactory manner. The following contracts have been entered into otherwise than in the course of ordinary business by members of the Group: (i) in the two years immediately preceding the date of this document in the case of contracts which are or may be material; or (ii) that contain provisions under which any Group member has any obligation or entitlement that is material to the Group as at the date of this document. To the extent that these agreements include representations, warranties and indemnities, such provisions are considered standard in an agreement of that nature, save to the extent identified below. Syndicated Facility On 30 March 2015, the Company signed a five-year $1.275 billion bank facility agreement (Syndicated Facility) with Bank of America Merrill Lynch International Limited, Barclays Bank plc, HSBC Bank PLC, SunTrust Robinson Humphrey, The Bank of Tokyo-Mitsubishi UFJ, Ltd and The Royal Bank of Scotland plc, all acting as joint bookrunners and The Bank of Tokyo-Mitsubishi UFJ, Ltd as facility agent. The Company £2 billion Euro Medium Term Note programme In 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. Under the Trust Deed, each of the Issuer and the Guarantors has given certain customary covenants in favour of the Trustee. Final Terms were issued (pursuant to a The Final Terms issued under each of the 2012 Issuance, the 2015 Issuance, the 2016 Issuance and Further details of the Programme and the Notes are set out in the On 11 August 2016, the Issuer and the Guarantors entered into an amended and restated agency agreement (Agency Agreement) with HSBC Bank plc as principal paying agent and the Trustee, pursuant to which the Issuer and the Guarantors appointed paying agents and calculation agents in connection with the Programme and the Notes. Under the Agency Agreement, each of the Issuer and the Guarantors has given a customary indemnity in favour of the paying agents and the calculation agents. On Under the Dealer Agreement, each of the Issuer and the Guarantors has given customary warranties and indemnities in favour of the Dealers. Acquisition of Six Senses Hotels Resorts Spas On 12 February 2019, a share purchase agreement (SPA) was entered into between Sustainable Luxury (BVI) Limited Partnership (acting through Sustainable Luxury (BVI) Limited as its general partner), Sustainable Luxury Holdings (BVI) Limited, and Inter-Continental Hotels Corporation. Under the SPA, Inter-Continental Hotels Corporation agreed to buy the entire issued share capital of Sustainable Luxury Holdings (BVI) Limited, the principal trading company of the Six Senses group, from Sustainable Luxury (BVI) Limited Partnership. The purchase completed on 12 February 2019. Under the SPA, Inter-Continental Hotels Corporation gave certain customary warranties and indemnities to the seller. The consideration paid in respect of the acquisition was $300 million in cash, before adjustments. Group information continued Group companies have extensive operations in the UK, as well as internationally, and are involved in a number of legal claims and proceedings incidental to those operations. It is the Company’s view that such proceedings, either individually or in the aggregate, have not in the recent past and are not likely to have a significant effect on the Group’s financial position or profitability. Notwithstanding the above, the Company notes the matters set out below. Litigation is inherently unpredictable and, as of A claim was filed on 9 July 2013 by Pan-American Life Insurance Company against Louisiana Acquisitions Corp. and A claim was filed on 5 July 2016 by CPTS Hotel Lessee, LLC against Holiday Hospitality Franchising, LLC (HHF). The claimant alleges breach of the 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. The claimant alleged that Kimpton failed to secure and safeguard its customers’ payment card data and personally identifiable information. The parties reached agreement on a resolution of this matter and on 9 January 2019, the court granted the parties’ motion for preliminary approval of the class action settlement. A claim was filed on 5 May 2017 against InterContinental Hotels Group PLC, Inter-Continental Hotels Corporation, and InterContinental Hotels Group Resources, Inc. seeking class action status and alleging breach of implied contract, negligence, and unjust enrichment regarding an alleged data breach. The claimant alleges that IHG failed to secure and safeguard customers’ personal financial data. As of A claim was filed on 26 June 2017 against Inter-Continental Hotels Corporation, InterContinental Hotels Group Resources, Inc., and InterContinental Hotels Group (Canada), Inc. seeking class action status and alleging breach of fiduciary duty, negligence, breach of confidence, intrusion upon seclusion, breach of contract, breach of privacy legislation, and unjust enrichment regarding an alleged data breach. The claim was amended in March 2018 to name Six Continents Hotels, Inc. as the sole defendant. The claimant alleges that security failures allowed customers’ financial information to be compromised. As of 18 February 2019, the likelihood of a favourable or unfavourable result cannot be reasonably determined and it is not possible to determine whether any loss is likely or to estimate the amount of any loss. A claim was filed on 26 January 2018 against InterContinental Hotels Group PLC, Inter-Continental Hotels Corporation and InterContinental Hotels Group Resources, Inc., alleging negligence and seeking class action status, declaratory judgment, injunctive relief and unspecified damages regarding an alleged data breach. On 29 May 2018, the claimants dismissed the complaint without prejudice. Two class action claims were filed on 19 March 2018 and 6 December 2018 against Six Continents Hotels, Inc. and other hotel companies, alleging violations of anti-trust regulations. Both suits allege that the defendant hotel companies conspired to eliminate competitive branded keyword search advertising in the hotel industry, which raised prices for hotel rooms in violation of applicable law. As of 18 February 2019, the likelihood of a favourable or unfavourable result cannot be reasonably determined and it is not possible to determine whether any loss is likely or to estimate the amount of any loss. Exchange controls and restrictions on payment of dividends There are no restrictions on dividend payments to US citizens. Although there are currently no UK foreign exchange control restrictions on the export or import of capital or the payment of dividends on the ordinary shares or the ADSs, economic sanctions which may be in force in the UK from time to time impose restrictions on the payment of dividends to persons resident (or treated as so resident) in or governments of (or persons exercising public functions in) certain countries. Other than economic sanctions which may be in force in the UK from time to time, there are no restrictions under the Articles or under English law that limit the right of non-resident or foreign owners to hold or vote the ordinary shares or the ADSs. In addition, the Articles contain certain limitations on the voting and other rights of any holder of ordinary shares whose holding may, in the opinion of the Directors, result in the loss or failure to secure the reinstatement of any licence or franchise from any US governmental agency held by Six Continents Hotels, Inc. or any subsidiary thereof. 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: This section does not generally deal with the position of a US holder who is resident in the UK for UK tax purposes or who is subject to UK taxation on capital gains or income by virtue of carrying on a trade, profession or vocation in the UK through a branch, agency or permanent establishment to which such ADSs or ordinary shares are attributable (‘trading in the UK’). As used herein, a ‘US holder’ is a person who, for US federal income tax purposes, is a beneficial owner of ordinary shares or ADSs and is: (i) a citizen or individual resident of the US; (ii) a corporation, or other entity taxable as a corporation, created or organised in or under the laws of the US, any state therein or the District of Columbia; (iii) an estate whose income is subject to US federal income tax regardless of its source; or (iv) a trust, if a US court can exercise primary supervision over the trust’s administration and one or more US persons are authorised to control all substantial decisions of the trust. This section is based on the IR Code, its legislative history, existing and proposed regulations, published rulings and court decisions, and on UK tax laws and the published practice of HM Revenue and Customs (HMRC), all as of the date hereof. These laws, and that practice, are subject to change, possibly on a retroactive basis. This section is further based in part upon the representations of the ADR Depositary and assumes that each obligation in the deposit agreement and any related agreement will be performed in accordance with its terms. For US federal income tax purposes, an owner of ADRs evidencing ADSs will generally be treated as the owner of the underlying shares represented by those ADSs. For UK tax purposes, in practice, HMRC will also regard holders of ADSs as the beneficial owners of the ordinary shares represented by those ADSs (although case law has cast some doubt on this). The discussion below assumes that HMRC’s position is followed. Generally, exchanges of ordinary shares for ADSs, and ADSs for ordinary shares, will not be subject to US federal income tax or UK taxation on capital gains, although UK stamp duty reserve tax (SDRT) may arise as described below. The US Treasury has expressed concerns that parties to whom ADSs are pre-released before shares are delivered to the depositary, or intermediaries in the chain of ownership between holders and the issuer of the securities underlying the ADSs, may be taking actions that are inconsistent with the claiming of foreign tax credits by US holders of ADSs. Such actions would also be inconsistent with the claiming of the preferential rates of tax, described below, for qualified dividend income. Accordingly, the availability of the preferential rates of tax for qualified dividend income described below could be affected by actions taken by parties to whom the ADSs are pre-released. Investors should consult their own tax The following disclosures assumes that the Company is not, and will not become, a positive foreign investment company (PFIC), as described below. Taxation of dividends UK taxation Under current UK tax law, the Company will not be required to withhold tax at source from dividend payments it makes. A US holder who is not resident for UK tax purposes in the UK and who is not trading in the UK will generally not be liable for UK taxation on dividends received in respect of the ADSs or ordinary shares. US federal income taxation A US holder is generally subject to US federal income taxation on the gross amount of any dividend paid by the Company out of its current or accumulated earnings and profits (as determined for US federal income tax purposes). Distributions in excess of the Company’s current and accumulated earnings and profits, as determined for US federal income tax purposes, will be treated as a return of capital to the extent of the US holder’s basis in the shares or ADSs and thereafter as capital gain. Because the Company has not historically maintained, and does not currently maintain, books in accordance with US tax principles, the Company does not expect to be in a position to determine whether any distribution will be in excess of the Company’s current and accumulated earnings and profits as computed for US federal income tax purposes. As a result, it is expected that amounts distributed will be reported to the Internal Revenue Service (IRS) as dividends. Subject to applicable limitations and the discussion above regarding concerns expressed by the US Treasury, dividends paid to certain non-corporate US holders will be taxable at the preferential rates applicable to long-term capital gain if the dividends constitute ‘qualified dividend income’. The Company expects that dividends paid by the Company with respect to the ADSs will constitute qualified dividend income. US holders should consult their own tax advisors to determine whether they are subject to any special rules that limit their ability to be taxed at these preferential rates. Additional Information Shareholder information continued Taxation continued Dividends must be included in income when the US holder, in the case of shares, or the ADR Depositary, in the case of ADSs, actually or constructively receives the dividend, and will not be eligible for the dividends-received deduction generally allowed to US corporations in respect of dividends received from other US corporations. For foreign tax credit limitation purposes, dividends will generally be income from sources outside the US. The amount of any dividend paid in pounds sterling will be the US dollar value of the sterling payments made, determined at the spot sterling/US dollar rate on the date the dividend distribution is includible in income, regardless of whether the payment is in fact converted into US dollars. If the dividend is converted into US dollars on that date, a US holder should not be required to recognise foreign currency gain or loss in respect of the dividend income. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date the dividend payment is includible in income to the date the payment is converted into US dollars will be treated as ordinary income or loss from sources within the US. Taxation of capital gains UK taxation A US holder who is not resident for UK tax purposes in the UK and who is not trading in the UK will not generally be liable for UK taxation on capital gains, or eligible for relief for allowable losses, realised or accrued on the sale or other disposal of ADSs or ordinary shares. A US holder of ADSs or ordinary shares who is an individual and who, broadly, has temporarily ceased to be resident in the UK or has become temporarily treated as non-resident for UK tax purposes for a period of not more than five years US federal income taxation A US holder who sells or otherwise disposes of ordinary shares or ADSs will recognise a capital gain or loss for US federal income tax purposes equal to the difference between the amount realised and its tax basis in the ordinary shares or ADSs, each determined in US dollars. Such capital gain or loss will be long-term capital gain or loss where the US holder has a holding period greater than one year. Losses may also be treated as long-term capital losses to the extent of certain ‘extraordinary dividends’ that qualified for the preferential tax rates on qualified dividend income described above. The capital gain or loss will generally be income or loss from sources within the US for foreign tax credit limitation purposes. The deductibility of capital losses is subject to limitations. PFIC rules Based on the manner in which the Group operates its business and estimates of the value of its assets (which estimates are based, in part, on the market value of the Company’s ADSs) the Company believes that it was not a PFIC for US federal income tax purposes for its Certain elections may be available (including a market-to-market election) to US holders that would result in alternative treatments of the ordinary shares or ADSs. If the Company were a PFIC for any taxable year in which a US holder held ordinary shares or ADSs, a US holder would generally be required to file IRS Form 8621 with their annual US federal income tax returns, subject to certain exceptions. Additional tax considerations UK inheritance tax An individual who is neither domiciled nor deemed domiciled in the UK However, an individual who is domiciled in the US (for the purposes of the Estate and Gift Tax Convention (the Convention), and is not a UK national as defined in the Convention, will not be subject to UK inheritance tax (to the extent UK inheritance tax applies) in respect of the ordinary shares or ADSs on the individual’s death or on a transfer of the ordinary shares or ADSs during their lifetime, provided that any applicable US federal gift or estate tax is paid, unless the ordinary shares or ADSs are part of the business property of a UK permanent establishment or pertain to a UK fixed base of an individual used for the performance of independent personal services. Where the ordinary shares or ADSs have been placed in trust by a settlor, they may be subject to UK inheritance tax unless, when the trust was created, the settlor was domiciled in the US and was not a UK national. If no relief is given under the Convention, inheritance tax may be charged on death and also on the amount by which the value of an individual’s estate is reduced as a result of any transfer made by way of gift or other undervalue transfer, broadly within seven years of death, and in certain other circumstances. Where the ordinary shares or ADSs are subject to both UK inheritance tax and to US federal gift or estate tax, the Convention generally provides for either a credit against US federal tax liabilities for UK inheritance tax paid or for a credit against UK inheritance tax liabilities for US federal tax paid, as the case may be. UK stamp duty and SDRT Neither stamp duty nor SDRT will generally be payable in the UK on the purchase or transfer of an ADS, provided that the ADS and any separate instrument or written agreement of transfer are executed and remain at all times outside the UK. UK legislation does however provide for stamp duty (in the case of transfers) or SDRT to be payable at the rate of Following litigation on the subject, HMRC has accepted that it will no longer seek to apply the A transfer of the underlying ordinary shares will generally be subject to stamp duty or SDRT, normally at the rate of US backup withholding and information reporting Payments of dividends and sales proceeds with respect to ADSs and ordinary shares may be reported to the 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 Additional Information Shareholder information continued Disclosure controls and procedures As of the end of the period covered by this report, the Group carried out an evaluation under the supervision and with the participation of the Group’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Group’s disclosure controls and procedures (as defined in Rules 13a–15(e) and 15d–15(e) of the Securities Exchange Act 1934). These are defined as those controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act 1934 is recorded, processed, summarised and reported within the specified periods. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Group’s disclosure controls and procedures were effective. Summary of significant corporate governance differences from NYSE listing standards The Group’s statement of compliance with the principles and provisions specified in the UK Corporate Governance Code issued in IHG has also adopted the corporate governance requirements of the US Sarbanes-Oxley Act and related rules and of the NYSE, to the extent that they are applicable to it as a foreign private issuer. As a foreign private issuer, IHG is required to disclose any significant ways in which its corporate governance practices differ from those followed by US companies. These are as follows: Basis of regulation The Code contains a series of principles and provisions. It is not, however, mandatory for companies to follow these principles. Instead, companies must disclose how they have applied them and disclose, if applicable, any areas of non-compliance along with an explanation for the non-compliance. In contrast, US companies listed on the NYSE are required to adopt and disclose corporate governance guidelines adopted by the NYSE. Independent Directors The Code’s principles recommend that at least half the The Code recommends that the Committees The Company has a number of Board Committees which are similar in purpose and constitution to those required for domestic companies under NYSE rules. The NYSE requires US companies to have audit, remuneration and nominating/corporate governance committees composed entirely of independent directors, as defined under the NYSE rules. The Company’s Nomination Committee consists only of Non-Executive Directors and the Company’s Audit and Remuneration Committees consists entirely of Non-Executive Directors who are independent under the standards of the Code, which may not necessarily be the same as the NYSE independence standards. The nominating/governance committee is responsible for identifying individuals qualified to become Board members and to recommend to the Board a set of corporate governance principles. As the Company is subject to the Code, the Company’s Nomination Committee is only responsible for nominating, for approval by the Board, candidates for appointment to the Board, although it also assists in developing the role of the Senior Independent Non-Executive Director. The Company’s Nomination Committee consists of the The Non-Executive Director meetings NYSE rules require that non-management directors of US companies must meet on a regular basis without management present, and independent directors must meet separately at least once per year. The Code requires: (i) the Board Shareholder approval of equity compensation plans The NYSE rules require that shareholders must be given the opportunity to vote on all equity compensation plans and material revisions to those plans. The Company complies with UK requirements which are similar to the NYSE rules. The Board does not, however, explicitly take into consideration the NYSE’s detailed definition of ‘material revisions’. Code of Conduct The NYSE requires companies to adopt a code of business conduct and ethics, applicable to directors, officers and employees. Any waivers granted to directors or officers under such a code must be promptly disclosed. As set out on page Compliance certification Each chief executive of a US company must certify to the NYSE each year that he or she is not aware of any violation by the Company of any NYSE corporate governance listing standard. As the Company is a foreign private issuer, the Company’s Chief Executive Officer is not required to make this certification. However, he is required to notify the NYSE promptly in writing after any of the Company’s executive officers become aware of any non-compliance with those NYSE corporate governance rules applicable to the Company. Selected five-year consolidated financial information The selected consolidated financial data set forth in the table below for the years ended 31 December IFRS as adopted by the EU differs in certain respects from IFRS as issued by the IASB. However, the differences have no impact on the Group Financial Statements for the years presented. The selected consolidated financial data set forth below should be read in conjunction with, and is qualified in its entirety by reference to, the Group Financial Statements and notes thereto included elsewhere in this Annual Report and Form 20-F. Group income statement data On profit before exceptional items On exceptional items Exceptional tax Attributable to: Equity holders of the parent Non-controlling interest Basic Diluted Group statement of financial position data Restated for the adoption of IFRS 15 and other presentational changes (see pages 109 to 114 of the Group Financial Statements for further details) Shareholder information continued Since March Accompanied by a share consolidation. This programme was superseded by the share buyback programme announced on 7 August 2012. IHG changed the reporting currency of its Consolidated Financial Statements from sterling to US dollars effective from the Half-Year Results as at 30 June 2008. The dividend was first determined in US dollars and converted to sterling immediately before announcement at the rate of $1=£0.63, as set out in the circular detailing the special dividend and share buyback programme published on 14 September 2012. Sterling dividend translated at $1=£0.624. Translated into US dollars at the average rates of exchange for the relevant years (2014 $1=£0.61; 2013 $1=£0.64; 2012 $1 = £0.63). The dividend was first determined in US dollars and converted to sterling immediately before announcement at the rate of $1=£0.65, as announced in the Half-Year Results to 30 June 2013. Sterling dividend translated at $1=£0.644. The dividend was first determined in US dollars and converted to sterling immediately before announcement at the rate translated at $1=£0.597. Sterling dividend translated at $1=£0.5845. The dividend was first determined in US dollars and converted to sterling at the rate of $1 The dividend was first determined in US dollars and converted to sterling at the rate of $1 = £0.7724, as announced on 11 May 2017. The dividend was first determined in US dollars and converted to sterling at the rate of £1 = $1.2860, as announced on 17 January 2019. Purchases of equity securities by the Company and affiliated purchasers During the financial year ended 31 December Maximum number of shares (or units) that may be purchased under the Reflects the resolution passed at the Company’s AGM held on Reflects the resolution passed at the Company’s AGM held on The table below sets forth the amounts of ordinary dividends on each ordinary share and special dividends, in respect of each financial year indicated. The sterling amount of the final dividend will be announced on Accompanied by a share consolidation. IHG changed the reporting currency of its Consolidated Financial Statements from sterling to US dollars effective from the Half-Year Results as at 30 June 2008. Starting with the interim dividend for 2008, all dividends have first been determined in US dollars and converted into sterling prior to payment. This special dividend was announced on 19 October 2018 and paid on 29 January 2019 Shareholder information continued Shareholder profile by type as at 31 December Percentage of total shareholders issued share capital As of As of The following exhibits are filed as part of this Annual Report on Form 20-F with the Incorporated by reference. Additional Information Form 20-F cross-reference guide 5C – Research and development; intellectual property other financial information Statement of Directors’ Responsibilities Management’s report on internal control over financial reporting 16D – Exemptions from the listing standards for audit committees ADR an American Depositary Receipt, being a receipt evidencing title to an ADS. ADR Depositary 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 AGM Annual General Meeting of InterContinental Hotels Group PLC. Annual Report The Annual Report and Form 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 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 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 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 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 Director a director of InterContinental Hotels Group PLC. DR Policy Directors’ Remuneration Policy. EBIT earnings before interest and tax. EBITDA 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 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, leased and 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. Groupor 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 hedging the reduction of risk, normally in relation to foreign currency or interest rate movements, by making offsetting commitments. hotel revenue revenue from all revenue-generating activity undertaken by managed and owned, leased and IASB International Accounting Standards Board. IFRS International Financial Reporting Standards as adopted by the EU and issued by the IASB. IHG PLC InterContinental Hotels Group PLC. indirect channels online travel intermediaries and business and leisure travel agents. interest rate swap an agreement to exchange fixed for floating interest rate streams (or vice versa) on a notional principal. liquidated damages payments received in respect of the early termination of franchise and management contracts. 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 14194/329 pence each in the Company; from 1 July 2014, the ordinary shares of 15265/329 pence each in the Company; owner the ultimate owner of a hotel property. pipeline hotels/rooms that will enter the IHG System at a future date. A new hotel only enters the pipeline once a contract has been signed and the appropriate fees paid. In rare circumstances, a hotel will not open for reasons such as the financing being withdrawn. ppt a percentage point is the unit for the arithmetic difference of two percentages. reimbursable revenues reimbursements from managed and franchised hotels for costs incurred by IHG, for example the cost of IHG employees working in managed hotels. The related revenues and costs are presented gross in the Group income statement and there is no impact to profit. revenue management the employment of pricing and segment strategies to optimise the revenue generated from the sale of room nights. revenue per available roomorRevPAR rooms revenue divided by the number of room nights that are available (can be mathematically derived from occupancy rate multiplied by average daily rate). room count number of rooms franchised, managed, owned, leased or 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. sterlingor pounds sterling, £, penceor p the pound sterling, the currency of the United Kingdom. subsidiary a company over which the Group exercises control. System hotels/rooms operating under franchise and management agreements together with IHG owned, leased and System contribution to revenue System Fundor Fund assessment fees and contributions collected from hotels within the IHG System which fund technology fee income income received from hotels under franchise and management agreements for the use of IHG’s Guest Reservation System. total gross revenue total rooms revenue from franchised hotels and total hotel revenue from managed, owned, leased and Total Shareholder ReturnorTSR the theoretical growth in value of a shareholding over a period, by reference to the beginning and ending share price, and assuming that dividends, including special dividends, are reinvested to purchase additional units of the equity. UK the United Kingdom. UK GAAP United Kingdom Generally Accepted Accounting Practice. US the United States of America. US 401(k) Plan the Defined Contribution 401(k) plan. US dollars, US$, $or ¢ the currency of the United States of America. working capital the sum of inventories, receivables and payables of a trading nature, excluding financing and taxation items. Additional Information Website and electronic communication As part of IHG’s commitment to reduce the cost and environmental impact of producing and distributing printed documents in large quantities, this Annual Report and Form 20-F Shareholders may electronically appoint a proxy to vote on their behalf at the Shareholder hotel discount IHG offers discounted hotel stays (subject to availability) for registered shareholders only, through a controlled-access website. This is not available to shareholders who hold shares through nominee companies, ISAs or ADRs. For further details please contact the Company Secretary’s office (see Responsible Business Report In line with our commitment to responsible business practices, this year we have produced a Responsible Business Report showcasing our approach to responsible business and progress against our corporate responsibility targets. Visitwww.ihgplc.com/responsible-business for details. Registrar For information on a range of shareholder services, including enquiries concerning individual shareholdings, notification of a shareholder’s change of address and amalgamation of shareholder accounts (in order to avoid duplicate mailing of shareholder communications), shareholders should contact the Company’s Registrar, Equiniti, on 0371 384 Dividend services Dividend Reinvestment Plan (DRIP) The Company offers a DRIP for shareholders to purchase additional IHG shares with their cash dividends. For further information about the DRIP, please contact our Registrar helpline on 0371 384 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 accounts, to ensure efficient payment and clearance of funds on the payment date. For further information, please contact our Registrar (see page Overseas payment service It is also possible for shareholders to have their dividends paid directly to their bank accounts in a local currency. Charges are payable for this service. Go 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 Individual Savings Account (ISA) Equiniti offers a Stocks and Shares ISA that can invest in IHG shares. For further information, please contact Equiniti on Share dealing services Equiniti offers the following share-dealing facilities. Postal dealing For more information, call 0371 384 2248a. Telephone dealing For more information, call 0345 603 7037b. Internet dealing Visitwww.shareview.co.uk for more information. Changes to the base cost of IHG shares Details of all the changes to the base cost of IHG shares held from April ‘Gone away’ shareholders Working with ProSearch (an asset reunification company), we continue to look for shareholders who have not kept their contact details up to date. We have funds waiting to be claimed and are committed to doing what we can to pay these to their rightful owners. Please contact ProSearch on +44 (0) 800 612 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/ Details of any share dealing facilities that the Company endorses will be included in Company mailings. Trading markets The principal trading market for the Company’s ordinary shares is the London Stock Exchange (LSE). The ordinary shares are also listed on the NYSE, trading in the form of ADSs evidenced by ADRs. Each ADS represents one ordinary share. The Company has a sponsored ADR facility with J.P. Morgan as ADR Depositary. American Depositary Receipts (ADRs) The Company’s shares are listed on the NYSE in the form of American Depositary Shares, evidenced by ADRs and traded under the symbol ‘IHG’. Each ADR represents one ordinary share. All enquiries regarding ADR holder accounts and payment of dividends should be directed to Documents on display Documents referred to in this Annual Report and Form 20-F that are filed with the SEC can be found at the SEC’s public reference room located at 100 F Street, NE Washington, Lines are open from Lines are open from 2018 2018 Financial year end 31 December (36.3¢ per ADR) Payment date 5 October 2019 Announcement of Preliminary Results for 2018 19 February 2019 Management Statement (262.1¢ per ADR) Annual General Meeting 3 May Record date 11 January Announcement of Half-Year Results for 2019 6 August Ex-dividend date 14 January Payment date 29 January Management Statement Financial year end 31 December 2019 2018 Final dividend of 78.1¢ per ordinary sharea 2020 Ex-dividend date 28 March Announcement of Preliminary Results for 2019 February Record date 29 March Payment date 14 May The sterling amount of the final dividend will be announced on Registered office Broadwater Park, Denham, Buckinghamshire, UB9 5HR, United Kingdom Telephone: +44 (0) 1895 512 000 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 St. Paul, MN Telephone: +1 800 990 1135 (US calls) (toll-free) +1 651 453 2128 (non-US calls) Email: 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, visitwww.ihg.com/rewardsclub or telephone: +1 888 211 9874 +1 800 272 9273 +1 801 975 3013 +971 4 429 0530 + +86 21 2033 4848 +81 3 5767 9325 +63 2 857 8778 +63 2 857 8788 International calling rates apply. Toll-free. Toll charges apply. The Annual Report and Form 20-F 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 and retaining franchise and management agreements; the risks in relation to changing technology and systems; the Group’s reliance on the reputation of its brands and 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 Designed and produced bySuperunion, London. www.superunion.com Managed byDonnelley Financial Solutions InterContinental Hotels Group PLC’s commitment to environmental issues is reflected in this Annual Report. This report has been printed on Symbol Matt Plus. Environmental friendly ECF (Elemental Chlorine Free Guaranteed) paper, certified by the FSC®(Forest Stewardship Council Containing a high content of selected recycled materials (minimum 25% guaranteed). The FSC® (Forest Stewardship Council) is a worldwide label which identifies products obtained from sustainable and responsible forest management. Printed by CPI Colour in the UK, using the latest environmental printing technology and vegetable-based inks. CPI Colour is a CarbonNeutral® company. Registered with the Environmental Management System ISO14001 and are Forest Stewardship Council (FSC®) chain-of-custody certified. The unavoidable carbon emissions generated during the manufacturing and delivery of this document have been reduced to net zero through a verified carbon offsetting project. InterContinental Hotels Group PLC Broadwater Park, Denham Buckinghamshire UB9 5HR United Kingdom Tel +44 (0) 1895 512 000 Webwww.ihgplc.com Make a booking atwww.ihg.com 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 Form 20-F on its behalf. INTERCONTINENTAL HOTELS GROUP PLC (Registrant) Date: IHG is a brands-led business, and we create Great Hotels Guests Love® through our portfolio of complementary and differentiated hotel brands. Our brands are trusted for meeting guests’ needs, for rewarding loyalty and for delivering memorable experiences.Trends shaping our industry Demand for branded experiences Diverse consumer needs Power of the cloud IHG | Annual Report and Form 20-F 2018 | Strategic Report | Industry overview 9 InterContinental® Hotels & Resorts:Live the InterContinental LifeInternational travel should always be alluring. As the world’s first international luxury travel hotel brand, we have been pioneering new international destinations for decades. We are dedicated to those who appreciate and enjoy ‘The InterContinental Life’ – the glamour and exhilaration of fascinating places, mixed with our international know-how and local cultural wisdom.occasions: short-break experience, mixing business with pleasure, social identityb.hotels which offer longer term accommodation compared to a traditional hotel. We are focused on enhancing our iconic brands, launching fast-growing new ones and expanding an already strong presence in extended stay. Annual industry Industry revenue global segment growth potential revenue to 2025 $115bn $65bn 
Kimpton®Holiday Inn Hotels & Restaurants:A different way to stayAs the industry pioneer that first introduced the boutique concept to the US, we are renowned for making travellers feel genuinely cared for through thoughtful perks and amenities, inventive meetings and events, bold and playful design, and a sincerely personal style of guest service.Guest stay occasions: short-break experience, business productivity, family time.HUALUXEResorts® Hotels and Resorts:Capturing the spirit of Chinese hospitalityWe are the first upscale international hotel brand designed specifically for Chinese guests. We have woven into every detail of the luxury brand’s service and design an acknowledgement of Chinese culture and heritage, with particular emphasis on the Chinese values of etiquette, rejuvenation in nature, recognition of status and enabling spaces.Guest stay occasion:building business interactions.
Hotel Indigo®:Making travel inspiringWe serve the curious – people who are inspired by new places, new people and new ideas. Each hotel is part of the pulse and the rhythm of a place, drawing on the story of its local area to inspire every aspect of the hotel, from intriguing design to distinctive local ingredients in our menus.Guest stay occasions: short-break experience, business productivity, romantic getawaya.EVEN® Hotels:Where wellness is built inWe provide a strong lifestyle offering for travellers seeking more options to stay healthier and happier away from home. Our hotels, and wellness-savvy staff, offer guests a best-in-class fitness experience, healthier food choices, and natural and relaxing spaces. Beyond our hotels, we support the needs of travellers through wellwellwell.com, a go-to source for healthier, happier travel.Guest stay occasion: well-being.Crowne Plaza® Hotels & Resorts:Making business travel workWe believe business travel should work better. In every market in the world, business has changed, and so has work. It’s more digital, more flexible, more mobile, more connected. As oneOne of the world’s largest upscalemost iconic and trusted brands, we have properties located in majorHoliday Inn is delivering warm and welcoming experiences for guests staying for business or pleasure. With a breadth of property types from urban centres gateway citiesto beach resorts, the brand continues to drive demand with a focus on service, improved guest room and resort destinations all around the globe.public area designs, and new food and beverage offers.Guest stay occasions: business productivity, building business interactionsb.
10 IHG Annual Report and Form 20-F 2016 Strategic Report10 IHG | Annual Report and Form 20-F 2018 Our hotel brands are underpinned by the IHG® parent brand, strengthened by our leading loyalty programme, IHG® Rewards Club, and are brought to life by outstanding people in great hotels. Building upon an in-depth understanding of what matters most to guests, we continually enhance our brands’ promises.In a crowded marketplace, our brands therefore stand out from the competition and continue to deliver memorable stay experiences, which in turn drives the performance of our business.
Definition Guest stay occasionWe broadly segment the market into nine globally relevant categories that align to the different occasions for which guests might travel, such as for family time or for a romantic getaway. By understanding these guest stay occasions, we are able to deliver a differentiated brand experience that better meets our guests’ expectations.
See page 29 for a breakdown of IHG hotels open and in the pipeline.PROGRESS AGAINST 2016REGIONAL PRIORITIES1.Grew System size by opening 188 hotels, and through key signingsfranchise model for our InterContinental brand (including Houston, Minneapolis, and San Diego). Grew our EVEN Hotels brand, including opening the first franchise in Omaha and two openings in New York City. Delivered a strong year of signings for Kimpton Hotels & Restaurants, and opened its first international hotel with the Kimpton Seafire Resort + Spa, Grand Cayman.
2018.2.Strengthened brand preference by embedding the new Holiday Inn Express, room design (see page 17), which has delivered strong performanceHoliday Inn and penetrationCrowne Plaza brands. This model is attractive to owners and contributed to 56% of total signings in the estate. Began driving adoption of the new Holiday Inn room design (see page 17), which became a brand standardregion in the US and Canada in 2016. Launched the Crowne Plaza Accelerate programme (see page 30).
launch to 143. We extended this franchise offer to Crowne Plaza and Holiday Inn with seven franchise signings under these brands in 2018.3.Built more meaningful relationships withResponding to the needs of our guests, bywe will continue to innovate using digital technologies, including implementing IHG Connect, which delivers a faster, more reliable and consistent hotel internet experience. Guests benefit from a seamless, wifi log-in across our estate using theirguest digital payment solutions; launching IHG Rewards Club credentials. Hotels thatWeChat Mini Program; and testing Artificial Intelligence enabled smart rooms in InterContinental hotels.Continue our talent development momentum to support growth.Adapting our America’s franchise platform, we have adoptedtailored and implemented the system have seen wifi-related scores increase by five pointsGreater China Franchise Performance Support Model. Built to support franchise hotels, it delivers a high quality guest experience and superior owner returns.Franchise Plus has significantly accelerated Holiday Inn Express growth in China, with 71 hotels signed in 2018, taking the total signed since implementation.4.Drove superiorWe continue to evolve this franchise model, focusing on improving owner returns for our owners by refining our revenue toolkit, including expansionthrough the delivery of the newly approved standardnext generation design for revenue management, expansion of our revenue management services and embedding our operational model for hotel support.IHG’S 2017 REGIONAL PRIORITIES1.Grow System size by opening key properties and strengthening our upscale and luxury portfolio (including the InterContinental Los Angeles Downtown, Hotel Indigo Los Angeles Downtown, and Crowne Plaza HY36 Midtown Manhattan).
brands.2.Drive brand preference through the Crowne Plaza Accelerate programme (see page 30), and through the continued scaling of Holiday Inn Express and Holiday Inn new designs.3.Drive superior returns for our ownersexpanding our revenue management service, Revenue Management for Hire6.9% in 2018, ahead of the industry, driven by 3.5% average daily rate growth and 2.1% occupancy growth. Mainland China RevPAR increased by 6.3%, led by growth in particular, through the expansiontier 1 and tier 2 cities due to strong transient and meeting demand,ramp-up of our owner-centric support modelnew hotels and revenue management standard to Mexico.
Industry performance in 2016a strong Chinese New Year. RevPAR grew in Hong Kong and Macau by 8.9% and 8.4% respectively.Industry RevPAR in the Americas increased by 3.8%, driven by a 1.5% increase in room demand and a 4.0% increase in average daily rate. On the supply side, the number of available rooms increased by 1.6%, the highest growth since 2009. All industry segments experienced RevPAR growth, driven by average daily rate. RevPAR in the upper midscale segment, where the Holiday Inn and Holiday Inn Express brands operate, increased by 2.1%, driven by a 2.5% increase in average daily rate. In the US, lodging industry room demand increased by 1.7%, continuing to outpace GDP for the past seven years. Industry room demand set records in all months this year as it has done, except in one month, since March 2011. US supply growth continued to move upwards, reaching 1.6%, (still below the 1.9% per annum historic average). Average daily rate growth of 3.1% drove a 3.2% increase in US RevPAR. In the US, RevPAR increased by 2.3% in upper midscale, 2.1% in upscale and 1.3% in luxury. In Canada, industry RevPAR increased by 4.9%, driven by a 4.3% increase in average daily rate, and in Mexico, RevPAR increased by 17.2%, due to a 17.1% increase in average daily rate.SourceSmith Travel Research for all of the above industry facts.IHG’s regional performance in 2016IHG’s comparable RevPAR in the Americas increased 2.1%, driven by 2.0% average daily rate growth. The region is predominantly represented by the US, where comparable RevPAR increased 1.8%. US RevPAR growth was impacted by our concentration in oil producing markets, where RevPAR declined by 7.5%; in the remainder of the estate RevPAR increased by 3.0%. In the US, we are most represented by our upper midscale brands Holiday Inn and Holiday Inn Express. The Holiday Inn brand increased RevPAR 2.5%, slightly ahead of the segment, whilst Holiday Inn Express brand increased by 1.5%, behind the segment. However, absolute occupancy for both brands was ahead of the industry. In Canada, our comparable RevPAR increased by 2.7% and Mexico increased by 12.9%, both led by rate growth.Strong demand for IHG-branded hotels continued, with 37,038 rooms signed during 2016. We continued to demonstrate our commitment to quality, with 15,117 rooms leaving the IHG System.Americas comparable RevPARmovement on previous year Franchised Managed Crowne Plaza 1.5% InterContinental 2.7% Holiday Inn 2.6% Kimpton 2.9% Holiday Inn Express 1.7% Crowne Plaza 5.7% All brands 1.9% Holiday Inn 4.9% Staybridge Suites 5.3% Candlewood Suites 1.2% All brands 3.2% Owned and leased EVEN Hotels 15.5% All brands 4.0% Performance IHG Annual Report and Form 20-F 2016 31PERFORMANCE CONTINUEDThe Americascontinued46 IHG | Annual Report and Form 20-F 2018 Americas results 12 months ended 31 December Revenue Franchised 685 661 3.6 630 4.9 Managed 172 166 3.6 103 61.2 Owned and leased 136 128 6.3 138 (7.2 ) Total 993 955 4.0 871 9.6 Percentage of Group revenue 57.9 53.0 4.9 46.9 6.1 Operating profit before exceptional items Franchised 600 575 4.3 544 5.7 Managed 64 64 – 47 36.2 Owned and leased 24 24 – 18 33.3 688 663 3.8 609 8.9 Regional overheads (55 ) (66 ) 16.7 (65 ) (1.5 ) 633 597 6.0 544 9.7 Exceptional items (29 ) (41 ) 29.3 110 (137.3 ) Operating profit 604 556 8.6 654 (15.0 ) Percentage of Group operating profit before central overheads and exceptional items 75.8 71.9 3.9 67.5 4.4 Highlights for the year ended31 December 2016With 3,925 hotels (487,993 rooms), The Americas represented 64% of the Group’s room count and 76% of the Group’s operating profit before central overheads and exceptional items for the year ended 31 December 2016. The key profit-producing region is the US, although the Group is also represented in Latin America, Canada, Mexico and the Caribbean. 88% of rooms in the region are operated under the franchise business model, primarily in the upper midscale segment (the Holiday Inn brand family). In the upscale segment, Crowne Plaza is predominantly franchised whereas, in the upper upscale segment, Kimpton is entirely managed. In the luxury segment, InterContinental-branded hotels are operated under both franchise and management agreements. 11 of the Group’s 12 hotel brands are represented in The Americas.Revenue and operating profit increased by $38m (4.0%) to $993m and by $48m (8.6%) to $604m respectively. Operating profit before exceptional items increased by $36m (6.0%) to $633m. Underlyinga revenue increased by $53m (5.8%), while underlyinga operating profit increased by $46m (7.7%), driven predominantly by RevPAR growth in the fee business and an increase in net rooms. The underlying results exclude the impact of owned asset disposals, managed leases, and the benefit of significant liquidated damages receipts (2016: $nil; 2015: $3m).Franchised revenue and operating profit increased by $24m (3.6%) to $685m and by $25m (4.3%) to $600m respectively. Royaltiesb growth of 2.4% was driven by comparableRevPAR growth of 1.9%, including 2.6% for Holiday Inn and 1.7% for Holiday Inn Express, together with 2.0% rooms growth. On a constant currency basis, revenue and operating profit increased by $29m (4.4%) to $690m and by $30m (5.2%) to $605m respectively.Managed revenue increased by $6m (3.6%) to $172m, whilst operating profit stayed flat at $64m due to costs relating to our 20% interest in InterContinental New York Barclay and the ongoing impact of new supply on RevPAR growth in New York. Revenue and operating profit included $34m (2015: $38m) and $nil (2015: $nil) respectively from one managed-lease property. Excluding results from this managed-lease hotel, the benefit of significant liquidated damages receipts (2016: $nil; 2015: $3m) and on a constant currency basis, revenue increased by $16m (12.8%) and operating profit increased by $5m (8.2%) respectively.Owned and leased revenue increased by $8m (6.3%) to $136m, whilst operating profit stayed flat at $24m.Regional overheads decreased by $11m (16.7%) to $55m due to a $10m year-on-year decrease in US healthcare costs.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 156 and 157). 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.cUnderlying excludes the impact of owned asset disposals, significant liquidated damages, Kimpton and the results from managed-lease hotels, translated at constant currency by applying prior-year exchange rates (see pages 156 and 157). Underlying operating profit growth also excludes the impact of exceptional items.Highlights for the year ended31 December 2015Revenue increased by $84m (9.6%) to $955m and operating profit decreased by $98m (15.0%) to $556m, primarily due to the gain on sale of InterContinental New York Barclay and InterContinental Mark Hopkins San Francisco during the year ended 31 December 2014. Operating profit before exceptional items increased by $53m (9.7%) to $597m. Underlyingc revenue increased by $71m (8.8%), while underlyinga operating profit increased by $53m (9.9%), driven predominantly by strong RevPAR growth in the fee business and an increase in net rooms. The underlying results exclude both InterContinental Mark Hopkins San Francisco and InterContinental New York Barclay whilst under IHG ownership, managed leases, Kimpton, and the benefit of significant liquidated damages receipts (2015: $3m; 2014: $7m).Franchised revenue increased by $31m (4.9%) to $661m, including the impact of the $7m liquidated damages receipts in 2014 (7.9% excluding these liquidated damages and on a constant currency basis). Royaltiesb growth of 5.1% was driven by comparable RevPAR growth of 4.6%, including 4.6% for Holiday Inn and 4.1% for Holiday Inn Express, together with 1.2% rooms growth. Operating profit increased by $31m (5.7%) to $575m, including an $8m increase in fees associated with the initial franchising and relicensing of hotels. Excluding the benefit of significant liquidated damages (2015: $nil; 2014: $7m), and on a constant currency basis, operating profit increased by $47m (8.8%) to $584m.Managed revenue increased by $63m (61.2%) to $166m, and operating profit increased by $17m (36.2%) to $64m. Revenue and operating profit included $38m (2014: $38m) and $nil (2014: $nil) respectively from one managed-lease property. Kimpton contributed $59m to managed estate revenue and $18m to operating profit, including $3m of significant liquidated damages. Managed operating profit was impacted by costs relating to our 20% interest in InterContinental New York Barclay during its refurbishment (2015: $4m; 2014: $5m). Excluding results for both Kimpton and managed-lease hotels and on a constant currency basis, revenue increased by $9m (13.8%) and operating profit increased by $2m (4.3%).Owned and leased revenue decreased by $10m (7.2%) to $128m,and operating profit increased by $6m (33.3%) to $24m, following the disposal of two owned hotels (InterContinental Mark Hopkins San Francisco and an 80% interest in InterContinental New York Barclay) during 2014. Excluding these two hotels and on a constant currency basis, owned and leased revenue and operating profit increased by $13m and $5m, respectively, reflecting improved trading at InterContinental Boston and at Holiday Inn Aruba.32 IHG Annual Report and Form 20-F 2016 Strategic Report Hotels Rooms At 31 December 2016 2016 Analysed by brand InterContinental 48 (2 ) 16,408 (701 ) Kimpton 61 – 11,238 262 Crowne Plaza 164 (8 ) 44,116 (2,200 ) Hotel Indigo 46 6 5,932 861 EVEN Hotels 6 3 1,010 564 Holiday Inna 774 2 136,744 749 Holiday Inn Express 2,154 48 192,371 5,399 Staybridge Suites 226 15 24,185 1,523 Candlewood Suites 362 21 34,192 1,864 Other 84 – 21,797 97 Total 3,925 85 487,993 8,418 Franchised 3,633 85 430,866 8,636 Managed 286 (1 ) 55,302 (413 ) Owned and leased 6 1 1,825 195 Total 3,925 85 487,993 8,418 Percentage of Group hotel and room count 75.9 (0.4 ) 63.6 (0.8 ) Hotels Rooms At 31 December 2016 2016 Analysed by brand InterContinental 7 3 2,532 987 Kimpton 17 (1 ) 2,949 (417 ) Crowne Plaza 17 2 3,286 796 Hotel Indigo 32 2 3,965 (59 ) EVEN Hotels 6 (2 ) 780 (482 ) Holiday Innb 128 3 17,304 (899 ) Holiday Inn Express 488 39 46,796 2,851 Staybridge Suites 131 26 13,896 2,666 Candlewood Suites 108 10 9,604 884 Other 11 (2 ) 1,339 (260 ) Total 945 80 102,451 6,067 Franchised 897 88 93,295 7,432 Managed 48 (7 ) 9,156 (1,163 ) Owned and leased – (1 ) – (202 ) Total 945 80 102,451 6,067 Performance IHG Annual Report and Form 20-F 2016 33PERFORMANCE CONTINUEDContinue 12 months ended 31 December 2018
$m 2017
Restated
$m 2018 vs
2017
% change 2016
Restated
$m 2017 vs
2016
% change Revenue from the reportable segmenta Fee business 143 117 22.2 112 4.5 Total 143 117 22.2 112 4.5 Percentage of Group revenue from reportable segments 7.4 6.8 0.6 6.7 0.1 Operating profit from the reportable segmenta Fee business 69 52 32.7 46 13.0 Exceptional items (1 ) – – – – Operating profit 68 52 30.8 46 13.0 Percentage of Group operating profit from reportable segments before central overheadsb 7.4 6.0 1.4 5.5 0.5 grow$143m and operating profit increased by $16m (30.8%) to $68m, both including the benefit of $6m of significant liquidated damages recorded (2017: $nil). Operating profit from the reportable segmenta increased by $17m (32.7%) to $69m. On an underlyingc basis, revenue increased by $18m (15.4%) and operating profit increased by $10m (19.2%). The region achieved comparable RevPAR growth of 6.9%, ahead of the industry, reflecting our scale and management strength in priority marketsGreater China.key cities, whilst driving brand preference, focusingoperating profit were driven by strong trading and 13.6% rooms growth and continued benefits of leveraging the scale of the operational platform we have built in Greater China. Comparable RevPAR growth of 6.9% benefited from strong transient and meetings demand in mainland tier 1 and tier 2 cities.qualityan underlyingcbasis revenue increased by $7m (6.3%) and innovationoperating profit by $6m (13.0%).guest experience, overfee business revenue and operating profit were driven by strong trading in Mainland China and 9.2% rooms growth as well as robust cost control as we continued to leverage the next three years.
a b PROGRESS AGAINST 2016c REGIONAL PRIORITIESIHG | Annual Report and Form 20-F 2018 | Strategic Report | Performance 47 1.Grew Rooms At 31 December 2018 Change
over 2017 2018 Change
over 2017 Analysed by brand Regent Hotels 3 3 1,236 1,236 InterContinental 47 7 19,229 2,600 HUALUXE 8 1 2,335 246 Crowne Plaza 91 9 32,410 3,462 Hotel Indigo 10 3 1,506 483 Holiday Inna 92 6 28,007 1,348 Holiday Inn Express 133 32 29,164 5,351 Other 7 2 1,426 (952 ) Total 391 63 115,313 13,774 Analysed by ownership type Franchised 36 25 8,755 4,991 Managed 355 38 106,558 8,783 Total 391 63 115,313 13,774 Percentage of Group hotel and room count 7.0 24.7 13.8 35.8 a Rooms At 31 December 2018 Change
over 2017 2018 Change
over 2017 Analysed by brand InterContinental 25 (3 ) 7,399 (1,581 ) Kimpton 4 2 899 540 HUALUXE 21 – 6,099 (190 ) Crowne Plaza 39 3 11,855 182 Hotel Indigo 17 2 2,794 259 EVEN Hotels 7 4 1,688 892 Holiday Innb 56 2 15,260 144 Holiday Inn Express 171 37 31,650 5,993 Other 1 – 279 – Total 341 47 77,923 6,239 Analysed by ownership type Franchised 124 56 22,005 10,329 Managed 217 (9 ) 55,918 (4,090 ) Total 341 47 77,923 6,239 b 48 IHG | Annual Report and Form 20-F 2018 12 months ended 31 December 2018
$m 2017
Restated
$m
% change 2016
Restated
$m
% change Revenue 170 157 8.3 147 6.8 Gross costs (287 ) (259 ) (10.8 ) (270 ) 4.1 (117 ) (102 ) (14.7 ) (123 ) 17.1 Exceptional items (55 ) (29 ) (89.7 ) – – Operating loss (172 ) (131 ) (31.3 ) (123 ) 6.5 a potentialoperating profit or net income.growth, by focusing on significantly increasing ourgrowth. The programme is centred around strengthening the Group’s organisational structure to redeploy resources to leverage scale in Germany (see page 30). In 2016, 22 hotels were signed or opened.the highest opportunity markets and segments. The programme is expected to be completed in 2019.IHG | Annual Report and Form 20-F 2018 | Strategic Report | Performance 49 2.Strengthened brand preferenceembedding$9m to $81m. The increase is primarily due to the new Holiday Inn open-lobby concept – 58 per centunwind of $5m interest on deferred and contingent consideration relating to the Regent and UK portfolio acquisitions and interest on the€500m bond issued in November 2018. On an underlying basis, interest increased from $85m to $100m.estate has implemented or committedInterContinental Boston finance lease, both of which are fixed rate debt.implement it, which has already resultedcertain overseas profits (particularly in an eight percentage-point increasethe US) being subject to statutory tax rates higher than the UK statutory rate, unrelieved foreign taxes and disallowable expenses.Guest Love scores versus pre-refurbishment. Embeddedrespect of litigation costs, a $6m tax credit ($5m current tax and $1m deferred tax) arising from a US pension scheme settlement, a $2m current tax credit in respect of acquisition costs, a $2m prior year current tax charge on the new room design for Holiday Inn Express – 56 per centsale of the estate has implemented or committedAvendra, and a $5m exceptional prior year tax credit in respect of significant US tax reform.implement it, which has already resulted in a five percentage-point increase in Guest Love scores versus pre-refurbishment. Signed the first two Kimpton Hotels & Restaurants hotels in Europe’s key cities, the first to open in Amsterdam in early 2017.3.Drove demand through our direct channels by rolling out Your Rate acrossmaterial tax repayments from the UK and Ireland, Belgium, Netherlands, FranceUS tax authorities in 2018 and Germanyexceptional tax paid on the sale of Avendra in 2017.
50 IHG | Annual Report and Form 20-F 2018 Borrowings Sterling* 1,895 1,416 US dollar 329 601 Euros 8 2 Other 2 – Cash and cash equivalents Sterling (479 ) (13 ) US dollar (91 ) (75 ) Euros (23 ) (13 ) Canadian dollar (12 ) (13 ) Chinese renminbi (58 ) (12 ) Other (41 ) (42 ) Net debt 1,530 1,851 Average debt level 1,755 1,810 * 16)50).
committed 1–3
years
$m 3–5
years
$m
$m Long-term debt obligationsa,b 1,913 – – 511 1,402 Interest payableb 359 50 112 92 105 Derivatives 46 12 15 15 4 Finance lease obligationsc 3,300 16 32 40 3,212 Operating lease obligationsd 509 56 121 66 266 Agreed pension scheme contributions 6 6 – – – Capital contracts placede 136 136 – – – Deferred and contingent purchase considerationf 314 7 30 15 262 Total 6,583 283 310 739 5,251 a b IHG’S 2017 REGIONAL PRIORITIESc 1.Grow System size by driving growth in our priority markets of the UK, Germany, and Russia and CIS, and across key cities, localising our brands as necessary.2.Drive brand preference through the adoption of our innovative design concepts, including the Holiday Inn open-lobby concept and the new room design for Holiday Inn Express, thereby continuing to improve the guest experience and increase guest satisfaction. Establish Kimpton in the region, by building on the momentum of our 2016 signings.3.Drive demand through our direct channels by completing the roll-out of Your Rate in the whole Europe region.
Industry performance in 2016The hotel industry in Europe is influenced by the larger markets in the region, notably the UK and Germany. Slowing demand due to security concerns held back European industry RevPAR in 2016, which increased by 2.5%. Regional room demand increased 1.4% and the average daily rate increased by 2.0%. RevPAR growth in the UK was 1.4%, driven by a 1.6% increase in average daily rate and a 1.8% increase in demand. In Germany, RevPAR saw strong growth of 4.7%, driven by a 3.7% growth in average daily rate and a 1.5% increase in demand. Russia saw growth of 15.7% driven by a 7.7% increase in average daily rate.SourceSmith Travel Research for all of the above industry facts.IHG’s regional performance in 2016IHG’s regional comparable RevPAR increased by 1.7%, driven by average daily rate growth of 1.4%. The UK achieved strong growth of 2.6%, ahead of the industry, led by average daily rate growth in the provinces. In Germany, a favourable trade fair calendar led to RevPAR growth of 6.8%, ahead of industry in both occupancy and average daily rate. Russia RevPAR increased by 16.4%, ahead of industry. Across the rest of Europe, RevPAR declined by 1.4%, impacted by challenging trading conditions in France, Turkey and Belgium.Europe comparable RevPARmovement on previous yeard Franchised Managed All brands 2.0% All brands (0.3)% e 34 IHG Annual Report and Form 20-F 2016 Strategic Reportf Europe results 12 months ended 31 December Revenue Franchised 102 104 (1.9 ) 104 – Managed 125 131 (4.6 ) 159 (17.6 ) Owned and leased – 30 (100.0 ) 111 (73.0 ) Total 227 265 (14.3 ) 374 (29.1 ) Percentage of Group revenue 13.3 14.7 (1.4 ) 20.1 (5.4 ) Operating profit before exceptional items Franchised 78 77 1.3 78 (1.3 ) Managed 22 28 (21.4 ) 30 (6.7 ) Owned and leased – 1 (100.0 ) 14 (92.9 ) 100 106 (5.7 ) 122 (13.1 ) Regional overheads (25 ) (28 ) 10.7 (33 ) 15.2 75 78 (3.8 ) 89 (12.4 ) Exceptional items – 175 (100.0 ) (56 ) 412.5 Operating profit 75 253 (70.4 ) 33 666.7 Percentage of Group operating profit before central overheads and exceptional items 9.0 9.4 (0.4 ) 11.0 (1.6 ) Highlights for the year ended31 December 2016Comprising 677 hotels (110,069 rooms) at the end of 2016, Europe represented 14% of the Group’s room count and 9% of the Group’s operating profit before central overheads and exceptional items for the year ended 31 December 2016. Revenues are primarily generated from hotels in the UK and continental European gateway cities. The largest proportion of rooms in Europe are operated under the franchise business model primarily in the upper midscale segment (Holiday Inn and Holiday Inn Express). Similarly, in the upscale segment, Crowne Plaza is predominantly franchised, whereas, in the luxury segment, the majority of InterContinental-branded hotels are operated under management agreements.Revenue decreased by $38m (14.3%) to $227m and operating profit decreased by $178m (70.4%) to $75m, primarily due to the gain on sale of InterContinental Paris – Le Grand during the year ended 31 December 2015. Operating profit before exceptional items decreased by $3.0m (3.8%) to $75m. Underlyinga revenue increased by $1m (0.6%) and underlyinga operating profit stayed flat at $76m. Overall, comparable RevPAR in Europe increased by 1.7%, with the UK increasing by 2.6%, led by average daily rate growth in the provinces, Germany growing by 6.8% and Russia and CIS growing at 14.7%.Franchised revenue decreased by $2m (1.9%) to $102m, whilst operating profit increased by $1m (1.3%) to $78m. On a constant currency basis, revenue and operating profit increased by $6m (5.8%) and $6m (7.8%) respectively.Managed revenue decreased by $6m (4.6%) and operating profit decreased by $6m (21.4%). Revenue and operating profit included $77m (2015: $75m) and $2m (2015: $1m) respectively from managed leases. Excluding properties operated under this arrangement, and on a constant currency basis, revenue decreased by $5m (8.9%) and operating profit decreased by $6m (22.2%). Performance was impacted by difficult trading conditions for our hotels in Paris, and a revenue reduction in relation to three managed hotels; two of which have exited the system and one of which is undergoing a major refurbishment.The last remaining hotel in the owned and leased estate, InterContinental Paris – Le Grand, was sold in 2015. Following this, revenue and operating profit in the estate decreased to nil.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 156 and 157). Underlying operating profit growth also excludes the impact of exceptional items.Highlights for the year ended31 December 2015Revenue decreased by $109m (29.1%) to $265m and operating profit increased by $220m (666.7%) to $253m, primarily due to the gain on sale of the InterContinental Paris – Le Grand. Operating profit before exceptional items decreased by $11m (12.4%) to $78m. The decrease in revenue and operating profit before exceptional items was primarily due to InterContinental Paris – Le Grand becoming a managed property and the negative impact of significant foreign exchange translation movement. Underlyinga revenue and underlyinga operating profit increased by $13m (7.5%) and $17m (23.3%) respectively, with the transition of 61 UK managed hotels to franchise contracts driving an increase in underlying franchise fees, and cost efficiencies reducing regional overheads. Overall, comparable RevPAR in Europe increased by 5.4%, with the UK increasing by 5.1%, led by rate growth in both London and the provinces, and Germany growing by 4.4%.Franchised revenue remained flat at $104m, whilst operating profit decreased by $1m (1.3%) to $77m. On a constant currency basis, revenue and operating profit increased by $15m (14.4%) and $11m (14.1%) respectively, following the transition of UK managed hotels to franchise contracts.Managed revenue decreased by $28m (17.6%) and operating profit decreased by $2m (6.7%). Revenue and operating profit included $75m (2014: $90m) and $1m (2014: $2m) respectively from managed leases. Excluding properties operated under this arrangement, and on a constant currency basis, revenue decreased by $2m (2.9%) and operating profit increased by $3m (10.7%), impacted by the transition of UK managed hotels to franchise contracts.The one remaining hotel in the owned and leased estate, InterContinental Paris – Le Grand, was sold on 20 May 2015 for gross proceeds of€330m. Owned and leased revenue decreased by $81m (73.0%) to $30m and operating profit decreased by $13m (92.9%) to $1m.IHG | Annual Report and Form 20-F 2018 | Strategic Report | Performance 51 Performance IHG Annual Report and Form 20-F 2016 35PERFORMANCE CONTINUEDEuropecontinued
Hotels Rooms At 31 December 2016 2016 Analysed by brand InterContinental 31 (1 ) 9,724 (162 ) Crowne Plaza 92 4 20,887 618 Hotel Indigo 21 2 1,910 120 Holiday Inna 291 6 47,829 1,679 Holiday Inn Express 234 6 28,578 1,053 Staybridge Suites 7 1 1,000 123 Other 1 (1 ) 141 (73 ) Total 677 17 110,069 3,358 Franchised 629 14 97,030 2,620 Managed 48 3 13,039 738 Total 677 17 110,069 3,358 Percentage of Group hotel and room count 13.1 – 14.4 0.1 Governance 54 Chair’s overview 55 Corporate Governance 55 Our Board and Committee governance structure 56 Our Board of Directors 58 Our Executive Committee 60 Board meetings 61 Engagement with stakeholders 62 Director induction, training and development 63 Board effectiveness evaluation 64 Audit Committee Report 68 Corporate Responsibility Committee Report 69 Nomination Committee Report 70 Statement of compliance with the UK Corporate Governance Code 72 Directors’ Remuneration Report 72 Remuneration Committee Chair’s statement 73 At a glance 74 Remuneration at IHG – the wider context 78 Annual Report on Directors’ Remuneration aIncludes one Holiday Inn Resort property (88 rooms) (2015: two Holiday Inn Resort properties (212 rooms)). Hotels Rooms At 31 December 2016 2016 Analysed by brand InterContinental 6 1 813 (69 ) Kimpton 1 1 149 149 Crowne Plaza 14 3 3,185 512 Hotel Indigo 18 7 2,264 861 Holiday Inn 35 (2 ) 7,511 (323 ) Holiday Inn Express 58 13 9,395 2,197 Staybridge Suites 5 1 637 126 Other – – – (31 ) Total 137 24 23,954 3,422 Franchised 111 23 17,908 3,781 Managed 26 1 6,046 (359 ) Total 137 24 23,954 3,422 52 IHG | Annual Report and Form 20-F 2018 
Holiday Inn Helsinki City Centre, Finland IHG | Annual Report and Form 20-F 2018 | Governance 53 36 
Good governance is integral to IHG’s success and ensuring long-term, sustainable value creation and our ability to create a diverse and inclusive culture built on strong values and ethics. 20-F20-F. Our statement of compliance with the 2016 Strategic ReportAsia, Middle East and Africa (AMEA)Focus UK Corporate Governance Code (the Code) is located on portfolio growthpages 70 and 71. I am pleased to report that, during 2018, we complied fully with all principles and provisions of the Code. A statement outlining the differences between the Group’s UK corporate governance practices and those followed by US companies can be found on page 196.key cities and resort destinations, while increasing our revenue share through enhanced guest satisfaction and greater loyalty contribution, overfacilitating effective management that can deliver the next three years.
PROGRESS AGAINST 2016REGIONAL PRIORITIES1.Grew System size with in-year conversions of over 2,150 rooms in Japan, India, Indonesia and elsewhere. We accelerated our growth by signing over 10,500 rooms, most for full-service brands, and many in high RevPAR locations such as Japan, Australia and the Republic of Maldives.2.Strengthened brand preference in the boutique and lifestyle segment in the AMEA region by opening the Hotel Indigo Singapore Katong, and entering into an agreement to introduce EVEN Hotels to Australia and New Zealand.3.Supported our people strategy through the launchlong-term success of our Learning Cultureorganisation for General Managersour stakeholders. In 2019 we will continue to monitor and Corporate colleagues, to further leadership skills and business agility. Recognised by Great Places to Work as the third preferred employer in Singapore and fourth in Saudi Arabia across all industries.IHG’S 2017 REGIONAL PRIORITIES1.Grow System size in key cities and resort destinations through both new build and conversion signings. Particular attention to be paid to IHG’s strong portfolio of boutique and lifestyle brands to drive high-value growth.2.Drive brand preference through relentlesssupport our strategic initiatives, continue our focus on serviceculture and enhance contribution from IHG Rewards Club, thereby continuingdiversity, risk appetite and cybersecurity, and ensure that our ways of working, structures of reporting, systems of control and commitment to improveconducting business responsibly, continue to underpin our strategic and operational goals, and align with the guest experience and increase guest satisfaction.3.Drive superior returns for our owners through improved communication and refinement of our hotel design and opening processes, to ensure market-leading ROI.
Industry performance in 2016AMEA room demand growth was offset by supply growth, resulting in flat occupancy. Falling average daily rate in several key countries suppressed RevPAR growth to 0.9%. Slowing global trade and weak oil prices impacted lodging performance in Indonesia, United Arab Emirates (UAE) and Saudi Arabia. Industry RevPAR declined in all three countries by 4.0% in Indonesia, 8.5% in Saudi Arabia and 9.0% in UAE. Decreasing average daily rates were the principal driver in Indonesia and UAE, whilst both occupancy and average daily rate fell in Saudi Arabia. In contrast, Japan achieved solid RevPAR growth of 4.0% due to an increase in average daily rate. RevPAR increased in India by 5.9% and in Thailand by 3.7%, both led by occupancy growth. Australia RevPAR increased by 2.2%, driven by a 1.2% increase in average daily rate.SourceSmith Travel Research for all of the above industry facts.IHG’s regional performance in 2016Across this large region, IHG is widely represented, both geographically and by brand, meaning comparisons with the industry are hard to make. IHG regional comparable RevPAR decreased by 0.2% due to a decline in average daily rate, offset by occupancy gains. Middle East RevPAR declined by 7.0%, impacted by declining oil prices. Performance outside the Middle East was strong with 3.7% RevPAR growth overall. Performance was led by strong positive trading in the mature markets of Japan, where RevPAR increased by 3.6%, and in Australia where RevPAR increased by 2.9% ahead of the industry. India outperformed the market with strong RevPAR growth of 14.1%. Total RevPAR was down 2.0% for the year impacted by the proportion of hotel openings in developing markets where RevPARs are significantly lower than developed markets.AMEA comparable RevPAR movement on previous year Franchised Managed All brands (0.1 )% All brands (0.2)% Performance IHG Annual Report and Form 20-F 2016 37PERFORMANCE CONTINUEDAsia, Middle East and Africa (AMEA)continuedAMEA results 12 months ended 31 December Revenue Franchised 16 16 – 16 – Managed 184 189 (2.6 ) 187 1.1 Owned and leased 37 36 2.8 39 (7.7 ) Total 237 241 (1.7 ) 242 (0.4 ) Percentage of Group revenue 13.8 13.3 0.5 13.0 0.3 Operating profit before exceptional items Franchised 12 12 – 12 – Managed 89 90 (1.1 ) 88 2.3 Owned and leased 2 3 (33.3 ) 3 – 103 105 (1.9 ) 103 1.9 Regional overheads (21 ) (19 ) (10.5 ) (19 ) – 82 86 (4.7 ) 84 2.4 Exceptional items – (2 ) 100.0 – (100.0 ) Operating profit 82 84 (2.4 ) 84 – Percentage of Group operating profit before central overheads and exceptional items 9.8 10.4 (0.6 ) 10.5 (0.1 ) Highlights for the year ended31 December 2016Comprising 280 hotels (76,051 rooms) at 31 December 2016, AMEA represented 10% of the Group’s room count and contributed 10% of the Group’s operating profit before central overheads and exceptional items during the year. 83% of rooms in AMEA are operated under the managed business model.Revenue and operating profit decreased by $4m (1.7%) to $237m and by $2m (2.4%) to $82m respectively. Operating profit before exceptional items decreased by $4m (4.7%) to $82m. Underlyinga revenue and underlyingaoperating profit decreased by $8m (4.1%) and $3m (3.7%) respectively.Comparable RevPAR decreased 0.2% primarily due to a fall in rate. Performance was positive in India, which grew by 14.1%, and Japan exhibited growth of 3.6%, however the Middle East decreased by 7.0%, impacted by declining oil prices and oversupply.On an actual and constant currency basis franchised revenue and operating profit remained flat at $16m and $12m respectively.Managed revenue and operating profit decreased by $5m (2.6%) to $184m and $1m (1.1%) to $89m respectively. Revenue and operating profit included $51m (2015: $46m) and $5m (2015: $5m) respectively from one managed-lease property. Excluding results from this hotel and on a constant currency basis, revenue decreased by $9m (6.3%) to $134m, whilst operating profit remained flat at $85m. Good underlying growth in our managed business was offset by a $7m revenue reduction in relation to four hotels; three long standing contracts being renewed onto standard market terms and one equity stake disposal.In the owned and leased estate, on an actual and constant currency basis, revenue increased by $1m (2.8%) to $37m and operating profit decreased by $1m (33.3%) to $2m.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 156 and 157). Underlying operating profit growth also excludes the impact of exceptional items.Highlights for the year ended31 December 2015Revenue decreased by $1m (0.4%) to $241m, whilst operating profit remained flat at $84m. Operating before exceptional items increased by $2m (2.4%) to $86m. Revenue and operating profit before exceptional items were both adversely impacted by foreign exchange translation. Underlyinga revenue and underlyinga operating profit increased by $13m (6.5%) and $7m (8.7%) respectively.Comparable RevPAR increased 4.5%, driven by growth in both rate and occupancy. Performance was led by strong positive trading in the mature markets of Japan, which grew by 14.6%, and Australia, which increased by 4.5%. South East Asia exhibited growth of 5.7%, however the Middle East increased by 0.2%, impacted by declining oil prices.Franchised revenue and operating profit remained flat at $16m and $12m respectively. On a constant currency basis, revenue and operating profit increased by $1m (6.3%) and $1m (8.3%) respectively.Managed revenue increased by $2m (1.1%) to $189m and operating profit increased by $2m (2.3%) to $90m. Comparable RevPAR increased by 5.4%, with the majority of rooms opening in the last quarter of 2015. Revenue and operating profit included $46m (2014: $41m) and $5m (2014: $4m) respectively from one managed-lease property. Excluding results from this hotel and on a constant currency basis, revenue increased by $9m (6.2%), whilst operating profit increased by $6m (7.1%).In the owned and leased estate, revenue decreased by $3m (7.7%) to $36m and operating profit remained flat at $3m. On a constant currency basis, revenue increased by $3m (7.7%) and operating profit increased by $1m (33.3%).38 IHG Annual Report and Form 20-F 2016 Strategic Report Hotels Rooms At 31 December 2016 2016 Analysed by brand InterContinental 69 1 21,203 (35 ) Crowne Plaza 73 2 20,749 738 Hotel Indigo 2 1 323 131 Holiday Inna 93 2 21,312 328 Holiday Inn Express 34 7 7,583 1,697 Staybridge Suites 3 – 425 – Other 6 – 4,456 619 Total 280 13 76,051 3,478 Franchised 55 3 12,570 646 Managed 223 10 62,894 2,832 Owned and leased 2 – 587 – Total 280 13 76,051 3,478 Percentage of Group hotel and room count 5.4 0.1 9.9 0.1 aIncludes 14 Holiday Inn Resort properties (2,953 rooms) (2015: 15 Holiday Inn Resort properties (3,169 rooms)) Hotels Rooms At 31 December 2016 2016 Analysed by brand InterContinental 27 5 6,681 1,332 Crowne Plaza 21 2 5,554 253 Hotel Indigo 14 1 2,582 301 Holiday Innb 48 3 13,022 1,493 Holiday Inn Express 35 (8 ) 7,486 (1,858 ) Staybridge Suites 4 (1 ) 788 (112 ) Other – – 3,530 18 Total 149 2 39,643 1,427 Franchised 11 3 2,406 227 Managed 138 (1 ) 37,237 1,200 Total 149 2 39,643 1,427 Performance IHG Annual Report and Form 20-F 2016 39PERFORMANCE CONTINUEDFurther grow System size, particularly in tier 2 and 3 cities and in the growing midscale segment, whilst developing a strong local talent pipeline for our hotels, over the next three years.
PROGRESS AGAINST 2016REGIONAL PRIORITIES1.Grew System size by opening five InterContinental hotels, including two flagship hotels in Beijing and Shanghai. We also signed 82 new hotels, including four HUALUXE hotels, and increased our pipeline to 239 hotels, out of which around 90 per cent are in tier 2 and 3 cities.2.Drove superior returns for our owners through the successful introduction of the Franchise Plus business model for the Holiday Inn Express brand in May (see page 30), with a dedicated support structure to capture the growth opportunity in the midscale segment. In 2016, a total of 20 hotels under the Franchise Plus business model were signed.3.Supported our people strategy through the resourcing and development of hotel talent. Rolled out the IHG Frontline programme to drive consistent and effective frontline training, with almost 150 hotels actively adopting the system.IHG’S 2017 REGIONAL PRIORITIES1.Grow System size, under both the managed and franchised business models, through a deeper penetration in tier 2 and 3 cities and a strengthened Holiday Inn and Holiday Inn Express presence to capture the growing midscale segment opportunity.2.Maximise System size growth potential by further expanding IHG’s brand portfolio in the market. Continue to build brand awareness and drive performance of opened hotels for the HUALUXE brand.3.Drive brand preference by focusing on the delivery of consistent guest experiences for our brands. Further tailor IHG enterprise platforms to better meet evolving market needs.4.Support our people strategy by developing a strong local talent pipeline, particularly in tier 2 and 3 cities. Continue to develop and strengthen capabilities to support the needs of the franchise business.
Industry performance in 2016Lodging industry RevPAR growth in Greater China was flat in the year, an improvement on a 2.4% decline in 2015. Industry occupancy increased 1.6 points driven by a 6.4% increase in room demand. Average daily rate decreased by 2.5%. RevPAR in mainland China increased by 1.6%, driven by a 6.9% increase in room demand and an occupancy increase of 1.8 points. The average daily rate decreased by 1.3%. The country’s two largest city markets in terms of hotel rooms, Beijing and Shanghai, both increased RevPAR due to rising room demand. Shanghai RevPAR growth of 3.1% was due to an occupancy increase. Beijing RevPAR growth of 5.0% was due to both occupancy and a moderate average daily rate increase of 2.0%. RevPAR in Hong Kong and Macau declined by 2.1% and 9.1% respectively, both driven by average daily rate declines as room demand increased.SourceSmith Travel Research for all of the above industry facts.IHG’s regional performance in 2016IHG’s regional comparable RevPAR increased 2.2% in 2016, significantly ahead of the industry. Our RevPAR growth was driven by better than industry occupancy, which increased by 4.4%, whilst average daily rate decreased by 2.2%. Mainland China RevPAR increased by 3.9% led by growth of 6.3% in tier 1 cities driven by strong corporate demand. The rest of mainland China grew by 2.2%. Hong Kong RevPAR declined by 2.3%, slightly below the industry. Taiwan and Macau experienced significant trading declines of 10.5% and 13.5% respectively.Greater China comparable RevPARmovement on previous year12 months ended31 December 2016ManagedAll brands3.0%40 IHG Annual Report and Form 20-F 2016 Strategic ReportGreater China results 12 months ended 31 December Revenue Franchised 3 4 (25.0 ) 4 – Managed 114 105 8.6 99 6.1 Owned and leased – 98 (100.0 ) 139 (29.5 ) Total 117 207 (43.5 ) 242 (14.5 ) Percentage of Group revenue 6.8 11.5 (4.7 ) 13.0 (1.5 ) Operating profit before exceptional items Franchised 3 5 (40.0 ) 5 – Managed 64 59 8.5 63 (6.3 ) Owned and leased – 29 (100.0 ) 42 (31.0 ) 67 93 (28.0 ) 110 (15.5 ) Regional overheads (22 ) (23 ) 4.3 (21 ) (9.5 ) 45 70 (35.7 ) 89 (21.3 ) Exceptional items – 698 (100.0 ) – 100.0 Operating profit 45 768 (94.1 ) 89 762.9 Percentage of Group operating profit before central overheads and exceptional items 5.4 8.4 (3.0 ) 11.0 (2.6 ) Highlights for the year ended31 December 2016Comprising 292 hotels (93,022 rooms) at 31 December 2016, Greater China represented approximately 12% of the Group’s room count and contributed approximately 5% of the Group’s operating profit before central overheads and exceptional items for the year ended 31 December 2016. 98% of rooms in Greater China are operated under the managed business model.Revenue decreased by $90m (43.5%) to $117m and operating profit decreased by $723m (94.1%) to $45m, primarily due to the gain on sale of InterContinental Hong Kong in 2015. Operating profit before exceptional items decreased by $25m (35.7%) to $45m. Underlyinga revenue and underlyinga operating profit increased by $14m (12.8%) and by $6m (14.6%) respectively. Overall, the region achieved comparable RevPAR growth of 2.2%. Trading in mainland tier 1 cities was particularly strong, whilst the rest of mainland China showed slower growth.On an actual and constant currency basis, franchised revenue and operating profit decreased by $1m (25.0%) and by $2m (40.0%) respectively.Managed revenue and operating profit increased by $9m (8.6%) to $114m and by $5m (8.5%) to $64m respectively. Comparable RevPAR increased by 3.0%, whilst the Greater China System size grew by 9.0%, driving a 7.0% increase in total gross revenue derived from rooms business. Total gross revenue derived from non-rooms business increased by 6.8%, primarily due to increased food and beverage revenue. On a constant currency basis, revenue and operating profit increased by $15m (14.3%) to $120m and by $8m (13.6%) to $67m respectively, with ongoing investment in growth initiatives more than offset by scale efficiencies and strategic cost management.The last remaining hotel in the owned and leased estate, InterContinental Hong Kong, was sold in 2015. Following this, revenue and operating profit in the estate decreased to nil.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 156 and 157). Underlying operating profit growth also excludes the impact of exceptional items.Highlights for the year ended31 December 2015Revenue decreased by $35m (14.5%) to $207m and operating profit increased by $679m to $768m due to the gain on sale of InterContinental Hong Kong. Operating profit before exceptional items decreased by $19m (21.3%) to $70m. Underlyinga revenue increased by $8m (7.8%) due to the addition of over 20,000 rooms into the managed estate over the last two years. Underlyinga operating profit decreased by $5m (10.6%), impacted by $5m of ongoing investment into building long-term people capability, as well as the year-on-year impact from $5m of previously disclosed one-off upsides in 2014. Overall, the region achieved comparable RevPAR growth of 0.3%, significantly ahead of the industry, reflecting our scale and management strength in the region. Trading in mainland tier 1 cities was particularly strong, whilst the rest of mainland China showed marginal increases. Trading in Hong Kong and Macau significantly declined. Total RevPAR in Greater China decreased by 2.3% as more hotels opened into developing markets.Franchised revenue and operating profit remained flat at $4m and $5m respectively.Managed revenue increased by $6m (6.1%) to $105m, whilst operating profit decreased by $4m (6.3%) to $59m, impacted by the above-mentioned investment in people capability and previously disclosed one-off upsides in 2014. Comparable RevPAR increased by 1.1%, whilst the Greater China System size grew by 10.4%, driving a 4.8% increase in total gross revenue derived from rooms business. Total gross revenue derived from non-rooms business increased by 7.9%, due primarily to increased food and beverage revenue. On a constant currency basis, revenue increased by $8m (8.1%) to $107m, whilst operating profit decreased by $3m (4.8%) to $60m.The one remaining hotel in the owned and leased estate, InterContinental Hong Kong, was sold on 30 September 2015 for proceeds of $928m after final working capital adjustments and cash tax. Owned and leased revenue decreased by $41m (29.5%) to $98m and operating profit decreased by $13m (31.0%) to $29m.Performance IHG Annual Report and Form 20-F 2016 41PERFORMANCE CONTINUEDGreater Chinacontinued Hotels Rooms At 31 December 2016 2016 Analysed by brand InterContinental 39 5 16,315 2,508 HUALUXE 4 1 1,096 298 Crowne Plaza 79 4 28,051 1,363 Hotel Indigo 6 1 740 129 Holiday Inna 83 5 25,871 900 Holiday Inn Express 75 11 18,477 2,454 Other 6 – 2,472 (139 ) Total 292 27 93,022 7,513 Franchised 4 – 2,184 – Managed 288 27 90,838 7,513 Total 292 27 93,022 7,513 Percentage of Group hotel and room count 5.6 0.3 12.1 0.6 aIncludes six Holiday Inn Resort properties (1,820 rooms) (2015: seven Holiday Inn Resort properties (2,235 rooms)). Hotels Rooms At 31 December 2016 2016 Analysed by brand InterContinental 22 1 7,454 (446 ) HUALUXE 22 1 6,956 324 Crowne Plaza 38 (1 ) 12,511 (206 ) Hotel Indigo 11 2 1,782 282 Holiday Innb 50 1 14,841 203 Holiday Inn Express 95 30 20,205 5,087 Other 1 – 279 – Total 239 34 64,028 5,244 Franchised 20 20 4,085 4,085 Managed 219 14 59,943 1,159 Total 239 34 64,028 5,244 42 IHG Annual Report and Form 20-F 2016 Strategic ReportCentralCentral results 12 months ended 31 December Revenue 141 135 4.4 129 4.7 Gross costs (269 ) (286 ) 5.9 (284 ) (0.7 ) Operating loss before exceptional items (128 ) (151 ) 15.2 (155 ) 2.6 Exceptional items – (11 ) 100.0 (25 ) 56.0 Operating loss (128 ) (162 ) 21.0 (180 ) 10.0 Highlights for the year ended31 December 2016The net operating loss decreased by $34m (21.0%) compared to 2015. Central revenue, which mainly comprises technology fee income, increased by $6m (4.4%) to $141m (an increase of $9m (6.7%) at constant currency), driven by increases in both comparable RevPAR (1.8%) and IHG System size (3.1%). At constant currency, gross costs decreased by $3m (1.0%) compared to 2015 (a $17m or 5.9% decrease at actual currency) driven by a continued focus on strategic cost management. Net operating loss before exceptional items decreased by $23m (15.2%) to $128m (a $12m or 7.9% decrease to $139m at constant currency).Highlights for the year ended31 December 2015The net operating loss decreased by $18m (10.0%) compared to 2014. Central revenue, which mainly comprises technology fee income, increased by $6m (4.7%) to $135m, driven by increases in both comparable RevPAR (4.4%) and IHG System size (4.8%, 3.2% excluding Kimpton). At constant currency, gross costs increased by $13m (4.6%) compared to 2014 (a $2m or 0.7% increase at actual currency). Net operating loss before exceptional items decreased by $4m (2.6%) to $151m (a $5m or 3.2% increase to $160m at constant currency).System Fund 12 months ended 31 December Assessment fees and contributions received from hotels 1,439 1,351 6.5 1,271 6.3 Proceeds from sale of IHG Rewards Club points 283 222 27.5 196 13.3 Total 1,722 1,573 9.5 1,467 7.2 In addition to franchise or management fees, hotels within the IHG System pay assessments and contributions (other than for Kimpton and InterContinental) which are collected by IHG for specific use within the System Fund. The System Fund also receives proceeds from the sale of IHG Rewards Club points. The System Fund is managed for the benefit of hotels in the IHG System with the objective of driving revenues for the hotels.The System Fund is used to pay for marketing, the IHG Rewards Club loyalty programme and the Guest Reservation System. The operation of the System Fund does not result in a profit or loss for the Group and consequently the revenues and expenses of the System Fund are not included in the Group Income Statement.Highlights for the year ended31 December 2016In the year to 31 December 2016, System Fund income increased by 9.5% to $1,722m primarily as a result of a 6.5% increase in assessment fees and contributions from hotels resulting from increased hotel room revenues, reflecting increases in RevPAR and IHG System size. Continued strong performance in co-branded credit card schemes drove the 27.5% increase in proceeds from the sale of IHG Rewards Club points.Performance IHG Annual Report and Form 20-F 2016 43PERFORMANCE CONTINUEDOther financial informationExceptional itemsExceptional items totalled a loss of $29m which included $13m relating to the cost of integrating Kimpton into the operations of the Group and a $16m impairment charge relating to the Barclay associate which owns InterContinental New York Barclay, a hotel managed by the Group. The impairment charge reflects the currently depressed trading outlook for the New York market and the high cost of renovation of the hotel. See note 5 to the Group Financial Statements which provides further detail.Exceptional items are treated as exceptional by reason of their size or nature and are excluded from the calculation of adjusted earnings per ordinary share in order to provide a more meaningful comparison of performance (for more information see page 26).Net financial expensesNet financial expenses were flat at $87m, reflecting the issue of £350m 2.125% public bonds in August 2016, and a full year of interest on the £300m 3.75% bonds issued in August 2015, offset by the impact of a weaker pound on translation of sterling interest expense.Financing costs included $3m (2015: $2m) of interest costs associated with IHG Rewards Club where interest is charged on the accumulated balance of cash received in advance of the redemption of points awarded. Financing costs in 2016 also included $20m (2015: $20m) in respect of the InterContinental Boston finance lease.TaxationThe effective rate of tax on operating profit excluding the impact of exceptional items was 30% (2015: 30%). Excluding the impact of prior-year items, the equivalent tax rate would be 31% (2015: 36%). This rate is higher than the average UK statutory rate of 20% (2015: 20.25%), due mainly to certain overseas profits (particularly in the US) being subject to statutory tax rates higher than the UK statutory rate, unrelieved foreign taxes and disallowable expenses.Taxation within exceptional items totalled a credit of $12m (2015: charge of $8m). In 2016, the credit included a $6m deferred tax credit in respect of the impairment charge relating to the Barclay associate and a $5m deferred tax credit representing future tax relief on $13m of Kimpton integration costs. In 2015, the charge comprised $56m relating to the disposal of InterContinental Hong Kong and InterContinental Paris – Le Grand, a credit of $21m in respect of the 2014 disposal of an 80% interest in InterContinental New York Barclay reflecting the judgement that state tax law changes would now apply to the deferred gain and credits of $27m for current and deferred tax relief on other operating exceptional items of current and prior years.Net tax paid in 2016 totalled $130m (2015: $110m, including $1m in respect of disposals). Tax paid represents an effective rate of 22% (2015: 8%) on total profits and is lower than the effective income statement tax rate of 30% (2015: 30%), primarily due to the timing of US tax payments and the impact of deferred taxes.IHG pursues an approach to tax that is consistent with its business strategy and its overall business conduct principles. This approach seeks to ensure full compliance with all tax filing, payment and reporting obligations on the basis of communicative and transparent relationships with tax authorities. Policies and procedures related to tax risk management are subject to regular review and update and are approved by the IHG Audit Committee.
The Group’s Approach to Tax document is available on IHG’s website at www.ihgplc. com/responsible-business under Policies.Tax liabilities or refunds may differ from those anticipated, in particular as a result of changes in tax law, changes in the interpretation of tax law, or clarification of uncertainties in the application of tax law. Procedures to minimise risk include the preparation of thorough tax risk assessments for all transactions carrying material tax risk and, where appropriate,material tax uncertainties are discussed and resolved with tax authorities in advance.IHG’s contribution to the jurisdictions in which it operates includes a significant contribution in the form of taxes borne and collected, including taxes on its revenues and profits and in respect of the employment its business generates. IHG earns approximately 80% of its revenues in the form of franchise, management or similar fees, with almost 85% of IHG-branded hotels being franchised. In jurisdictions in which IHG does franchise business, the prevailing tax law will generally provide for IHG to be taxed in the form of local withholding taxes based on a percentage of fees rather than based on profits. Costs to support the franchise business are normally incurred regionally or globally, and therefore profits for an individual franchise jurisdiction cannot be separately determined.DividendsThe Board has proposed a final dividend per ordinary share of 64.0¢. With the interim dividend per ordinary share of 30.0¢, the full-year dividend per ordinary share for 2016 will total 94.0¢, an increase of 11% over 2015.In February 2017, the Board proposed a $400m return of funds to shareholders by way of a special dividend and share consolidation.IHG pays its dividends in pounds sterling and US dollars. The sterling amount of the final and special dividend will be announced on 11 May 2017 using the average of the daily exchange rates from 8 May 2017 to 10 May 2017 inclusive.Earnings per ordinary shareBasic earnings per ordinary share decreased by 62.4% to 195.3¢ from 520.0¢ in 2015. Adjusted earnings per ordinary share increased by 16.2% to 203.3¢ from 174.9¢ in 2015.Share price and market capitalisationThe IHG share price closed at £36.38 on 31 December 2016, up from £26.58 on 31 December 2015. The market capitalisation of the Group at the year end was £7.2bn.DIVIDEND POLICY
The Group’s business is highly cash-generative and the Group has three primary uses for its cash; investing to drive growth, maintaining sustainable growth in the ordinary dividend and returning surplus funds to shareholders. These are kept under constant review by the Board.revised governance regime.IHG has a progressive dividend policy, which means growing dividend per ordinary share each year. The Group has an excellent track record of returning funds to shareholders through ordinary and special dividends andshare buybacks, with the ordinary dividend seeing 11% CAGR since 2003. This is in addition to special returns of funds detailed on page 178.The Group seeks to maintain an efficient balance sheet and investment grade credit rating and aims to maintain a net debt:EBITDA ratio of 2.0 – 2.5x. The ratio at 31 December 2016 was 1.9x, however, this is before the paymentChair of the $400 return of funds to shareholders via a special dividend with share consolidation proposed by the Board in2017.44 IHG Annual Report and Form 20-F 2016 Strategic ReportLiquidity and capital resourcesSources of liquidityIn August 2016, the Group issued a £350m, 10-year bond at a 2.125% coupon rate, the lowest funding rate the Group has achieved in the sterling bond market. The bonds are repayable in 2026, extending the maturity profile of the Group’s debt.This is in addition to £400m of public bonds which are repayable on 28 November 2022 and £300m of public bonds which are repayable on 14 August 2025. On 9 December 2016, the Group repaid £250m of maturing public bonds which were issued in 2009.The Group is further financed by a $1.275bn revolving syndicated bank facility (the Syndicated Facility) and a $75m revolving bilateral facility (the Bilateral facility) which mature in March 2021, with a one-year extension option exercisable in 2017. $110m was drawn under the Syndicated Facility at the year end.The Syndicated and Bilateral facilities contain the same terms and two financial covenants; interest cover; and net debt divided by earnings before interest, tax, depreciation and amortisation (EBITDA). The Group is in compliance with all of the financial covenants in its loan documents, none of which is expected to present a material restriction on funding in the near future.Additional funding is provided by the 99-year finance lease (of which 89 years remain) on InterContinental Boston and other uncommitted bank facilities (see note 20 to the Group Financial Statements). In the Group’s opinion, the available facilities are sufficient for the Group’s present liquidity requirements.Net debt of $1,506m (2015: $529m) is analysed by currency as follows: Borrowings Sterling 1,289 1,405 US dollar 418 253 Euros 2 4 Other 3 4 Cash and cash equivalents Sterling (27 ) (619 ) US dollar (127 ) (460 ) Euros (12 ) (15 ) Canadian dollar (8 ) (8 ) Chinese renminbi (7 ) (4 ) Other (25 ) (31 ) Net debt 1,506 529 Average debt level 1,235 1,420 Borrowings included bank overdrafts of $89m (2015: $39m), which were matched by an equivalent amount of cash and cash equivalents under the Group’s cash pooling arrangements. Under these arrangements, each pool contains a number of bank accounts with the same financial institution, and the Group pays interest on net overdraft balances within each pool. The cash pools are used for day-to-day cash management purposes and are managed daily as closely as possible to a zero balance on a net basis for each pool. Overseas subsidiaries are typically in a cash-positive position, with the most significant balances in the US, Canada, and Singapore, and the matching overdrafts are held by the Group’s central treasury company in the UK.Cash and cash equivalents include $3m (2015: $1m) that is not available for use by the Group due to local exchange controls.Information on the maturity profile and interest structure of borrowings is included in notes 20 and 22 to the Group Financial Statements.The Group had net liabilities of $759m at 31 December 2016, (net assets of $319m at 31 December 2015), with the decrease due to the $1.5bn special dividend paid in May 2016.Cash from operating activitiesNet cash from operating activities totalled $752m for the year ended 31 December 2016, up $124m on the previous year largely due to cash receipts on behalf of the System Fund of approximately $95m from renegotiation of long-term partnership agreements.Cash flow from operating activities is the principal source of cash used to fund the ongoing operating expenses, interest payments, maintenance capital expenditure and normal dividend payments of the Group. The Group believes that the requirements of its existing business and future investment can be met from cash generated internally, disposition of assets, and external finance expected to be available to it.Cash from investing activitiesNet cash outflows from investing activities totalled $216m. In 2015 net cash inflows totalled $589m, including $1,277m of disposal proceeds primarily related to the disposal of InterContinental Paris – Le Grand and InterContinental Hong Kong and $438m on the acquisition of Kimpton Hotels & Restaurants. Excluding the effect of these major acquisitions and disposals, net cash outflows from investing activities decreased by $34m, primarily driven by proceeds from other financial assets in 2016.The Group had committed contractual capital expenditure of $97m at 31 December 2016 (2015: $76m).Cash used in financing activitiesNet cash used in financing activities totalled $1,456m, which was $1,346m higher than 2015, mainly due to the $1.5bn special dividend paid in May 2016. Net cash inflows from borrowings were $150m higher than in 2015.Overall net debt increased during the year by $977m to $1,506m as at 31 December 2016.Off-balance sheet arrangementsAt 31 December 2016, the Group had no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on the Group’s financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.Contractual obligationsThe Group had the following contractual obligations outstanding as of 31 December 2016. $m Long-term debt obligationsa, b 1,402 – – 110 1,292 Interest payableb 320 42 84 84 110 Derivatives 3 3 – – – Finance lease obligationsc 3,333 17 32 32 3,252 Operating lease obligations 590 53 92 99 346 Agreed pension scheme contributions 5 5 – – – Capital contracts placed 97 97 – – – Total 5,750 217 208 325 5,000 aRepayment period classified according to the related facility maturity date.bExcluding bank overdrafts.cMainly represents the minimum lease payments related to the 99-year lease (of which 89 years remain) on InterContinental Boston. Payments under the lease step up at regular intervals over the lease term.Contingent liabilitiesContingent liabilities include performance guarantees with possible cash outflows totalling $14m, guarantees over the debt of equity investments of $33m, outstanding letters of credit of $37m, and an indemnity over a $43m bank loan made to an associate. The Group may also be exposed to additional liabilities resulting from security incidents. See note 30 to the Group Financial Statements for further details.2019 54 IHG | Annual Report and Form 20-F 2018 Performance IHG Annual Report and Form 20-F 2016 4548Chairman’s overview49Corporate Governance 49Our Board and Committee governance structure 50Our Board of Directors52Our Executive Committee54Board meetings55Director induction, training and development55Board effectiveness evaluation56Engagement with shareholders57Audit Committee Report60Corporate Responsibility Committee Report61Nomination Committee Report62Statement of compliance with the UK Corporate Governance Code64Directors’ Remuneration Report64Remuneration Committee Chairman’s statement66At a glance68Remuneration at IHG – the wider context69Annual Report on Directors’ Remuneration76Directors’ Remuneration Policy
46 IHG Annual ReportForm 20-F 2016 Governance
Governance IHG Annual Reportdirected by the Board, which in turn delegates certain responsibilities to its Committees to support IHG’s culture, values and Form 20-F 2016 47Chairman’s overviewcommitment to conducting business responsibly.
“As a Board, we instil a culture of strong values, ethics and integrity in our business.”We embrace good governance, which we see both as a product of good leadership and as key in creating long-term value.The Board is responsible for ensuring leadership through effective oversight and review of the Group’s activities. The Board considers what we aim to deliver as a company and how we deliver it, recognising the importance of instilling a culture of strong values, ethics and integrity in our business.Governance frameworkGovernance for us is about our values, our ethics, and doing the right thing. Led by the Board, and supported by its principal Committees (Audit, Corporate Responsibility, Nomination and Remuneration Committees), effective corporate governance is embedded in our corporate culture and permeates throughout the business. Together with our ways of working, rigorous structures of reporting, sound system of controls, and commitment to conducting business responsibly, our practices and policies not only ensure the smooth operation of our business but also effectively safeguard our reputation.Board culture and compositionGood governance at IHG begins with the Board. We carefully plan our annual agenda, allowing time to consider and review strategic, operational, governance, and financial and performance-related agenda items. Effective meetings also depend on the dynamics of the Board, and we strive to create an inclusive environment, where every Director is encouraged to contribute to the discussion, and where constructive challenge is welcomed. See pages 54 and 55 for details of the items discussed by the Board during the year, and the information and support provided to the Board to ensure meetings are run effectively.As of 31 December 2016, the Board comprised six Non-Executive Directors, myself as Chairman, and two Executive Directors, including 33 per cent female representation. In February 2017, we approved the appointment of Malina Ngai to the Board as a Non-Executive Director, with effect from 1 March 2017. Malina will bring to the Board considerable experience in consumer-facing, branded operations, and will provide significant insight into the Asian market, and her appointment will also increase the level of female representation on the Board from 33 to 40 per cent. We are proud to be a diverse company and value the benefits that this brings. By ensuring that different genders, backgrounds, ages and nationalities are appropriately represented, both in the composition of the Board and throughout the organisation as a whole, we ensure that corporate decision-making is informed by the widest possible range of knowledge, skills and experience.In 2016, we said goodbye to Tracy Robbins, Jennifer Laing and Ying Yeh, after four, 10 and eight years on the Board respectively. Jill McDonald, a Non-Executive Director, succeeded Jennifer as Chairman of the Corporate Responsibility Committee. Details about her induction are set out on page 55.Further details of our Board structure and composition can be found on pages 49 to 51, and details of our approach to succession planning and diversity are located in the Nomination Committee Report on page 61.Training, development and Board performance reviewThe Board’s training needs are reviewed regularly as part of our agenda-setting and the annual Board effectiveness evaluation. In 2016, the Directors received training on a variety of topics, including updates on technology trends, changes in accounting regulations, and key areas of our Responsible Business ethics and compliance programme, in addition to regular briefings on legal and corporate governance developments. Further information about our ongoing training arrangements for Directors can be found on page 55.We recognise the importance of regularly evaluating the Board and how this contributes to an effective Board that adds real value to the Group. In 2016, we engaged an independent external facilitator to lead our Board effectiveness evaluation. An evaluation plan has been devised, and will be carried out in early 2017. More information on the evaluation, including our performance against the 2015 action plan, is on pages 55 and 56.Compliance and our dual listingAs a dual-listed company with a premium listing on the London Stock Exchange and a secondary listing on the New York Stock Exchange, we are required to file both an Annual Report in the UK and a Form 20-F in the US. Our statement of compliance with the UK Corporate Governance Code (the Code) is located on pages 62 and 63. I am pleased to report that, during 2016, we complied fully with all principles and provisions of the Code, with the exception of the provision relating to audit tendering (see page 63). However, we have established a sub-committee of the Audit Committee to oversee the audit tender process and recommend a detailed plan, to be presented to that Committee in 2017 (see page 59).To ensure continued consistency of information provided to both UK and US investors for 2016, we have again produced a combined Annual Report and Form 20-F this year. As required by the SEC, a statement outlining the differences between the Group’s UK corporate governance practices and those followed by US companies can be found on page 176.We recognise the importance of governance in creating long-term, sustainable value, and in 2017 we will continue to drive the execution of our strategy and enhance our governance framework.
Patrick CescauNon-Executive Chairman20 February 201748 IHG Annual Report and Form 20-F 2016 GovernanceOur Board and Committee governance structureThe Group’s governance framework, which supports our culture and our values, and underpins our long-term performance, is directed by the Board and through the Group’s Board and Management Committees.is accountable for the long-term success of the Group. It leads the Group’s strategic direction and long-term objectives, and monitors Group performance, and risk and internal management controls through effective oversight and review. Supported by its principal Committees (Audit, Corporate Responsibility, Nomination and Remuneration Committees), the Board sets the Group’s strategic direction, oversees how it delivers these objectives and aims to deliver sustainable shareholder valueis responsible for the long term. See page 54success of the Group, setting strategic aims and monitoring the performance of the Group and its risk management controls. A number of key decisions and matters are reserved for details on the Board and are not delegated to management. The schedule of matters reserved was reviewed at the December 2018 Board meeting and is available on our website. The Board will now be responsible for reviewing the means for the workforce to raise concerns in confidence and the reports arising from its operation, which to date had been reviewed by the Audit Committee.itthe Board spent its time during 2016.2018 can be found on pages 60 to 62.has responsibility for implementingis chaired by the CEO and considers and manages a range ofday-to-day strategic and operational decisions. Day-to-day managementissues facing the Group, including the development of the business is delegatedGroup’s strategy and budget for the Board’s approval, executing the strategic plan once agreed by the Board, monitoring the Group’s performance and providing assurance to the Chief Executive OfficerBoard in relation to overall performance and the Executive Committee. There is clear delegation and oversight from the Board to the Executive Committee, which strengthens decision-making across key areas of the business.risk management.with parameters setand to the administration of matters, the principles of which have been agreed previously by the Board or an appropriate Committee.information disclosures required pursuant to UK and US accounting, statutory and listing requirements. This Committee reports to the Chief Executive Officer, the Chief Financial Officer and the Audit Committee.
including the schedule of matters reserved for the Board (which sets out those areas that are not delegated by the Board to its Committees), is available on our BOARD AND COMMITTEE MEMBERSHIP AND ATTENDANCE IN 2016Board and Committee membership and attendance in 2018 Meetings Meetings Board Appointment
date
Committee
appointments
Board Audit
Committee
Corporate
Responsibility
Committee
Nomination
Committee
Remuneration
Committee
Total meetings held 8 5 3 2 6 8 5 3 2 4 Chairman Patrick Cescau 01/01/13 
8 2 Chair Patrick Cescauc 01/01/13 
8/8 – – 2/2 – Chief Executive Officer Richard Solomons 10/02/03 
8 3 Keith Barr 01/07/17 8/8 – – – – Executive Directors Paul Edgecliffe-Johnson 01/01/14 8 01/01/14 8/8 – – – – Elie Maalouf 01/01/18 8/8 – – – – Senior Independent Non-Executive Director Dale Morrison 01/06/11 
8 5 2 6 01/06/11 
8/8 5/5 – 2/2 4/4 Non-Executive Directors Anne Busquet 01/03/15 
8 5 3 2 01/03/15 
8/8 5/5 3/3 2/2 – Ian Dyson 01/09/13 
8 5 2 6 01/09/13 
8/8 5/5 – 2/2 3/4 a Jo Harlow 01/09/14 
8 5 2 6 01/09/14 
7/8 – 2/2 4/4 Jennifer Laing 25/08/05 
2 2 1 1 Luke Mayhew 01/07/11 
8 3 2 6 01/07/11 
8/8 5/5 3/3 2/2 – Jill McDonald 01/06/13 
8 5 3 2 01/06/13 
8/8 5/5 3/3 2/2 – Ying Yeh 01/12/07 
2 1 1 2 Malina Ngai 01/03/17 
7/8 – 2/3 b 2/2 3/4 b a b c Board Committee membership key 
Audit Committee member 
Nomination
Remuneration Committee member 
Chairman
Corporate Responsibility Committee member 
Chair of a Board Committee 
Corporate Responsibility
Nomination Committee member 
Remuneration Committee member 
Corporate Governance IHG | Annual Report and Form 20-F 2016 492018 | Governance | Corporate Governance55 CORPORATE GOVERNANCE CONTINUEDGovernance
56 IHG | Annual Report and Form 20-F 2018 
Patrick CescauNon-Executive ChairmanAppointed to the Board: 1 January 2013Skills and experience: From 2005 to 2008, Patrick was Group Chief Executive of Unilever Group, having previously been Chairman of Unilever PLC, Vice-Chairman of Unilever NV and Foods Director, following a progressive career with the company, which began in France in 1973. He was formerly a Senior Independent Director and Non-Executive Director of Pearson plc and Tesco PLC, and a Director at INSEAD.Board contribution: Patrick has held board positions for nearly 15 years in leading global businesses and brings extensive international experience in strategy, brands, consumer products,and finance. As Chairman, Patrick is responsible for leading the Board and ensuring it operates in an effective manner, and promoting constructive relations with shareholders. As Chairman of the Nomination Committee, he is responsible for reviewing and making recommendations on the Group’s leadership needs.Other appointments: Currently Senior Independent Director of International Airlines Group, Patrick is also a trustee of The Leverhulme Trust, Patron of the St Jude India Children’s Charity and Member of the Temasek European Advisory Panel.
Richard SolomonsChief Executive OfficerAppointed to the Board: 10 February 2003Skills and experience: Richard has led the continued growth of IHG, including the launch of HUALUXE Hotels and Resorts and EVEN Hotels, and IHG’s acquisition of Kimpton Hotels & Restaurants. Before being appointed Chief Executive Officer, Richard served as Chief Financial Officer and Head of Commercial Development. Richard was integral in shaping and implementing IHG’s asset-light strategy, which has helped the business grow significantly since it was formed in 2003, as well as supporting the return of over $12 billion to shareholders. Richard is a member of theIndustry Real Estate Financing Advisory Council and a Governor of the Aviation and Travel Industry Group of the World Economic Forum.Board contribution: Richard is responsible for the executive management of the Group and ensuring the implementation of Board strategy and policy.Other appointments: Currently a Non-Executive Director of Marks and Spencer Group plc.
Paul Edgecliffe-JohnsonChief Financial OfficerAppointed to the Board: 1 January 2014Skills and experience: Paul is a fellow of the Institute of Chartered Accountants and a member of the Association of Corporate Treasurers. He was previously Chief Financial Officer of IHG’s Europe and Asia, Middle East and Africa regions, a position he held since September 2011. He joined IHG in August 2004 and has held a number of senior-level finance positions, including Head of Investor Relations, Head of Global Corporate Finance andFinancial Planning & Tax, and Head of Hotel Development, Europe. Paul also acted as Interim Chief Executive Officer of the Europe, Middle East and Africa region (prior to the reconfiguration of our operating regions).Board contribution: Paul is responsible, together with the Board, for overseeing the financial operations of the Group and setting its financial strategy.
Dale MorrisonSenior Independent Non-Executive DirectorAppointed to the Board: 1 June 2011Skills 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. Dale’s role as Senior Independent Non-Executive Director is fundamental to the successful operation of the Board.Other appointments: Currently a Non-Executive Director of International Flavors & Fragrances Inc., and Non-Executive Chairman of Marlin 1 (holding company for Young’s Seafood International Holdings Ltd.).CHANGES TO THE BOARDTracy Robbins Tracy resigned from the Board and her role as Executive Vice President, Human Resources on 15 January 2016.Jennifer LaingJennifer retired from the Board following the AGM on 6 May 2016.Jill McDonaldJill was appointed to the Chair of the Corporate Responsibility Committee on 6 May 2016.Ying YehYing retired from the Board following the AGM on 6 May 2016.50 IHG Annual Report and Form 20-F 2016 Governance
Anne BusquetIndependent Non-Executive DirectorAppointed to the Board: 1 March 2015Skills and experience: Anne began her career at Hilton International in Paris, before joining American Express Company in New York, where she held several executive positions and served for 23 years. Anne was also the Chief Executive Officer of Local and Media Services at InterActiveCorp, an internet commerce conglomerate.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: Anne is currently the President of AMB Advisors, an independent consulting firm, and Managing Director at Golden Seeds LLC, an angel investment company. She also serves on the boards of Pitney Bowes, MTBC, Elior Group and Provista Diagnostics, Inc. and on the advisory boards of JEGI and SheSpeaks.
&and Operations Director for Marks and Spencer Group plc for five years from 2005 to 2010, where he oversaw significant changes in the business. In addition, Ian was 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.sector.ChairmanChair 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. Director of Punch Taverns plc, a Non-Executive Director and ChairmanChair of the Audit Committee of SSP Group plc, Senior IndependentNon-Executive Director and ChairmanChair of the Audit Committee of ASOS plc and Senior IndependentNon-Executive Director of Paddy Power Betfair plc.
Skills and experience:Jo most recently held the position of Corporate Vice President of the Phones Business Unit at Microsoft Corporation. She was previously Executive Vice President of Smart Devices at Nokia Corporation, following a number of senior management roles at Nokia from 2003. Prior to that, she held marketing, sales and management roles at Reebok International Limited from 1992 to 2003 and at Procter & Gamble Company from 1984 to 1992. 
Skills and experience:Luke served for 12 years on the boardBoard 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 aNon-Executive Director of WHSmith PLC and Brambles Limited where he chaired the Remuneration Committee. He was ChairmanChair of Pets at Home Group Plc. ChairmanChair at Brambles Limited from 2006 to 2014. As Chairman of the2014 and at IHG Remuneration Committee he is responsible for setting the remuneration policy.from July 2011 to September 2017.Holdings plc, and a trustee of BBC Children in Need.Need and a Governor of the Southbank Centre.
Skills and experience:Jill started her career at Colgate-Palmolive Company, spent 16 years with British Airways Plc and has held a number of senior marketing positions in the UK and overseas. Jill was previously Chief Executive Officer UK and President for the North West Europe division for McDonald’s, and held a number of other senior roles in the company from 2006. From May 2015 until September 2017, Jill becameserved as Chief Executive Officer of the Halfords Group plc in May 2015.plc. nearlyover 30 years’ experience working with high-profile international consumer-facing brands at both marketing and operational level. As ChairmanChair of the Corporate Responsibility Committee, she is responsible for corporate responsibility objectives and strategy and approach to sustainable development.
Skills and experience:Malina is Group Chief ExecutiveOperating Officer of HalfordsA.S. Watson Group, plc.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 13 brands including Watsons, Superdrug, Savers, The Perfume Shop, Kruidvat, ICI Paris XL and ParknShop. In addition, Malina is Vice Chair of the Hong Kong Retail Management Association and was previously a member of the Board of Directors of the Hong Kong Sports Institute Limited.Corporate Governance IHG | Annual Report and Form 20-F 2016 512018 | Governance | Corporate Governance57 CORPORATE GOVERNANCE CONTINUEDGovernanceIn addition to Paul Edgecliffe-Johnson and Richard Solomons, the Executive Committee comprises:
Keith BarrClaire BennettCommercialMarketing OfficerApril 2011 (JoinedOctober 2017 (joined the Group: 2000)2017) Skills and experience: KeithClaire joined IHG with anin-depth knowledge of the travel and tourism industry having 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 and Lifestyle, where she led a team responsible for delivering luxury lifestyle services. Prior to this, Claire held roles as GM for Consumer Loyalty, GM for US Consumer Travel, and Senior Vice President, Global Marketing and Brand Management, where she led worldwide advertising, media, sponsorship and marketing research teams.over 20 years’ experience in the hospitality industry. He hasalso held senior appointmentsmarketing positions at IHG, including Vice President of SalesDell, as well as finance and Revenue Management; Vice President of Operations; Chief Operating Officer, Australia, New Zealandgeneral management roles at The Quaker Oats Company, building significant expertise across technology, consumer packaged goods, financial services, and South Pacific;travel and Managing Director, Greater China. He becamehospitality sectors. Claire has been an Executive Committee member in April 2011Board Member of the World Travel and prior to becoming Chief Commercial Officer, was Tourism Council (WTTC), served as a Board Member of Tumi Inc. and participated on multiple industry advisory boards. Claire is a Certified Public Accountant and holds an MBA from the J.L. Kellogg Graduate School of Management at Northwestern University.
until May 2013.Keith is currently a member of The Leland C. and Mary M. Pillsbury Institute for Hospitality Entrepreneurship Advisory Board.Key responsibilities: These include global sales, marketing and brand functions, to drive consistent brand strategies across all regions and leverage IHG’s scale and systems to deliver continued industry outperformance.
Angela BravChief Executive Officer, EuropeAugust 2011 (JoinedNovember 2017 (joined the Group: 1988)2001) Skills and experience: Angela has over 25 years’ experience in the hospitality industry, including hotel operations, franchise relations and technology solutions. She held various senior roles in IHG’s North American and European regions priorPrior to becomingJolyon’s appointment as Chief Executive Officer for Greater China, Jolyon was Chief Operating Officer North America. She was appointed Chief Executive Officer, Europe(COO) for the Americas, leading the region’s operations for franchised and managed hotels, in August 2011.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. business developmentthe management, growth and performanceprofitability of all the hotel brands and properties in Europe.IHG’s fastest growing region, Greater China. 
Federico Lalatta CosterbosaExecutive Vice President, Global Strategyand Corporate Development,Appointed to the Executive Committee:April 2016 (Joined the Group: 2014)Skills and experience: Prior to IHG, Federico worked for 20 years at The Boston Consulting Group (BCG). From 2004 he was Partner and Managing Director, focusing on Consumer Practice and active across retail, consumer and luxury goods, travel and tourism sectors. Among other responsibilities, Federico was part of BCG’s global leadership teams for Retail and for Social Impact. Before joining BCG Federico developed his own business, offering high-end art-related travel services in Italy.Key responsibilities: These include shaping and overseeing the execution of corporate strategy, exploring global business development opportunities, enhancing our owner proposition and delivering IHG’s major transformation programmes.
(Joined(joined the Group: 2012) Affairs andAffairs; Head of Communications for Welfare to Work and New DealDeal; and Head of Marketing at the Department for Education and Skills. Before joining governmentBBC. BBC, where she led communications activity around the launch of a new digital learning channel and around the BBC’s educational output for both adults and children.internal and external communications activity, as well as key public affairs work, 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.
Elie MaaloufKenneth MacphersonThe AmericasEMEAAFebruary 2015 (JoinedApril 2013 (joined the Group: 2015)2013) Elie was appointedKenneth Macpherson became Chief Executive Officer, The Americas at IHGEMEAA in February 2015, with over 14 years’January 2018. Kenneth was previously IHG’s CEO for Greater China, a role he held from 2013 to 2017. Kenneth has extensive 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 includeacross sales, marketing strategy, business development and performanceoperations. In addition to 12 years living and working in China, Kenneth’s career includes experience in Asia, the UK, France and South Africa. Before IHG, Kenneth worked for 20 years at Diageo, one of all the hotel brandsUK’s leading branded companies. His senior management positions included serving as Managing Director of Diageo Greater China, where he helped to build the company’s presence and propertiesled the landmark deal to acquire ShuiJingFang, a leading manufacturer of China’s national drink, and one of the first foreign acquisitions of a Chinese listed company.Key responsibilities:Kenneth is responsible for the management, growth and profitability of the EMEAA region. He also manages a portfolio of hotels in The Americas region.some of the world’s most exciting destinations, in both mature and emerging markets.58 CHANGES TO THE EXECUTIVE COMMITTEEFederico Lalatta Costerbosa Federico was appointed to the Executive Committee on 4 April 2016.Yasmin DiamondYasmin was appointed to the Executive Committee on 4 April 2016.Lori GaytanLori was Interim Executive Vice President of Human Resources from January 2016.Ranjay RadhakrishnanRanjay was appointed to the Executive Committee on 1 December 2016.52 IHG | Annual Report and Form 20-F 2016 Governance2018
Kenneth MacphersonChief Executive Officer, Greater ChinaAppointed to the Executive Committee:April 2013 (Joined the Group: 2013)Skills and experience: Kenneth joined IHG as Chief Executive Officer, Greater China in April 2013. Prior to joining the Group, he worked for Diageo plc for nearly 20 years and held senior management positions, including serving as Executive Managing Director of Diageo Greater China. Kenneth has extensive management experience, with a background in sales, marketing strategy, business development and operations.Kenneth also brings substantial knowledge and expertise in Chinese and international business operations.Key responsibilities: These include business development and performance of all the hotel brands and properties in the Greater China region. 
Eric PearsonExecutive Vice President and Chief Information OfficerAppointed 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 with IHG 20 years ago, building IHG’s internet business. Since then, he has held various senior positions in global e-commerce, distribution marketing and global brands. Prior to being appointed Chief Information Officer, Eric most recently held the position of Chief Marketing Officer for The Americas region.Key responsibilities: These include global technology, including technology strategy, application development and global operations for IHG corporate systems and hotels around the world.
(Joined(joined the Group: 2016) Experience:experience:Ranjay joined IHG as Chief Human Resources Officer in December 2016. He previously spent 23 years at Unilever, in a range of senior leadership roles at global, regional and country levels. At Unilever, Ranjay was most recently Executive Vice President Global HR (Categories &and Market Clusters), where he led HR for Unilever’s eight regions (Market Clusters) and four global Product Categories under a unified global HR leadership role. Ranjay has worked and lived in several countries, including the UK, Thethe Netherlands, Singapore, UAE and India. Key responsibilities:These include global talent management, learning and capability building, diversity, organisation development, reward and benefit programmes, employee relations, and all aspects of the people and organisation strategy for the Group. 
Jan SmitsChief Executive Officer, Asia, Middle East and AfricaAppointed to the Executive Committee:April 2011 (Joined the Group: 2002)Skills and experience: Jan has more than 30 years’ experience in the hospitality industry. He held various senior positions in the Asia and Australasia region. He became Managing Director, Asia Australasia in June 2009. Following the amalgamation of our Middle East and Africa region with our Asia Australasia region, he became Chief Executive Officer, Asia, Middle East and Africa in April 2011.Key responsibilities: These include business development and performance of all the hotel brands and properties in Asia, Middle East and Africa.
General CounselChief Commercial and Company SecretaryTechnology Officer(Joined(joined the Group: 2008) a number ofvarious key positions including Deputy Company Secretary and Senior Legal Counsel. In February 2019 George was appointed as Chief Commercial and Technology Officer, continuing as Company Secretary until 1 March 2019. Key responsibilities:As EVP, General Counsel and Company Secretary, these included corporate governance, risk management, information security, insurance, regulatory compliance, internal audit, legal and hotel standards. As EVP, Chief Commercial and Technology Officer, these include global sales, distribution, revenue management, property systems, digital and voice, information security and technology. 
corporate responsibility, public affairs and hotel standards.
It is with deep sadness that we report that Eric Pearson, our Chief Commercial and Technology Officer, passed away on 26 December 2018. Eric was an incredibly unique, talented and well respected individual, both within IHG and across industries. In over 20 years with IHG, he played an integral part in our success, and his expertise, passion, leadership and friendship will be sorely missed. During his tenure, he led many key parts of our business and helped shape and deliver our strong digital offer, launching several industry firsts and building an excellent leadership team with great strength and depth. He touched many people’s lives, and a fitting tribute to him will be the scholarships in his name with Junior Achievement of Georgia, where he was a Board member, which will ensure his legacy goes on to inspire future generations. Corporate Governance IHG | Annual Report and Form 20-F 2016 532018 | Governance | Corporate Governance59 CORPORATE GOVERNANCE CONTINUEDGovernanceGroup’s performanceChair and compliance withCompany Secretary continue to operate a thoroughtwo-tiered collaborative process for setting the governance framework,Board agenda to ensure that the focus and other key matters are overseendiscussion strikes the appropriate balance between short-term needs of the business and monitored by the Board.longer-term. The Chair, CEO and Company Secretary also meet in advance of each Board and Committee meeting to finalise the agendas and ensure that sufficient time is allocated and in which order each matter is considered. The Company Secretary maintains an annual agenda schedule for Board meetings that tracks routine matters and updates on bothsets out strategic and operational matters. Meetings beginmatters to be considered. Board papers are circulated to all Board members at least one week in advance of each meeting, to ensure that Directors have sufficient time to fully prepare for the meetings and ensure that effective, focused and relevant discussions take place. Each Board meeting begins with an update from the ChairmanChair and Chief Executive Officer,CEO, and the Chief Financial OfficerCFO then provides a financial review of the Group.Group’s financial performance. Executive Committee members and other members of senior management present deep divesupdates and ‘deep dives’ on key initiatives and developments in each region and function throughout the year.year, including functional, market and brand reviews, enabling all Directors to engage with senior management, have a strong understanding of Group operations, challenges and successes and contribute to strategic discussions.In additionThe Board continues to receive presentations in the business discussed and considered atless formal context ofpre-dinner meetings, scheduled the day before Board meetings, and invites external experts to provide‘outside-in’ perspectives. This year the Board allows time for more informal presentationsdiscussion at pre-dinner meetings duringinnovation, and the evenings before Board meetings.trends and competitive dynamics shaping the digital environment with external experts.49. 55. All Directors are expected to attend all Board meetings and relevant Committee meetings unless they are prevented from doing so by prior commitments, illness or a conflict of interest. If Directors are unable to attend Board or Committee meetings, they are sent the relevant papers and asked to provide comments to the Chair of the Board or Committee in advance of the meeting so that their comments can be duly considered.meetingseach Board meeting for the Chief Executive OfficerCEO to meet with the ChairmanChair andNon-Executive Directors, and for the ChairmanChair to meet privately with the Senior IndependentNon-Executive Director (SID) andNon-Executive Directors. Careful agenda planning allows Directors to discuss any matters arising. The SID continues to be available to discuss concerns with shareholders, in addition to the normal channels of shareholder communication.sufficient time to consider key matters at appropriate stages across the year.So that the Board makes the best possible use of its time at meetings, all Directors are provided with detailed briefing papers (available electronically) at least one week in advance of every meeting to ensure that discussions are focused and relevant.Strategic and operational mattersThe Board continued to focus on matters of strategic and operational importance in 2016, which included:our commercial strategy (see pages 14 to 17);guest loyalty (see page 16);informationmatters, corporate governance, investor relations and the information security landscape;strategic portfolio management and priorities agreed at the March Board strategy day;regional updates onrisk management. The Americas, AMEA, Europe and Greater China regions (see pages 31 to 42);online travel agents and distribution;an in-depth trends review (see page 9);progress against the developmentinterests of our next-generation Guest Reservation System (see page 17);in-depth brand reviewskey stakeholders were considered throughout all discussions. The key focus areas for Holiday Inn, Holiday Inn Express (see page 17), Kimpton and Crowne Plaza; andfinance and procurement update.The Board also discussed the UK’s EU referendum result and the impact of Brexit on IHG. As IHG is a global business, with operations in nearly 100 countries, the Board concluded that the result would have no material impact on our strategy or operations.during 2018 are outlined below:Governance and investor relationsThe Board routinely considers shareholder relations and deals with corporate governance matters, including:Governance:updates from each of the Board Committees;quarterly corporate governance and regulatory updates, including reviews of regulatory developments and any upcoming legislative changes affecting the business, our Board and/or its Committees;the Annual Report and Form 20-F;internal controls and risk management systems, our risk appetite and our global insurance programme;Board effectiveness evaluation; andthe terms of reference for each Board Committee.Investor relations and communications:the review and approval of shareholder returns strategies for 2016;updates on investor perceptions and shareholder relations, consideration of analysts’ reports and media updates;preparations for the AGM; andour share register movements during 2016, share price performance, relative share price performance and the investor road show (including investor feedback).Strategic and
operational
mattersAccelerating our growth Regular updates were received on key milestones including organisational structures and workforce transition, progress against key strategic initiatives and risk management and culture change. ANNUAL STRATEGY MEETING – MARCH 2016In addition to the routine financial and operating reports and updates that the Board considers, substantial time is also spent considering Group strategy, performance and oversight, including a dedicated annual strategy meeting.As well as reviewing and discussing our global strategy in detail, we also spent time focusing on the European market. We visited three of our priority markets in the region, UK (London), Germany (Frankfurt and Berlin) and Russia (Moscow), giving the Board the opportunity to see at first-hand the diversity of the European market and the progress we are making in cementing our foothold. More details of this, and more key trends affecting our industry, can be found on pages 8 and 9.Each Board member received a full briefing in advance of the visit to familiarise them with the cities and hotels that they were visiting and the specifics of, and recent developments in, the European market. The briefing also included an overview of the key macroeconomic figures, trends (including technology), and our key international competitors’ business in the region.The Board had the opportunity to meet with senior executives in the region, key-market experts and some of the owners to hear about the dynamics at play in the hospitality sector in the region and discuss more specifically IHG’s position.54 IHG Annual Report and Form 20-F 2016 GovernanceDirector induction, training and developmentNew Director inductionsThere were no new Director appointments in 2016. However, all new Directors, upon appointment, undergo a comprehensive and formal induction programme which is tailored to meet their individual needs. We believe this is crucial in ensuring our Directors have an in-depth understanding of the Group’s business and our business model, our principal activities, and our strategy, which is key to enabling all Directors to contribute to the Board effectively with their knowledge, skills, experience and expertise.During 2016, our induction focus supported Jill McDonald upon her appointment as Chair of the Corporate Responsibility (CR) Committee following Jennifer Laing’s retirement from the Board on 6 May, 2016. An induction programme was put in place and entailed:a detailed handover from Jennifer Laing; anda series of meetings with the heads of Corporate Responsibility and the Company Secretary, which included planning and setting the meeting agendas and a deep dive on the CR programmes, their background and development.Malina Ngai will receive a full induction programme during 2017, details of which will be reported in the 2017 Annual Report.Ongoing Director training and developmentAt IHG, we believe that updating skills and knowledge through a progressive and continual training programme is of great importance because it facilitates a better understanding of the Group’s business and its operations. The Chairman regularly reviews and agrees any training and development needs with each Director and the Board is made aware of training opportunities.Board and Committee meetings are regularly used to keep Directors formally up to date on developments in the environment in which the business operates, with in-depth discussion and presentations provided by senior management on key topical areas as required. The Company Secretary provides updates to the Board on regulatory, corporategovernance and legal matters, or relevant changes, as part of meetings. Individual meetings are also set up with senior management, as necessary, to enable the Board to keep up to date with, and enhance their knowledge of, the business.Board meetings are intentionally held at IHG hotels in different locations to provide first-hand experience of the different brands across our portfolio, to broaden the Board’s exposure to the geographical markets in which we operate and to provide opportunities to meet frontline staff and other colleagues. In 2016, Board members attended Board and Committee meetings held at InterContinental London Park Lane and Crowne Plaza Gerrards Cross in the UK, and InterContinental New York Barclay in the US, in addition to meetings held at the Group’s head offices in Denham, UK. As part of our annual strategy meeting, Board members visited hotels in Frankfurt, Moscow and London prior to assembling at InterContinental Berlin. Whilst in New York, Board members visited the Hotel Indigo Lower East Side, EVEN Times Square South and Hotel Kimpton Eventi. Directors are also encouraged to visit hotels across our brands informally.Training focus areas in 2016How we delivered the trainingAudit and governance developmentsErnst & Young LLP presentationRegulatory developments including:Quarterly Board reports• Corporate governance and stewardship;• EU Market Abuse Regulation;• Sanctions updates; and• General Data Protection Regulation.Embedding responsible businessHuman rights eLearning;in our practicesCompetition law eLearningTechnology trendsAccenture presentationData and information governancePricewaterhouseCoopers presentationBoard effectiveness evaluationIHG continues to recognise the importance of evaluating the performance of the Board as a whole, its main Committees and its Directors, in line with the Code recommendations.2015 EVALUATION OBSERVATIONS AND ACTION TAKEN DURING 20162015 observationsAction takenduring 2016 The Board was much more focused on brands, although the Board would still benefit from regular reviews of the progress of each brand against its strategy.Strategic initiatives Regular consideration of merger and acquisition activity, including the acquisition of the Regent brand updates were provided at Board meetings with performance reports and deep-dives held onentry into a managed lease transaction in the Holiday Inn, Holiday Inn Express, Crowne Plaza and Kimpton brands (see page 54).UK. The Board’s understanding of competitors’ strategy and performance had been achieved through enhanced analysis.Operating regions No further enhancements toOperating performance, competitive positioning, outlook and strategy, including progress against KPIs, were considered at each Board meeting and deep-dive sessions on each region were also presented during the current practice were required.year, considering our guest and owner proposition throughout. Increased exposure to the Group’s US business was requested, including a review of the Kimpton integration.Commercial delivery The Americas review was presented at the June Board meetingUpdates on progress against our channels and an updatesales strategy and updates on the Kimpton integration was presented atroll out of IHG Concerto, including the December Board meeting.approach to risk mitigation and future initiatives. Increase the Board’s understanding of consumer trends and behaviour.Brands Industry reports have been provided toBrand performance and initiatives for all brands, including approving the Board as well as consumer trends reports.launch of voco, and monitoring progress following the launch of avid hotels. Our people and culture Presentations from the Chief Human Resources Officer on people, and culture change, including updates on engagement scores, feedback sessions, and key learnings. The Board discussed the conclusions reached and next steps, including how the interests of the workforce had been considered and the importance of ensuring key learnings were implemented. Finance In addition to approving the budget, review of the Group’s funding and liquidity position and approving a€500 million bond. Corporate
governanceUpdates from each of the Board Committees Details of Committee activities during 2018 can be found on pages 64 to 69 and 72 to 85. Corporate Governance IHGCode and The Companies (Miscellaneous Reporting) RegulationsPresentations were received on corporate governance developments, including statutory duties, stakeholder engagement, workforce voice, Board composition, diversity, remuneration, culture and stewardship. Quarterly corporate governance and regulatory updates, including reviews of regulatory developments and any upcoming legislative changes affecting the business, the Board and/or its Committees Internal quarterly updates are provided to the Board covering key regulatory and corporate governance developments and how the Group is responding. Further information can be obtained from the Company Secretary. Year-end matters, including the Annual Report andForm 20-F Details of the review process of the Annual Report and Form20-F 2016 55 can be found on page 64.Board effectiveness evaluation Details of the process and outcome of the internal Board effectiveness review can be found on page 63. CORPORATE GOVERNANCE CONTINUEDBoard effectiveness evaluationcontinuedDirectors’ performance evaluationDuring 2016, internal performance evaluations of Directors were undertaken as follows:Director being appraised60 AppraiserChairmanNon-Executive Directors, excluding the Chairman,IHG | Annual Report and facilitated by the Senior Independent Non-Executive DirectorChief Executive OfficerChairman and all Non-Executive DirectorsExecutive DirectorChief Executive OfficerNon-Executive DirectorsChairmanForm 20-F 2018Directors’ additional appointments and time commitments were also considered as part of the internal performance evaluations, and we concluded that all Directors continue to be able to perform their duties effectively. Particular attention was paid to Ian Dyson and Anne Busquet’s commitments, and we determined that these do not adversely impact their ability to fulfil their roles as Non-Executive Directors.External evaluationIn 2014 and 2015, IHG conducted internal evaluations of the Board, its Committees and the performance of individual Directors, with guidance and assistance from independent external facilitators with no connection to IHG.In accordance with our three-year cycle, Dr Tracy Long of Boardroom Review Limited, an independent external facilitator with no connection to IHG, was engaged to lead our 2016 external evaluation.Dr Long met with the Chairman and the Company Secretary to review the previous evaluation processes and outcomes, and devised an in-depth evaluation process, comprising:confidential one-on-one interviews with each Board member and certain attendees at meetings;observation of a Board meeting in February 2017; andindividual feedback interviews with all Directors.Following this process, a detailed report will be presented to the Board in May 2017. Initial observations and feedback shared with the Chairman indicate that the Board and its Committees were operating effectively, and the Board will consider the detailed recommendations at its meeting in May 2017. During 2017, the Board will focus on the key recommendations of the evaluation and will report on the observations and actions taken in the 2017 Annual Report.Risk management Cybersecurity Presentations from the Chief Information Security Officer on cybersecurity, including the threat landscape, information security priorities, and updates on key initiatives and metrics. Internal controls and risk management systems, our risk appetite and our global insurance programme Regular updates were received on internal controls, risk management systems, our risk appetite and global insurance programme. Reports on risk topics were delivered by the Chair of each Committee. Terms of Reference for each Board Committee Changes to the Terms of Reference of the Committees were approved during the year, in preparation for the implementation of the new 2018 UK Corporate Governance Code. The Terms of Reference for all Committees and the Matters Reserved for the Board can be found on our website. Updates on investor perceptions and shareholder relations, consideration of analysts’ reports and media updates The Board receives a regular report outlining share register movement, relative share price performance, Investor Relations activities and engagement with shareholders. The Board also considered feedback from the regular investor and analyst perception survey. Stakeholder engagement The Board continued to consider stakeholders throughout all Board discussions. In addition separate updates and presentations were provided on the workforce, the Group’s owners engagement strategy, and outsource suppliers. Global communications updates The Board receives a regular report on global communications, including the external landscape and communications activity across key regions, our brands and our people. Review and approval of shareholder returns strategies for 2018 During the year, the Board considered and after taking into account stakeholder interests, distributable reserves and long-term success of the Company, recommended two dividends and a $500 million return to shareholders via a special dividend with share consolidation, which was approved by shareholders on 11 January 2019 and paid on 29 January 2019. Preparations for the AGM Details of the 2019 AGM can be found on page 62. takes itsmaintains 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 and monitoring performance during the regular Board meetings and, in addition, the Board holds an Annual Strategy Meeting, dedicated to representreviewing and promotediscussing our global strategy in detail.interestsBoard undertook a thorough review of its shareholders seriouslythe Group’s performance across all business areas, as well as completing a strategic assessment of the competitive landscape and believesthe commercial strategy andimportance of shareholder engagement. discussions at the meeting.maintainremain committed to maintaining an active programme ofand effective dialogue with our shareholders and all of our key stakeholders. We encourage engagement with investors and other stakeholders through our planned programme of investor relations activities, as well as responding to queries from shareholders, analysts and ourother stakeholders. Our Registrar, Equiniti, has a teamand J.P. Morgan, as custodians of peopleour 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.relations to ensure that they are made aware and understand the issues and concerns of major shareholders in order to develop a balanced understanding of any such concerns.EngagementShareholder engagement during the yearin 2016 included:meetingMeeting shareholders and responding to any queries raised at the AGM;2018 AGM and the General Meeting in January 2019.presentationsPresentations by Richard SolomonsKeith Barr and Paul Edgecliffe-Johnson to institutional investors, analysts and the media following half-year and full-year results announcements;announcements.Kenneth Macpherson attended an investor conference in London. In addition, investor hotel tours took place in both China and London.Investor roadshow events in the US, Canada, Europe and Edinburgh.Telephone conferences after the release of the first and third-quarter telephone conferences after trading updates, including Q&A sessions with sell-side analysts;analysts.hosting two capital market events focusing on The Americas regionIFRS 15 event, with Paul Edgecliffe-Johnson outlining and our commercial strategy, attended bypresenting the Executive Committee;reporting changes to investors and analysts.seekingSeeking feedback via an annual investor perception survey, facilitated by our capital markets advisers;advisers.attendanceAttendance at key institutional investor conferences; andconferences.aA programme ofone-to-one meetings with major institutional shareholders, includingNon-Executive Director meetings hosted by the ChairmanChair.Remuneration Committee Chairman.arewere made availableIHG | Annual Report and Form 20-F 2018 | Governance | Corporate Governance 61 arewere made available after results presentations in 2018, together with associated data and documentation. These can be found atwww.ihgplc.com/investors under Results and Presentations. Around 25presentations. Details of the sell-side research analysts who publish research on the Group; their detailsGroup are available atwww.ihgplc.com/investors under Analysts’Analyst details and consensus.business. The Board valuesbusiness and to discuss matters with the AGM as it provides a useful forum for one-to-one communication with private shareholders. At each AGM, shareholders receive presentations onBoard. A presentation regarding the Group’s performance and mayfinancial results is given before the Chair deals with the formal business of the meeting. All shareholders present can ask questions of the Board, both during the meeting and more informally over lunch afterlunch. The Board considers the AGM an invaluable forum for communicating with investors and we encourage participation at this meeting.20172019 AGM will be held at 11:00am00 on Friday 53 May 2017.2019. 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.DuringAs a result of the third quarter of 2016, IHG ran itsspecial dividend and share consolidation, the annual share-dealing programme was postponed.Attendance at the 2018 World Economic Forum in Davos, engaging with a wide variety of clients, owners, suppliers and various country tourism organisations and officials;Meetings with a number of hotel owners in our Greater China region during the UK China CIIE Business Reception and Dinner;Joining our Senior Leaders for shareholdersthe annual meeting in Miami; andMeetings with shareholdingsthe workforce and guests during various hotel visits, including in Atlanta and London.upthe Board engaged with key credit investors as part of the Group’s bond roadshow.200 shares, giving themmeet their individual needs. We believe this is crucial to ensure our Directors have anin-depth understanding of and familiarity with the optionGroup’s business model, key stakeholders, our principal activities and our strategy, which is key to sell or increase their shareholdings at a preferable set fee. Shareholders who sold their shares had the further optionenabling all Directors to donate their proceedscontribute to the Board effectively.The provision of a detailed briefing pack outlining the roles, responsibilities and duties of an Executive Director;Board induction meetings with the Company Secretary, Deputy Company Secretary and external Corporate Legal Adviser focusing on Director’s duties under the Companies Act, key corporate governance and corporate transaction issues, compliance with Listing Rules and relevant regulations;Induction meetings with the Group Financial Controller and Auditor to review key financial considerations and responsibilities of an Executive Director;Meeting with Dr Tracy Long, an independent external Board evaluator, to discuss the Board review process and outcomes from past evaluations; andOne-to-one meetings with the Committee Chairs and SID to ensure a thorough understanding of the focus areas of each Committee and the SID.Foundation.hotels around the world to provide first-hand experience of our different brands. We believe that this opportunity to meet our workforce, suppliers and owners across the business broadens the Board’s understanding of the markets in which we operate. In 2018, Board members attended Board and Committee meetings at our Ravinia offices in Atlanta, the InterContinental® London Park Lane and the Crowne Plaza, Kensington in the UK, as well as meetings at the Group’s head offices in Denham, UK. Directors are also encouraged to continue to visit hotels across our brands on an informal basis. 56 62IHG | Annual Report and Form 20-F 2016 Governance2018Board composition and alignment with the needs of the business;Board work processes including agenda setting, information flow, areas of engagement and use of time;Board engagement with strategy;Board dynamics and effectiveness of meetings, including relations with executives; andThe structure and effectiveness of our Principal Committees.The relationship between the CEO and Chair;Board succession;Board culture and the Chair’s ability to promote and maintain an open, transparent and constructive atmosphere, encouragingco-operation and communication;Managing the Board in accordance with high standards of corporate governance; andThe effectiveness of the analysis and action taken from the results of last year’s evaluation.IHG’s performance;Effectiveness in developing and implementing strategy, talent and culture;Effectiveness in shaping IHG’s reputation and relationships with key stakeholders;Value stewardship;Leadership of the Executive Committee; andAreas for further development.IHG | Annual Report and Form 20-F 2018 | Governance | Corporate Governance 63 
“We play a crucial role in ensuring that IHG maintains a strong control environment.”
plays a crucial role inis responsible for ensuring that IHG maintains a strong control environment. It influencesmonitors the cultureintegrity of the organisation through itsIHG’s financial reporting, including significant financial reporting judgements, maintains oversight and reviewreviews our systems of ourinternal control and risk management, systems,monitors and reviews the processeseffectiveness and controls in place to manage risk, the Group’sperformance of internal controls, and external audit functions, as well as reviewing the behaviours expected of IHG’s employees through the Group’s Code of Conduct and other related policies.responsibilitiesauthority delegated to it by the Board are set out in its Terms of Reference (ToR), which are reviewed annually and approved by the Board.Reviewing the approach to Risk and Assurance in light of the new organisational structure;Regular reviews of the Group’s information security controls and the information security risk landscape, including reviewing a cybersecurity risk assessment and a detailed roadmap for 2018 and beyond;Reviewing, challenging and ensuring accurate financial and narrative reporting, including reviewing the Annual Report and Form20-F and assessing the implementation of new accounting standards, including IFRS 15 concerning revenue recognition and IFRS 16 concerning leases;Reviewing and assessing the robustness of the Group’s internal controlscontrol and risk management systems andin-depth reviews of specific principal risk areas including the approach to outsourcing and the risk and control environment in particular, financial controls;relation to the implementation of GRS and the Group’s strategic initiatives;reviewing, challenging (where necessary), and ensuring accurate financial and narrative reporting;overseeingOverseeing the relationship with and appraisal of the Group’s external Auditor;Auditor, including regular analysis of audit andnon-audit services;monitoringOverseeing the external audit tender process;Monitoring and reviewing the role of Internal Audit; andoverseeingOverseeing and ensuring the effectiveness of the Group’s regulatory compliance policies, procedures and controls, including whistleblowing and fraud.assessing the Group’s approach to the EU General Data Protection Regulation (GDPR).
on IHG’s website atwww.ihgplc.com/investorswww.ihgplc.com/investors under Corporate governance.governance in the Committees section.49.55. The Chief Executive Officer, Chief Financial Officer, Chairman of the Remuneration Committee, Head of Global Internal Audit (GIA),CFO, Group Financial Controller, Head of Global Risk Managementand Assurance and our external Auditor, Ernst & Young LLP (EY), attended all meetings in 2016. The Chairman of the Board attended four out of five meetings.2018. Other attendees are invited to meetings as appropriate. To ensure open dialogue, transparency, independenceappropriate; and feedback, the CEO and all other Directors attended Committee Chairman heldmeetings where the principal risks and risk management systems and the approval of financial reporting were considered and discussed. The Committee continues to hold private sessions (together with and separately to the Committee) with the Auditorsinternal and Head of GIAexternal Auditors without the presence of management.management to ensure that a culture of transparency is maintained. The Committee Chairman hasChair continues to have recent and relevant financial experience and all members of the Committee are independent Independent Directors, 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 relevant to bothin the hospitality industry and the broader commercial environment in which we operate in.operate. Further details of the skills and experience of the Board can be found on pages 56 and 57.receives an update from the Committee Chairman on the key issues discussed. The papers and minutes for each meeting are circulated to all Board members, who are invited to request further information if required and to provide any challenge where considered necessary.ChairmanChair of the Committee and the Chairman (who attended mostChair of the Board. During 2018, the Committee meetings) and willwas also be reviewed as part of the in-depth externalinternal Board evaluation process conducted by Boardroom Review Limited (see pages 55page 63). The Committee undertook an assessment against its own ToR and 56).I, as Chair, assessed the effectiveness of the Committee across a number of areas, including membership, skills and experience and the work of the Committee across its key responsibility areas. The Committee concluded that it remains effective. Minor changes were also made to the ToR to reflect the 2018 UK Corporate Governance Code, including that whistleblowing procedures and reports would now be matters reserved for the Board.Internal controls and risk managementThe Committee supports the Board by reviewing and interrogating the effectiveness of the Group’s risk management and internal control systems, and by having oversight of the risk and control activities in operation. The Committee supports this process by regularly reviewing the principal risks, risk trends, the risk environment and the operation of the risk management systems. It seeks assurance that, in light of the Group’s risk appetite, the Group’s current and emerging risks are identified, assessed, prioritised, and appropriately managed and mitigated in day-to-day decision-making (see pages 20 to 22).The key financial controls across the business are continually monitored and tested throughout the year. The Committee considers the Group’s treasury and tax strategy and policies annually and, to ensure that an appropriate framework exists to ensure compliance with our US obligations arising from the Sarbanes-Oxley Act 2002 (SOX), assesses the approach to SOX compliance each year, reviewing reports on the progress of the SOX programme at each meeting.The Committee continues to conclude that the Group has in place an effective system of risk management and internal controls, and, through its review, has concluded that there are no material weaknesses in the control environment and that there are no significant failings or weaknesses.In addition to the regular review of the Group’s risk management framework and assessment of the principal risks, the Committee has a schedule for in-depth reviews over the year, where senior management provide more detailed insight into specific risk, financial, compliance and operational areas. During 2016, the Committee met with senior risk and finance management, the Chief Information Officer and the Head of Information Security, considering, in particular:the financial controls relating to the System Fund and significant technology projects;the progress made against the opportunities identified to enhance the Group’s SOX control processes, following the external review conducted in 2015;the Group’s revenue systems, and related risk-management processes and controls;the principal risk areas, the risk review process and how this is supported by the Group’s culture and organisational governance, and the Group’s approach to risk appetite;technology and cyber risks, IHG’s information-security strategy, processes and controls, and, with specific reference to cyber incidents, the Group’s incident response and the containment and mitigation plans, including assurance that there was no impact on the Group’s financial systems;safety and security practices at hotels; andthe review and approval of the Group’s Approach to Tax document required to be published under the Finance Act 2016.The Group’s Approach to Tax document is available on IHG’s website at www.ihgplc.com/responsible-business under Policies.Corporate Governance IHG Annual Report and Form 20-F 2016 57CORPORATE GOVERNANCE CONTINUEDAudit Committee Reportcontinuedmatters)matters such as impairment reviews, key judgement areas, acquisition accounting, the going concern and viability statements) and the Group’s quarterly trading updates. All members of the Board are asked to attend these meetings. The Committee also reviewed and recommended approval of the restatement of the prior year’s accounts, prepared to reflect financial reporting changes.receivescontinues to receive an annual update from EY on key changes in this area. In 2016,2018, the Committee undertook an in-depthcontinued its review of the future impact on the Group of the implementation of IFRS 16 concerning leases and IFRS 15 concerning revenue recognition, – see page 104.It also challengedparticularly in relation to the key judgements applied in the Financial Statements as described below and considered the basis of, and assumptions underlying, the going concern statementSystem Fund revenues and the viability statement. A letter from the SEC containing comments on the Annual Report 2015 was discussed, and the Group’s proposed responsetreatment of loyalty programme accounting.the SEC agreed. As a result of this process, additional disclosures have been made (see page 26 for details of the key performance measures used by management, and pages 156 and 157 for reconciliations of the Non-GAAP measures used in this Annual Report).Where appropriate, the Committee soughtseek input and guidance from EY and,the external Auditor where appropriate to gain further assurance over the process of preparation of the Financial Statements,Statements. In addition, the Committee also received regular reports from the ChairmanChair of the Disclosure Committee and copies of theall minutes of that Committee.Committee were duly circulated. 2016 2018 (Annual Report) in order to provide timely comment,, 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,Human Resources, Finance, GIA, Risk and Assurance and Legal; (ii) a report from the ChairmanChair of the Disclosure Committee; and (iii) the checklist prepared by the Annual Report team confirming compliance with the relevant regulatory requirements.64 IHG | Annual Report and Form 20-F 2018 (and a sub-committee specifically convened for this purpose) also considered management’s analysis of how the content benchmarked against thetaken as a whole, was ‘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. ItIn order to reach this conclusion, a dedicated project team worked on the contents of the Annual Report and a detailed verification process to confirm the accuracy of the information contained within the Annual Report was undertaken by the Financial, Planning and Analysis SIGNIFICANT MATTERS IN THE 2016 FINANCIAL STATEMENTSThe Committee discussed with management and the Auditors the key judgements applied in the Financial Statements, the exceptional items arising in the year and the impactany accounting developments or legislative changes. The main items discussed were:IssueWhy it’s importantWhat we didfocus unique nature ofway IHG accounts for the System Fund due to the adoption of IFRS 15 in 2018, the Committee reviewsreviewed the controls, judgements and judgementsdecisions related to systemSystem Fund accounting. risk areas associated with the System Fund. The Committee further reviewed a paper from management outlining the accounting approach for the System Fund. The Committee concluded that good progress has beenjudgements made in strengthening the financial oversightdetermining that revenue and expenses of the System Fund should be accounted for in the income statement, and that judgements in respectderecognising the historic balance sheet surplus, as determined by management’s interpretation of IFRS 15. The Committee concluded this change was appropriate and their decision was supported by the accounting treatmentconclusions reached by the AICPA Hospitality Entities Revenue Recognition Task Force (‘the Task Force’) focused on IFRS 15, where management participated alongside other hotel companies and audit firms. the System Fund testing for controls required by the Sarbanes-Oxley Act. The Committee also considered EY’s procedures and related disclosures,conclusions in this area, and concluded that the controls were appropriate.appropriate and effective. points liabilityTheprogramme changed significantly in 2018. Accounting for the programme still requires significant judgement and represents a material deferred revenue balance. Accordingly, the Committee reviewed the controls, judgements and decisions related to accounting for the IHG Rewards Club points liability representsprogramme.material liabilityconclusion on the appropriateness of the accounting for the Group and in determining the liabilityIHG Rewards Club programme, the Committee challengesmet with senior finance management to review and evaluate the judgements and estimations usedmade to determinechange the liability.accounting for the IHG Rewards Club Points from a liability based on the future cost of redemptions to a deferred revenue balance. The Committee determined the treatment was appropriate and their decision was supported by conclusions reached by the Task Force. approach to the valuation of the liabilitydeferred revenue balance and in particular, the judgements used in evaluating the points expiry policy introduced in 2015. Management was questioned on the consistency of the valuation approach, adopted, the results of the external actuarial review and judgement exercised on the increased judgement required as a resultbreakage of the expiration policy.outstanding IHG Reward Club Points. The results ofCommittee also considered EY’s audit procedures were also taken into accountand conclusions in reaching the conclusionthis area, and concluded that the liabilitydeferred revenue balance is appropriately stated. Impairment testing in particular, theand key assumptions and sensitivities supporting the conclusion on the various asset categories. The Committee examined the assumptions related tonon-current assets, assets previously impaired management contract valuations resulting from asset sales, and the assets acquired as part of the Kimpton acquisition. The impairments recordedCommittee also considered EY’s procedures and conclusions in the year on a joint venture in The Americas (see note 14 on page 121this area, and page 103) were discussed in detail. The Committeeconcluded that it agreed with the conclusionsdeterminations reached on impairment. Litigation and contingenciescase-by-casecase by case basis. matters, andmatters. The Committee discussed and agreed any provisioning requirements for these matters based on the factors set out in page 103. The Committee also evaluated the need for, and the amount of, a provision in respect of the Kimpton Security Incident (assessing the information currently available) and the disclosure in relation to the Americas Security Incident (see note 30 on page 141).matters. Exceptional items 5 on page 112.6, comprising reorganisation costs, acquisition and integration costs, US pension settlement and litigation. The Committee also considered EY’s audit procedures were also taken into considerationand conclusions in reaching the conclusionthis area, and concluded that the disclosures and the treatment of the items shown as exceptional were appropriate. Capitalisationsoftware projectsThe Group is making a significant investment developing a robust technology platform.the assets and liabilities acquired. The Committee reviews the appropriateness of capitalising the investmentaccounting and the strength of the control environment.In forming a conclusion onchallenges the appropriateness of software capitalisation, the inputs and judgements to these valuations.following: a presentation from senior finance management regarding financial controls and financial oversightwork done to establish the fair value of the technology investment; a review of software assets from an impairment perspective;acquired and future consideration payable. The Committee questioned the conclusions fromassumptions underlying the SOX control testingvaluations and considered reports provided by third-party valuation experts. The Committee also considered EY’s procedures and conclusions in this area; EY’s audit proceduresarea, and GIA review. The Committee concluded that capitalisation is adequately controlled, and that the controls on impairment arefair values recognised were appropriate. 58 IHG | Annual Report and Form 20-F 20162018 | Governance | Corporate Governance65 Receives regular reports from management, Risk and Assurance and the external Auditor on the effectiveness of the systems for risk management and internal control, including financial, operational and compliance controls.Reviews the process by which risks are identified and assessed and the timeliness and effectiveness of corrective action taken by management, including regular reports and presentations on the Company’s overall risk management system and principal risks, mitigating actions and internal controls.Receives additional reports throughout the year relevant to internal control and risk management, both financial andnon-financial, to ensure that current and emerging risks are identified, assessed and appropriately managed (see pages 26 to 30 for further detail on our principal risks and risk management). EXTERNAL AUDITOR – APPOINTMENT OF ERNST & YOUNG LLP (EY) AND AUDIT TENDERwww.ihgplc.com/responsible-businessThe Committee considered the appointment of its Auditor after assessing EY’s performance (including its independence, effectiveness and objectivity) and the requirements for putting the audit out to tender as set out in the Code and EU and Competition and Markets Authority legislation. EY has been our Auditor since IHG’s listing in April 2003.As part of its annual review, the Committee reviewed the effectiveness of the relationship between EY and the Group’s management (including the responses to questionnaires on EY’s audit process completed by more than 52 senior IHG employees who work with EY and members of the Audit Committee), and received reports from EY on its independence.Having reviewed the effectiveness of the external audit processes, the Committee is satisfied with the independence, objectivity and effectiveness of the relationship with EY as the external Auditor, and with the external audit process as a whole. The Committee has considered the Group’s position on its audit services contract and the process for audit tender in the context of the regulations. Although there is no immediate intention to tender the audit contract, the Group will re-tender at the latest by the end of 2020 in compliance with the regulations requiring a mandatory audit tender for the 2021 financial year. The Committee has approved the establishment of a sub-committee to oversee the audit tender process, and a detailed plan (including the applicable supplier-selection criteria), will be presented to the Committee in 2017.To ensure the external Auditor’s independence is safeguarded, lead audit partners are required to rotate every five years. A new audit partner, Sarah Kokot, was appointed for 2016 onwards. The Committee reviewed the new audit partner’s induction and transfer plan with her, and assessed the effectiveness of the handover.The Group confirms that it has complied with the requirements of The Competition and Market’s Authority Statutory Audit Services for Large Companies Market Investigation (Mandatory Use of Competitive Tender Processes and Audit Committee Responsibilities) Order 2014, which relates to the frequency and governance of tenders for the appointment of the external auditor and the setting of a policy on the provision of non-audit services.The Group’s approach to risk and assurance, in the context of the a dynamic risk environment.Information security, cybersecurity and privacy. A key focus for the Committee during the year was information security and, in particular, cybersecurity. A cybersecurity risk assessment was undertaken, highlighting the specific risks facing the hospitality industry and an assessment of the Group’s current cybersecurity capability. The Committee discussed the findings and recommendations with the Chief Information Security Officer, and agreed metrics to measure progress. The Committee also reviewed and assessed the Group’s approach to privacy regulations, in particular GDPR and China Cybersecurity Laws and recently received a report on the Group’s privacy programme from the Group’s Data Protection Officer.Financial Management and Controls, including fraud risk awareness, and the Group’s approach to tax and treasury management.Risk management and assurance measures, including the governance and control framework in the new organisational structure and across key strategic initiatives, focusing in particular on risks in relation to outsourcing and the implementation of IHG’s Guest Reservation System.Safety and security in hotels including review of significant incidents reported and the Group’s process and approach for managing allegations relating to ethical issues.20162018 financial year, which gave an overview of their approach to the audit, outlining the significant risk assessment,areas and in particular the auditapproach to materiality and scope, and the key areasscoping of the proposed audit approach.audit.to ensure they were appropriate and regularly assessed the progress of the 2016 audit through boththroughout the Committee meetings and private meetings with the partner in charge.year.for the 2016 financial year, the policy was updated andminor changes were approved at the December 2015 Audit Committee meeting.in 2018.be commenced,commence, in line with US SEC requirements.requirements without any de minimis. The Committee reviewed the audit andnon-audit fees incurred with EY on a quarterly basis during 2018, noting that there had been no prohibited services (as defined by the Sarbanes-Oxley Act of 2002) provided to the Group in each period. The Committee is prohibited from delegatingnon-audit services approval to management. Compliancemanagement and compliance with the policy is actively managedmanaged. an analysis of audit and non- audit services is reviewed by the Committee quarterly.The Committee also considered the increased scope of prohibited services following the EU audit regulation. While the Committee was satisfied that the Group would not be materially impacted by the regulations, the Committee did consider those areas where a transition plan would be required for certain tax compliance services.The Committee is aware of, and sensitive to investor advisory bodiesbodies’ guidelines onnon-audit fees. During 2016, 31 per cent2018, 21% of services provided to the Group werenon-audit services; these included areas such as advisory work services (2017: 23%), primarily related to SOC1 reports and corporate tax compliance. Foragreed upon procedures. Details of the fees paid to EY fornon-audit work during 2016,2018, and for fees paid for statutory audit work during 2016, see2018 can be found on page 111.123. 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 fornon-audit services provided by EY. Wherenon-audit work is performed by EY, both the Company and EY ensure adherence to robust processes to prevent the objectivity and independence of the external auditor being compromised.GlobalAudit Quality Review (GIA)and approves the GIAInternal Audit annual plan in December.December each year, which aims to provide objective and insightful assurance over the control environment. The 20162019 plan took into account bothpresented to the Committee included the Group’s principal risks and key strategic objectivescontrols and included reviews of System Fund controls, programme and project delivery (including assurance over the development of our new Guest Reservation System),following areas: (i) risks relating to the IHG Rewards Club loyalty programme, and technology-relatedGroup’s strategic initiatives, culture, processes and controls. Thecontrols; (ii) assurance reviews and assessments of risk areas, including information security; and (iii) ongoing assurance across areas66 IHG | Annual Report and Form 20-F 2018 actively monitors progressconfirmed its agreement to the 2019 Internal Audit plan, including the key control themes identified. Progress against the GIAInternal Audit plan which is reported to the Committee on a quarterly basis and is actively monitored by the Committee. This includes reviewing the results of completed audits and the findings raised through these audits, as well as management action plans to address any unsatisfactory findings. The Committee confirmed its agreement to the key control themes identified by GIA, and the scope and extent of GIA’s activity.issues raised.AnA functional effectiveness review of GIAInternal Audit is undertaken annuallyeach year and reported to the Committee. In 2016, GIA undertookInternal Audit has again undertaken an externally facilitatedinternal assessment, whichnoting that the actions raised by the external review two years ago were mostly implemented. Senior stakeholder feedback was gathered and the functional activities of Internal Audit were reviewed according to five categories: Purpose and Remit; Position and Organisation; Process and Technology; People and Knowledge; and Performance and Communication. As a result of the internal review, it was concluded that GIAInternal Audit continues to operate effectively. The assessment confirmed GIA’s approach to audit coveragebe effective in providing independent assurance activities.its hotel assurance strategy, and highlighted how GIA could extend their use of data analytics as part of audit activity.Compliance, whistleblowing and fraudcompliance2016,2018, the Group’s policies and processes in relation to gifts and entertainment and handling data were reviewed and the Committee considered and approved a revised antitrust policy and received the annual in-depth report onpolicies.regulatory compliance activitieswhistleblowing arrangements and programme. In addition to competition laws, the key focus areas for review, training and awareness in 2016 included data privacy, bribery and corruption.The Committee receives a separate report on matters raised through the Group’s confidential disclosure channel and any related investigations each year, reviewing both theits reporting and investigation process to ensure that arrangements were in place for proportionate and independent investigation of such matters. The Committee also reviewed the number and potential impact of both substantiated and unsubstantiated cases.cases and ensured that appropriatefollow-up action was taken. Any significant claims arewould be brought to the immediate attention of the Committee byand in 2018 no such claims were raised.Head of GIA.As well as monitoring incidents of fraud,Company becoming subject to the Group’s approach to fraud risk management was reviewed in 2016. The Committee approved proposals to further enhance IHG’s fraud prevention and detection programme through more formal articulation2018 UK Corporate Governance Code next year, the review of the applicabilitywhistleblowing arrangements has been removed from the Audit Committee Terms of Reference and has become a matter reserved for the Group’s existing controlsBoard. The Board will routinely review the means for the workforce to raise concerns in fraud-risk management.confidence and the reports arising from its operation. It will also ensure that arrangements are in place for the proportionate and independent investigation of such matters and forfollow-up action.continue to focus on information security controls, including cybersecurity, the integrityaudit tender process and IHG’s control and risk management systems.control environment and oversee the management of the principal risk areas.Ian Dyson Chairman2018 February 20172019 Corporate Governance IHG | Annual Report and Form 20-F 2016 592018 | Governance | Corporate Governance67 CORPORATE GOVERNANCE CONTINUEDGovernance
“We ensure that IHG’sunderstand how vital corporate responsibility priorities help usis in delivering our purpose of providing True Hospitality for everyone and≈supporting our shared commitment to deliver our core purpose:to create Great Hotels Guests Love.”long-term value creation.development. It also ensures that IHG’s corporate responsibility priorities deliver our core purpose: Great Hotels Guests Love through true hospitality.I was appointed Chair of the Committee on 6 May 2016. I would like to thank Jennifer Laing for her significant contributiondevelopment, and stakeholder engagement in relation to the Committee and the wealth of experience and skill she broughtGroup’s approach to it. Significant progress has been made over recent years, and there is clear alignment between the Group’s corporate responsibility, brand and operational strategies.responsible business.responsibilitiesauthority delegated to it by the Board are set out in its Terms of Reference (ToR), which are reviewed annually and approved by the Board. In 2016, they were amended to state that the duties of the Committee do not extend to providing advice or oversight to the IHG Foundation, given the independent nature of that charitable organisation. 
reviewing IHG’s impactReviewing the Group’s approach to corporate responsibility, given changes in organisational structure;Monitoring the delivery of the new Responsible Business targets for 2018-2020, with a focus on the environment;Group’s environmental, community and diversity targets;monitoringReviewing the Group’s approach to responsible procurement targets and reviewing social, community and human-rightsresponsible business in the supply chain;Reviewing the approach to human rights issues, that have a bearing onincluding the Group;Group’s Modern Slavery Statement; andoverseeingOverseeing responsible business stakeholder engagement.
The ToR are available on IHG’s website atwww.ihgplc.com/investors under Corporate governance.Details of theThe Committee’s membership and attendance at meetings are set out on page 49.55. The HeadsHead of Corporate Responsibility attended all meetings and the ChairmanChair of the Board also attended all meetings. The full Board were invited to join the Committee’s meeting in June at InterContinental New York Barclay, where memberstwo out of the hotel’s team shared their experiences of our Corporate Responsibility programmes and provided insight into how these programmes are being brought to life in hotels.three meetings held during the year.Chairman provides an update toChair updates the Board following each meeting on theall key issues discussedraised at the Committee meetings. The papersPapers and minutes for each meeting are also circulated to all Board members, who are invited to request further information if required and to provide any challenge where considered necessary.ChairmanChair of the Committee and the Chairman (who attended allChair of the Board. During 2018, the Committee meetings) and willwas also be reviewed as part of the in-depth externalinternal Board evaluation process conducted by Boardroom Review Limited (see pages 55process. Further details can be found on page 63. The Committee also undertook an assessment against its own ToR and 56).across a number of areas, including the skills and experience of the Committee and the work of the Committee across its key responsibilities, highlighting additional agenda items and focus areas for 2019. The Committee concluded that it remains effective.Impact on the environmentApproach to corporate responsibilityregularly monitored and assessed progress against IHG’s five-year targets (2013–2017), and considered the scope and effectiveness ofdiscussed the Group’s IHG Green Engage system, progressagainst the Group’s carbon and water-reduction goals,approach to corporate responsibility, given organisational changes and the Group’s water stewardship efforts. Recognisingstrategic initiatives, endorsing the impactinternal engagement plans and approach to accountability for delivery of water use,the key targets across the Executive Committee. The Committee also supported the initiation of a broader strategic review, the results of which would be considered in 2019.also considered sustainability concerns in this area,reviewed and discussed the learnings from the last five years’ activities and the approach to delivering the environmental targets, in particular. The Responsible Business targets for 2018-2020 were reviewed and the Committee received regular progress updates across the focus areas: environmental sustainability, community impact, our people, and responsible procurement. The Committee discussed the Group’s responsediversity and inclusion initiatives with the Chief Human Resources Officer, and the Chief Procurement Officer provided insight into the Group’s approach to such concerns, which included risk assessments, reviews of our processes,responsible procurement and targeted actions.the longer-term supply chain strategy.Social, communityCommunity and human rights issuesWe received detailed progress updates on key achievements across the Group’s social and community programmes and assessed the strategy to increase engagement in IHG Academy and the Group’s disaster relief and preparedness programme. The Humanitarian Director from Care International UK also presented on their collaboration with IHG on sharing best practice in disaster preparedness and response. Recognising the importance of responsible procurement, the Committee received a presentation from the Head of Global Procurement and Head of Global Risk Management, and evaluatedreviewed the Group’s approach to supplierscommunity giving and ethical sourcing.endorsed the True Hospitality for Good programme which seeks to deliver True Hospitality to local communities around IHG’s hotels and corporate offices, by supporting colleague fundraising and helping lives for the better through building skills and education in hospitality. The Group continues to support communities when disasters strike and in 2018 provided support to communities and colleagues impacted by natural disasters in six countries. The Board (along with 80,000 colleagues) participated in Giving for Good month by packing care kits for victims of human trafficking in the Atlanta area. The Committee also supported the Group’s human rights impact assessment, the results of which will be reviewed in 2019, and endorsed the commitment to the ITP Forced Labour Principles. The Group’s Modern Slavery Statement was reviewed and recommended for approval to the Board.
More informationInformation on our responsible business programmes,and our approach to human rights, is on page 18.
can be found atwww.ihgplc.com/responsible-businessIn supportRecognising the importance of corporate responsibility, we were pleased to be listed again on the S&P Dow Jones Sustainability Indices, having been listed as the industry leader in RobecoSAM’s Hotels, Resorts & Cruise Lines industry group for the second year in a row.Group’s sixth annual charitable fundraising week, an event held in hotels and corporate offices across the globe, the Committee was joined by the remaining members of the Board, the members of our Corporate Responsibility team and the team from InterContinental London Park Lane for a sponsored walk in Hyde Park, London to raise funds for the IHG Foundation. In total, there were more than 726,000 acts of participation in this year’s event.CommitteeStakeholder engagement18 February 2019The Committee assessed the 2015 communications activity and stakeholder engagement, and reviewed the 2016 communication plan, including the approach to crisis and issue management. The Committee also spent time reviewing and providing feedback on the 2016 Responsible Business Report. Visit www.ihgplc.com/responsible-business under Reportingand performance to view the Responsible Business Report.Other key issues reviewed by the CommitteeOn 3 February 2016, we launched the IHG Foundation, an independent charitable trust founded to help local communities address the key social, economic and environmental challenges affecting them. As part of its review of the establishment of the IHG Foundation, the Committee reviewed and challenged the Foundation’s governance systems and controls programme. It also received a report, for noting only, on the projects supported by the IHG Foundation in 2016. The IHG Foundation will continue to operate independently.As we head into 2017 and come to the end of our five-year target period, we will consider new targets in the context of our corporate responsibility strategy and continue to monitor progress against delivery of our 2013–2017 targets.Jill McDonaldCorporate Responsibility Committee Chairman20 February 201760 IHG | Annual Report and Form 20-F 2016 Governance2018
“We ensure IHG’sfocus on the Board’s structure, size and composition; overseeing appointments and ensuring diversity of experience, knowledge and background in our Board and senior management retains an appropriate mix of skills, experience, knowledge and diversity, in line with our strategy.”management.Nomination Committee considersreviews the structure, size and composition of the Board advising on succession planning and its Principal Committees, evaluating the balance of skills, experience, independence, knowledge and diversity requirements before making appropriate recommendations to ensure the Board retains an appropriate mix of skills, experience, knowledgeas to any changes. It also ensures plans are in place for orderly succession for both Directors and diversity, in line with our strategy. Itother Senior Executives and is also responsible for reviewing the Group’s senior leadership needs.responsibilitiesauthority delegated to it by the Board are set out in its Terms of Reference (ToR), which are reviewed annually and approved by the Board. The Committee’s key responsibilities and focus over the year have been:reviewing the structure, size, skill set, experience, diversity and composition required of the Board, linking the strategy to future changes in the Board;managing the appointment process for new Directors and changes in Committees;overseeing the executive and talent pipeline, and succession and development plans; andinduction, training, and continuous development of Directors.
on IHG’s website atwww.ihgplc.com/investorswww.ihgplc.com/investors under Corporate governance.governance in the Committees section.Board and Committee composition;Leadership development and succession planning including evaluating gender balance; andChanges to the UK Corporate Governance Code.Details of theThe Committee’s membership and attendance at meetings are set outavailable on page 49. The Chief Executive Officer also attended appropriate agenda items at all meetings in 2016.haveof the experience and expertise necessary to meet the Committee’s responsibilities andCommittee are independent Non-Executive Directors (excluding myself), as required under the ToR. Directors. When the Committee considers matters relating to my position, Dale Morrison, the Senior IndependentNon-Executive Director, acts as Chairman of the Committee.Committee Chair.Non-Executive Director appointments, and minutes of meetingsBoard appointments. Minutes are circulated to all Board members.members and I report back to the Board on the activities of the Committee following each meeting.the ChairmanChair of the Committee and the Chairman ofBoard. During 2018, the Board, and willCommittee was also be reviewed as part of the in-depth externalinternal Board evaluation process conducted by Boardroom Review Limited (see pages 55 and 56)as Chair, together with the Company Secretary, I undertook an assessment of the work of the Committee. The Committee continues to conclude it remains effective (further details of this process can be found on page 63). and appointmentsTo ensure the Board has an appropriate mix of skills, experience, knowledge and diversity, theThe Committee keeps undercontinued to review the tenurecurrent and qualifications of the Non-Executive Directors and thefuture composition of the Board. TheBoard and Committees, particularly in light of the Group’s focus on accelerated growth. Having reviewed the skills, experience and knowledge currently on the Board, considering progressive refreshing of the Board, the Committee also concentrates on strengtheningwas satisfied that an appropriate balance is maintained and therefore no new Director appointments were recommended to the Board’s existing capabilities and matchingBoard during the right skills and experience to those required by the Board’s Committees. In particular, we plan to further strengthen diversity and regional representation (focusing on Asia) in the Board’s composition.year.During the year, Jill McDonald, a Non-Executive Director,Elie Maalouf was appointed Chairmanto the Board on 1 January 2018 and details of the Corporate Responsibility (CR) Committee. Jill’s notable marketing and operational skills and experience, and her interest in, as well as already being an active member of, the CR Committee, made her the ideal candidate. Details of Jill’shis induction process can be found on page 55. Following62.composition2018 UK Corporate Governance Code (the 2018 Code), considering the implications of changes introduced. The Committee discussed proposals for workforce engagement and concluded that aNon-Executive Director, with support from the Company Secretary and the Chief Human Resources Officer, should assess the most appropriate long-term approach for Board engagement, for consideration by the Committee and the Board in February 20172019. This would include attending relevant employee meetings in the UK and the US, reviewing engagement surveys and other appropriate workforce related reports and considering existing methods of employee engagement channels.recommendedrecognise that diversity and inclusion is essential, from the appointmentBoard and throughout all levels of Malina Ngai as a Non-Executive Director. Our search was supported by Spencer Stuart, who have no connection to IHG. Malina will bring considerable experience in consumer-facing, branded operations, and will provide significant insight into the Asian market.DiversityIHG recognises the value of diversity in its broadest sense and, while allour business. All appointments to the Board are based on merit, experience and performance we strongly believe that our leadership should reflectand the Board actively seeks diversity of our employees, our guestsskills, gender, social and ethnic backgrounds, cognitive and personal strengths. We regularly review how we look at diversity to ensure we represent the local communities in which we operate.operate and the guests who stay in our hotels.The Board has made great progress in recent yearsOur Global Diversity and Inclusion Policy (D&I Policy) applies to broaden the diversity of its members and senior management,all people employed by IHG and we reviewencourage our policies regularlyfranchised operations and those managed hotels where we do not directly employ people to ensurefollow the same principles. The objective of our D&I Policy is to celebrate difference, recognising that theythis underpins external, as well as internal, relationships.driveimplement our D&I framework through the benefits of having a diverseD&I Board and a diverse workforce acrosslocally driven initiatives. The Committee reviewed and discussed our commitments, the Group (see page 18). As well as continuingprogress made and the work of the D&I Board.maintain a minimum ofdiversity at least 25 per cent female Directors on the Board over the short to medium term (a position we have maintained since 2012), we were also recognised in the Hampton-Alexander report for the number of women who hold senior-management level positions throughout the Group.Development and succession planningRecognising the importance of strong and effective development and succession plans to support the continuous improvementall levels of our leadership teams, and in line with talent and development initiatives throughout the organisation, the Committee oversaw a detailed talent and development review for senior leaders. Following discussion with the Chief Executive Officer, we have finalised a tailored plan to support key senior leaders in their future development.business.reviews the talent pipeline at senior levels within the organisation. Over the last 12 months, the majority of appointments to regional and functional leadership roles have been internal, and we have also attracted high performers from global, blue-chip organisations to improve the strength of our talent pipeline.In December 2016, Ranjay Radhakrishnan joined the Group as Chief Human Resources Officer from Unilever, following the resignation of Tracy Robbins from the Board and her role as Executive Vice President, Human Resources in January 2016.The Committee isremains satisfied that we have appropriate plans in place appropriate development andfor orderly succession plansof appointments to ensure that IHG has a strong leadership pipeline and that the Board has theand to senior management, so that an appropriate mixbalance of skills, experience, knowledge and diversity.diversity is maintained and that we are making progress against our D&I commitments. Chairman2018 February 20172019 Corporate Governance IHG | Annual Report and Form 20-F 2016 612018 | Governance | Corporate Governance69 CORPORATE GOVERNANCE CONTINUEDGovernance20142016 (the Code). As discussed on page 54, work is underway to ensure compliance with the 2018 UK Corporate Governance Code (the 2018 Code) and we will include our statement of compliance against the 2018 Code in our 2019 Annual Report and Form20-F.corporate governanceCorporate Governance statement on pages 4955 to 6369 and the Directors’ Remuneration Report, on pages 72 to 85, as a whole.2016 with the exception of Code provision C.3.7, which requires external audit contracts to be put to tender at least every 10 years.The Group has not re-tendered within that period, but the Audit Committee monitors this in line with legislation and the current Auditor’s performance, and a sub-committee of the Audit Committee has been approved to oversee the auditor tender process and recommend a detailed plan to be presented to that Committee in 2017 (further details are provided on pages 59).2018. A.1 leadscontinues to lead IHG’s strategic direction, long-term objectives and success of the Group. Further responsibilities of the Board are set out on page 49.55.year.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 20162018 Board meetings are set out on page 54,pages 60 and 61, attendance information on page 4955, skills and experience and biographical information on pages 5056 and 51.57.160)178).A.2 ChairmanChair and Chief Executive Officer are clearly established, set out in writing and are agreed by the Board.Richard SolomonsKeith 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 5056 for more details.A.3 ChairmanChairChairmanChair has been in post for six years and was independent on appointment. See page 5056 for more details.A.4 Chairman,Chair, Chief Executive Officer and other Executive Directors. He also leads the annual performance review of the ChairmanChair with the other Non-Executive Directors (see page 56)63), and as necessary, provides advice and judgement to the Chairman,Chair, and serves as an intermediary for other Directors when necessary.ChairmanChair meet without Executive Directors being present (see page 54)60). 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.governance in the Committees section.governance.B.1 annually.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,Chair, are independentIndependent Non-Executive Directors (see page 49)55). Further details of the composition of the Board and its Committees are available on pages 50 and 51.55 to 57.B.2 20162018 are in the Nomination Committee Report on page 61.69. The overall process of appointment and removal of Directors is overseen by the Board as a whole. Two Non-Executive Directors have served for seven 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 5056 and 51.57.B.3 chairmanshipchair position in addition to their role. The commitments of each Director are included in the Directors’ biographical details on pages 5056 and 51.57. Details of Directors’ service contracts and appointment terms are set out on pages 75, 81, 84 and 167.187.ChairmanChair annually reviews the time each Non-Executive Director dedicates to IHG as part of the internal performance evaluation of each Director (see page 56)63) and is satisfied that their other duties and time commitments do not conflict with those as Directors.B.4 ChairmanChair and Company Secretary ensure that new Directors are fully inducted and that all Directors continually update their skills and have the requisite knowledge and familiarity with the Group to fulfil their role (see page 55)62).B.5 ChairmanChair and Company Secretary ensure that the Board and its Committees receive timely and appropriate information, and a flow of information between the Executive Committee and Non-Executive Directors. The Board and Committees also have access to the Company Secretary, and General Counsel, independent advice and necessary resources, at the Company’s expense. They receive administrative and logistical support of a full-time executive assistant. See page 5460 for more details. 62 70IHG | Annual Report and Form 20-F 2016 Governance2018B.6 In 2016, we engaged Dr Tracy Long of Boardroom Review Limited,The Board undertakes either an internal or external facilitator with no connection to IHG, to lead theannual Board effectiveness evaluation. In 2016-17 this was carried out externally and in 2018, it was carried out internally. More information on the evaluation including our performance against the 2015 action plan, is on pages 55 and 56.page 63.B.7 5056 and 5157 and will be included in the Notice of Meeting (see paragraph E.2). Detailsdetails of their performance evaluationevaluations are on page 56.63.C.1 84.88.163.181. An explanation of the Group’s performance, business model, strategy and the risks and uncertainties relating to IHG’s prospects, including the viability of the Group, is set out in the Strategic Report on pages 2 to 47.51.8589 to 89.94.C.2 2026 to 2230 for further details of the principal risks). The Board and Audit Committee monitor the Group’s risk management and internal controls systems and conduct an annual review of their effectiveness. Throughout the year, the Board has directly, and through delegated authority to the Executive Committee and the Audit Committee, overseen and reviewed all material controls, including financial, operational and compliance controls. See pages 49, 54,55, 60, and 5764 to 59.67.20162018 and up to 2118 February 2017;2019; (iii) they are regularly reviewed by the Board and Audit Committee; and (iv) the systems accord withC.2Risk management and internal control continued252 to 2751 and also in the Audit Committee Report on pages 5764 to 59.67.27.30.C.3 4955 for membership details). Ian Dyson, the ChairmanChair of the Committee has recent and relevant financial experience.experience and the Committee as a whole has competence relevant to the sector in which we operate. Details of the Committees’Committee’s role, responsibilities and activities are set out on pages 5764 to 59.67. has reviewed the effectiveness and independence of Ernst & Young LLP during 20162018 and has concludedreconfirmed that it would not undertake an Auditorcomplete the audit contract tender during 2016. However, we have approved the establishment of aand transition any strictly prohibited services by 2020. A sub-committee of the Audit Committee to oversee the audit tender process has been established and recommend a detailed plan tofurther details on the progress made can be presented to that Committee in 2017. Seefound on page 56 for more details.67.D.1 20162018 are set out on pages 64 to 75page 72 and its membership details are on page 49. 55.proposed DirectorsDirectors’ Remuneration PolicyReport is set out on pages 7672 to 81 and an ordinary resolution85. The Annual Report on remuneration for 2018 (pages 78 to approve85) is subject to the Policy will be proposedannual advisory vote at the AGM in 2017.2019.D.2 page 64pages 72 to 75.85.2016,2018, no individual Director was present when his or her own remuneration was discussed.E.1 page 56pages 61 and 62 for details of meetings with major institutional investors and other shareholders.key stakeholders.E.2 5662 for more details. Corporate Governance IHG Annual Report and Form 20-F 2016 63Directors’ Remuneration ReportRemuneration Committee Chairman’s statement
“The updated Directors’ Remuneration Policy aims to set the right remuneration framework for delivering strong sustainable returns to shareholders while recognising the responsibility to be transparent, fair and accountable to all our stakeholders.”IHG TABLE OF CONTENTS 64 Directors’ Remuneration Report 69 Annual Report on Directors’ Remuneration
(subject to advisory vote at 2017 AGM) 64 Remuneration Committee Chairman’s statement 66 At a glance 76 Directors’ Remuneration Policy
(subject to binding vote at 2017 AGM) 68 In 2016, IHG delivered target results for EBIT, record guest satisfaction scores and continued to deliver strong shareholder returns.As a result, the Executive Directors received Annual Performance Plan (APP) awards of 127.7 and 124.8 per cent of salary; this is 63.9 and 62.4 per cent of their maximum potential payouts respectively. The Long Term Incentive Plan (LTIP) 2014/16 cycle, granted in 2014, vested at a level of 49.4 per cent of the maximum potential payout due to the Total Shareholder Return achievement. However, the three-year threshold targets for relative RevPAR and rooms growth were just missed. Overall, this reflects good results in a more challenging market.While the vesting levels were lower than last year, the total remuneration increased on the back of an increase of over 71% in IHG’s share price since the LTIP shares were awarded.Looking back over the three years that the current Directors’ Remuneration Policy (DR Policy) has been in place, IHG has returned $2,933m to shareholders and its Total Shareholder Return has been 90.6 per cent. Payouts under the APP have varied between 62.4 and 75.0 per cent of the maximum opportunity, and vesting of the LTIP between 49.4 and 56.1 per cent.The Board has reviewed the DR Policy in depth over the past 18 months in light of the strategic priorities for the business going forward. IHG has effectively finished its major asset disposal programme. We have concluded that, while the current APP remains appropriate and effective, there should be modest changes in some of the measures in the LTIP. In particular, there needs to be even more emphasis on operational metrics to drive shareholder value-creation.At the same time, with the industry going through a period of change, we consider that the current use of only relative measures in the LTIP will not be appropriate. We are therefore proposing a reduced weighting for the relative Total Shareholder Return measure and are introducing a mix of absolute growth and cash flow targets. Total revenue and system size are key lead indicators of business growth. Quality, organic growth in revenue and room numbers is central to IHG’s business strategy, building the strength and reach of the global brands IHG manages. We are introducing cash flow targets because cash generation and efficient capital allocation are at the heart of our business model and ensure sustainable growth. In addition, we have amended our approach to discretion underlying the LTIP payouts, to reflect the use of absolute measures and give the Committee the ability to ensure that vesting levels are not inappropriate.We have had significant shareholding guidelines in place for many years for our Executive Directors, with the CEO’s actual shareholding being very much higher. We consider it a key element of aligning the interests of Executive Directors with shareholder returns. Although such requirements are beyond the DR Policy, we will be introducing shareholding guidelines to the rest of the senior management team. Furthermore, the Board also proposes the introduction of a requirement for Executive Directors to hold shares for a period of 12 months after leaving IHG. This contractual change will be introduced over the next 12 months.As part of the review, the Remuneration Committee have consulted with shareholders and representative groups regarding the proposed changes to the DR Policy. We have also listened to the wide-ranging debate on executive pay and considered how best to reflect that in our arrangements. We have contributed to the consultation on the Government’s corporate governance reform green paper. We have pointed out that, for a global business based in the UK with much of its executive team based elsewhere, we need to ensure that there is a coherent remuneration approach and a clear and attractive progression path to the senior roles in the business. We also need to ensure that we do not undermine our ability to recruit good talent globally. We take our lead from the UK market and shareholder expectations in setting Executive Director remuneration levels. However, for instance, our major competitors for talent are mainly based in the US, where regulation and market practice can be different, particularly in areas such as executive share plan structure and related vesting and holding periods.This updated policy aims to set the right remuneration framework for recruiting and retaining high-quality management across our global operations and delivering strong sustainable returns to shareholders, while recognising the responsibility to be transparent, fair and accountable to all our stakeholders and compliant with UK good practice and regulations.The Board is very conscious that remuneration on its own does not drive good performance. It is not a substitute for strong leadership, a competitive business model and good governance. However, it is an important part of the mix and the Board recommends the revised Directors’ Remuneration Policy to shareholders.64 IHG | Annual Report and Form 20-F 20162018 | Governance | Corporate Governance71 Element
Proposed changes tofrom 2017aLTIP measuresVesting will be subject to achievement of Total Shareholder Return (TSR) measured against a comparator group of companies (40%), total gross revenue (20%), net System size growth (20%) and cash flow targets (20%) over a three-year period.We have reduced the TSR component to 40% and, following a robust review process, updated the comparator group of companies against which outcomes are measured. TSR remains a key measure of long-term success and aligns the interests of Executive Directors with those of shareholders. The targets for total gross revenue, net System size growth and cash flow will be absolute rather than relative to competitors as we feel that this provides the best opportunity to set challenging and meaningful objectives for quality, organic growth over a three-year period given the changing structure of the market.We disclose the parameters of the TSR measure in this report. The targets under the cash flow measure were not available at the time of writing this report, but will be disclosed in the next Directors’ Remuneration Report. Targets under the other measures are, in the opinion of the Directors, commercially sensitive, and will therefore be disclosed retrospectively at the end of the LTIP cycle.DiscretionWe have updated this discretion2019 in light of the introduction of absolute measures. The Remuneration Committee can therefore ensure that LTIP outcomes are aligned with shareholder considerations and, in particular, take into account the quality of financial performance and growth over the periodour renewed focus and the efficient use of capital.ShareholdingA new shareholding requirement will be introduced from 2018 covering the 12-month period after cessation of employment.increased pace with which we are executing our strategy to deliver high-quality, sustainable growth and superior returns for shareholders.The existing guideline shareholding requirements for our Executive Directors are 300% of salary for the Chief Executive Officer and 200% of salary for other Executive Directors. These requirements will continue for six months after cessation of employment and 50% of these requirements will continue for an additional six months.aThe full details of the proposed changes are set out on pages 76 to 81. Table of Contents 72 Directors’ Remuneration Report 74 Remuneration at IHG – the wider context 72 Remuneration Committee Chair’s statement 78 Annual Report on Directors’ Remuneration 73 At a glance (subject to an advisory vote at the 2019 AGM) always aimstrive to make the remunerationthis report as clear and accessibleeasy to read as possible, given regulation. The last Report received a Highly Commended recognition at the Building Public Trust in Corporate Reporting Awards. We have tried thisThis year, to make the proposed changes to the DR Policy clear and easy to understand. The full details of the proposed changes are set out on pages 76 to 81. Wewe have again included an at-a-glancea summary of performance and remuneration outcomes in the key points from this year’s report‘At a glance’ section on page 73 and an updated ‘Wider context’ section on pages 6674 to 77 to give further insight on aspects of wider remuneration policy and 67. We have also provided an overview of the wider context of remunerationpractice at IHG in light of recent guidance.page 68. This includes how performance-related pay works for teams across the business and wider pension arrangements.sectionssection of this report that arewhich is subject to a formal advisory shareholder vote by shareholders areat the May 2019 AGM is the Annual Report on Directors’ Remuneration starting on page 69 and the revised Directors’ Remuneration Policy starting on page 76, which will be put to advisory and binding shareholder votes respectively at the May 2017 Annual General Meeting.78.Luke MayhewJo HarlowChairmanChair of the Remuneration Committee2018 February 20172019 Directors’ Remuneration Report IHG Annual Report and Form 20-F 2016 65DIRECTORS’ REMUNERATION REPORT CONTINUED72 IHG | Annual Report and Form 20-F 2018 
Salary
Benefits
Pension benefit
Annual Performance Plan (APP)
Long Term Incentive Plan (LTIP)
ShareholdingHow to use this reportWithin the Directors’ Remuneration Report we have used colour coding to denote different elements of remuneration. The colours used and the corresponding remuneration elements are: AUDITED 
HOW WE PERFORMED IN 2016How we performed in 201820162018 outcomes reflect the progress made as a result of our focus on high-quality growth and superior value-creation through our brands, our people and our systems. We achieved our targetstarget for EBIT, and guest satisfaction and delivered strong net system size growth and exceeded our maximum target for savings to reinvest in the business for future growth. In respect of our long-term goals for 2016-18, we again delivered great shareholder returns and met our three-year threshold target for rooms but we fell just short of our three-year threshold target for rooms and RevPAR growth. These financial and business measures make up 90 per cent of our APP (with individual performance making up the final 10 per cent) and 100 per cent of our LTIP.
EXECUTIVE DIRECTOR REMUNERATIONExecutive Director remuneration20162018 remuneration20162018 potential remuneration opportunity and actual achievement compared to 20152017 actual achievement. Although vestingFor Keith Barr, the 2017 actual achievement relates to the period 1 July to 31 December 2017 and performance levels were slightly lower in 2016, overall remunerationno comparative data is higher than 2015 dueshown for Elie Maalouf as this was prior to an increase of over 71% in IHG’s share price sincehis appointment to the 2014/16 LTIP shares were awarded. The comparable increase last year was just under 27%.Board. The relevant figures for each of the elements that make up the single total figure of remuneration, as shown below for the current Executive Directors, can be found in the table on page 69.78.
Current Directors’ shareholdingsChief Financial OfficerFor further details of shares and awards held and guideline shareholdings, see page 72.Value (£000)Director Number of shares held outright Number of shares held as % of salary Guideline shareholding % Richard Solomons 211,594 943 300 Paul Edgecliffe-Johnson 26,034 185 200 
a 66 IHG Annual ReportForm 20-F 2016 Governance2017 amounts for Keith Barr exclude the localisation payments detailed on page 78Summary of proposed Directors’ Remuneration Policy (DR Policy) and remuneration architecture from 2017 – Executive DirectorsFollowing the completion of our major asset disposal programme, our strategic business objectives are focused on the delivery of further high-quality growth through preferred brands, strong direct channels and lifetime relationships. A sharpened focus on operational excellence informed our review of the DR Policy.
2017 Directors’ Remuneration Policy – link to strategySee pages 14 and 15 for furtherinformation on our strategy.EBITGuest LoveOverall Performance Rating (OPR)TSRNet System size growthTotal gross revenueCash flow
Strengthening our portfolioof brands∎∎
Building and leveragingscale∎∎∎∎
Creating lifetime guestrelationships∎∎
Delivering revenue throughdirect channels∎∎∎∎∎
Driving superior returns∎∎∎Pay at riskMalus and clawback arrangements apply to the APP and LTIP. Malus allows for awards to be reduced prior to vesting; clawback allows for awards to be reduced and applies for three years after payment of cash or vesting of shares.
Directors’ Remuneration Report IHG | Annual Report and Form 20-F 2016 672018 | Governance | Directors’ Remuneration Report73 DIRECTORS’ REMUNERATION REPORT CONTINUEDGovernanceOur reward philosophyWe will drive high-quality growth and financial returns for our shareholders by attracting and retaining high-quality talent through the following reward principles, making IHG a truly great place to work:rewarding competitively within the market in which each employee is located;providing reward opportunities which are appropriate in each location reflecting the differing legal frameworks and relevance of benefits to specific markets; andensuring rewards promote a ‘Winning Culture’ based on delivery, engagement and collaboration.Reward and business strategyIHG has a clear purpose: to create Great Hotels Guests Love. We have established our Winning Model (page 14) to maintain focus on the key areas of our strategy and our Winning Ways and Winning Culture (pages 18 and 19) to drive the right values and behaviours which will help us deliver this. Our employees are rewarded in line with these fundamental aims and principles as part of our Winning Culture:A range of stretching and measurable core performance metrics, aligned to our strategic priorities, are set each year for our senior management and hotel teams and form a first-stage gate for our performance management process; employees’ overall performance is then measured by reference to the delivery of individual key performance objectives, aligned to our strategic priorities, and the day-to-day application of the values and behaviours expected at that employee’s level of seniority. Together, these contribute to an employee’s remuneration as part of the annual salary review process and as both a measure and a minimum performance condition of annual incentive plans.In addition to the individual performance measure described above, the remaining measures in the annual and long-term incentive plans are also aligned with the business’ strategic approach so that employees are only rewarded under these arrangements through the successful delivery of the short and long-term objectives set by the Committee, including the delivery of superior shareholder returns and value.Remuneration for other employeesDecisions on the remuneration of Executive Directors are taken in the context of wider remuneration at IHG. However, the composition of remuneration and annual incentives differs between employees in a number of ways, and this generally relates to measures relevant to the individual’s role and seniority. For example:A greater proportion of performance-related variable pay and share-based incentives applies for more senior executives, including Executive Directors, who will have a greater degree of influence over performance outcomes. Incentive plans for other corporate employees are typically based on a combination of individual performance and the Group’s EBIT.Role-specific specialist plans apply in certain areas such as corporate reservations, sales and hotel development. Incentive plans for General Managers of IHG owned, leased and managed hotels commonly include targets based on gross operating profit, guest satisfaction and employee engagement.Eligibility for, and participation in, benefits and incentive plans differs depending on location, seniority, length of service and other factors, such as local taxation and legislative arrangements.Fixed elementsVariable elementsAll employeesMid – senior (or roledependent) onlyAll employeesMid – senior (or roledependent) only• Base salary• Pension• Benefits• Enhanced pension• Enhanced benefits• Car/allowance• Short-term incentive relevant to role (APP for senior executives)• Deferred share-based element to short-term incentive• Long-term incentivediffer for various employee grades within the Group, including Executive Directors. The current rates were set following a review of UK pension benefits in light of the closure of the previous defined benefit pension arrangement. Increased employer contribution rates at higher seniority levelsnew employees are prevalent in the wider market; and reflect to an extent the accelerated accrual rates in place under the old defined benefit arrangement.shown opposite. 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 companyCompany matching contribution.Employee grade Employee
contribution (%) Matching
contribution
multiple Maximum
matching
contribution
(up to %) Corporate band 1 3–7.5 4 30 (Executive Directors) 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 3–5 1.5 7.5 and hotel employees Chief Executive Officer’sWe operate a tiered pension contribution structure and maximum contributions increase with employee grade, consistent with market practice and reflecting the structure under the previous defined benefit pension. In addition, a tiered contribution structure balances the ‘income replacement ratio’ for all levels of employee, taking into account State pension provision (see example illustration opposite) and the increased levels of non-pensionable variable pay for more senior employees. For example, the pension benefit for Keith Barr in 2018 represented 6.4% of his overall earnings for the year.We recognise that there is currently greater pressure than ever for increased clarity on executive remuneration and, in particular,Further to recent guidance in relation to the justificationnew Code and subsequent input from other external stakeholders including institutional investors, the Committee will review pension provisions for Executive Directors as part of CEO paythe wider review of the Directors’ Remuneration Policy taking place in 2019.Employee grade Employee
contribution
(%) Matching
contribution
multiple Corporate band 1 3–7.5 4 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 3–5 1.5 7.5 
contextexample), the relative percentage of businessretirement income which is required from a Company pension is significantly higher.74 IHG | Annual Report and Form 20-F 2018 wider employee population.In light ofCommittee has the recent Corporate Governance Reform Green Paper, we have shown below the change in total CEO remuneration, from the first full year in which the current CEO was in officeability to date, alongside the performance of the IHG PLC share price and, for comparison, that of the FTSE 100 share index. We do not think that share price alone is an ideal proxy for company performance, however, this shows the relative increases in the Company’s share price over thisimpose a further holding period to have been higher than those in respect of those shares. The Committee has determined that, following the CEO’s remuneration.three-year performance period for the 2019/21 LTIP, Executive Directors will be subject to a further two-year holding period in respect of all vested shares from that cycle. This is in addition to a number of other existing aspects of our DR Policy which match or exceed the expectations under the new Code and related guidance in respect of shareholdings and incentive arrangements:CEO pay and share price (rebased 2012 = 100)Shareholding requirements
aExcludes one-off payment in respect of pension arrangement as this related to benefits already accrued.Use of discretionDiscretionThe It was not considered necessary for the Committee to apply discretion applied in relation to Tracy Robbins in respect of her stepping down asremuneration outcomes in 2018;Directormaterial adverse effect on the Company’s financial position or the business opportunities and subsequentprospects, or a material misstatement or restatement in the accounts; andpage 74. There have been no other cases of discretion applied within the terms of the DR Policy set out in the 2013 Annual Report.financial performance and Remuneration Committee discretions.68 IHG | Annual Report and Form 20-F 20162018 | Governance | Directors’ Remuneration Report75 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 lease and managed hotels commonly include targets based on gross operating profit, guest satisfaction and employee engagement. The target and maximum amounts that can be earned under these plans are typically a higher percentage of base salary for more senior employees, which in turn affects the pay ratio; andIncentive plans for other corporate employees are typically based on a combination of individual performance and the Group’s EBIT.Year Method 25th
percentile
pay ratio Median pay
ratio75th
percentile
pay ratio Option C 71:1 47:1 29:1 Starting with the April 2018 Gender Pay Gap salary, bonus and long term incentive data for all UK employees;Adjusting the value of total bonus so that it reflects only the amount earned in respect of FY 2017 and does not include the value of any deferred shares from the 2014 bonus which vested in 2018;Adding the employer pension contribution from pension plan data as at April 2018; andAdding non-cash benefit data (e.g. company car, healthcare, etc.) from the 2017/18 tax year P11D report.25th Percentile: £38,437 salary and £5,242 benefits including pension and bonus (total remuneration of £43,679);Median: £53,639 salary and £11,975 benefits including pension and bonus (total remuneration of £65,614); and75th Percentile: £75,151 salary and £32,313 benefits including pension and bonus (total remuneration of £107,464).76 IHG | Annual Report and Form 20-F 2018 Measures used for APP Measures used for LTIP Strategic Model components EBIT
(70%)Net system
size growth
(15%)
(15%)TSR
(40%)Net system
size growth
(20%) Total gross
revenue
(20%) Cash flow
(20%)
Build and leverage scale 
Strengthen loyalty programme 
Enhance revenue delivery 
Evolve owner proposition 
Further information on this is available on IHG’s website at www.ihgplc.com/responsible-business IHG | Annual Report and Form 20-F 2018 | Governance | Directors’ Remuneration Report 77 remunerationRemuneration explains how the2016201820172019 AGM. The notes to the single-figure table provide further detail, where relevant, for each of the elements that make up the total single figure of remuneration in respect of each of the Executive Directors.SINGLE TOTAL FIGURE OF REMUNERATION – EXECUTIVE DIRECTORSAUDITED 
Fixed pay Variable pay 
Salary 
Benefits 
Pension benefit 
APP 
LTIP 
Total Executive Directors 2016
£000 2015
£000 2015
£000 2015
£000 2016
£000
cycle
(value of
shares) 2013/15
cycle
(value of
shares)
£000 2016
£000 2015
£000 Richard Solomons 810 785 26 31 243 236 1,042 1,187 1,329 958 3,450 3,197 Paul Edgecliffe-Johnson 500 450 24 23 150 135 640 690 730 349 2,044 1,647 Tracy Robbinsb 18 445 1 30 5 134 14 672 31 550 69 1,831 Fixed pay Variable pay Other 
Salary 
Benefits 
Pension benefit 
APP 
LTIP 
Total 2018
£000 2017
£000 2018
£000 2017
£000 2018
£000 2017
£000 2018
£000 2017
£000 2015/17
cycle
(value of
shares)
£000a 2018
£000 2017
£000 2018
£000 2017
£000 Keith Barrb 792 388 51 17 198 97 1,343 545 559 614 150 500 3,093 2,161 Paul Edgecliffe-Johnson 554 530 24 27 166 159 942 747 701 744 2,387 2,207 Elie Maaloufc,d 559 34 109 947 643 2,292 a While vestingthis2015/17 LTIP cycle was slightly lower than the 2013/15 cycle, outcomes are higher due to a greater increase inhave been restated using actual share price over the period since shares were granted.b2016 figures for Tracy Robbins relate to the period 1 January 2016 to 15 January 2016.Fixed pay
Salary: salary paid for the year. The 2016 figure shown for Tracy Robbins is the actual amount earned for the portionon date of the year she remained an Executive Director before she stepped down from the Board on 15 January 2016.vesting. 
Benefits:Executive Directors, this includes, but is not limitedKeith Barr (excluding LTIP) relate to taxable benefits such as company car, healthcare and life cover. Provision during 2016 was in line with previous years and the approved DR Policy. No extraordinary payments were made.period 1 July to 31 December 2017. 
Pension benefit:current2017 as Elie Maalouf did not serve as an Executive Directors, in line with DR Policy, the value of IHG contributionsDirector prior to pension plans and any cash allowances, equalling 30% of salary,1 January 2018.d lieuUS dollars and the sterling equivalent is calculated using an exchange rate of pension contributions.$1 = £0.75 (page 116).Richard Solomons Salary:salary paid for the year. Elie Maalouf joined the Board on 1 January 2018.
Benefits:for Executive Directors, this includes, but is not limited to, taxable benefits such as company car and healthcare. Provision during 2018 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.20162018 and instead received a cash allowanceallowances of 25% and 30% of salary equal to £242,946. Mr Solomons also received liferespectively. Life assurance cover of sixis provided for both Keith and Paul at four times pensionablebase salary.Neither Paul Edgecliffe-Johnson nor Tracy RobbinsElie Maalouf participated in any IHG pensionthe US 401(k) Plan and the US Deferred Compensation Plan. The US 401(k) Plan is a tax qualified plan in 2016providing benefits on a defined contribution basis, with the member and instead theyrelevant company both receivedcontributing. The US Deferred Compensation Plan is a cash allowance of 30% of salary equal to £149,902.50non-tax qualified plan, providing benefits on a defined contribution basis, with the member and £5,419 respectively – the latter being the amount receivedrelevant company both contributing. Contributions made by, and in respect of, Elie Maalouf in these plans for the periodyear ended 31 December 2018 were:£a Director’s contributions to US Deferred Compensation Plan 176,544 Director’s contributions to US 401(k) Plan 18,348 Company contributions to US Deferred Compensation Plan 100,600 Company contributions to US 401(k) Plan 8,200 Age at 31 December 2018 54 a localising to the UK. This was fully reported in the 2017 Annual Report, page 69.15 January 2016. They both also received life assurance cover the transitional and transactional costs of four times pensionable salary.
APP (cash and deferred shares)wereare determined based on salary as at 31 December 20162018 on a straight-line basis between threshold and target, and target and maximum, and are based on 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 (57.5% of salary);measure; no award is made for achievement below threshold. For 2018, the Remuneration Committee set a threshold no award is made.level of 57.5% of salary.Targetis the target level of achievement and results in a target award for that measure (115% of salary).measure.Maximumis the level of achievement at which a maximum award for that measure is received (capped at 200% of salary).a global EBIT affordability gate and Overall Performance Rating (OPR) such that:gates:ifIf global EBIT achievement was belowless than 85% of target, no awards relating to the Guest Loveaward under net system size growth and OPRsavings for reinvestment would be made; andifIf global EBIT was between 85% and 90%or more, but less than 93% of target, half of any award relating to the Guest Loveunder net system size growth and OPRsavings for reinvestment would be made;made.78 IHG | Annual Report and Form 20-F 2018 if OPR was 2, EBIT and Guest Love awards were reduced by 50%; andif OPR was 2.5, EBIT and Guest Love awards were reduced by 25%. AUDITED 2016201820162018 APP were EBIT (70%), Guest Love (20%net system size growth (15%) and OPR (10%savings for reinvestment (15%) and were determined in accordance with the DR Policy. The table below shows threshold, target and maximum opportunity, as well as weighting and actual 2016 achievement for the EBIT and Guest Love performance measures:2018 achievement.
Directors’ Remuneration Report IHG Annual Report and Form 20-F 2016 69DIRECTORS’ REMUNERATION REPORT CONTINUEDAnnual Report on Directors’ Remunerationcontinued
Performance Achievement Weighting Weighted
achievement
EBIT: performance relative to target Threshold $744.0m 50% Target $800.0m 100% 70% 91.7% Actual $817.4m 131% Maximum $856.0m 200% Net system size growth (k rooms) Threshold 830.0 50% Target 834.0 100% 15% 24.6% Actual 836.5 164% Maximum 838.0 200% Savings for reinvestment Threshold $40.0m 50% Target $44.0m 100% 15% 30.0% Maximum $48.0m 200% Actual $48.6m 200%a Performance Achievement Weighting Weighted
achievementEBIT: performance relative to target Threshold $ 626.3m 50 % Target $ 695.9m 100 % 70.0% 72.8% $ 698.9m 104 % Maximum $ 765.5m 200 % Guest Love: improvement in guest survey score from prior year’s baseline score of 79.71% Threshold +0.26ppt 50 % 20.0% Target +0.52ppt 100 % 23.3% +0.68ppt 116.3 % Maximum +1.52ppt 200 % The remaining 10% weighting of the APP is based on a personal overall performance rating (OPR).before exceptional items. Budgetedfrom reportable segmentsb. However, in determining EBIT for APP purposes, budgeted exchange rates for the year are used in determining EBIT for APP purposes. However, noand certain adjustments were made to the underlyingreported 2018 operating profit before exceptional items for 2016were agreed by the Committee in order to ensure a like-for-like comparison with the APP purposes.EBIT target set at the start of the year:before exceptional items (atfrom reportable segmentsbNet benefit of unbudgeted items $ 706.7m0.0m Difference due to exchange rates ($7.8m) $1.9mOperating profit before exceptional itemsfrom reportable segmentsb,
after adjustments (at 20162018 budget exchange rates) $698.9m $817.4m OPR results are determined by reference to individual employee performance relating to the delivery of a range of measurable annual objectives aligned to our Winning Model. 2016 objectives included a range of financial targets, such as revenue and fee margins; strategic aims, including brand developments and growth in key markets; and targets bSee page 36 for our Responsible Business agenda.Non-GAAP definitions.When combined with the EBIT and Guest Love results, theThe total weighted achievement was 111.0 per cent for Richard Solomons and 108.5 per cent forKeith Barr, Paul Edgecliffe-Johnson and Elie Maalouf is 146.3% of a target bonus of 115% of salary.bonus. The APP award for 20162018 was therefore 127.7 per cent168.2% of salary for Richard Solomons and 124.8 per cent for Paul Edgecliffe-Johnson.each.2016 will be paid 50 per cent2018 are payable 50% in cash and 50 per cent50% in deferred shares, vesting three years after the date of grant, in February 2020.2022. 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.
2016 Award as
% of salary Total value
of award
£000 Richard Solomons 816 127.7 1,042 Paul Edgecliffe-Johnson 513 124.8 640 Executive Director
31 December
2018 Total value
of award
£000 Keith Barr 798 168.2 1,343 Paul Edgecliffe-Johnson 560 168.2 942 Elie Maaloufa 563 168.2 947 
2014/16 LTIP (shares)a Operation2016/18 LTIP(shares) rooms supplyroom 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,part of the comparator groupseparate entity for the period up to the dateits last independently published results. In respect of the acquisitionWyndham Worldwide’s split into two publicly traded companies in May 2018, results post-split relating to Wyndham Destinations and was removed only for the period after which the transaction had completed.Wyndham Hotels & Resorts were treated as relating to one entity. TSR measures the return to shareholders by investing in IHG relative to oura broader set of appropriate hotel and lodging competitors, in the appropriate comparator group of global hotel companies, as per the data provided by our corporate bankers sourced from Thomson Reuters Datastream.of 3,273p used to calculate the 2014/16 LTIP cycle value shown in the single-figure table is the average over the final quarter of 2016. The share price in respect of the 2013/152015/17 LTIP cycle has been restated using the volume weighted average price of 2,511p4,571p on the date of actual vesting on 2420 February 2016.2018. The corresponding values shown in the 20152017 report (prior to the actual vesting) were an estimate calculated using an average share price over the final quarter of 20152017 of 2,515p.4,317p.2014/162016/18 cycle2014/162016/18 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.
IHG | Annual Report and Form 20-F 2018 | Governance | Directors’ Remuneration Report 79 
LTIPGovernancePerformance Achievement Weighting Weighted
achievementTotal Shareholder Return: three-year growth relative to average of competitors Threshold 20% Actual 98.8% 50% 49.4% Maximum 100% Net rooms supply: three-year growth relative to average of competitors Actual 0% Threshold 20% 25% 0% 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) 49.4% Performance Vesting achievement Weighting Weighted
achievement
Total Shareholder Return: three-year growth relative to average of competitors Threshold 20% Actual 78.6% 50% 39.3% Maximum 100% Net rooms supply: three-year growth relative to average of competitors Threshold 20% Actual 24.4% 25% 6.1% 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) 45.4% 2016;2018; TSR was measured by reference to the three years ending 31 December 2016.2018. This cycle will vest on 2220 February 20172019 and the individual outcomes for this cycle are shown below: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
£000Richard Solomons 82,193 49.4 40,603 1,329 Paul Edgecliffe-Johnson 45,125 49.4 22,291 730 Tracy Robbins 46,952 49.4 23,194 759 Maximum
opportunity
at grant
(number
of shares) % of
maximum
opportunity
vested Outcome
(number
of shares
awarded
at vest) Keith Barra 29,367 45.4 13,332 559 Paul Edgecliffe- Johnson 36,841 45.4 16,725 701 Elie Maaloufa 33,801 45.4 15,345 643
price per
share at
grant
at grant
£000
received
if minimum
performance
achieved 2017/19 cycle Keith Barra 9 August 12,481 43.14 538 2,496 Paul Edgecliffe-Johnson 22 May 25,811 42.57 1,099 5,162 Elie Maaloufb 22 May 21,822 42.57 929 4,364 a 70 IHG Annual Report and Form 20-F 2016 GovernanceOther information relating to Directors’ remunerationNon-executive directorships of other companiesAs permitted under Richard Solomons, Chief Executive Officer, serves as a Non-Executive Director of Marks and Spencer PLC and in 2016 received fees of £70,000 accordingly.No other current Executive Director holds any non-executive director appointments at any other company.Service contracts and notice periods for Executive DirectorsIn accordance with the UK Corporate Governance Code, all Executive Directors have rolling service contracts with a notice period of 12 months and are subject to election and annual re-election by shareholders at the AGM.Dividends paid to Executive DirectorsA final dividend for 2015 of 40.3p per ordinary share (57.5¢ per ADR) was paid on 13 May 2016 to shareholders on the Register of members at the close of business on 1 April 2016.An interim dividend of 22.6p per ordinary share (30.0¢ per ADR) was paid on 7 October 2016 to shareholders on the Register of members at the close of business on 2 September 2016.A special interim dividend of 438.2p per ordinary share (632.9¢ per ADR) was paid on 23 May 2016 to shareholders on the Register of members at the close of business on 6 May 2016.The 2016 special dividend was accompanied by a share consolidation to maintain comparability (as far as possible) of the share price before and after the payment of the special dividend. LTIP award holders were not entitled to receive the special dividend. Executive Directors holding forfeitable shares under annual incentive awards received the special dividend, and their share awards were subject to the share consolidation.Pension entitlementsRichard Solomons built up defined benefit pension entitlements in the InterContinental Hotels UK Pension Plan (IC Plan) and IC Executive Top-Up Scheme (ICETUS) as a memberresult of both plans, during his service as an Executive Director priorappointment to the closureBoard. Prior to this, he was granted 17,822 shares and 2,160 restricted stock units on 22 May 2017 with a market price of both plans to future accrual of pension on 30 June 2013. As disclosed in the 2014 Annual Report, his ICETUS pension was cashed out and his IC Plan pension was transferred to an insurance company as part of the buy-out of that plan. Mr Solomons is no longer entitled to any Defined Benefit pension or related benefit from IHG.b Scheme interests awarded during 2016During 2016, awards wereThe award for Elie Maalouf was granted underprior to his appointment to the 2016/18 LTIP cycle. Awards were made to each Executive Director over sharesBoard. Elie was also granted 2,645 restricted stock units on 22 May 2017 with a maximum value of 205% of salary using the closing mid-market sharemarket price of 2,854p at the date of grant on 4 April 2016. These are in the form of conditional awards over Company shares and do not carry the right to dividends or dividend equivalents during the vesting period.£42.57 per share.Executive Director Award
date Maximum
shares
awarded
price per
share at
grant Face
value
of award
at grant
£000
received
performance
achieved 2016/18 cycle Richard 5 April 58,595 28.54 1,672 11,719 Solomons 2016 Paul Edgecliffe- 5 April 36,841 28.54 1,051 7,368 Johnson 2016 Tracy Robbinsa 5 April 8,480 28.54 242 1,696 2016 aPro-rated to 15 months at grant.20182019 Preliminary Results in February 2019.2020. These awards will vest and shares will be transferred to the award-holder in February 2019,2020, to the extent performance targets are met.same as for the 2014/16 cycle as shown on page 70. Relative2017 Remuneration Policy. Total gross revenue, net system size growth, in net rooms supplycash flow and RevPARtotal shareholder return will be measured by reference to the three years ending 30 September 2018; TSR willall be measured by reference to the three years ending 31 December 2018.2019. Minimum performance is equal to 20% of the maximum award.Other outstanding awardsScheme interests awarded during 20182015,2018, awards were granted under the 2015/17 LTIP cycle (shown below) on the same basis as the 2016/182018/20 LTIP cycle. Share price wasAwards were made to each Executive Director over shares with a maximum value of 205% of salary using an average of the closing mid-market share price of 2,670p atfor the five days prior to grant. At the date of grant on 30 March 2015.8 May 2018, this was 4,625p. These are in the form of conditional awards will vest in February 2018over Company shares and do not carry the right to dividends or dividend equivalents during the extent performance targets are met.vesting period.Executive Director Award
date Maximum
shares
awarded
price per
share at
grant Face
value
of award
at grant
£000
received
performance
achieved 2015/17 cycle Richard Solomons 31 60,808 26.70 1,624 12,162 March 2015 Paul Edgecliffe- 31 35,318 26.70 943 7,064 Johnson March 2015 Tracy Robbins 31 34,397 26.70 918 6,879 March 2015 Executive Director Award date Maximum
shares awarded
per share at grant
£000 Number of shares
received if minimum
performance achieved 2018/20 cycle Keith Barr 8 May 2018 35,381 46.25 1,636 7,076 Paul Edgecliffe-Johnson 8 May 2018 24,830 46.25 1,148 4,966 Elie Maalouf 8 May 2018 24,426 46.25 1,130 4,885 20172020 Preliminary Results in February 2018. 2021. These awards will vest and shares will be transferred to the award-holder in February 2021, to the extent performance targets are met.same as for the 2014/16 cycle as shown on page 70. Relative2017 Remuneration Policy. Total gross revenue, net system size growth, in net rooms supplycash flow and RevPAR will be measured by reference to the three years ending 30 September 2017; TSR will betotal shareholder return are measured by reference to the three years ending 31 December 2017.2020. Minimum performance is equal to 20% of the maximum award.Directors’ Remuneration Report 80IHG | Annual Report and Form 20-F 2016 712018DIRECTORS’ REMUNERATION REPORT CONTINUEDAnnual Report on Directors’ RemunerationcontinuedCurrent position on outstanding awardsDetails of the performance measures and potential vesting outcomes for outstanding awards as at 31 December 2016 are as follows:Performance measure Threshold
performance Maximum
performance Threshold (%)/
maximum vesting (%) Weighting (%) Maximum award
(% of salary) Potential vesting outcome 2015/17 cycle 2016/18 cycle Relative TSR Growth equal to the Growth exceeds 20/100 50 102.5 Between threshold Between threshold global hotels index the index by 8% and maximum based and maximum based per year or more on current on current performance performance Net rooms Average of the First in the 20/100 25 51.25 Improved Improved supply growth comparator group comparator group performance performance needed to achieve needed to achieve threshold threshold RevPAR growth Average of the First in the 20/100 25 51.25 Improved Improved comparator group comparator group performance performance needed to achieve needed to achieve threshold threshold AUDITED Guideline Executive Director shareholding requirement
a b 70. Percentages are calculated using the number of shares held outright and the 30 December 2016 share price of 3,638p.80.2016: %2018: number of salaryshares
Total number of Number of shares held outright APP deferred share awards LTIP share awards (unvested) shares and awards held 2018 2017 2018 2017 2018 2017 2018 2017 Keith Barr 42,782 31,116 28,262 24,586 97,211 90,987 168,255 146,689 Paul Edgecliffe-Johnson 25,669 27,443 26,742 28,384 87,482 97,970 139,893 153,797 Elie Maaloufa 24,773 42,058 82,694 149,525 Shares and awards held by Executive Directors as at31 December 2016a: number of Includes 35,961 shares granted prior to appointment to the BoardExecutive Director
(unvested) 2016 2015 2016 2015 2016 2015 2016 2015 Richard 211,594 365,625 59,032 71,552 201,596 219,320 472,222 656,497 Solomons Paul 26,034 22,014 24,621 19,821 117,284 108,219 167,939 150,054 Edgecliffe- Johnson Tracy 37,726 37,726 41,808 41,808 125,168 125,168 204,702 204,702 Robbinsa aNumber of shares held by Tracy Robbins is as at 15 January 2016, when she stepped down as an Executive Director.72 IHG Annual Report and Form 20-F 2016 GovernanceChief Executive Officer’s remunerationThe table below shows the Chief Executive Officer’s single figure of total remuneration for the eight years to 31 December 2016. For Richard Solomons, the 2014 figure includes a one-off cash payment in respect of pension entitlements which was fully explained in the 2014 report. Single figure
£000 Annual incentive
received (% of
maximum) Shares received
under the LTIP
(% of maximum) 2016 Richard Solomons 3,450 63.9 49.4 2015 Richard Solomons 3,197 75.0 50.0 2014 Richard Solomons 6,528 74.0 56.1 2013 Richard Solomons 3,149 74.0 59.0 2012 Richard Solomons 4,881 68.0 100.0 2011 Richard Solomons 4,724 83.0 73.9 Andrew Cosslett 3,770 43.0 61.6 2010 Andrew Cosslett 5,430 100.0 73.8 2009 Andrew Cosslett 1,953 0 46.0 Percentage change in remuneration of Chief Executive OfficerThe table below shows the percentage change in the remuneration of the Chief Executive Officer compared with UK employees between 2015 and 2016. We believe that a group comprised of UK-based employees is an appropriate comparator for salary and taxable benefits because the structure and composition of remuneration for that group most closely reflects that of the UK-based Chief Executive Officer. Therefore, the same UK market dynamics will apply to salary movements providing for a better like-for-like comparison.The salary figure for the UK employee population has been calculated using the 2016 budget for the annual pay review, taking into account any promotions/marked adjustments made during the year. The taxable benefits figure is based on P11D taxable benefits for tax year ending 5 April in the relevant year.For the annual incentive, a group of executives, who sit directly below Executive Committee level, is used as a comparator group as they are subject to the same performance measures as the Chief Executive Officer. Chief Executive Officer
(% change) UK employees
(% change) Salary +3.0 +3.0 Taxable benefits +5.6 +2.3 Annual incentive -12.2 -9.9 Relative importance of spend on payThe table below sets out the actual expenditure of the Group in 2016 and 2015 on corporate employee remuneration and distributions to shareholders, and shows the difference in spend between those years. For 2016, total distributions included a special and final dividend, and a share consolidation, neither of which were applicable in 2015.
Relative performance graphFor LTIP purposes, a TSR comparator group of a global hotels index was used. InterContinental Hotels Group PLC is a member of the FTSE 100 share index, and the graph below shows the Company’s TSR performance from 31 December 2008 to 31 December 2016, assuming dividends are reinvested, compared with the TSR performance achieved by the FTSE 100 and global hotels indices. All indices are shown in sterling. This data is sourced directly from Thomson Reuters Datastream for IHG.TSR: the Company vs FTSE 100 and global hotels index(rebased 2008 = 100)
Implementation of Directors’ Remuneration Policy in 2017This section explains how the DR Policy will be applied in 2017, subject to a binding vote by shareholders at the 2017 AGM.Salary: Executive DirectorsDirectors’ salaries are agreed annually in line with the DR Policy. The following salaries will apply from 1 April 2017:Executive Director %
increase 2017 2016 Richard Solomons +2.5 836,150 815,760 Paul Edgecliffe-Johnson +4.5 536,000 512,900 The 2.5 per cent increase for Richard Solomons is in line with the range of increases applying to the UK and US population.Paul Edgecliffe-Johnson was promoted internally on 1 January 2014 on a salary significantly below the level of a proven CFO. The DR Policy provides that salary increases for newly appointed or promoted Executive Directors may be higher than that of the corporate UK or US employee population until the appropriate positioning is achieved. Following strong performance again this year, a further increment of 4.5 per cent has been agreed by the Remuneration Committee for 2017; this increase brings the salary to the appropriate level and it is not expected that further exceptional adjustments will be made in future years.LTIP and APP performance measures and targetsFrom 2017, we will be limiting LTIP awards for the top levels of executives, currently 31 employees in total. A proportion of the awards for these executives, who currently receive LTIP awards, will move to smaller, restricted stock units with a three-year time vesting. The executives and awards impacted are not covered by the DR Policy. This move will bring us more in line with the market and help recruitment and retention in key markets such as the US.Further details of the measures and targets for the 2017 APP and 2017/19 LTIP cycle are contained in the separate DR Policy section on pages 77 and 78 of this report. AUDITED Directors’ Remuneration Report IHG Annual Report and Form 20-F 2016 73
Payments for loss of officeDIRECTORS’ REMUNERATION REPORT CONTINUEDThere were no payments for loss of office in 2018.Annual Report on Directors’ RemunerationcontinuedPension entitlements£1,879£2,152 during the year.Tracy RobbinsMs Robbins stepped down as Executive Vice President, Human Resources and from the Board on 15 January 2016 due to health reasons. In line with her contract, Ms Robbins will continue employment on notice for the 12 months to 31 March 2017, when she will cease employment with the Group. As disclosed at the time of the announcement and in last year’s Annual Report, the remuneration arrangements will be as follows:Ms Robbins will receive contractual sick pay (100% of annual salary to 31 March 2016 and then 50% of salary to 31 March 2017).Benefits entitlements will continue in full until 31 March 2017 and, given the circumstances, healthcare cover will be extended for a further year following that.The Remuneration Committeeagreed that, on leaving the Group, Ms Robbins will be treatedserved as a good leaver for the purposesNon-Executive Director of the APP and LTIP under the ill-health provisions as set outThomas Cook Group plc since 26 July 2017. Paul received fees of £60,000 during 2018 in the DR Policy.Ms Robbins will remain eligible for APP while still an employeerespect of the Group. In light of the circumstances, the Committee will exercise its discretionthis appointment.rules of the APPDR Policy and the DR Policy to pay any 2015, 2016 and pro-rated 2017 APP awards in cash, and to allow any outstanding APP deferred shares to vest in full on 31 March 2017.The grant of the 2016 LTIP award will be based on actual salary paid in that year. No LTIP award will be made in 2017.Any LTIP awards outstanding on the date Ms Robbins ceases employment will vest in line with the terms of the plan rules on the usual vesting date, only to the extent performance conditions are fulfilled, and will be pro-rated for the time she remained employed.Malus and clawback provisions will apply to all APP and LTIP awards.Remuneration payments made to Ms Robbins in 2016 in respect of the period to 15 January 2016 are shownamount is not included in the single figure table of remuneration table on page 69. Remuneration paid in respect of the period 16 January 2016 to 31 December 2016 was as follows:Fixed pay Variable pay Salary Benefits Pension APP LTIP Total265 18 129 332 728 1,472 In line with the discretion exercised by the Committee outlined above, the whole APP award of £345,586 was paid in cash.Payments for loss of officepayments were made toother current Executive Director holds any Executive Directors during 2016 for loss of office.Single total figure of remuneration: Non-Executive Directors Taxable
benefits
(£000) Date of
original
appointment 2016 2015 2016 2015 2016 2015 Patrick 
1 January 412 412 19 34 431 446 Cescau 2013 Anne 
1 March 73 61 4 5 77 66 Busquet 2015 Ian 
1 September 97 97 3 3 100 100 Dyson 2013 Jo 1 September 73 73 3 3 76 76 Harlow 2014 Jennifer 25 August 30 85 1 2 31 87 Laing 2005 Luke 
1 July 97 97 3 1 100 98 Mayhew 2011 Jill 
1 June 81 73 3 4 84 77 McDonald 2013 Dale 1 June 97 97 31 14 128 111 Morrison 2011 Ying 1 December 26 73 37 83 63 156 Yeh 2007 
See page 49 for Board and Committeemembership key and attendance.Fees: The fees for Jennifer Laing and Ying Yeh are to the point of their retirement as a Non-Executive Director on 6 May 2016. The fee for Jill McDonald reflects her appointment as Chairman of the Corporate Responsibility Committee from 6 May 2016 and the related increase in responsibility.Benefits: For Non-Executive Directors, benefits include taxable travel and accommodation expenses to attend Board meetings away from the designated home location. Under concessionary HM Revenue & Customs rules, non-UK based Non-Executive Directors are not subject to tax on travel expenses for the first five years; this is reflected in the taxable benefits for 2015 and 2016 for Anne Busquet and for the period up to 31 May 2016 for Dale Morrison.Incentive awards: Non-Executive Directors are not eligible forappointments at any incentive awards.Pension benefit:Non-Executive Directors are not eligible for any pension contributions or benefit.Further details on changes to theBoard can be found on page 50.Shares held by Non-Executive Directors as at 31 December 2016a: number of sharesThe only Non-Executive Directors who held shares are listed in the table below. Shares held outright Non-Executive Director 2016 2015 Jennifer Lainga 2,905 2,905 Luke Mayhew 1,435 1,722 Dale Morrisonb 3,255 3,907 aNumber of shares held by Jennifer Laing is as at 6 May 2016, when she retired as a Non-Executive Director.bShares held in the form of American Depository Receipts.74 IHG Annual Report and Form 20-F 2016 GovernanceFees: Non-Executive DirectorsThe fees for Non-Executive Directors are reviewed and agreed annually in line with the DR Policy. The fee levels for 2017 will be as follows: Role 2017
£000 2016
£000 Patrick Cescau Chairman of the Board 422 412 Anne Busquet Non-Executive Director 74 73 Ian Dyson Chairman of Audit Committee 99 97 Jo Harlow Non-Executive Director 74 73 Luke Mayhew Chairman of Remuneration 99 97 Committee Jill McDonald Chairman of Corporate 87 73 a Responsibility Committee Dale Morrison Senior Independent Non-Executive 107 97 Director aJill McDonald’s 2016 fee relates to Non-Executive Director position prior to new role of Chairman of the Corporate Responsibility Committee.Non-Executive Directors’ letters of appointment and notice periodsNon-Executive Directors have letters of appointment, which are available upon request from the Company Secretary’s office. Patrick Cescau, Non-Executive Chairman, is subject to 12 months’ notice. No other Non-Executive Directors are subject to notice periods. All Non-Executive Directors are subject to election and annual re-election by shareholders at the AGM.company.Remuneration Committee detailsKey objectives and summary of responsibilitiesThe Remuneration Committee agrees, on behalf of the Board, all aspects of the remuneration of the Executive Directors and the Executive Committee, and agrees the strategy, direction and policy for the remuneration of other senior executives who have a significant influence over the Group’s ability to meet its strategic objectives.
The Committee’s role and responsibilities are set out in its Terms of Reference (ToR). These are reviewed annually and available on the Company’s website at www.ihgplc.com/investors under Corporate governance in the Committees section.Membership and attendance at meetingsIn addition to the Committee members, the CEO and Chairman, the Committee’s remuneration advisers and the Group’s heads of HR and Reward attended meetings.
Details of Committee attendancecan be found on page 49.Reporting to the boardThe CEO and Chairman attend meetings and the Committee Chairman provides an update to the Board following each meeting on the key issues discussed. Meeting papers and minutes are circulated to all Board members for review and comment.Effectiveness of the CommitteeAll members are independent Non-Executive Directors, as required under the ToR. All members have the necessary experience and expertise to meet the Committee’s responsibilities. The effectiveness of the Committee is monitored and assessed annually through the Board’s evaluation questionnaires and interviews and informally by the Committee’s advisers.Details of the Board’s effectivenessevaluation can be found on pages 55 and 56.Remuneration advisersThe Committee continued to retain PricewaterhouseCoopers LLP (PwC) throughout 2016 as independent advisers. Fees of £159,830 were paid to PwC in respect of advice provided to the Committee on executive remuneration matters during the year. This was in the form of an agreed fee for support in preparation of papers and attendance at meetings, with work on additional items charged at hourly rates. PwC also provided tax and other consulting services to the Group during 2016. The terms of engagement for PwC are available from the Company Secretary’s office on request.PwC was appointed following a competitive tender process. The Committee is satisfied that the advice received from PwC was objective and independent, as PwC is a member of the Remuneration Consultants Group. Members of this group adhere to a voluntary code of conduct that sets out the role of executive remuneration consultants in the UK and the professional standards to which they have committed to adhere when advising remuneration committees.Focus areas and activitiesThe Committee’s main consideration in 2016 was the review of the Directors’ Remuneration Policy. This was reviewed to ensure that IHG continues to remunerate its Executive Directors in a way that is aligned with business needs, is consistent with its reward philosophy, is fair to colleagues yet competitive in the market, and rewards behaviours and outcomes that deliver shareholder value. The following key matters were also discussed: shareholding requirements and post-cessation holding, IHG’s approach to diversity and gender pay-gap reporting.Voting at the Company’s AGMsThere was no binding vote in respect of the DR Policy at the 2016 AGM as it remained unchanged from 2014. There will be a binding vote in respect of the new DR Policy in 2017. The outcome of the binding vote in respect of the DR Policy voted on at the 2014 AGM is shown below:AGM Votes for Votes against Abstentions 2014 155,440,907 15,483,775 906,025 (90.94%) (9.06%) At the Company’s AGMs in 2014, 2015 and 2016, the annual advisory vote in respect of the Directors’ Remuneration Report was as follows:AGM Votes for Votes against Abstentions 2016 167,998,487 2,427,740 5,056,017 (98.58%) (1.42%) 2015 149,415,662 4,633,208 3,642,496 (96.99%) (3.01%) 2014 158,131,479 10,076,027 3,623,200 (94.01%) (5.99%) Directors’ Remuneration Report IHG Annual Report and Form 20-F 2016 75DIRECTORS’ REMUNERATION REPORT CONTINUEDDirectors’ Remuneration PolicySubject to the approval by shareholders at the 2017 AGM, the policy for Executive Directors, as set out below, will apply from 2017 and will be available to view at www.ihgplc.com/investors under Corporate governance.The Committee will consider the Remuneration Policy annually to ensure it remains aligned with strategic objectives. However, it is intended that the policy set out below will apply for three years from the 2017 AGM; if any amendments need to be made to the policy within that time frame, it will first be presented to be voted upon by shareholders.Future policy table∎ Salary(100% cash)Link to strategyTo attract and retain the key talent responsible for delivering our strategic objectives. Recognises the value of the role and the individual’s skill, performance and experience.OperationBase salary is reviewed annually and fixed for 12 months from 1 April.In reviewing salaries, the Committee may consider:• business performance;• personal performance;• the average salary increases for the wider IHG workforce; and• current remuneration assessed against comparable opportunities for an individual to ensure competitiveness.Maximum opportunityOver the policy period, salaries for current Executive Directors will increase, subject to individual performance, in line with the range of increases applying to the corporate UK and US employee population, except where there is a change in role or responsibility or another need arises to reassess the competitiveness of salary which warrants either a lesser or a more significant increase. Any such change will be fully explained.Newly promoted or recruited Executive Directors may, on occasion, have their salaries set below the conventional remuneration level while they become established in role. In such cases, salary increases may be higher than the corporate UK and US employee population until the target positioning is achieved.Performance frameworkThe results of an individual’s annual performance appraisal give an overall personal performance rating (OPR), which is considered when reviewing salary levels. BenefitsLink to strategyTo attract and retain the key talent responsible for delivering our strategic objectives with competitive benefits which are consistent with an individual’s role and location.OperationIHG pays the cost of providing the benefits on a monthly basis or as required for one-off events.Maximum opportunityThe value of benefits is dependent on location and market factors.Benefits may include the cost of independent financial advice, car allowance/company car, private healthcare/medical assessments and other benefits provided from time to time. Benefits would be restricted to the typical level for the role and location of an Executive Director.Benefits may also include relocation and expatriate or international assignment costs where appropriate, including for example:• cost of living allowance;• travel costs;• housing allowance;• professional advice;• education allowances;• tax equalisation;• medical expenses; and• relocation allowance.Relocation and expatriate or international assignment costs would be restricted to the typical level for the role and location of an Executive Director.Performance frameworkNone.∎ PensionLink to strategyTo attract and retain the key talent responsible for delivering our strategic objectives with appropriate contribution rates to provide funding for retirement.OperationUK Executive Directors are eligible to join the IHG UK Defined Contribution Pension Plan (IC Plan). A cash allowance in lieu of pension contributions is offered, for example, where pension contributions would be less tax efficient than cash.Non UK Executive Directors may be eligible for an alternative local company retirement plan, for example, a DC 401(k) Plan and a DC Deferred Compensation Plan currently operating in the US.Maximum opportunitySalary is the only element of remuneration that is pensionable, and the current maximum employer contribution level for executives in the IC Plan is 30% of salary.Other contribution rates may apply in alternative local retirement plans and the Committee has the discretion to reduce or increase employer contribution rates for Executive Directors in exceptional circumstances where conditions so warrant.Performance frameworkNone.76 IHG Annual Report and Form 20-F 2016 Governance∎ Annual Performance Plan (APP)(50% cash and 50% IHG PLC shares deferred for three years)Link to strategy• Drives and rewards annual performance against both financial and non-financial metrics.• Aligns individuals and teams with key strategic priorities.• Aligns short-term annual performance with strategy to generate long-term returns to shareholders.Operation• Awards are made annually, 50% in cash after the end of the relevant financial year and 50% in the form of share awards which vest after three years subject to leaver provisions.• The Committee has discretion to make awards wholly in cash rather than part-cash and part-shares, in exceptional circumstances.• The share awards are made in the form of conditional awards or forfeitable shares, the latter having the right to receive dividends and vote at general meetings.• Malus and clawback apply to the awards. See page 80 for details.• The Committee may exercise reasonable discretion to adjust an award made under the APP upwards or downwards after application of the performance measures to take into account any relevant factors, including but not limited to, performance relative to IHG’s competitors and extent of achievement across all measures, provided that in no case will an award exceed the maximum opportunity stated.Maximum opportunityMaximum annual award is 200% of salary.Performance framework• 70% is based on EBIT achievement vs target.• 30% is based on a mixture of personal and strategic measures which are reviewed annually and the weighting, measures and targets determined by the Committee and set in line with key strategic priorities.• Measures for 2017 will be as per 2016 ie EBIT (70%), Guest Love (20%) and OPR (10%) – see page 78 for further detail.• Target award is 115% of salary; threshold is up to 50% of target award for each measure.• Overall performance ratings of less than 3 affect the outcome of the APP award. An OPR of less than 2 results in no award being made; an OPR of 2 (threshold) reduces awards by 50%; and an OPR of 2.5 reduces awards by 25%.Long Term Incentive Plan (LTIP)(100% IHG PLC shares)Link to strategyDrives and rewards delivery of sustained long-term performance on measures that are aligned with the interests of shareholders.Operation• Annual conditional awards of shares which vest after a period of three years, or such longer period as the Committee determines, subject to the achievement of corporate performance targets.• The Committee may also impose such post-vesting holding periods as it may, at its discretion, determine.• The Committee also has discretion to make awards in cash rather than shares, in exceptional circumstances.• Malus and clawback applies to awards. See page 80 for details.Maximum opportunityThe maximum annual award is 205% of salary. The Committee has no current intention to award more than the policy maximum, but if exceptional and unforeseen circumstances arise that warrant it, the Committee has discretion to increase this to 300% of salary under the LTIP rules. Any such award will be fully explained.Performance framework• The measures are reviewed and may be changed by the Committee annually to ensure alignment with strategic objectives.• Minimum performance results in 20% vesting and all targets measured over a performance period of at least three years.• The Committee may make adjustments to targets and/or measures if a significant one-off event occurs that makes one or more of the existing targets and/or measures no longer appropriate. The Committee may also adjust awards if a significant one-off event happens that makes the original performance measures no longer appropriate. Any such adjustments would be disclosed at the first appropriate opportunity.New for 2017 policy• Measures for the 2017/19 cycle are Total Shareholder Return (TSR), total gross revenue, net System size growth and cash flow – see pages 78 and 79 for further detail.• The Committee will review the vesting outcomes under the absolute measures (for the 2017/19 LTIP this will be total gross revenue, net System size growth and cash flow measures) at the end of each three-year cycle against an assessment of Group earnings, the quality of financial performance and growth over the period, including relative growth against the market, and the efficient use of capital. If the Committee determines that the vesting outcomes do not appropriately reflect the performance of the Group, it will consider reducing the number of shares that vest. The performance and vesting outcomes and any use of discretion will be fully disclosed and explained in the relevant Directors’ Remuneration Report.∎ Shareholding requirements• The guideline shareholding requirement is 300% of salary for the Chief Executive Officer and 200% for other Executive Directors• Executive Directors are expected to hold all shares earned (net of any shares sales required to meet personal tax liabilities), until the guideline shareholding requirement is achieved. See page 72 for details.New for 2017 policy• From 2018, the full guideline shareholding requirements will continue for six months, and 50% of the requirements for a further six months, post-cessation of employment.Directors’ Remuneration Report IHG Annual Report and Form 20-F 2016 77DIRECTORS’ REMUNERATION REPORT CONTINUEDDirectors’ Remuneration PolicycontinuedIllustrative scenariosBelow is an illustration of the value that could be received by each Executive Director under the Directors’ Remuneration Policy in respect of 2017, showing:minimum, which includes salary, benefits and employer pension contributions only (total fixed pay);on-target, which includes total fixed pay and assumes an on-target award for the APP (115% of salary) and 50% of maximum LTIP award vesting; andmaximum, which includes total fixed pay and a maximum award under the APP and LTIP.The salaries included are those that will apply from 1 April 2017. The benefit values included are estimates. The amounts shown in relation to APP and LTIP do not take account of any potential share price appreciation.
Notes to future policy tableMeasures for 2017 APPMeasureDefinitionWeighting (%)Performance objectiveEBITEarnings Before Interest and Tax –a measure of IHG’s operating profit before exceptional items for the year.70Achievement against target.Guest LoveGuest satisfaction rating.20Year-on-year improvement in score.OPRPersonal performance measure of individual’s contribution to the business and the results.10Achievement against targets.Why have we chosen these measures?EBIT is a key measure of business performance for our shareholders and is a function of other critical measures, such as net rooms growth, RevPAR, profit margin and fee revenues. Guest Love is an important and robust measure of the strength of our brands and our ability to grow lifetime relationships with guests. OPR reflects an individual’s contribution towards the achievement of specific and measurable targets based on a range of the most important financial and strategic objectives for the year.How are performance targets set?Targets may be set relative to budget and/or by reference to prior results and may contain a performance range to incentivise outperformance and minimum performance levels relative to budget and/or prior experience to ensure that poor performance is not rewarded. The 2017 targets are set by the Committee and senior management, taking into account IHG’s growth ambitions, market expectations and the circumstances and relative performance at the time, with the aim of setting stretching achievement targets for senior executives which will reflect successful outcomes for the business based on its strategic objectives for the year.Measures for 2017/19 LTIP cycleMeasureDefinitionWeighting (%)VestingTotal Shareholder Return (TSR)IHG’s performance against a comparator group of global hotel companies. TSR is the aggregate of share price growth and dividends paid, assuming reinvestment of dividends in the Company’s shares during the three-year performance period.40Threshold– median of comparator group (20% of TSR element vests).Maximum – upper quartile of comparator group (100% of TSR element vests).Vesting will be on a straight-line basis in between the two points above.Total gross revenueCumulative increase over three-year performance period.20The targets for these measures are, in the opinion of the Directors, commercially sensitive, and will therefore be disclosed in full retrospectively at the end of the LTIP cycle. Disclosure in advance would give IHG’s major competitors an unfair commercial advantage, providing them with access to key financial and growth targets from IHG’s three-year plan. These competitors would not be subject to the same obligation to make such information available, as they are either unlisted or listed on a stock exchange other than the London Stock Exchange. We will provide updates on an annual basis to give an indication of actual performance against targets and full disclosure of targets and performance will be provided retrospectively after the end of the performance period.Net System size growthIncrease in number of IHG rooms over three-year performance period.20Cash flowCumulative annual cash generation over three-year performance period.20Targets for the three years from 2017 are due to be set at the Board’s annual strategy meeting in March 2017 and are not, therefore, available at the time of writing this report. The agreed targets, which will apply in respect of the 2017–19 LTIP cycle, will be disclosed in full in the 2017 Directors’ Remuneration Report.78 IHG Annual Report and Form 20-F 2016 GovernanceWhy have we chosen these measures?We believe that TSR continues to be a key measure of long-term success and aligns the interests of Executive Directors with those of shareholders. However, there is an increased focus on ongoing operational excellence under our asset light business model and TSR will therefore reduce from a 50% to a 40% weighting in the LTIP. A rooms measure will remain in the form of net System size growth, reflecting the importance of building and leveraging our scale. Two new measures will be introduced: total gross revenue, which includes food and beverage income from owned and managed hotels and reflects our diverse income sources; and cash flow, to support our focus on delivering high-quality organic growth, which means delivering consistent, sustained growth in cash flows and profits over the long term. Together, we believe these measures represent the right balance of focus on growth and quality and position our executive remuneration in line with both our long-term strategic aims and the expectations of our shareholders.How are performance targets set?Targets may be set relative to the expected outcomes of IHG’s long-range business plan and other long-term strategic objectives and may contain a performance range to incentivise outperformance and minimum performance levels to ensure that poor performance is not rewarded. The targets for the 2017/19 LTIP are set by the Committee, taking into account IHG’s long-range business plan, market expectations and the circumstances and relative performance at the time, with the aim of setting stretching achievement targets for senior executives which will reflect successful outcomes for the business based on its long-term strategic objectives. After completing a robust review process, the comparator group of companies against which outcomes are measured for the 2017/19 cycle has been updated and comprises the following: Accor Hotels; Choice Hotels International Inc.; Hilton Worldwide; Hyatt Hotels Corporation; Marriott International Inc.; Melia Hotels International; Millennium & Copthorne Hotels; NH Hotel Group; and Wyndham Worldwide Corp.Dilution of Company sharesIncentive plan rules provide that issuance of new shares or re-issued treasury shares, when aggregated with all other share schemes, must not exceed 10% of issued share capital in any rolling 10-year period.Policy on payment for loss of officeAs per the DR Policy, Executive Directors have a notice period from the Group of 12 months. However, neither notice nor a payment in lieu of notice will be given in the event of gross misconduct. In the event of an Executive Director terminating employment, any compensation payable will be determined in accordance with the terms of their service contract and the rules of any relevant incentive plan. Where possible, the Group will seek to ensure that, if a leaver mitigates their losses, for example, by finding new employment, there will be a corresponding reduction in compensation payable for loss of office. An Executive Director may have an entitlement to compensation in respect of their statutory rights under employment protection legislation in the UK or other relevant jurisdiction.The following table sets out the basis on which payments for loss of office may be made:RemunerationcomponentCircumstances and approach taken (including but not limited to):Salary and contractual benefits, including pensionGood leaver: Paid up to date of termination or in lieu of notice, if applicable.Other leaver: Paid up to date of termination or in lieu of notice, if applicable.Death: Paid up to date of death.APP award for year of terminationGood leaver: Pro-rated award for year up to date of termination, or later date in exceptional circumstances subject to Committee discretion. No accelerated payment, other than in exceptional circumstances and where permitted under the plan rules subject to Committee discretion. Award made 50% cash and 50% in shares deferred for three years from grant, other than in exceptional circumstances and where permitted under the plan rules subject to Committee discretion.Other leaver: No award for year of termination, other than in case of termination after end of performance period but before award date (in which case cash portion only of award will be paid); and in exceptional circumstances subject to Committee discretion.Death: Pro-rated award for year up to date of death, paid fully in cash and accelerated, other than in exceptional circumstances subject to Committee discretion.Unvested APP deferred share awardsGood leaver: Vest on usual vesting date, other than in exceptional circumstances subject to Committee discretion.Other leaver: Forfeited, other than in exceptional circumstances subject to Committee discretion; and in the event of a termination in connection with a takeover or reconstitution (in which case unvested APP deferred share awards will have accelerated vesting on the date of termination, unless the Committee determines otherwise).Death: Accelerated vesting unless Committee decides otherwise.Unvested LTIP awardsGood leaver: Vest on usual vesting date to extent performance conditions met, other than in exceptional circumstances subject to Committee discretion. Number of shares vesting is pro-rated to date of termination, or other date subject to Committee discretion.Other leaver: Forfeited, other than in exceptional circumstances subject to Committee discretion. No shares awarded or cash paid under any circumstances in the event of termination due to gross misconduct.Death: Accelerated vesting: Committee has discretion to determine number of shares vesting, taking into account proportion of performance period elapsed and extent to which performance conditions are satisfied.Good leaver status will be applied in accordance with the rules of incentive plans, where applicable, and may include retirement, ill-health, transfer of undertaking or redundancy. In the case of the LTIP rules, the Committee has discretion to apply good leaver status and, in doing so, will consider factors such as personal performance and conduct, overall Group performance and the specific circumstances of the Executive Director’s departure including, but not restricted to, whether the Executive Director is leaving by mutual agreement. The Committee would only seek to exercise this and its other discretions under the APP and LTIP plan rules in exceptional circumstances and the application of any such discretion would be disclosed in full as required in the relevant announcement and Annual Report on Directors’ Remuneration.Directors’ Remuneration Report IHG Annual Report and Form 20-F 2016 79DIRECTORS’ REMUNERATION REPORT CONTINUEDDirectors’ Remuneration PolicycontinuedUse of discretion by the Remuneration Committee1. Malus and clawback in incentive plansThe 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/oractions that lead to material misstatement or restatement of accounts.This may include, where appropriate, negligence on the part of Executive Directors.A clawback provision applies to Executive Directors in respect of the APP cash awards and LTIP cycle awards from 2015/17 onwards. The provision applies for three years from the date of payment (for the APP cash award) and the date of vesting (for the LTIP award). Clawback may be operated in the event of gross misconduct on the part of the employee and/or material misstatement in Company or Group financial statements.These features help ensure alignment between executive reward and shareholder returns.2. Other uses of discretionThe Committee reserves certain discretions in relation to the outcomes for Executive Directors under the Group’s incentive plans. These operate in two main respects:enabling the Committee to ensure that outcomes under these plans are consistent with the underlying performance of the business and the experience of shareholders, at the same time as providing a high degree of clarity for shareholders as to remuneration structure and potential quantum; andenabling the Committee to treat leavers in a way that is fair and equitable to individuals and shareholders under the incentive plans.The discretions that can be applied in the case of leavers under the APP and LTIP are set out in the section ‘Policy on payment for loss of office’ on page 79.The discretions that can be applied in respect of the APP and LTIP in the event of a corporate transaction, such as a takeover or merger, include the ability to determine:the period for which awards may be pro-rated;whether awards are payable as cash or shares;the vesting date for awards and whether or not they may be accelerated;if a transaction occurs prior to the end of a performance period, the extent to which performance conditions have been met;in the event that a transaction involves the exchange of IHG PLC shares for shares in another company, whether existing share awards may be replaced by an appropriate proportion of shares in a new company; andany such action as it may think appropriate if other events happen which may have an effect on awards.Any exercises of discretion by the Committee will be fully disclosed and explained in the relevant year’s Annual Report on Directors’ Remuneration.Approach to recruitment remunerationThe remuneration of any new Executive Director will be determined in accordance with the Directors’ Remuneration Policy on pages 76 to 77 and the elements that would be considered by the Group for inclusion are:salary and benefits, including defined contribution pension participation;participation in the APP with 50% cash and 50% deferred share elements:-pro-rated for the year of recruitment to reflect the proportion of the year remaining after the date of commencement of employment; and-if commencement date is after 1 October in the year, no award would normally be made for that year; andparticipation in the LTIP:-pro-rated awards would be made in relation to LTIP cycles outstanding at the time of recruitment; but-no pro-rated award would be made for an LTIP cycle that has less than nine months to run at the date of commencement of employment.In addition, the Committee may, in its discretion, compensate a newly recruited Executive Director for incentives foregone from previous employment as a result of their resignation. The Committee would seek validation of the value of any potential incentives foregone. Awards made by way of compensation for incentives foregone would be made on a comparable basis, taking account of performance achieved (or likely to be achieved), the proportion of the performance period remaining and the form of the award. Compensation would, as far as possible, be in the form of LTIP or deferred share awards in order to immediately align a new Executive Director with IHG performance.The maximum annual level of variable remuneration that may be granted to a newly-recruited Executive Director would be in line with that of the existing Executive Directors:APP award: 200% of salary, of which 50% of any award will be paid in cash and 50% in the form of shares deferred for three years; andLTIP award: 205% of salary for a full LTIP cycle commencing after appointment, plus pro-rated awards in relation to LTIP cycles outstanding at the time of recruitment (up to a further 205% of salary).This excludes any remuneration that constitutes compensation for incentives foregone and any relocation and expatriate or international assignment costs.Consideration of shareholder viewsShareholder interests are central to decisions on remuneration. Recruiting and retaining quality management is important to the generation of shareholder return. At the same time, IHG does not operate in a vacuum and remuneration decisions need to take account of the practices in the sector, the remuneration of IHG employees overall and of course business performance. We were pleased to see the substantial support for our 2015 Annual Report on Directors’ Remuneration, approved by a majority of 98.58%. As part of the review of incentive plans undertaken in 2015 and 2016, the Chairman of the Remuneration Committee met with a number of our largest shareholders, proxy voting agencies and industry bodies, such as the Investment Association, to discuss our remuneration policy design and its links to business strategy. The feedback from these meetings, while not always consistent, has helped us to refine the small number of changes proposed to DR Policy from 2017, specifically the new absolute measures in the LTIP and the related sharpening of Committee discretion designed to strengthen the focus on operational excellence.80 IHG Annual Report and Form 20-F 2016 GovernanceConsideration of employment conditions elsewhere in the GroupThe Committee takes into consideration the pay and conditions of employees throughout the Group when determining remuneration for its Executive Directors. In addition to the review of DR Policy during 2015 and 2016, the Committee reviewed the remuneration structure of other senior employees and agreed changes which were designed to ensure a clear and consistent approach to remuneration that is aligned to the business needs; consistent with the Group’s reward philosophy, strategy and objectives; fair and attractive to colleagues; and rewards the behaviours and outcomes which will deliver shareholder value.Employees’ pay across the Group is compared to cross-industry standards to ensure fair pay for each job. The Group does not consult with employees as part of the process of determining the DR Policy. However, selected senior employees were consulted as part of the remuneration review referred to above; and questions on the performance of Executive Committee members, including the Executive Directors, are included in annual employee engagement surveys. While formal internal comparison measurements are not used in determining Executive Directors’ remuneration, the Committee makes decisions in the knowledge of pay and incentive arrangements of the rest of the Group, upon which the Committee is briefed regularly.The Committee’s policy is forIn accordance with the UK Corporate Governance Code, all Executive Directors to have rolling service contracts with a notice period of 12 months. All new appointments will have 12-month notice periods, unless, on an exceptional basis to complete an external recruitment successfully, a longer initial notice period reducing to 12 months is used. This is in accordance with the UK Corporate Governance Code.All Executive Directors’ appointments and subsequentre-appointments are subject to election and annual re-election by shareholders at the AGM.DetailsDividends paid to Executive Directorscurrent50.2p per ordinary share (71.0¢ per ADR) was paid on 11 May 2018 to shareholders on the Register of members at the close of business on 3 April 2018.IHG | Annual Report and Form 20-F 2018 | Governance | Directors’ Remuneration Report 81 
Directors’ contractsOfficer’s remunerationSingle figure CEO 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Single figure Keith Barr 2,161a 3,093 of remuneration Richard Solomons 4,724 4,881 3,131 6,611b 3,197 3,662 2,207c £000 Andrew Cosslett 1,953 5,430 3,770 Annual incentive Keith Barr 69.7 84.1 received Richard Solomons 83.0 68.0 74.0 74.0 75.0 63.9 66.8 (% of maximum) Andrew Cosslett 0.0 100.0 43.3 Shares received Keith Barr 46.1 45.4 under the LTIP Richard Solomons 73.9 100.0 59.0 56.1 50.0 49.4 46.1 (% of maximum) Andrew Cosslett 46.0 73.8 61.6 a b c ExecutiveDirectorDate oforiginal appointmentNoticeperiodRichard Solomons10 February 2003 12 monthsPaul Edgecliffe-Johnson1 January 2014Chief Executive Officer 12 months UK employees(% change) (% change) Salary +3.0 +2.5 Taxable benefits +3.7 +4.6 Annual incentive +22.2 +36.8 Non-executive directorshipsRelative importance of spend on pay
a 82 IHG | Annual Report and Form 20-F 2018 Increase 2019 2019 2018 2018 Executive Director % £ $ £ $ Keith Barr 5.0 838,200 798,250 PaulEdgecliffe-Johnsona 10.0 616,300 560,200 Elie Maaloufb 8.0 812,200 752,000 a b Maximum 2018/20 cycle 2019/21 cycle Threshold (%)/ 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 USD USD USD 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
Net system size growth Increase in number of IHG rooms over three-year performance period. 20/100 20 41 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.
companiescritical measures, such as RevPAR, profit margin and fee revenues. The Committee has determined that it is particularly important to incentivise and reward management for achieving a stretching target for net system size growth over the next year, so this will make up 15% of the 2019 APP. The remaining 15% will be based on a savings target for reinvestment to support IHG’s future growth. Further detail and rationale in respect of the key strategic objectives will be disclosed in the 2019 remuneration report.Group recognisesCommittee has determined that its Executive Directors maythe targets under the EBIT, net system size growth and other strategic measures are commercially sensitive at this time. However, the targets set and the outcomes against those targets will be invited to become Non-Executive Directors of other companies and that such duties can broaden their experience and knowledge, and benefit the Group. IHG therefore permits its Executive Directors to accept one non-executive appointment (in addition to any positions where the Director is appointed as the Group’s representative), subject to Board approval and as long as this is not,disclosed in full in the reasonable opinion of2019 remuneration report and are in line with the Board, likely to lead to a conflict of interest. Any fees from such appointments may be retained by the individual Executive Director.DR Policy.Measure Definition Weighting (%) Performance objective EBIT Earnings Before Interest and Tax – a measure of IHG’s operating profit from reportable segmentsafor the year 70 Net system size growth Increase in absolute number of rooms 15 Achievement against target Strategic measures Key strategic measures which are reviewed annually 15 Achievement against and set in line with strategic priorities target a IHG | Annual Report and Form 20-F 2018 | Governance | Directors’ Remuneration Report 83 Remuneration Policy for Non-Executive DirectorsGovernanceThe policy for Non-Executive Directors, set out below, will apply for three years from the date of the 2017 AGM.
The policy Committee Date of
original Non-Executive Director appointments appointment 2018 2017 2018 2017 2018 2017 Patrick Cescau 
01/01/13 422 422 20 21 442 443 Anne Busquet 
01/03/15 74 74 7 6 81 80 Ian Dyson 
01/09/13 99 99 3 3 102 102 Jo Harlow 
01/09/14 99 81 2 3 101 84 Luke Mayhew 
01/07/11 74 93 2 2 76 95 Jill McDonald 
01/06/13 87 87 4 5 91 92 Dale Morrison 01/06/11 107 107 66 55 173 162 Malina Ngai 
01/03/17 74 62 4 7 78 69 
See page 55 for Non-Executive Directors is available to view at www.ihgplc.com/investors under Corporate governance in the Committees section.Board and CommitteeIf any changesFees: Fees paid are madein line with the DR Policy.Policy within that time frame, it will be presenteddesignated home location. Under concessionary HM Revenue and Customs rules, non-UK based Non-Executive Directors are not subject to be voted upon by shareholders.tax on travel expenses for the first five years; this is reflected in the taxable benefits for Anne Busquet and Malina Ngai.to participatefor any incentive awards.APP, LTIP nor any IHG pension plan.table below:Non-Executive Director 2018 2017 Patrick Cescau 3,795 – Jo Harlowa 1,000 1,000 Luke Mayhew 1,373 1,373 Dale Morrisona 3,116 3,116 Fees and benefits (cash)Link to strategy• To attract Non-Executive Directors who have a broad range of skills and experience that add value to our business and help oversee and drive our strategy. a • RecognisesShares held in the valueform of the role and the individual’s skill, performance and experience.Operation• Non-Executive Directors’ fees and benefits are set by the Chairman of the Board and Executive Directors; the Chairman’s fees are set by the Committee.• Fees are reviewed annually and fixed for 12 months from 1 January.• Consideration is given to business performance, current remuneration competitiveness and average salary increases for the wider IHG employee population.• Benefits include travel and accommodation in connection with attendance at Board and Committee meetings.• Non-Executive Directors are not eligible to participate in IHG incentive or pension plans.• A single fee is determined for each Non-Executive Director role rather than different elements being applied to directorship, Committee and chair roles.Maximum opportunity• Fee increases will be in line with median FTSE 100 increases, taking into account the circumstances of the business and increases in remuneration across the Group, other than where there is a change in role or responsibility or another need arises to reassess the competitiveness of fee level that warrants either a lesser or a more significant increase. Any such change will be fully explained.• IHG pays the cost of providing benefits as required.Performance framework• Non-Executive Directors are not eligible to participate in any performance-related incentive plans.American Depository Receipts.Details ofFees: Non-Executive DirectorsNon-Executive Director Role 2019
£000 2018
£000 Patrick Cescau Chair of the Board 435 422 Anne Busquet Non-Executive Director 77 74 Ian Dyson Chair of Audit Committee 102 99 Jo Harlow Chair of Remuneration Committee 102 99 Luke Mayhew Non-Executive Director 77 74 Jill McDonald Chair of Corporate Responsibility Committee 90 87 Dale Morrison Senior Independent Non-Executive Director 110 107 Malina Ngai Non-Executive Director 77 74 for Non-Executive DirectorsappointedNon-Executive Chairman on 1 January 2013, Chair, is subject to 12 months’ notice. Other
No other Non-Executive Directors are not subject to notice periods.Directors’ appointments and subsequentre-appointmentsDirectors are subject to election and annual re-election by shareholders at the AGM.Non-ExecutiveDirector CommitteeappointmentsDate of originalappointmentNotice periodPatrick Cescau1 January 201312 monthsAnne Busquet 1 March 2015n/aIan Dyson 1 September 2013n/aJo Harlow 1 September 2014n/aLuke Mayhew1 July 2011n/aJill McDonald 1 June 2013n/aDale Morrison 1 June 2011n/aLuke MayhewChairman of the Remuneration Committee20 February 2017Directors’ Remuneration Report IHG | Annual Report and Form 20-F 2016 812018GroupRemuneration Committee detailsFinancialKey objectives and summary of responsibilitiesStatementsThe 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.84 Reviewing and approving 2017 annual and long-term incentive results for the Executive Directors and other members of the Executive Committee;Approving and monitoring 2018 annual and ongoing long-term incentive plans; andChanges to the UK Corporate Governance Code. Directors’ Remuneration Policy (binding vote) Directors’ Remuneration Report (advisory vote) AGM Votes for Votes against Abstentions Votes for Votes against Abstentions 2018 – – – 118,770,985 25,486,193 2,664,237 (82.33%) (17.67%) 2017 120,328,350 5,332,320 261,819 119,155,451 4,426,549 2,340,489 (95.76%) (4.24%) (96.42%) (3.58%) 2016 – – – 167,998,487 2,427,740 5,056,017 (98.58%) (1.42%) 2015 – – – 149,415,662 4,633,208 3,642,496 (96.99%) (3.01%) 2014 155,440,907 15,483,775 906,025 158,131,479 10,076,027 3,623,200 (90.94%) (9.06%) (94.01%) (5.99%) IHG | Annual Report and Form 20-F 2018 | Governance | Directors’ Remuneration Report 85 
Group Financial Statements Statement of Directors’ Responsibilities 90 Independent Auditor’s US Report 91 Group Financial Statements 91 Group income statement 92 Group statement of comprehensive income 93 Group statement of changes in equity 96 Group statement of financial position 97 Group statement of cash flows 98 Accounting policies 106 New standards issued but not yet effective Notes to the Group Financial Statements 
82 IHG| Annual Report and Form 20-F 2016 Group Financial Statements2018
Group Financial Statements IHG | Annual Report and Form 20-F 2016 832018 | Group Financial Statements87 the Directorsdirectors 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, theIHG 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; andpreparePrepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company and the Group will continue in business.CompanyGroup and the Group,Company, and taking reasonable steps to prevent and detect fraud and other irregularities.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 andor loss of the Group taken as a whole; andtheThe 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.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 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; andprovideProvide 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.20162018 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).20162018 the Group’s internal control over financial reporting was effective.2016,2018, together with the Group’s Consolidated Financial Statements, were audited by Ernst & Young LLP, an independent registered public accounting firm. Their report on internal control over financial reporting can be found on page 90.95.
Richard SolomonsKeith Barr Paul Edgecliffe-Johnson Chief Executive Officer Chief Financial Officer 2018 February 20172019 2018 February 20172019 84 88IHG | Annual Report and Form 20-F 2016 Group Financial Statements2018
Independent Auditor’s UK Report IHG | Annual Report and Form 20-F 2016 852018 | Group Financial Statements | Independent Auditor’s UK Report89 [THIS PAGE IS INTENTIONALLY LEFT BLANK]86 IHG Annual Report and Form 20-F 2016 Group Financial StatementsIndependent Auditor’s UK Report 90IHG | Annual Report and Form 20-F 2016 872018[THIS PAGE IS INTENTIONALLY LEFT BLANK]88 IHG Annual Report and Form 20-F 2016 Group Financial StatementsIndependent Auditor’s UK Report IHG | Annual Report and Form 20-F 20162018 | Group Financial Statements 89| Independent Auditor’s UK Report91 92 IHG | Annual Report and Form 20-F 2018 IHG | Annual Report and Form 20-F 2018 | Group Financial Statements | Independent Auditor’s UK Report 93 94 IHG | Annual Report and Form 20-F 2018 independent registered public accounting firm on internal control over financial reportingIndependent Registered Public Accounting Firm2016,2018, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), (the COSO criteria). In our opinion, InterContinental Hotels Group PLC’sPLC (the Company) maintained, in all material respects, effective internal control over financial reporting as of 31 December 2018, based on the COSO criteria.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.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.In our opinion, InterContinental Hotels Group PLC maintained, in all material respects, effective internal control over financial reporting as of 31 December 2016, based on the COSO criteria.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the accompanying 2016 Consolidated Financial Statements of InterContinental Hotels Group PLC, and our report dated 20 February 2017 expressed an unqualified opinion thereon.2018 February 20172019independent registered public accounting firmIndependent Registered Public Accounting Firm20162018 and 2015,2017, and the related Group statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended 31 December 2016. These Financial Statements are2018, 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.Financial Statements referred to abovefinancial statements present fairly, in all material respects, the consolidated financial position of InterContinental Hotels Group PLCthe Company at 31 December 20162018 and 2015,2017, and the consolidated results of its operations and its cash flows for each of the three years in the period ended 31 December 2016,2018, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.InterContinental Hotels Group PLC’sthe Company’s internal control over financial reporting as of 31 December 2016,2018, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated 2018 February 20172019 expressed an unqualified opinion thereon.2018 February 20172019 90 IHG Annual Report and Form 20-F 2016 Group Financial Statements 2016 2015 2014 For the year ended 31 December 2016 Note
exceptional
items
items Total
$m
exceptional
items
items
exceptional
items
items Revenue 2 1,715 – 1,715 1,803 – 1,803 1,858 – 1,858 Cost of sales (580 ) – (580 ) (640 ) – (640 ) (741 ) – (741 ) Administrative expenses (339 ) (13 ) (352 ) (395 ) (25 ) (420 ) (382 ) (101 ) (483 ) Share of losses of associates and joint ventures 2 (2 ) – (2 ) (3 ) – (3 ) (4 ) – (4 ) Other operating income and expenses 9 – 9 11 880 891 16 130 146 803 (13 ) 790 776 855 1,631 747 29 776 Depreciation and amortisation 2 (96 ) – (96 ) (96 ) – (96 ) (96 ) – (96 ) Impairment charges 2 – (16 ) (16 ) – (36 ) (36 ) – – – Operating profit 2 707 (29 ) 678 680 819 1,499 651 29 680 Financial income 6 6 – 6 5 – 5 3 – 3 Financial expenses 6 (93 ) – (93 ) (92 ) – (92 ) (83 ) – (83 ) Profit before tax 620 (29 ) 591 593 819 1,412 571 29 600 Tax 7 (186 ) 12 (174 ) (180 ) (8 ) (188 ) (179 ) (29 ) (208 ) Profit for the year from continuing operations 434 (17 ) 417 413 811 1,224 392 – 392 Attributable to: Equity holders of the parent 431 (17 ) 414 411 811 1,222 391 – 391 Non-controlling interest 3 – 3 2 – 2 1 – 1 434 (17 ) 417 413 811 1,224 392 – 392 Earnings per ordinary share 9 Continuing and total operations: Basic 195.3 ¢ 520.0 ¢ 158.3 ¢ Diluted 193.5 ¢ 513.4 ¢ 156.4 ¢ 
95 2017 2016 2018 Restated a Restated a For the year ended 31 December 2018 Note $m $m $m Revenue from fee business 3 1,486 1,379 1,329 Revenue from owned, leased and managed lease hotels 3 447 351 338 System Fund revenues 1,233 1,242 1,199 Reimbursement of costs 1,171 1,103 1,046 Total revenue 2 4,337 4,075 3,912 Cost of sales (706 ) (571 ) (548 ) System Fund expenses (1,379 ) (1,276 ) (1,164 ) Reimbursed costs (1,171 ) (1,103 ) (1,046 ) Administrative expenses before exceptional items (344 ) (337 ) (345 ) Share of (losses)/gains of associates and joint ventures 2 (1 ) 3 (2 ) Other operating income 14 11 9 Depreciation and amortisation 2 (80 ) (78 ) (75 ) Operating profit before exceptional items 670 724 741 Impairment charges 6 – (18 ) (16 ) Other exceptional items 6 (104 ) 22 (13 ) Operating profit 2 566 728 712 Financial income 7 5 4 6 Financial expenses 7 (86 ) (76 ) (86 ) Profit before tax 485 656 632 Tax 8 (133 ) (115 ) (173 ) Profit for the year from continuing operations 352 541 459 Attributable to: Equity holders of the parent 351 540 456 Non-controlling interest 1 1 3 352 541 459 Earnings per ordinary share: 10 Continuing and total operations: Basic 184.7 279.8 215.1 Diluted 182.8 278.4 213.1 a 
98103 to 145161 form an integralGroup Financial Statements IHG Annual Report and Form 20-F 2016 91GROUP FINANCIAL STATEMENTS CONTINUEDGroup statement of comprehensive incomeFor the year ended 31 December 2016 2016
$m 2015
$m 2014
$m Profit for the year 417 1,224 392 Other comprehensive income Items that may be subsequently reclassified to profit or loss: 5 2 11 182 (2 ) 42 (7 ) – – – 2 – 180 2 53 Items that will not be reclassified to profit or loss: – 9 (18 ) – 7 2 – 16 (16 ) Total other comprehensive income for the year 180 18 37 Total comprehensive income for the year 597 1,242 429 Attributable to: Equity holders of the parent 594 1,240 428 Non-controlling interest 3 2 1 597 1,242 429 Notes on pages 98 to 145 form an integralpart of these Financial Statements.92 IHG | Annual Report and Form 20-F 20162018 2017 2016 2018 Restated a Restated a For the year ended 31 December 2018 $m $m $m Profit for the year 352 541 459 Other comprehensive income Items that may be subsequently reclassified to profit or loss: – 41 5 – (73 ) (7 ) 5 – – (1 ) – – (8 ) – – 43 (88 ) 190 39 (120 ) 188 Items that will not be reclassified to profit or loss: (14 ) – – 8 (4 ) – – (11 ) – (6 ) (15 ) – Total other comprehensive income/(loss) for the year 33 (135 ) 188 Total comprehensive income for the year 385 406 647 Attributable to: 383 404 644 2 2 3 385 406 647 a b IHG | Annual Report and Form 20-F 2018 | Group Financial Statements | Group Financial Statements 97 Equity
share
capital
$m
held by
employee
$m Other
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gains and
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translation
reserve
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$m
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redemption
reserve
$m Other
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reserve
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translation
reserve Retained
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$m
holders’
equity
interest Total equity
$m At 1 January 2016 169 11 (18 ) (2,888 ) 113 269 2,653 309 10 319 At 1 January 2018 (restated for IFRS 15) 154 10 (5 ) (2,874 ) 79 – 377 951 (1,308 ) 7 (1,301 ) Impact of adopting IFRS 9 (page 113) – – – – (18 ) – – 18 – – – At 1 January 2018 154 10 (5 ) (2,874 ) 61 – 377 969 (1,308 ) 7 (1,301 ) Profit for the year – – – – – – 414 414 3 417 – – – – – – – 351 351 1 352 Other comprehensive income Items that may be subsequently reclassified to profit or loss: – – – – 5 – – 5 – 5 – – – – – 5 – – 5 – 5 – – – – – (1 ) – – (1 ) – (1 ) – – – – – (8 ) – – (8 ) – (8 ) – – – – – 182 – 182 – 182 – – – – – – 42 – 42 1 43 – – – – (7 ) – – (7 ) – (7 ) Total other comprehensive income for the year – – – – (2 ) 182 – 180 – 180 – – – – – (4 ) 42 – 38 1 39 Items that will not be reclassified to profit or loss: – – – – (14 ) – – – (14 ) – (14 ) – – – – – – – 8 8 – 8 – – – – (14 ) – – 8 (6 ) – (6 ) Total other comprehensive (loss)/income for the year – – – – (14 ) (4 ) 42 8 32 1 33 Total comprehensive income for the year – – – – (2 ) 182 414 594 3 597 – – – – (14 ) (4 ) 42 359 383 2 385 Transfer of treasury shares to employee share trusts – – (24 ) – – – 24 – – – – – (19 ) – – – – 19 – – – Purchase of own shares by employee share trusts – – (10 ) – – – – (10 ) – (10 ) – – (3 ) – – – – – (3 ) – (3 ) Release of own shares by employee share trusts – – 39 – – – (39 ) – – – – – 24 – – – – (24 ) – – – Equity-settled share-based cost – – – – – – 23 23 – 23 – – – – – – – 39 39 – 39 Tax related to share schemes – – – – – – 11 11 – 11 – – – – – – – 3 3 – 3 Equity dividends paid – – – – – – (1,693 ) (1,693 ) (5 ) (1,698 ) – – – – – – – (199 ) (199 ) (1 ) (200 ) Transaction costs relating to shareholder returns – – – – – – (1 ) (1 ) – (1 ) Exchange adjustments (28 ) (2 ) 2 28 – – – – – – (8 ) – (1 ) 9 – – – – – – – At 31 December 2016 141 9 (11 ) (2,860 ) 111 451 1,392 (767 ) 8 (759 ) At 31 December 2018 146 10 (4 ) (2,865 ) 47 (4 ) 419 1,166 (1,085 ) 8 (1,077 ) 98103 to 145161 form an integralGroup Financial Statements 98IHG | Annual Report and Form 20-F 2016 932018GROUP FINANCIAL STATEMENTS CONTINUEDGroup statement of changes in equitycontinued Equity
share
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$m
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$m Other
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equity
controlling
interest 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: – – – – 2 – – 2 – 2 – – – – – (2 ) – (2 ) – (2 ) – – – – – 2 – 2 – 2 – – – – 2 – – 2 – 2 Items that will not be reclassified to profit or loss: – – – – – – 9 9 – 9 – – – – – – 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 Capital
redemption
reserve Other
reserves Fair value
reserve Currency
translation
reserve Retained
earnings IHG share-
holders’
equity Non-
controlling
interest Total equity $m $m $m $m $m $m $m $m $m $m At 1 January 2017 (restated for IFRS 15) 141 9 (11 ) (2,860 ) 111 466 990 (1,154 ) 8 (1,146 ) Profit for the year – – – – – – 540 540 1 541 Other comprehensive income Items that may be subsequently reclassified to profit or loss: – – – – 41 – – 41 – 41 – – – – (73 ) – – (73 ) – (73 ) – – – – – (89 ) – (89 ) 1 (88 ) – – – – (32 ) (89 ) – (121 ) 1 (120 ) Items that will not be reclassified to profit or loss: – – – – – – (4 ) (4 ) – (4 ) – – – – – – (11 ) (11 ) – (11 ) – – – – – – (15 ) (15 ) – (15 ) Total other comprehensive (loss)/income for the year – – – – (32 ) (89 ) (15 ) (136 ) 1 (135 ) Total comprehensive income for the year – – – – (32 ) (89 ) 525 404 2 406 Transfer of treasury shares to employee share trusts – – (20 ) – – – 20 – – – Purchase of own shares by employee share trusts – – (3 ) – – – – (3 ) – (3 ) Release of own shares by employee share trusts – – 29 – – – (29 ) – – – Equity-settled share-based cost – – – – – – 29 29 – 29 Tax related to share schemes – – – – – – 9 9 – 9 Equity dividends paid – – – – – – (593 ) (593 ) (3 ) (596 ) Exchange adjustments 13 1 – (14 ) – – – – – – At 31 December 2017 154 10 (5 ) (2,874 ) 79 377 951 (1,308 ) 7 (1,301 ) 98103 to 145161 form an integral94 IHG | Annual Report and Form 20-F 20162018 | Group Financial Statements | Group Financial Statements99
share
held by
employee Other
reserves
$m Unrealised
gains and
losses
reserve
$m Currency
translation
reserve
$m
earnings
share-
holders’
$m
equity At 1 January 2014 189 12 (38 ) (2,906 ) 100 227 2,334 (82 ) 8 (74 ) Profit for the year – – – – – – 391 391 1 392 Other comprehensive income Items that may be subsequently reclassified to profit or loss: – – – – 11 – – 11 – 11 – – – – – 42 – 42 – 42 – – – – 11 42 – 53 – 53 Items that will not be reclassified to profit or loss: – – – – – – (18 ) (18 ) – (18 ) – – – – – – 2 2 – 2 – – – – – – (16 ) (16 ) – (16 ) Total other comprehensive income for the year – – – – 11 42 (16 ) 37 – 37 Total comprehensive income for the year – – – – 11 42 375 428 1 429 Repurchase of shares – – – – – – (110 ) (110 ) – (110 ) Transaction costs relating to shareholder returns – – – – – – (1 ) (1 ) – (1 ) Purchase of own shares by employee share trusts – – (58 ) – – – – (58 ) – (58 ) Release of own shares by employee share trusts – – 60 – – – (60 ) – – – Equity-settled share-based cost – – – – – – 28 28 – 28 Tax related to share schemes – – – – – – 12 12 – 12 Equity dividends paid – – – – – – (942 ) (942 ) (1 ) (943 ) Exchange adjustments (11 ) – 1 10 – – – – – – At 31 December 2014 178 12 (35 ) (2,896 ) 111 269 1,636 (725 ) 8 (717 ) Equity share
capital
reserve
held by
employee Other
reserves Fair value
reserve
reserve Retained
earnings IHG share-
holders’
equity
interest Total equity $m $m $m $m $m $m $m $m $m $m At 1 January 2016 (as previously reported) 169 11 (18 ) (2,888 ) 113 269 2,653 309 10 319 Impact of adopting IFRS 15 (pages 109-113) – – – – – 7 (444 ) (437 ) – (437 ) At 1 January 2016 169 11 (18 ) (2,888 ) 113 276 2,209 (128 ) 10 (118 ) Profit for the year – – – – – – 456 456 3 459 Other comprehensive income Items that may be subsequently reclassified to profit or loss: – – – – 5 – – 5 – 5 – – – – (7 ) – – (7 ) – (7 ) – – – – – 190 – 190 – 190 Total other comprehensive (loss)/income for the year – – – – (2 ) 190 – 188 – 188 Total comprehensive income for the year – – – – (2 ) 190 456 644 3 647 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 ) 111 466 990 (1,154 ) 8 (1,146 ) 98103 to 145161 form an integralGroup Financial Statements IHG Annual Report and Form 20-F 2016 95GROUP FINANCIAL STATEMENTS CONTINUEDGroup statement of financial position31 December 2016 Note ASSETS Property, plant and equipment 12 419 428 Goodwill and other intangible assets 13 1,292 1,226 Investment in associates and joint ventures 14 111 136 Trade and other receivables 16 8 3 Other financial assets 15 248 284 Non-current tax receivable 23 37 Deferred tax assets 7 48 49 Total non-current assets 2,149 2,163 Inventories 3 3 Trade and other receivables 16 472 462 Current tax receivable 77 4 Other financial assets 15 20 – Cash and cash equivalents 17 206 1,137 Total current assets 778 1,606 Total assets 2 2,927 3,769 LIABILITIES Loans and other borrowings 20 (106 ) (427 ) Derivative financial instruments (3 ) (3 ) Loyalty programme liability 32 (291 ) (223 ) Trade and other payables 18 (681 ) (616 ) Provisions 19 (3 ) (15 ) Current tax payable (50 ) (85 ) Total current liabilities (1,134 ) (1,369 ) Loans and other borrowings 20 (1,606 ) (1,239 ) Retirement benefit obligations 25 (96 ) (129 ) Loyalty programme liability 32 (394 ) (426 ) Trade and other payables 18 (200 ) (152 ) Provisions 19 (5 ) – Deferred tax liabilities 7 (251 ) (135 ) Total non-current liabilities (2,552 ) (2,081 ) Total liabilities 2 (3,686 ) (3,450 ) Net (liabilities)/assets (759 ) 319 EQUITY Equity share capital 27 141 169 Capital redemption reserve 27 9 11 Shares held by employee share trusts 27 (11 ) (18 ) Other reserves 27 (2,860 ) (2,888 ) Unrealised gains and losses reserve 27 111 113 Currency translation reserve 27 451 269 Retained earnings 1,392 2,653 IHG shareholders’ equity (767 ) 309 Non-controlling interest 27 8 10 Total equity (759 ) 319 Signed on behalf of the BoardPaul Edgecliffe-Johnson20 February 2017 Notes on pages 98 to 145 form an integralpart of these Financial Statements.96 IHG | Annual Report and Form 20-F 2016 Group Financial Statements2018cash flowsfinancial positionFor the year ended 31 December 2016 Note 2014
$m Profit for the year 417 1,224 392 Adjustments reconciling profit for the year to cash flow from operations 24 536 (414 ) 361 Cash flow from operations 24 953 810 753 Interest paid (75 ) (75 ) (76 ) Interest received 4 2 2 Tax paid on operating activities 7 (130 ) (109 ) (136 ) Net cash from operating activities 752 628 543 Cash flow from investing activities Purchase of property, plant and equipment (32 ) (42 ) (84 ) Purchase of intangible assets (175 ) (157 ) (162 ) Investment in associates and joint ventures (14 ) (30 ) (15 ) Loan advances to associates and joint ventures (2 ) (25 ) (3 ) Investment in other financial assets (13 ) (28 ) (5 ) Acquisition of business, net of cash acquired 10 – (438 ) – Capitalised interest paid (5 ) (4 ) (2 ) Disposal of hotel assets, net of costs and cash disposed (5 ) 1,277 345 Repayments related to intangible assets 3 – – Loan repayments by associates and joint ventures – 22 – Proceeds from associates and joint ventures 2 9 – Repayments of other financial assets 25 6 49 Tax paid on disposals 7 – (1 ) – Net cash from investing activities (216 ) 589 123 Cash flow from financing activities Purchase of own shares – – (110 ) Purchase of own shares by employee share trusts (10 ) (47 ) (68 ) Dividends paid to shareholders 8 (1,693 ) (188 ) (942 ) Dividend paid to non-controlling interest (5 ) – (1 ) Transaction costs relating to shareholder returns (1 ) – (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 109 (355 ) 382 Proceeds from foreign exchange swaps – 22 – Close-out of currency swaps – – 4 Net cash from financing activities (1,456 ) (110 ) (736 ) Net movement in cash and cash equivalents in the year (920 ) 1,107 (70 ) Cash and cash equivalents at beginning of the year 17 1,098 55 134 Exchange rate effects (61 ) (64 ) (9 ) Cash and cash equivalents at end of the year 17 117 1,098 55 2017 2016 2018 Restated a Restated a 31 December 2018 Note $m $m $m ASSETS Property, plant and equipment 12 447 425 419 Goodwill and other intangible assets 13 1,143 967 858 Investment in associates and joint ventures 14 104 141 111 Trade and other receivables – – 8 Retirement benefit assets 25 – 3 – Other financial assets 15 260 228 248 Derivative financial instruments 22 7 – – Non-current tax receivable 31 16 23 Deferred tax assets 8 60 75 69 Contract costs 3 55 51 45 Contract assets 3 270 241 185 Total non-current assets 2,377 2,147 1,966 Inventories 5 3 3 Trade and other receivables 16 613 551 469 Current tax receivable 27 101 77 Other financial assets 15 1 16 20 Derivative financial instruments 22 1 – – Cash and cash equivalents 17 704 168 206 Contract costs 3 5 7 8 Contract assets 3 20 17 13 Total current assets 1,376 863 796 Total assets 2 3,753 3,010 2,762 LIABILITIES Loans and other borrowings 20 (120 ) (126 ) (106 ) Derivative financial instruments – – (3 ) Trade and other payables 18 (618 ) (597 ) (526 ) Deferred revenue 3 (572 ) (490 ) (462 ) Provisions 19 (10 ) (3 ) (3 ) Current tax payable (50 ) (64 ) (50 ) Total current liabilities (1,370 ) (1,280 ) (1,150 ) Loans and other borrowings 20 (2,129 ) (1,893 ) (1,606 ) Retirement benefit obligations 25 (91 ) (104 ) (96 ) Trade and other payables 18 (158 ) (36 ) (29 ) Deferred revenue 3 (934 ) (867 ) (852 ) Provisions 19 (17 ) (5 ) (5 ) Non-current tax payable – (25 ) – Deferred tax liabilities 8 (131 ) (101 ) (170 ) Total non-current liabilities (3,460 ) (3,031 ) (2,758 ) Total liabilities 2 (4,830 ) (4,311 ) (3,908 ) Net liabilities (1,077 ) (1,301 ) (1,146 ) EQUITY Equity share capital 27 146 154 141 Capital redemption reserve 27 10 10 9 Shares held by employee share trusts 27 (4 ) (5 ) (11 ) Other reserves 27 (2,865 ) (2,874 ) (2,860 ) Fair value reserve 27 47 79 111 Cash flow hedging reserve 27 (4 ) – – Currency translation reserve 27 419 377 466 Retained earnings 1,166 951 990 IHG shareholders’ equity (1,085 ) (1,308 ) (1,154 ) Non-controlling interest 27 8 7 8 Total equity (1,077 ) (1,301 ) (1,146 ) a Notes on pages 98 to 145 form an integralpart of these Financial Statements.Group Financial Statements IHG | Annual Report and Form 20-F 20162018 | Group Financial Statements 97| Group Financial Statements101 2017 2016 2018 Restated a Restated a For the year ended 31 December 2018 Note $m $m $m Profit for the year 352 541 459 Adjustments reconciling profit for the year to cash flow from operations before contract acquisition costs 24 502 308 491 Cash flow from operations before contract acquisition costs 24 854 849 950 Contract acquisition costs, net of repayments (54 ) (57 ) (42 ) Cash flow from operations 800 792 908 Interest paid (70 ) (69 ) (72 ) Interest received 2 1 4 Tax paid on operating activities 8 (66 ) (147 ) (130 ) Net cash from operating activities 666 577 710 Cash flow from investing activities Purchase of property, plant and equipment (46 ) (44 ) (32 ) Purchase of intangible assets (112 ) (172 ) (130 ) Investment in associates and joint ventures (1 ) (47 ) (14 ) Loan advances to associates and joint ventures – – (2 ) Investment in other financial assets (33 ) (30 ) (13 ) Acquisition of businesses, net of cash acquired 11 (38 ) – – Capitalised interest paid 7 (5 ) (6 ) (5 ) Landlord contributions to property, plant and equipment 8 14 – Disposal of hotel assets, net of costs and cash disposed – – (5 ) Loan repayments by associates and joint ventures – 9 – Distributions from associates and joint ventures 32 – 2 Repayments of other financial assets 8 20 25 Disposal of equity securities 15 – 75 – Tax paid on disposals 8 (2 ) (25 ) – Net cash from investing activities (189 ) (206 ) (174 ) Cash flow from financing activities Purchase of own shares by employee share trusts (3 ) (3 ) (10 ) Dividends paid to shareholders 9 (199 ) (593 ) (1,693 ) Dividend paid to non-controlling interest (1 ) (3 ) (5 ) Transaction costs relating to shareholder returns – – (1 ) Issue of long-term bonds, including effect of currency swaps 20 554 – 459 Long-term bonds repaid – – (315 ) (Decrease)/increase in other borrowings 20 (268 ) 153 109 Proceeds from currency swaps 3 – – Net cash from financing activities 86 (446 ) (1,456 ) Net movement in cash and cash equivalents in the year 563 (75 ) (920 ) Cash and cash equivalents at beginning of the year 17 58 117 1,098 Exchange rate effects (21 ) 16 (61 ) Cash and cash equivalents at end of the year 17 600 58 117 a 102 IHG | Annual Report and Form 20-F 2018 20162018 were authorised for issue in accordance with a resolution of the Directors on 2018 February 2017.2019. InterContinental Hotels Group PLC (the Company) is incorporated and domiciled in Great Britain and registered in England and Wales.available-for-sale equity securitiesassets classified as fair value through other comprehensive income (FVOCI) and liabilities and derivatives which are measured at fair value.value through profit or loss. The Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as issued by the IASB and in accordance with IFRS as adopted by the European Union (EU) and as applied in accordance with the provisions of the Companies Act 2006. IFRS as adopted by the EU differs in certain respects from IFRS as issued by the IASB. However, the differences have no impact on the Consolidated Financial Statements for the years presented.With effect from 1 January 2016, the Group has adopted amendmentsThe impact of adopting new accounting standards is disclosed on pages 109 to existing standards arising from the Annual Improvements to IFRSs 2012–2014 cycle, Amendments to IAS 16 and IAS 38 ‘Clarification of Acceptable Methods of Depreciation and Amortisation’ and Amendments to IFRS 11 ‘Accounting for Acquisition of Interests in Joint Operations’. The adoption of these amendments has had no impact on the Group’s financial performance or position.114.The Group also adopted Amendments to IAS 1 ‘Disclosure Initiative’ during the year, resulting in the presentation of the loyalty programme liability separately on the statement of financial position and the separate presentation of deferred revenue in note 18.parent companyParent Company is sterling since this is a non-trading holding company located in the United Kingdom that has sterling denominated share capital and whose primary activity is the payment and receipt of sterling dividends and of interest on sterling denominated external borrowings and inter-company balances.parent companyParent Company and entities controlled by the Group. Control exists when the Group has:power over an investee (ie(i.e. existing rights that give it the current ability to direct the relevant activities of the investee);exposure, or rights, to variable returns from its involvement with the investee; andthe ability to use its power over the investee to affect its returns.2016,2018, the trust had assets with a fair value of $161m (2015: $148m)$193m (2017: $197m).98 IHG Annual Report and Form 20-F 2016 Group Financial StatementsbuildingsBuildings – lesser of 50 years and unexpired term of lease; andfixtures,Fixtures, fittings and equipment – three to 25 years.IHG | Annual Report and Form 20-F 2018 | Group Financial Statements | Accounting policies 103 101106 with the exception that no deferred tax is provided on taxable temporary differences in connection with the initial recognition of goodwill.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.Other intangible assetsAmounts paid to hotel owners to secure management contracts and franchise agreements are capitalised and amortised on a straight-line basis over their estimated useful lives, being the full contractual term, up to a maximum of 50 years.Intangible assets are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable.Accounting policies IHG Annual Report and Form 20-F 2016 99ACCOUNTING POLICIES CONTINUEDThePolicy from 1 January 2018into oneas being subsequently measured at amortised cost, fair value through other comprehensive income (FVOCI), or fair value through profit or loss.two following categories: loansasset.receivablesare not held for trading. Changes in the value of equity investments classified as FVOCI are recorded directly in equity within the fair value reserve and are never recycled to the income statement. Dividends from equity investments classified as FVOCI are recognised in the income statement as other operating income and expenses. Equity instruments classified as FVOCI are not subject to impairment assessment.available-for-sale financial assets. loss.financial assets)equity investments). Interest on loans and receivables is calculated using the effective interest rate method and is recognised in the income statement as interest income. Changes in fair values of available-for-sale financial assetsequity investments are recorded directly in equity within the unrealised gains and lossesfair value reserve. On disposal, the accumulated fair value adjustments recognised in equity are recycled to the income statement. Dividends from available-for-sale financial assetsequity investments are recognised in the income statement as other operating income and expenses.classified as available-for-sale,measured at fair value, a significant or prolonged decline in fair value below cost is evidence that the asset is impaired. If an available-for-sale financial assetequity investment 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.104 IHG | Annual Report and Form 20-F 2018 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.100 IHG Annual Report and Form 20-F 2016 Group Financial StatementsIHG | Annual Report and Form 20-F 2018 | Group Financial Statements | Accounting policies 105 accelerated capital allowances,on fixed assets, software, application fees, contract costs, unrelieved tax losses, unremitted profits from subsidiaries, gains rolled over into replacement assets, gains on previously revalued properties and other short-term temporary differences.and discountingdiscounted at an interest rate equivalent to the current rate of return on a high-quality corporate bond of equivalent currency and term to the plan liabilities. The difference between the value of plan assets and liabilities at the period-end date is the amount of surplus or deficit recorded in the statement of financial position as an asset or liability. An asset is recognised when the employer has an unconditional right to use the surplus at some point during the life of the plan or on its wind-up.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.derived fromrecognised at an amount that reflects the following sources:consideration to which the Group expects to be entitled in exchange for transferring goods or services to a customer.fees; management fees; owned and leased propertiesagreements, the Group’s performance obligation is to provide a licence to use IHG’s trademarks and other revenues whichintellectual property. Franchise royalty fees are ancillary to the Group’s operations, including technology fee income.Revenue is recorded (excluding VAT and similar taxes) net of discounts.Accounting policies IHG Annual Report and Form 20-F 2016 101ACCOUNTING POLICIES CONTINUEDThe following is a description of the composition of revenues of the Group.Franchise feesReceived 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 feestypically charged as a percentage of hotel gross rooms revenue. Revenuerevenues and are treated as variable consideration, recognised as the underlying hotel revenues occur.recognised when the fee is earned in accordance with the terms of the contract.Managementto provide hotel management services and a licence to use IHG’s trademarks and other intellectual property. Base and incentive management feesEarned from hotels managed by the Group, usually under long-term contracts with the hotel owner. Management are typically charged. Base management fees include a base fee, generallyare typically a percentage of total hotel revenue, which is recognised when earned in accordance with the terms of the contractrevenues and an incentive fee,management fees are generally based on the hotel’s profitability or cash flows andflows. Both are treated as variable consideration. Like franchise fees, base management fees are recognised as the underlying hotel revenues occur. Incentive management fees are recognised over time when it is considered highly probable that the related performance criteria will be met, provided there is no expectation of a subsequent reversal of the revenue.met undernot considered to be distinct from the termsfranchise performance obligation and are recognised over the life of the related contract.OwnedRevenue from owned and leased hotelsPrimarily derived from hotel operations, includingAt its owned, leased and managed lease hotels, the rental ofGroup’s performance obligation is to provide accommodation and other goods and services to guests. Revenue includes rooms revenue and food and beverage sales, from owned and leased hotels operated under the Group’s brand names. Revenuewhich is recognised when the rooms are occupied and food and beverages are sold.Franchise feesCost reimbursements106 IHG | Annual Report and Form 20-F 2018 fees include liquidated damages received fromagreements, the early termination of contracts.Other revenuesGroup is required to provide marketing and reservations services, as well as other centrally managed programmes. These services are recognised when earnedprovided by the Fund and are funded by assessment fees. Costs are incurred and allocated to the Fund in accordance with the termsprinciples agreed with the IHG Owners Association. The Group acts as principal in the provision of the contract.services as the related expenses primarily comprise payroll and marketing expenses under contracts entered into by the Group. The assessment fees from hotel owners are generally levied as a percentage of hotel revenues and are recognised as those hotel revenues occur.arranging for the provision of future benefits to members who have earned points or free night certificates;marketing services; andproviding the co-brand partner with the right to access the loyalty programme.has a continuing managerial involvement to the degree associated with asset ownership;has transferred the significant risks and rewards associated with asset ownership; andcan reliably measure and will actually receive the proceeds.IHG | Annual Report and Form 20-F 2018 | Group Financial Statements | Accounting policies 107 available-for-sale equity securitiesfinancial liabilities at fair value through profit or loss, financial assets measured at FVOCI, 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 requirerequires disclosure. quoted (unadjusted) prices in active markets for identical assets or liabilities. other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly. techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data. For impairment testing purposes and whereWhere 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.102 IHG Annual Report and Form 20-F 2016 Group Financial Statementsaccounting for the System Fund to be a critical judgement and that critical estimates and assumptions are used in impairment testing and for measuring the loyalty programme liability, and litigation provisions, as discussed in further detail below. Estimates and assumptions are evaluated by management using historical experience and other factors believed to be reasonable based on current circumstances. Actual results could differ under different policies, judgements, estimates and assumptions or due to unforeseen circumstances.System Fund – in addition to management or franchise fees, hotels within the IHG System (other than for Kimpton and InterContinental hotels) pay cash assessments and contributions which are collected by IHG for specific use within the System Fund (the Fund). The Fund also receives proceeds from the sale of IHG Rewards Club points. IHG exerts significant influence over the operation of the Fund, however the Fund is managed for the benefit of hotels in the System with the objective of driving revenues for the hotels. The Fund is used to pay for marketing, the IHG Rewards Club loyalty programme and the Guest Reservation System. The Fund is planned to operate at breakeven with any short-term timing surplus or deficit carried in the Group statement of financial position within working capital.As all Fund income is designated for specific purposes and does not result in a profit or loss for the Group, the revenue recognition criteria as outlined in the accounting policy above are not met and therefore the income and expenses of the Fund are not included in the Group income statement.The assets and liabilities relating to the Fund are included in the appropriate headings in the Group statement of financial position as the related legal, but not beneficial, rights and obligations rest with the Group. These assets and liabilities include the IHG Rewards Club liability, short-term timing surpluses and deficits and any receivables and payables related to the Fund.The cash flows relating to the Fund are reported within ‘cash flow from operations’ in the Group statement of cash flows due to the close interrelationship between the Fund and the trading operations of the Group.Further information on the Fund is included in note 32.redeemconsume points at a later date for free accommodation or other benefits. The Group recognises deferred revenue in an amount that reflects IHG’s unsatisfied performance obligations, valued at the stand-alone selling price of the future redemption liabilitybenefit to the member. The amount of revenue recognised and deferred is calculatedimpacted by multiplying the number of points expected to be redeemed before they expire by the redemption cost per point.‘breakage’. On an annual basis the Group engages an external actuary who uses statistical formulae to assist in the estimate of the number of points that will never be redeemed (‘breakage’)consumed ‘breakage’.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 surplusesSystem Fund revenues recognised and deficits helddeferred revenue in the Group statement of financial position.2016,2018, deferred revenue relating to the future redemption liabilityloyalty programme was $685m (2015: $649m)$1,181m (2017: $1,057m). Based on the conditions existing at the balance sheet date, a one percentage point decrease in the breakage estimate relating to outstanding points would increase this liability by approximately $9m.$14m.and property, plant and equipment, contract assets and contract costs are tested for impairment when events or circumstances indicate that their carrying value may not be recoverable. Goodwill and intangible assets with indefinite useful lives are subject to an impairment test on an annual basis or more frequently if there are indicators of impairment. Assets that do not generate independent cash flows are combined into cash-generating units. Associates and joint ventures are tested for impairment when there is objective evidence that they might be impaired.2016,2018, the Group had goodwill of $232m (2015: $233m)$313m (2017: $237m) and brands of $193m (2015:$250m (2017: $193m), both of which are subject to annual impairment testing. Information on the impairment tests performed is included in note 13.2016,2018, the Group also had property, plant and equipment, other intangible assets (excluding goodwill and brands) and investments in associates and joint ventures with a net book value of $419m, $867m$447m, $580m and $111m (2015: $428m, $800m$104m (2017: $425m, $537m and $136m)$141m) respectively. In 2016, anNo impairment charge of $16m was recognised in relation to an associate investment as described in detail in note 14.during the year. In respect of those other assets requiring an impairment test and depending on how recoverable amount was assessed, a 10% reduction in fair value or estimated future cash flows would have resulted in a furtheran impairment charge of $18m.Litigation – from time to time, the Group is subject to legal proceedings the ultimate outcome of each being always subject to many uncertainties inherent in litigation. A provision for litigation is made when it is considered probable that a payment will be made and the amount of the loss can be reasonably estimated. Significant judgement is made when evaluating, amongst other factors, the probability of an unfavourable outcome and the ability to make a reasonable estimate of the amount of potential loss. Litigation provisions are reviewed at each accounting period and revisions made for changes in facts and circumstances.$10m. 108 Accounting policies IHG | Annual Report and Form 20-F 2016 1032018ACCOUNTING POLICIES CONTINUEDNew standards issued but not effectiveThe new and amended accounting standards discussed below are those which are expected to be relevant to the Group Financial Statements.customers and will be adopted by the Group with effect from 1 January 2018.customers. Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.Management are continuingThe Group has elected to assessapply the impactfull retrospective method in adopting IFRS 15 and has applied the following practical expedients:the transaction price at the date of contract completion was used for contracts that had variable consideration and were completed before 1 January 2018;for contracts modified before 1 January 2016, the aggregate effect of all modifications has been reflected when (i) identifying satisfied and unsatisfied performance obligations, (ii) determining the transaction price and (iii) allocating the transaction price to the satisfied and unsatisfied performance obligations.and have reached initial conclusions on all key implementation issues, with the exception of accounting for the Group’s loyalty programme. Basedrevenue was primarily comprised of fee-based revenue from franchise and management contracts, and hotel revenue in owned, leased and managed lease properties. The recognition of these revenue streams is largely unchanged by IFRS 15 (see accounting policy on page 106).work completed to date and excluding the loyalty programme, the key impactsadoption of IFRS 15 are expected to be as follows:1. System Fund reservationManaged and marketing assessmentsUnder IFRS 15, an entity is a principal if it controls a service prior to transfer to the customer. As reservations and marketing expenses currently recognised in the System Fund primarily comprise payroll and marketing expenses under contracts entered into by the Group, management have determined that the Group controls these services. Assessment fees will therefore be shown as revenue with a corresponding matching expense, representing the obligation to spend funds for the benefit of the System. Whilst this will result in the reporting of significant additional revenue and costs, there will be no profit impact.2. Employeefranchised hotel cost reimbursementscostscost of IHG employees working in managed hotels willare therefore be shown as revenue with an equal matching cost, with no profit impact.currentprevious accounting policies, no revenue is recorded in the Group income statement for either of 1 or 2.matching cost was recognised. This change increased 2017 revenue and expense by $1,103m, with no profit impact.3. Initial franchiseapplication and re-licensing feescurrentprevious accounting, application and re-licensing fees arewere recognised as revenue when billed as the monies received are not refundable and IHG has no further obligations to satisfy. Under IFRS 15, there is a requirement to consider whether the payment of these fees transfers a distinct good or service to the customer that is separate from the promise to provide franchise services. As this is not the case, IFRS 15 requires initial franchiseapplication and re-licensing fees to be recognised as services are provided, over the life of the related contract. The spreading of these fees is expected to resultresults in aan initial reduction to revenue and operating profit, and the recognition of deferred revenue on the balance sheet,statement of financial position, reflecting the profile of increasingincreased amounts received in recent years. InThis change reduced 2017 revenue from fee business by $14m and increased 2017 deferred revenue by $163m, comprising $24m current and $139m non-current. There was also a period when application$40m decrease in deferred tax liabilities related to this adjustment.re-licensing feesfranchise contracts were previously 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 constant from yearamortised over the initial term of the related contract. This change increased 2017 operating profit by $5m and the capitalisation of contract costs on the statement of financial position at 31 December 2017 by $58m, comprising $7m current and $51m non-current. There was also a $15m increase in deferred tax liabilities related to year, this accounting change would not be expected to have a material profit impact.adjustment.4. AmountsAmortisation of amounts paid to hotel owners to secure management contracts and franchise agreements (‘key money’)currentprevious accounting, key money payments arewere 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 recorded as a contract asset and recognised as a deduction to revenue over the contract term. This change is not expectedresults in a reduction to have a material impactrevenue and depreciation and amortisation for the year ended 31 December 2017 of $17m, with no change to operating profit, and the reclassification of key money on reported results but will result in the reportingstatement of higher operating marginsfinancial position from intangible assets to contract assets at 31 December 2017 of $257m, of which $17m was classified as current and lower EBITDA.$240m was classified as non-current.5. In the Group statement of cash flows, these contract acquisition costs are reclassified from investing activities to cash flow from operations.currentprevious accounting, when hotels arewere sold and the Group retainsretained management of the hotel, the consideration recognised includesincluded both the cash received and the fair value of the management contract which iswas capitalised as an intangible asset and subsequently amortised to the income statement. This accounting iswas governed by the ‘exchange of assets’ criteria included in IAS 16 ‘Property, Plant and Equipment’ and IAS 38 ‘Intangible Assets’. IFRS 15 specifically includes property sales in its scope and results in the sales consideration being recorded at the fair value of the encumbered hotel, which generally will be equivalent to the cash received. This change is expected to resultresulted in the de-recognitionderecognition of historic intangible asset balances at 31 December 2017 of $243m and a lower amortisation charge in the income statement.statement for the year ended 31 December 2017 of $8m. This change also resulted in an increase in deferred tax assets and reduction in deferred tax liabilities of $19m and $32m respectively at 31 December 2017.6. PresentationOther adjustmentsdisclosureThe presentation and disclosure requirementsthe treatment of IFRS 15 representpayments under performance guarantees as a significant change from current practice and will increase the volume of disclosures required in the notesreduction to the financial statements.transaction price within management contracts.plansoperates a System Fund (the Fund) to applycollect and administer cash assessments from hotel owners for the full retrospective approach when transitioningspecific purpose of use in marketing, the Guest Reservation Systems and hotel loyalty programme. The Fund also receives proceeds from the sale of loyalty points under third-party co-branding arrangements. The Fund is not managed to generate a profit or loss for IHG, but is managed for the benefit of hotels in the System with the objective of driving revenues for the hotels. Consequently, under previous accounting these revenues and expenses were not recorded in the Group income statement.new standard which will result in restated comparatives for 2017customer. As marketing and 2016reservations expenses primarily comprise payroll and marketing expenses under contracts entered into by the Group, management has determined that the Group controls these services. Fund revenues and expenses are therefore recognised on thea gross basis that IFRS 15 had always applied.The Group is currently in the processGroup income statement. Assessment fees from hotel owners are generally levied as a percentage of quantifying the financial impactshotel revenues and are recognised as those hotel revenues occur.above adjustments which are expected to result in the reporting of significantly higher revenues (of at least $1.6bn) and an immaterial reduction in operating profit. Resolution of loyalty programme accounting could result in(IHG Rewards Club), the reporting of additional revenue butGroup has determined that the related performance obligation is not expectedsatisfied in full until the member has consumed the points at a participating hotel. Accordingly, revenue related to have any further impact on operating profit.loyalty points earned by members or sold under co-branding arrangements is deferred in an 104 IHG | Annual Report and Form 20-F 20162018 | ��Group Financial Statements | New accounting standards and presentational changes109 110 IHG | Annual Report and Form 20-F 2018 Year ended 31 December 2017 Revenue from fee business 1,600 (33 ) – (188 ) 1,379 Revenue from owned, leased and managed lease hotels 184 4 – 163 351 System Fund revenues – – 1,217 25 1,242 Reimbursement of costs – 1,103 – – 1,103 Total revenue 1,784 1,074 1,217 – 4,075 Cost of sales (608 ) 12 – 25 (571 ) System Fund expenses – – (1,251 ) (25 ) (1,276 ) Reimbursed costs – (1,103 ) – – (1,103 ) Administrative expenses (328 ) (9 ) – – (337 ) Share of gains/(losses) of associates and joint ventures 3 – – – 3 Other operating income 11 – – – 11 Depreciation and amortisation (103 ) 25 – – (78 ) Operating profit before exceptional items 759 (1 ) (34 ) – 724 Impairment charges (18 ) – – – (18 ) Other exceptional items 22 – – – 22 Operating profit 763 (1 ) (34 ) – 728 Financial income 4 – – – 4 Financial expenses (89 ) – 13 – (76 ) Tax (85 ) (28 ) (2 ) – (115 ) Profit after tax 593 (29 ) (23 ) – 541 Year ended 31 December 2017 Profit for the year 593 (52 ) 541 Exchange losses on retranslation of foreign operations, net of related tax credit of $1m (77 ) (11 ) (88 ) Other items (47 ) – (47 ) Total comprehensive income for the year 469 (63 ) 406 IHG | Annual Report and Form 20-F 2018 | Group Financial Statements | New accounting standards and presentational changes 111 31 December 2017 Goodwill and other intangible assets 1,467 (500 ) 967 Deferred tax assets 56 19 75 Contract costs – 51 51 Contract assets – 241 241 Other non-current assets 813 – 813 Total non-current assets 2,336 (189 ) 2,147 Contract costs – 7 7 Contract assets – 17 17 Other current assets 839 – 839 Total current assets 839 24 863 Total assets 3,175 (165 ) 3,010 Loyalty programme liability (343 ) 343 – Trade and other payables (768 ) 171 (597 ) Deferred revenue – (490 ) (490 ) Other current liabilities (193 ) – (193 ) Total current liabilities (1,304 ) 24 (1,280 ) Loyalty programme liability (417 ) 417 – Trade and other payables (121 ) 85 (36 ) Deferred revenue – (867 ) (867 ) Deferred tax liabilities (157 ) 56 (101 ) Other non-current liabilities (2,027 ) – (2,027 ) Total non-current liabilities (2,722 ) (309 ) (3,031 ) Total liabilities (4,026 ) (285 ) (4,311 ) Net liabilities (851 ) (450 ) (1,301 ) Equity share capital 154 – 154 Capital redemption reserve 10 – 10 Shares held by employee share trusts (5 ) – (5 ) Other reserves (2,874 ) – (2,874 ) Fair value reserve 79 – 79 Currency translation reserve 373 4 377 Retained earnings 1,405 (454 ) 951 IHG shareholders’ equity (858 ) (450 ) (1,308 ) Non-controlling interest 7 – 7 Total equity (851 ) (450 ) (1,301 ) 112 IHG | Annual Report and Form 20-F 2018 Year ended 31 December 2017 Profit for the year 593 (52 ) 541 Adjustments reconciling profit for the year to cash flow from operations before contract acquisition costs 263 45 308 Cash flow from operations before contract acquisition costs 856 (7 ) 849 Contract acquisition costs, net of repayments – (57 ) (57 ) Cash flow from operations 856 (64 ) 792 Interest paid (76 ) 7 (69 ) Interest received 1 – 1 Tax paid on operating activities (147 ) – (147 ) Net cash from operating activities 634 (57 ) 577 Purchase of intangible assets (229 ) 57 (172 ) Other cash flows from investing activities (34 ) – (34 ) Net cash from investing activities (263 ) 57 (206 ) Net cash from financing activities (446 ) – (446 ) Net movement in cash and cash equivalents in the year (75 ) – (75 ) Cash and cash equivalents at beginning of the year 117 – 117 Exchange rate effects 16 – 16 Cash and cash equivalents at end of the year 58 – 58 Year ended 31 December 2017 Basic earnings per ordinary share 306.7 (26.9 ) 279.8 Diluted earnings per ordinary share 305.2 (26.8 ) 278.4 IFRS 9, which will be adopted by the Group withWith effect from 1 January 2018, the Group has adopted IFRS 9 ‘Financial Instruments’. IFRS 9 introduces new requirements for classification and measurement of financial assets and financial liabilities, impairment and hedge accounting. Management have made good progress with their assessment ofimpactrequirements of IFRS 9 and currently do not expect there to be a material financial impact on the financial statements.IFRS 16 ‘Leases’plans to adopthas not applied any practical expedients available under IFRS 16 with effect from 1 January 2019.9. The standard eliminatesGroup has not restated prior periods as allowed by the transition provisions of IFRS 9 as restatement is impracticable without the use of hindsight. Accordingly, the information presented for 2017 reflects the classification of leases as either operating or finance leases and introduces a single accounting model. Lessees will be required to recognise assets and liabilities in respect of the minimum lease payment for all leases with a term of more than 12 months, and show depreciation of leased assets and interest on lease liabilities separately in the income statement.under IAS 39, not IFRS 16 will require the Group to recognise substantially all of its current operating lease commitments on the balance sheet and the financial9.this, together with other implications of the standard, are currently being assessed.OtherFrom 1 January 2017, the Group will apply Amendments to IAS 7 ‘Disclosure Initiative’ which requires an entity to provide disclosures around the nature of changes in liabilities arising from financing activities. Application of these amendments is expected to result in additional disclosures in the notes toIFRS 9 on the Group Financial Statements is to reclassify the impact of historic impairments on equity instruments measured at fair value through other comprehensive income (FVOCI). These impairments were originally recorded in the Group income statement, but will not affectunder IFRS 9 they would have been recorded in the reported performance or financial positionfair value reserve and only transferred to retained earnings when the equity investments are derecognised. An adjustment of $18m has been made to the Group.Group statement of changes in equity at 1 January 2018 to reflect this reclassification.IHG | Annual Report and Form 20-F 2018 | Group Financial Statements | New accounting standards and presentational changes 113 will applyhas applied Amendments to IFRS 2 ‘Classification and Measurement of Share-Based Payment Transactions’. The amendments address the effects of vesting conditions on the measurement of cash-settled share-based payment transactions; the classification of a share-based payment transaction with net settlement features for withholding tax obligationsobligations; 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 has had no impact on the Financial Statements. Year ended 31 December 2017 Year ended 31 December 2016 InterContinental
reservations
$m Revenue from fee business (163 ) (25 ) (188 ) (162 ) (23 ) (185 ) Revenue from owned, leased and managed lease hotels 163 – 163 162 – 162 System Fund revenues – 25 25 – 23 23 Total revenue – – – – – – Cost of sales – 25 25 – 23 23 System Fund expenses – (25 ) (25 ) – (23 ) (23 ) Operating profit – – – – – – 114 IHG | Annual Report and Form 20-F 2018 $m Cost of sales 18 Administrative expenses 33 Depreciation and amortisation (34 ) Interest expense (19 ) Tax 1 Total profit impact (1 ) Leased assets 323 Deferred tax assets 3 Other assets (2 ) Lease liabilities (431 ) Deferred tax liabilities 7 Other liabilities 31 Net assets impact (69 ) statements.performance or position.The effective date for IFRS 17 ‘Insurance Contracts’ has been delayed to 1 January 2022. The Group has not yet determined the impact of this standard on the Group’s reported financial performance or position.Accounting policies IHG | Annual Report and Form 20-F 2016 1052018 | Group Financial Statements | New standards issued but not yet effective115 0.74 (2015:0.75 (2017: $1=£0.65, 2014:0.78, 2016: $1=£0.61)0.74). In the case of the euro, the translation rate is $1=€0.90 (2015:0.85 (2017: $1=€0.90, 2014:0.89, 2016: $1=€0.75)0.90).0.81 (2015:0.78 (2017: $1=£0.68, 2014:0.74, 2016: $1=£0.64)0.81). In the case of the euro, the translation rate is $1=€0.95 (2015:0.87 (2017: $1=€0.92, 2014:0.83, 2016: $1=€0.82)0.95).TheWith effect from 1 January 2018, an internal reorganisation resulted in the formation of a new operating segment, Europe, Middle East, Asia and Africa (EMEAA), bringing together the former segments of Europe and Asia, Middle East and Africa (AMEA). By bringing together two strong, established regions, there will be an increased focus on growth through increased agility and effectiveness.fourthree geographical regions:The Europe;Asia, Middle East and Africa (AMEA); andGreater China.fivefour reportable segments. Each of the geographical regions is led by its own Chief Executive Officer who reports to the Group Chief Executive Officer. No operating segments have been aggregated to form these reportable segments.centralCentral revenue arises principally from technology fee income. Central liabilities include the loyalty programme liability and the cumulative System Fund surplus.Each of the geographical regions is led by its own Chief Executive Officer and derives its revenues from either franchising, managing or owning hotels and additional segmental disclosures are provided accordingly.groupGroup basis and are not allocated to reportable segments.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 profit 707 Exceptional items (note 5) (29 ) Operating profit 678 Net finance costs (87 ) Profit before tax 591 Tax (174 ) Profit for the year 417 All items above relateComparatives have been restated for IFRS 15 and presentational changes (see pages 109 to continuing operations.114) to show segmental information on a consistent basis.Year ended 31 December Americas 1,051 999 969 EMEAA 569 457 439 Greater China 143 117 112 Central 170 157 147 Revenue from reportable segments 1,933 1,730 1,667 System Fund revenues 1,233 1,242 1,199 Reimbursement of costs 1,171 1,103 1,046 Total revenue 4,337 4,075 3,912 106 116IHG | Annual Report and Form 20-F 2016 Group Financial Statements20182. Segmental informationcontinued31 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: 23 48 77 206 Total assets 2,927 Segment liabilities (438 ) (128 ) (68 ) (39 ) (997 ) (1,670 ) (50 ) (251 ) (3 ) (1,712 ) Total liabilities (3,686 ) Year ended 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: 25 10 5 3 53 96 – – – – 17 17 7 – (5 ) – – 2 16 – – – – 16 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: 13 – 2 – 14 29 36 15 2 – 127 180 14 – – – – 14 5 – 2 – – 7 68 15 6 – 141 230 Notes to the Group Financial Statements IHG Annual Report and Form 20-F 2016 107NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED2. Segmental informationcontinuedYear ended 31 December 2015 Americas
$m Europe
$m AMEA
$m
$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 profit 680 Exceptional items (note 5) 819 Operating profit 1,499 Net finance costs (87 ) Profit before tax 1,412 Tax (188 ) Profit for the year 1,224 31 December 2015 Americas
$m Europe
$m AMEA
$m Greater
China
$m Central
$m Group
$m Assets and liabilities Segment assets 1,355 383 260 148 396 2,542 Unallocated assets: 37 49 4 1,137 Total assets 3,769 Segment liabilities (449 ) (156 ) (76 ) (46 ) (834 ) (1,561 ) Unallocated liabilities: (85 ) (135 ) (3 ) (1,666 ) Total liabilities (3,450 ) 108 IHG Annual Report and Form 20-F 2016 Group Financial Statements2. Segmental informationcontinuedYear ended 31 December 2015 Americas
$m Europe
$m AMEA
$m Greater
China
$m Central
$m Group
$m Other segmental information Capital expenditure (see below) 87 45 8 4 118 262 Non-cash items: 23 10 6 8 49 96 – – – – 19 19 5 – (2 ) – – 3 27 – 9 – – 36 Americas
$m Europe
$m AMEA
$m Greater
China
$m Central
$m Group
$m Reconciliation of capital expenditure Capital expenditure per management reporting 87 45 8 4 118 262 Management contracts acquired on disposal of hotels – 33 – 64 – 97 Timing differences and other adjustments (5 ) – – – – (5 ) Additions per the Financial Statements 82 78 8 68 118 354 Comprising additions to: 19 – 1 1 21 42 – – – 2 – 2 25 64 4 65 97 255 30 – – – – 30 8 14 3 – – 25 82 78 8 68 118 354 Year ended 31 December 2014 Americas
$m Europe
$m AMEA
$m Greater
China
$m Central
$m Group
$m Revenue Franchised 630 104 16 4 – 754 Managed 103 159 187 99 – 548 Owned and leased 138 111 39 139 – 427 Central – – – – 129 129 871 374 242 242 129 1,858 Americas
$m Europe
$m AMEA
$m Greater
China
$m Central
$m Group
$m Segmental result Franchised 544 78 12 5 – 639 Managed 47 30 88 63 – 228 Owned and leased 18 14 3 42 – 77 Regional and central (65 ) (33 ) (19 ) (21 ) (155 ) (293 ) Reportable segments’ operating profit 544 89 84 89 (155 ) 651 Exceptional items (note 5) 110 (56 ) – – (25 ) 29 Operating profit 654 33 84 89 (180 ) 680 Group
$m Reportable segments’ operating profit 651 Exceptional items (note 5) 29 Operating profit 680 Net finance costs (80 ) Profit before tax 600 Tax (208 ) Profit for the year 392 All items above relate to continuing operations.Notes to the Group Financial Statements IHG Annual Report and Form 20-F 2016 109NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDYear ended 31 December 2014 Americas
$m Europe
$m AMEA
$m Greater
China
$m Central
$m Group
$m Other segmental information Capital expenditure 75 37 11 6 123 252 Non-cash items: 22 18 8 15 33 96 – – – – 21 21 6 – (2 ) – – 4 Year ended 31 December Americas 662 637 626 EMEAA 202 171 157 Greater China 69 52 46 Central (117 ) (102 ) (123 ) Operating profit from reportable segments 816 758 706 System Fund (146 ) (34 ) 35 Exceptional items (note 6) (104 ) 4 (29 ) Operating profit 566 728 712 Net finance costs (81 ) (72 ) (80 ) Profit before tax 485 656 632 Tax (133 ) (115 ) (173 ) Profit for the year 352 541 459 All items above relate to continuing operations. Assets 31 December
$m Americas 1,568 1,500 EMEAA 666 504 Greater China 110 105 Central 579 541 Segment assets 2,923 2,650 Unallocated assets: 8 – 58 117 60 75 704 168 Total assets 3,753 3,010 Liabilities 31 December
$m Americas (676 ) (620 ) EMEAA (241 ) (232 ) Greater China (61 ) (64 ) Segment liabilities (978 ) (916 ) Unallocated liabilities: (1,291 ) (1,186 ) (2,249 ) (2,019 ) (50 ) (89 ) (131 ) (101 ) (131 ) – Total liabilities (4,830 ) (4,311 ) IHG | Annual Report and Form 20-F 2018 | Group Financial Statements | Notes 117 Year ended 31 December 2018 Capital expenditure (page 119) 74 33 2 134 243 Non-cash items: 27 8 3 42 80 8 4 3 12 27 6 (5 ) – – 1 Year ended 31 December 2017 (Restated) Americas
$m
China Capital expenditure (page 119) 120 26 2 188 336 Non-cash items: 23 7 1 47 78 6 4 3 8 21 1 (4 ) – – (3 ) 18 – – – 18 Year ended 31 December 2016 (Restated) Americas
$m
China Capital expenditure 67 22 1 148 238 Non-cash items: 21 7 1 46 75 6 4 3 4 17 7 (5 ) – – 2 16 – – – 16 a $96m$80m (2017: $78m, 2016: $75m) of depreciation and amortisation is $41m$61m (2017: $53m, 2016: $54m) relating to administrative expenses and $55m$19m (2017: $25m, 2016: $21m) relating to cost of sales. A further $45m of depreciation and amortisation was recorded within System Fund expenses (2017: $36m, 2016: $31m).Geographical information
31 December
2016
31 December
2015
31 December
2014 Revenue United Kingdom 66 67 75 United States 923 876 786 People’s Republic of China (including Hong Kong) 133 223 254 Rest of World 593 637 743 1,715 1,803 1,858 118 IHG | Annual Report and Form 20-F 2018 Year ended 31 December 2018 Capital expenditure per management reporting 74 33 2 134 243 Contract acquisition costs (32 ) (26 ) – – (58 ) Landlord contributions to property, plant and equipment – – – 8 8 Timing differences and other adjustments 1 – – – 1 Additions per the Financial Statements 43 7 2 142 194 Comprising additions to: 13 2 2 30 47 – – – 112 112 3 – – – 3 27 5 – – 32 43 7 2 142 194 Year ended 31 December 2017 (Restated) Americas
$m
China Capital expenditure per management reporting 120 26 2 188 336 Contract acquisition costs (36 ) (21 ) – – (57 ) Landlord contributions to property, plant and equipment – – – 14 14 Timing differences and other adjustments (12 ) – – (1 ) (13 ) Additions per the Financial Statements 72 5 2 201 280 Comprising additions to: 10 – 2 32 44 3 – – 169 172 47 – – – 47 12 5 – – 17 72 5 2 201 280 Geographical information Year ended 31 December 2018
$m 2017
Restated
$m 2016
Restated
$m Revenue United Kingdom 151 74 72 United States 1,950 1,845 1,750 China 222 201 192 Rest of World 781 713 699 3,104 2,833 2,713 System Fund (note 32) 1,233 1,242 1,199 4,337 4,075 3,912
2016
2015 Non-current assets United Kingdom 105 126 United States 1,343 1,265 Rest of World 382 402 1,830 1,793 IHG | Annual Report and Form 20-F 2018 | Group Financial Statements | Notes 119 31 December Non-current assets United Kingdom 148 52 United States 1,510 1,476 Rest of World 361 297 2,019 �� 1,825 and non-current trade and other receivables.receivables, non-current contract costs and non-current contract assets. In addition to the United Kingdom, non-current assets relating to an individual country are separately disclosed when they represent 10% or more of total non-current assets, as defined above.110 IHG Annual Report and Form 20-F 2016 Group Financial Statements3. Staff costs and Directors’ emoluments Staff Costs: 537 562 577 29 33 42 5 5 10 23 28 28 594 628 657 2016 2015 2014 Average number of employees, including part-time employees: 2,121 2,082 2,191 782 1,041 1,557 1,598 1,658 1,451 299 865 1,092 1,787 1,665 1,506 6,587 7,311 7,797 The costs of the above employees are borne by IHG. Of these, 89% were employed on a full-time basis and 11% were employed on a part-time basis.In addition to the above, the Group has employees who work directly on behalf of the System Fund and whose costs are borne by the Fund as disclosed in note 32. In line with IHG’s business model, IHG also employs General Managers and, in the US predominantly, other hotel workers who work in the managed hotels and who have contracts or letters of service with IHG. The total number of these employees is 22,002 (2015: 20,452, 2014: 12,450) and their costs of $1,002m (2015: $936m, 2014: $591m) are borne by those hotels. 2016
$m 2015
$m 2014
$m Directors’ emoluments Base salaries, fees, performance payments and benefitsa 6.1 7.9 9.0 Pension benefits under defined contribution plans – – 0.2 aIn 2014, excludes ICETUS cash-out payment of £9.4m.Year ended 31 December 2018
China Franchise and base management fees 835 227 94 – 1,156 Incentive management fees 18 93 49 – 160 Central revenue – – – 170 170 Revenue from fee business 853 320 143 170 1,486 Revenue from owned, leased and managed lease hotels 198 249 – – 447 1,051 569 143 170 1,933 System Fund revenues (note 32) 1,233 Reimbursement of costs 1,171 Total revenue 4,337 Year ended 31 December 2017 Americas
$m EMEAA
$m
China Central
$m Franchise and base management fees 795 204 73 – 1,072 Incentive management fees 16 90 44 – 150 Central revenue – – – 157 157 Revenue from fee business 811 294 117 157 1,379 Revenue from owned, leased and managed lease hotels 188 163 – – 351 999 457 117 157 1,730 System Fund revenues (note 32) 1,242 Reimbursement of costs 1,103 Total revenue 4,075 Year ended 31 December 2016 Americas
$m EMEAA
$m
China Central
$m Franchise and base management fees 781 194 71 – 1,046 Incentive management fees 15 80 41 – 136 Central revenue – – – 147 147 Revenue from fee business 796 274 112 147 1,329 Revenue from owned, leased and managed lease hotels 173 165 – – 338 969 439 112 147 1,667 System Fund revenues (note 32) 1,199 Reimbursement of costs 1,046 Total revenue 3,912 IHG | Annual Report and Form 20-F 2018 2018
$m 2017
Restated
$m Trade receivables (note 16) 474 452 Contract assets 290 258 Deferred revenue 1,506 1,357 2018
$m 2017
$m At 1 January 258 198 Costs paid 58 73 Recognised as a deduction to revenue (19 ) (17 ) Repayments (2 ) – Exchange and other adjustments (5 ) 4 At 31 December 290 258 Analysed as: 20 17 270 241 290 258 Loyalty
programme
$m
co-brand
fees
re-licensing
fees Other
$m Total
$m At 1 January 2018 1,057 88 163 49 1,357 Acquisition of businesses – – – 8 8 Increase in deferred revenue 540 – 36 67 643 Recognised as revenue (416 ) (11 ) (23 ) (47 ) (497 ) Exchange and other adjustments – – (1 ) (4 ) (5 ) At 31 December 2018 1,181 77 175 73 1,506 Analysed as: 491 11 23 47 572 690 66 152 26 934 1,181 77 175 73 1,506 Loyalty
programme
$m
co-brand
fees
fees At 1 January 2017 1,033 100 148 33 1,314 Increase in deferred revenue 480 – 39 34 553 Recognised as revenue (456 ) (12 ) (24 ) (18 ) (510 ) At 31 December 2017 1,057 88 163 49 1,357 Analysed as: 422 11 24 33 490 635 77 139 16 867 1,057 88 163 49 1,357 IHG | Annual Report and Form 20-F 2018 | Group Financial Statements | Notes 121 2018 2017 Expected to be recognised in: Loyalty and
co-brand
$m Other
$m Total
$m Loyalty and
co-brand
$m Other
$m Total
$m Less than one year 502 70 572 433 57 490 Between one and two years 257 31 288 221 29 250 Between two and three years 158 26 184 137 24 161 Between three and four years 106 22 128 95 22 117 Between four and five years 75 20 95 69 20 89 More than five years 160 79 239 190 60 250 1,258 248 1,506 1,145 212 1,357 2018
$m 2017
$m At 1 January 58 53 Costs incurred 9 12 Amortisation (7 ) (7 ) At 31 December 60 58 Analysed as: 5 7 55 51 60 58 122 IHG | Annual Report and Form 20-F 2018 2018
$m 2017
$m 2016
$m Staff costs 1,956 1,868 1,738 127 106 106 19 5 5 63 61 58 2,165 2,040 1,907 Analysed as: 708 645 594 347 339 311 1,110 1,056 1,002 2,165 2,040 1,907 2018 2017 2016 Average number of employees, including part-time employees 2,225 2,149 2,121 3,255 2,267 2,380 324 294 299 1,794 1,948 1,787 7,598 6,658 6,587 5,214 5,555 5,434 22,518 22,577 22,002 35,330 34,790 34,023 a b 2018
$m 2017
$m 2016
$m Directors’ emoluments Base salaries, fees, performance payments and benefits 7.1 4.9 6.1 
6472 to 81.85.4.5. Auditor’s remuneration paid to Ernst & Young LLP 2016
$m 2015
$m 2014
$m Audit of the Financial Statements 2.4 2.5 2.4 Audit of subsidiaries 2.2 2.1 2.0 Audit-related assurance services 0.2 0.2 0.2 Other assurance services 1.2 0.9 0.9 Tax compliance 0.4 0.2 0.2 Tax advisory 0.1 0.1 0.3 Other non-audit services not covered by the above 0.1 0.4 0.1 6.6 6.4 6.1 2018
$m 2017
$m 2016
$m Audit of the Financial Statementsa 3.3 3.0 2.4 Audit of subsidiaries 2.9 2.2 2.2 Audit-related assurance services 0.2 0.2 0.2 Other assurance services 1.3 1.0 1.2 Tax compliance – 0.1 0.4 Tax advisory – – 0.1 Other non-audit services not covered by the above 0.1 0.2 0.1 7.8 6.7 6.6 a Notes to the Group Financial Statements IHG | Annual Report and Form 20-F 2016 1112018 | Group Financial Statements | Notes123 NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDGroup Financial Statements5.6. Exceptional items Note 2016
$m Exceptional items before tax Administrative expenses: a (13 ) (10 ) – b – (4 ) (14 ) c – (6 ) (29 ) d – (5 ) – e – – (7 ) f – – (6 ) g – – (45 ) (13 ) (25 ) (101 ) Other operating income and expenses: – 871 130 – 9 – – 880 130 Impairment charges: (16 ) (9 ) – – (27 ) – (16 ) (36 ) – (29 ) 819 29 Tax Tax on exceptional items h 12 (8 ) (29 ) All items above relate to continuing operations. 2018
$m
$m 2016
$m Exceptional items before tax Administrative expenses: (15 ) (15 ) (13 ) (18 ) – – (56 ) (36 ) – (15 ) – – (104 ) (51 ) (13 ) Other operating income and expenses: – 73 – – 73 – Impairment charges: – (18 ) (16 ) – (18 ) (16 ) (104 ) 4 (29 ) Tax Tax on exceptional itemse 22 (2 ) 12 Exceptional taxf 5 90 – 27 88 12 Exceptional items before tax analysed as: (36 ) 37 (29 ) (12 ) (4 ) – (1 ) – – (55 ) (29 ) – (104 ) 4 (29 ) The above items are treated as exceptional by reason oftheir size or nature, as further described on page 102.a RelatesThe integration programme remains in progress and will be substantially completed in 2017.bArose from changes to the Venezuelan exchange rate mechanisms and the adoption of the SIMADI exchange rate in 2015 and the SICAD II exchange rate in 2014, these being the most accessible exchange rates open to the Group for converting its bolivar earnings into US dollars. The exceptional losses arose from the re-measurement of the Group’s bolivar assets and liabilities to the relevant exchange rates, being approximately $1=190VEF on adoption of SIMADI and approximately $1=50VEF on adoption of SICAD II. Subsequent changes to the exchange rate mechanism have not resulted in material losses.cRelated to the implementation of more efficient processes and procedures in the Group’s Global Technology infrastructure to help mitigate future cost increases, together with, in 2014, costs incurred in introducing a new HR operating model across the business to provide enhanced management information and more efficient processes. These restructuring programmes have now been completed.dPrimarily legal costs related to development opportunities.eRelated to acquisition transaction costs incurred in the period to 31 December 2014 on the acquisition of Kimpton which completedwas acquired on 16 January 2015 and the integration programme was completed in 2017.b c d 10)25).fe Resulted from a partial cash-out of the UK unfunded pension arrangements. See note 25 for further details.gRelated to the costs of securing a restructuring of the UK hotel portfolio which resulted in the transfer of 61 managed hotels to franchise contracts.h2016,2018, comprises a current tax credit of $11m on reorganisation costs (2017: $13m), a $5m current tax credit in respect of litigation costs, a $6m tax credit ($5m current tax and $1m deferred tax) arising from the US pension settlement, a $2m current tax credit in respect of acquisition costs and a $2m prior year current tax charge on the sale of a minority investment in 2017 (2017: $28m). In 2017 there was also a $7m (2016: $6m) deferred tax credit in respect of the impairment charge relating to the InterContinental Barclay associate, investment impairment,and a $5m$6m (2016: $5m) deferred tax credit representing future tax relief on Kimpton integration costs andcosts. In 2016 there was also a $1m credit in respect of other items.f 2015, comprised2018, $5m (2017: $32m current tax charge) relates to a charge of $56m relating to disposal of hotels, aprior year current tax credit of $21m in respect of the 2014 disposal“transition tax” introduced in December 2017 as a result of an 80.1% interest in InterContinental New York Barclay reflectingsignificant US tax reform. 2017 has been restated to reflect the judgement that state
re-measurement arising from the significant US tax law changes would now apply toreform on the deferred gain, and credits of $27m for current andtaxes created or eliminated by IFRS 15. The 2017 restated amounts include a $112m deferred tax relief on other operating exceptional items of current and prior periods. In 2014, the charge comprised $56m relating to the disposal of an 80.1% interest in InterContinental New York Barclay offset bycredit as a credit of $27m relating to a restructuringresult of the UK hotel portfolioUS tax reform and other reorganisation costs.a $10m deferred tax credit representing a reduction in the Group’s unremitted earnings provision.112 All items above relate to continuing operations.124 IHG | Annual Report and Form 20-F 2016 Group Financial Statements20186.7. Finance costs 2016
$m 2015
$m 2014
$m 2018
$m 2017
Restated
$m
$m Financial income Interest income on deposits 3 2 2 2 1 3 Interest income on loans and receivables 3 3 1 3 3 3 6 5 3 5 4 6 Financial expenses Interest expense on borrowings 74 74 66 66 62 71 Finance charge payable under finance leases 20 20 19 20 20 20 Capitalised interest (1 ) (2 ) (2 ) (5 ) (6 ) (5 ) Change in fair value of deferred and contingent purchase consideration 5 – – 93 92 83 86 76 86 Included within interest expense is $3m (2015: $2m, 2014: $2m)During the year, $14m (2017: $7m, 2016: $3m) was payable to the IHG Rewards Club loyalty programme relating to interest on the accumulated balance of cash received in advance of the redemptionconsumption of points awarded. The expense and corresponding System Fund interest income are eliminated within financial expenses.3.8% (2015: 3.4%3.0% (2017: 3.0%, 2014: 4.4%2016: 3.8%).7.8. Tax Note 2016
$m 2015
$m 2014
$m Income tax UK corporation tax at 20.00% (2015: 20.25%, 2014: 21.50%): 10 7 5 (7 ) – – (1 ) (17 ) 2 2 (10 ) 7 Foreign tax: 151 196 156 – (1 ) (2 ) a (97 ) (27 ) (26 ) 54 168 128 Total current tax 56 158 135 Deferred tax: 55 60 68 b (2 ) (21 ) 2 c (25 ) (13 ) 1 a 90 4 2 Total deferred tax 118 30 73 Total income tax charge for the year d 174 188 208 Further analysed as tax relating to: 186 180 179 (12 ) 8 29 174 188 208 All items above relate to continuing operations. 2018
$m 2017
Restated
$m 2016
Restated
$m Income tax UK corporation tax at 19.00% (2017: 19.25%, 2016: 20.00%): 10 10 10 – – (7 ) 4 (2 ) (1 ) 14 8 2 Foreign tax: 95 210 151 (1 ) (13 ) – (13 ) 2 (97 ) 81 199 54 Total current tax 95 207 56 Deferred tax: 40 (8 ) 54 1 (59 ) (2 ) (2 ) (9 ) (25 ) (1 ) (16 ) 90 Total deferred tax 38 (92 ) 117 Total income tax charge for the year 133 115 173 Further analysed as tax relating to: 160 203 185 (22 ) 2 (12 ) (5 ) (90 ) – 133 115 173 a includesincluded $83m in respect of a change in tax treatment being approved by the US tax authority.b 2015,2017, predominantly reflected the judgement that statereflects a change in US tax law changes would now apply to the deferred gain from the 2014 disposal of InterContinental New York Barclay.rates following significant US tax reforms.c In 2015 and 2016, representsreassessmentre-assessment of the recovery of recognised and off-balance sheet deferred tax assets in line with the Group’s profit forecasts.d This includes $156m (2015: $116m, 2014: $144m)All items above relate to continuing operations.Notes to the Group Financial Statements IHG | Annual Report and Form 20-F 2016 1132018 | Group Financial Statements | Notes125 NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDGroup Financial Statements7.8. Taxcontinued Totala Before exceptional itemsb Total a Before exceptional items 2016
% 2015
% 2014
% 2016
% 2015
% 2014
% 2018
% 2017
Restated
% 2016
Restated
% 2018
% 2017
Restated
% 2016
Restated
% Reconciliation of tax charge, including gain on disposal of assets Reconciliation of tax charge UK corporation tax at standard rate 20.0 20.3 21.5 20.0 20.3 21.5 19.0 19.3 20.0 19.0 19.3 20.0 Tax credits (2.4 ) (0.2 ) (0.3 ) (2.2 ) (0.4 ) (0.3 ) (0.5 ) (0.5 ) (2.2 ) (0.3 ) (0.5 ) (2.2 ) Differences in tax gains and accounting gains on asset disposals – (9.8 ) 3.2 – – – System Fund resultsc 5.0 0.9 (1.2 ) (0.5 ) (0.4 ) (0.2 ) Other permanent differences 3.8 1.1 2.0 3.6 2.0 1.3 0.6 0.8 3.5 0.3 0.6 3.6 Non-recoverable withholding taxes 0.7 0.1 0.4 0.7 0.3 0.4 Net effect of different rates of tax in overseas businessesc 13.7 7.1 11.5 13.9 15.3 12.8 Effect of changes in tax rates and tax lawsd 0.4 (1.5 ) 0.3 0.3 0.1 0.1 Non-recoverable withholding taxesd 0.7 0.3 0.7 0.5 0.3 0.7 Net effect of different rates of tax in overseas businessese 4.6 14.6 12.6 3.8 13.7 13.4 Effects of changes in tax rates resulting from significant US tax reform – (9.3 ) – – – – Release of provision for taxation on unremitted earnings following significant US tax reform – (7.8 ) – – – – Transition tax liability arising from significant US tax reform – 4.8 – – – – Effect of other changes in tax rates and tax laws 0.3 0.3 0.3 0.2 0.3 0.3 Benefit of tax reliefs on which no deferred tax previously recognised (1.2 ) (0.1 ) (0.4 ) (1.1 ) (0.1 ) (0.3 ) (0.4 ) (1.9 ) (1.1 ) (0.3 ) (1.8 ) (1.1 ) Effect of adjustments to estimated recoverable deferred tax assets (4.3 ) (0.9 ) 0.2 (4.1 ) (1.7 ) (0.2 ) 0.1 (1.4 ) (4.0 ) 0.1 (1.3 ) (4.0 ) Adjustment to tax charge in respect of prior periods (1.3 ) (2.8 ) (3.7 ) (1.1 ) (5.4 ) (3.9 ) (2.0 ) (2.6 ) (1.2 ) (1.0 ) (1.1 ) (1.1 ) Other – 0.1 – – – – 29.4 13.4 34.7 30.0 30.4 31.4 27.4 17.5 27.4 21.8 29.1 29.4 a b items.items and System Fund earnings.c d e 12.6%pt (2015: 13.5%pt, 2014:4.2%ppts (2017: 13.3%ppts, 2016: 12.2%pt) in connection withppts) driven by the US.dIn 2015, total of (1.5)% predominantly reflects the judgement that staterelatively high US federal tax law changes would now apply to the deferred gain from the 2014 disposal of InterContinental New York Barclay.rate. 2018 2017
Restated 2016
Restated Tax
$m Rate
% Profit
$m Profit
$m Tax
$m Group income statement 485 133 27.4 656 115 17.5 632 173 27.4 Adjust for: 104 27 (4 ) 88 29 12 (1,233 ) – (1,242 ) – (1,199 ) – 1,379 – 1,276 – 1,164 – – – – (3 ) – (1 ) 735 160 21.8 686 200 29.1 626 184 29.4 $130m (2015: $110m, 2014: $136m)$68m (2017: $172m, 2016: $130m) comprises $130m (2015: $109m, 2014: $136m)$66m (2017: $147m, 2016: $130m) paid in respect of operating activities and $nil (2015: $1m, 2014:$2m (2017: $25m, 2016: $nil) paid in respect of investing activities. Note 2016
$m 2015
$m 2014
$m Current tax charge in the income statement 56 158 135 Current tax charge in the statement of comprehensive income (12 ) (2 ) (3 ) Current tax charge taken directly to equity (8 ) (8 ) (9 ) Total current tax charge 36 148 123 Movements to tax contingencies within the income statement a 11 (7 ) (18 ) Timing differences of cash tax paid and foreign exchange differences b 83 (31 ) 31 Tax paid per cash flow 130 110 136 Cash tax rate on total profits c 22 % 8 % 23 % 2018
$m 2017
$m 2016
$m Current tax charge in the income statement 95 207 56 Current tax credit in the statement of comprehensive income (1 ) – (12 ) Current tax credit taken directly to equity (8 ) (12 ) (8 ) Total current tax charge 86 195 36 Movements to tax contingencies within the income statementa 4 3 11 Timing differences of cash tax paid and foreign exchange differencesb (22 ) (26 ) 83 Tax paid per cash flow 68 172 130 a b iswas predominantly in respect of the US where the payment regulations have resulted in a large overpayment in the year.cCalculated as total cash paid divided by total accounting profit.The cash126 IHG | Annual Report and Form 20-F 2018 rate of 8% for 2015 is low owing to the impact of exceptional accounting gains taxable on a deferred basis, without which the rate would have been 20% and thus broadly consistent with the cash tax rates for 2014 and 2016.Material corporation tax liabilities did not arise in 2016 in the UK due to availability of brought forward tax losses. These losses arose principally due to employment matters, in particular additional shortfall contributions made to the UK pension plan in the years 2007 to 2013. Rules restricting UK loss usage have been announced, but are not yet enacted. These rules will likely increase the amount of UK cash tax paid in the near future, although this is not expected to be significant in the context of the Group’s cash tax payable.Current Tax$39m (2015: $63m) in respect of uncertain tax positions and offset against current tax receivable there is $5m (2015: $nil)$29m (2017: $42m) in respect of uncertain tax positions.strengthprofessionalexperienceagreements(2015: $20m)(2017: $8m). Property,
plant,
equipment
and Employee Undistributed
earnings of Other
short-term
temporary software assets a cost a loan notes investments Losses benefits subsidiaries b differences a,c Total a $m $m $m $m $m $m $m $m $m $m At 1 January 2017 120 (5 ) (36 ) 52 78 (44 ) (27 ) 59 (96 ) 101 Income statementd (22 ) 13 11 (18 ) (24 ) 1 (4 ) (61 ) 12 (92 ) Statement of comprehensive income – – – – – – 10 (1 ) 4 13 Statement of changes in equity – – – – – – – – 3 3 Exchange and other adjustments – (1 ) – – – 3 1 3 (5 ) 1 At 31 December 2017 98 7 (25 ) 34 54 (40 ) (20 ) – (82 ) 26 Income statement 26 9 (4 ) 1 2 4 – 2 (2 ) 38 Assets of businesses acquired (4 ) 11 – – – – – – (10 ) (3 ) Statement of comprehensive income – – – – – – 2 – 2 4 Statement of changes in equity – – – – – – – – 5 5 Exchange and other adjustments – – – – – 1 – – – 1 At 31 December 2018 120 27 (29 ) 35 56 (35 ) (18 ) 2 (87 ) 71 a 114 IHG Annual Report and Form 20-F 2016 Group Financial Statements7. TaxcontinuedDeferred tax Property,
plant and
equipment
$m Deferred
gains on
loan notes
$m Deferred
gains on
investments
$m Losses
$m
benefits
assets Undistributed
earnings of
subsidiaries
$m Other
short-term
temporary
differencesa
$m Total
$m At 1 January 2015 174 105 108 (154 ) (41 ) 52 44 (162 ) 126 Income statement 18 (50 ) (21 ) 62 6 22 29 (36 ) 30 Statement of comprehensive income – – – – (2 ) – – – (2 ) Statement of changes in equity – – – – – – – 3 3 Assets of business sold (88 ) – – 21 1 – – – (66 ) Exchange and other adjustments (5 ) – – 4 4 (4 ) (3 ) (1 ) (5 ) At 31 December 2015 99 55 87 (67 ) (32 ) 70 70 (196 ) 86 Income statement 22 (3 ) (9 ) 19 (3 ) (7 ) – 99 118 Statement of comprehensive income – – – – 12 – – (1 ) 11 Statement of changes in equity – – – – – – – (3 ) (3 ) Exchange and other adjustments (1 ) – – 4 (4 ) (3 ) (11 ) 6 (9 ) At 31 December 2016 120 52 78 (44 ) (27 ) 60 59 (95 ) 203 ab c payments.payments and contingent purchase consideration.d taxable gainstax which would crystallise upon a sale of a related joint venture, associate or other equity investment. Deferred gains on loan notes includes $52m (2015: $55m)represent tax which is expected to fall due for payment in 2025 (2015:(2017: 2025). The deferred tax asset recognised in respect of losses of $44m (2015: $67m)$35m (2017: $40m) is wholly in respect of revenue losses. DeferredA deferred tax assetsasset of $nil (2015: $nil) are(2017: $2m) is recognised in relation toa legal entitiesentity which suffered a tax loss in the current or preceding period. Withinperiod in 2017; this asset was recognised based on the profit forecast of the entity in question. Offset against deferred tax liabilitiesassets is $10m (2015: $10m)$nil (2017: $5m) in respect of uncertain tax positions and offset against deferred tax assets is $2m (2015: $nil) in respect of uncertain tax positions.IHG | Annual Report and Form 20-F 2018 | Group Financial Statements | Notes 127 Property,
plant and
equipment
$m Deferred
gains on
loan notes
$m Deferred
gains on
investments
$m Losses
$m
benefits
assets Undistributed
earnings of
subsidiaries
$m Other
short-term
temporary
differences
$m Total
$m Property,
plant,
equipment
and
software
$m
assets
$m
fees and
contract
costs Deferred
gains on
loan notes
$m Deferred
gains on
investments
$m Losses
$m Employee
benefits
$m Undistributed
earnings of
subsidiaries
$m Other
short-term
temporary
differences
$m Total
$m UK (4 ) – – (19 ) (5 ) – – (2 ) (30 ) (7 ) (4 ) 1 – – (15 ) (4 ) – (24 ) (53 ) US 125 52 78 (10 ) (21 ) 44 59 (109 ) 218 127 27 (34 ) 35 56 (16 ) (14 ) 2 (59 ) 124 Other (1 ) – – (15 ) (1 ) 16 – 16 15 – 4 4 – – (4 ) – – (4 ) – 120 52 78 (44 ) (27 ) 60 59 (95 ) 203 120 27 (29 ) 35 56 (35 ) (18 ) 2 (87 ) 71 2016
$m 2015
$m 2018
$m 2017
Restated
$m Analysed as: (48 ) (49 ) (60 ) (75 ) 251 135 131 101 203 86 71 26 Gross Gross Unrecognised deferred tax 2015
$m 2016
$m Revenue losses 518 257 94 47 448 452 67 76 Capital losses 475 561 83 114 516 515 90 99 Total losses 993 818 177 161 964 967 157 175 Employee benefits – 23 – 5 Othera 27 153 5 28 25 35 6 9 Total 1,020 994 182 194 989 1,002 163 184 There is no expiry date to any of the above unrecognised assets other than for the losses as shown in the table below: There is no expiry date to any of the above unrecognised assets other than for the losses as shown in the table below: Gross Unrecognised deferred tax Expiry date: 28 21 6 5 10 11 2 3 1 1 – – 4 20 – 1 92 92 21 23 46 26 3 3 aPrimarily relates to provisions, accruals, amortisation and share-based payments.Notes to the Group Financial Statements IHG Annual Report and Form 20-F 2016 115NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED7. TaxcontinuedThere is no expiry date to any of the above unrecognised assets other than for the losses as shown in the table below: Gross Unrecognised
deferred tax Expiry date: – 38 – 9 3 4 1 1 27 28 7 7 11 12 3 3 3 2 1 1 125 – 25 – The Group has provided deferred tax of $59m (2015: $70m) in relation to temporary differences associated with post-acquisition undistributed earnings of subsidiaries to the extent that it is either probable that it will reverse in the foreseeable future or where the Group cannot control the timing of the reversal. No deferred tax liability has been recognised in respect of a further $90m (2015: $70m)$0.8bn (2017: $0.5bn) of taxable temporary differences relating to subsidiaries (comprising undistributed earnings of subsidiariesand net inherent gains) because the Group is in a position to control the timing of the reversal of these temporary differences and it is probable that such differences will not reverse in the foreseeable future. The remaining unprovided liability that would arise on the reversal of these temporary differences is not expected to exceed $15m (2015: $10m).Tax risks, policies and governanceIHG | Annual Report and Form 20-F 2018 found44.50.The new US administration has indicated wide-ranging reformAt the current time, the exact detail of the taxation system including significant cuts inUnited Kingdom’s exit from the US headline rate;European Union is unknown. Based upon the Group’s profile and areas that have been publicly discussed, the Group will assessdoes not anticipate the impact of this when solid proposals are announced by the relevant US authorities.Rules restricting UK loss usage and interest deductibility have been announced, but are not yet enacted. These rules will likely increase the amount of UK cash tax paid in the near future, although this is not expectedexit to be significant in the context of the Group’s cash tax payable. The forthcoming reductions to the UK corporation tax rate (to 19%, effective 1 April 2017 and to 17%, effective 1 April 2020) are not expected to havecause a material effectimpact on the Group.its future effective base tax rate.8.9. Dividends 2016
cents per
share 2015
cents per
share 2014
cents per
share 2018
cents
per share 2017
cents
per share 2016
cents
per share 2018
$m 2017
$m 2016
$m Paid during the year: 57.5 52.0 47.0 137 125 122 71.0 64.0 57.5 130 127 137 30.0 27.5 25.0 56 63 57 36.3 33.0 30.0 69 62 56 632.9 – 293.0 1,500 – 763 – 202.5 632.9 – 404 1,500 720.4 79.5 365.0 1,693 188 942 107.3 299.5 720.4 199 593 1,693 Proposed (not recognised as a liability at 31 December): 64.0 57.5 52.0 126 135 122 78.1 71.0 64.0 141 135 126 64.0¢78.1¢ per ordinary share is proposed for approval at the Annual General Meeting (AGM) on 53 May 20172019 and is payable on the shares in issue at 5 May 2017.29 March 2019.February 2017,October 2018, the Board proposedannounced a $400m$500m return of funds to shareholders by way of a special dividend of 202.5¢$2.621 per ordinary share, together with a share consolidation.116 IHG | Annual Report and Form 20-F 20162018 | Group Financial Statements | Notes129 9.10. Earnings per ordinary share non-GAAPNon-GAAP measures can26.36.Continuing and total operations 2016 2015 2014 2018 2017
Restated 2016
Restated Basic earnings per ordinary share Profit available for equity holders ($m) 414 1,222 391 351 540 456 Basic weighted average number of ordinary shares (millions) 212 235 247 190 193 212 Basic earnings per ordinary share (cents) 195.3 520.0 158.3 184.7 279.8 215.1 Diluted earnings per ordinary share Profit available for equity holders ($m) 414 1,222 391 351 540 456 Diluted weighted average number of ordinary shares (millions) 214 238 250 192 194 214 Diluted earnings per ordinary share (cents) 193.5 513.4 156.4 182.8 278.4 213.1 Adjusted earnings per ordinary share Profit available for equity holders ($m) 414 1,222 391 351 540 456 Adjusting items (note 5): 29 (819 ) (29 ) (12 ) 8 29 Adjusting items: 146 34 (35 ) (19 ) (13 ) (7 ) – 3 1 104 (4 ) 29 (22 ) 2 (12 ) (5 ) (90 ) – Adjusted earnings ($m) 431 411 391 555 472 432 Basic weighted average number of ordinary shares (millions) 212 235 247 190 193 212 Adjusted earnings per ordinary share (cents) 203.3 174.9 158.3 292.1 244.6 203.8 Adjusted diluted earnings per ordinary share Adjusted earnings ($m) 431 411 391 555 472 432 Diluted weighted average number of ordinary shares (millions) 214 238 250 192 194 214 Adjusted diluted earnings per ordinary share (cents) 201.4 172.7 156.4 289.1 243.3 201.9 2016
millions 2015
millions 2014
millions 2018
millions
2017
millions
2016
millions
Diluted weighted average number of ordinary shares is calculated as: 212 235 247 190 193 212 2 3 3 2 1 2 214 238 250 192 194 214 130 IHG | Annual Report and Form 20-F 2018 10.�� businessbusinesses16 January 2015,1 July 2018, the Group acquiredcompleted the acquisition of a 100%51% controlling interest in Kimpton Hotel & Restaurantan agreement with Formosa International Hotels Corporation (FIH) to acquire the Regent Hotels and Resorts brand and associated management contracts (Regent). The Group LLC (Kimpton)acquired 51% of the issued share capital of Regent Hospitality Worldwide, Inc (RHW), an unlisted company based100% of the issued share capital of Regent International Hotels Limited and 100% of the issued share capital of Regent Berlin GmbH.US,remaining shares. As such, RHW has been accounted for cash considerationas 100% owned with no non-controlling interest recognised.$438m, net$10m and operating profit of $3m cash acquired.$nil for the period between the date of acquisition and the balance sheet date. The fair valueresults of Regent are included in the net assets acquired was $441m, including goodwill of $167m, brands of $193mEMEAA and management contracts of $71m. No subsequent adjustments were madeGreater China business segments.the initial acquisition date fair values of the net assets acquired.11. Assets sold and heldoperating profit for saleAssets soldThe Group did not dispose of any hotels during 2016 but incurred $5m of costs relating to prior year disposals.During the year ended 31 December 2015,2018.Group sold one hotelacquisition date fair value of each major class of consideration transferred: $m Cash paid on acquisition 13 Deferred considerationa 22 Contingent considerationb 53 Total purchase consideration 88 a b 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 ofidentifiable assets and liabilities inof Regent at the date of acquisition were as follows: $m Identifiable intangible assets: 57 6 Property, plant and equipment 1 Deferred tax liability (11 ) Net identifiable assets acquired 53 Goodwill 35 Total purchase consideration 88 joint operationresult of the acquisition.IHG | Annual Report and Form 20-F 2018 | Group Financial Statements | Notes 131 AMEA region. Total consideration receivedUK. Over the next one to two years, the hotels will be rebranded to other brands in respectIHG’s luxury and upscale portfolio.these disposals amounted$75m and an operating loss of $1m for the period between the date of acquisition and the balance sheet date. The results are included in the EMEAA business segment.$1,276m, net of costs paid and cash and cash equivalents disposed, and total gains of $871m were recognised duringoperating profit for the year ended 31 December 2015.2018.DuringConsideration transferredyear ended 31 December 2014, the Group sold InterContinental Mark Hopkins on 27 March 2014 and disposedacquisition date fair value of 80.1%each major class of its interest in InterContinental New York Barclay on 31 March 2014. Both transactions took place in The Americas region. Total consideration received amounted to $345m, net of costs paid. Total gains on disposal of $130m were recognised during the year ended 31 December 2014. The Group’s 19.9% retained interest in InterContinental New York Barclay is accounted for as an associate as described in note 14.Assets held for saleThere were no assets held for sale at either 31 December 2016 or 31 December 2015.transferred: $m NotesCash paid on acquisition9 Working capital settlement duea (3 ) Contingent considerationb 56 Total purchase consideration 62 a b Group Financial Statements amount payable and no maximum amount. $m Identifiable intangible assets: Brands 1 Property, plant and equipment 25 Inventories 1 Trade and other receivables 11 Cash and cash equivalents 2 Trade and other payables (18 ) Deferred revenue (8 ) Stamp duty liabilitya (14 ) Deferred tax asset 14 Net identifiable assets acquired 14 Goodwill 48 Total purchase consideration 62 a 132 IHG | Annual Report and Form 20-F 2016 1172018NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED $m Regent Cash paid on acquisition 13 UK portfolio Cash paid on acquisition 9 Contingent consideration paid 4 Settlement of stamp duty liability 14 Less: cash and cash equivalents acquired (2 ) 25 Net cash outflow arising on acquisitions 38 Land and
buildings
$m Fixtures,
fittings and
equipment
$m Land and
buildings
$m Fixtures,
fittings
and
equipment
$m Total
$m Cost At 1 January 2015 700 671 1,371 At 1 January 2017 378 429 807 Additions 13 29 42 9 35 44 Capitalised interest 2 – 2 Acquisition of business (note 10) – 3 3 Transfers to non-current assets classified as held for sale (329 ) (120 ) (449 ) Reclassification from intangible assets – 7 7 Disposals (9 ) (3 ) (12 ) Exchange and other adjustments – (11 ) (11 ) At 31 December 2015 377 576 953 Additions 2 27 29 Capitalised interest 1 – 1 Fully depreciated assets written off – (162 ) (162 ) – (19 ) (19 ) Disposals – (3 ) (3 ) – (4 ) (4 ) Exchange and other adjustments (2 ) (9 ) (11 ) 1 8 9 At 31 December 2016 378 429 807 Depreciation and impairment At 1 January 2015 (122 ) (508 ) (630 ) Provided (8 ) (27 ) (35 ) System Fund expense – (3 ) (3 ) Transfers to non-current assets classified as held for sale 79 78 157 Impairment charges (27 ) – (27 ) At 31 December 2017 388 449 837 Acquisition of businesses (note 11) – 26 26 Additions 8 39 47 Fully depreciated assets written off (11 ) (167 ) (178 ) Disposals 3 3 6 – (29 ) (29 ) Exchange and other adjustments 1 6 7 (3 ) (4 ) (7 ) At 31 December 2015 (74 ) (451 ) (525 ) At 31 December 2018 382 314 696 Depreciation and impairment At 1 January 2017 (78 ) (310 ) (388 ) Provided (5 ) (25 ) (30 ) (7 ) (28 ) (35 ) System Fund expense – (5 ) (5 ) – (6 ) (6 ) Fully depreciated assets written off – 162 162 – 19 19 Disposals – 2 2 – 3 3 Exchange and other adjustments 1 7 8 (1 ) (4 ) (5 ) At 31 December 2016 (78 ) (310 ) (388 ) At 31 December 2017 (86 ) (326 ) (412 ) Provided (6 ) (34 ) (40 ) System Fund expense – (8 ) (8 ) Fully depreciated assets written off 11 167 178 Disposals – 25 25 Exchange and other adjustments – 8 8 At 31 December 2018 (81 ) (168 ) (249 ) Net book value At 31 December 2016 300 119 419 At 31 December 2015 303 125 428 At 1 January 2015 578 163 741 At 31 December 2018 301 146 447 At 31 December 2017 302 123 425 At 1 January 2017 300 119 419 44% (2015:41% (2017: 43%) of the net book value relates to the largest owned and leased hotel, of a total of eight23 open hotels (2015: eight hotels, seven of which were open)(2017: 12 open hotels). At 31 December 2016,2018 and 31 December 2017, there were no hotels under construction (2015: one hotel with a net book value of $53m).construction.20162018 was $182m (2015: $184m)$174m (2017: $181m).(2015: 22%(2017: 26%) of hotel properties by net book value were directly owned, with 58% (2015: 59%53% (2017: 57%) held under leases having a term of 50 years or longer. DueIHG | Annual Report and Form 20-F 2018 | Group Financial Statements | Notes 133 localised adverse market conditions, an impairment charge of $27m was recognised during 2015 relating to two hotels in North America following a re-assessment of their recoverable amounts to $37m, based on value in use calculations. Estimated future cash flows were discounted at a pre-tax rate of 11.75%. All impairment charges are included within ‘impairment charges’ on the face of the Group income statement.Financial Statements continued2016:2018: Americas
$m Europe
$m AMEA
$m
China Central
$m Land and buildings 287 – – – 13 300 Fixtures, fittings and equipment 45 – 11 – 63 119 332 – 11 – 76 419 118 IHG Annual Report and Form 20-F 2016 Group Financial Statements Americas
$m EMEAA
$m Central
$m Land and buildings 289 – – 12 301 Fixtures, fittings and equipment 40 34 – 72 146 329 34 – 84 447 Management Other contracts intangibles Goodwill Brands Software Restated a Restated a Total Goodwill
$m Brands
$m Software
$m Management
contracts
$m Other
intangibles
$m $m $m $m $m Cost At 1 January 2015 215 – 471 310 207 1,203 Additions – – 94 97 64 255 Capitalised interest – – 2 – – 2 Acquisition of business (note 10) 167 193 2 71 – 433 Reclassification of property, plant and equipment – – (7 ) – – (7 ) Disposals – – (62 ) – (4 ) (66 ) Exchange and other adjustments (11 ) – (2 ) (13 ) (4 ) (30 ) At 31 December 2015 371 193 498 465 263 1,790 At 1 January 2017 370 193 583 71 10 1,227 Additions – – 127 – 53 180 – – 168 – 4 172 Capitalised interest – – 4 – – 4 – – 6 – – 6 Disposals – – (45 ) – (7 ) (52 ) – – (14 ) – – (14 ) Exchange and other adjustments (1 ) – (1 ) (21 ) (13 ) (36 ) 7 – 2 – (1 ) 8 At 31 December 2016 370 193 583 444 296 1,886 At 31 December 2017 377 193 745 71 13 1,399 Acquisition of businesses (note 11) 83 58 – 6 – 147 Additions – – 107 – 5 112 Capitalised interest – – 5 – – 5 Disposals – – (72 ) – – (72 ) Exchange and other adjustments (5 ) (1 ) (4 ) – – (10 ) At 31 December 2018 455 250 781 77 18 1,581 Amortisation and impairment At 1 January 2015 (141 ) – (207 ) (134 ) (78 ) (560 ) At 1 January 2017 (138 ) – (223 ) (5 ) (3 ) (369 ) Provided – – (40 ) (10 ) (11 ) (61 ) – – (40 ) (2 ) (1 ) (43 ) System Fund expense – – (18 ) – – (18 ) – – (30 ) – – (30 ) Disposals – – 62 – 3 65 – – 14 – – 14 Exchange and other adjustments 3 – 1 5 1 10 (2 ) – (2 ) – – (4 ) At 31 December 2015 (138 ) – (202 ) (139 ) (85 ) (564 ) At 31 December 2017 (140 ) – (281 ) (7 ) (4 ) (432 ) Provided – – (41 ) (11 ) (14 ) (66 ) – – (36 ) (3 ) (1 ) (40 ) System Fund expense – – (26 ) – – (26 ) – – (37 ) – – (37 ) Disposals – – 45 – 3 48 – – 67 – – 67 Exchange and other adjustments – – 1 9 4 14 (2 ) – 6 – – 4 At 31 December 2016 (138 ) – (223 ) (141 ) (92 ) (594 ) At 31 December 2018 (142 ) – (281 ) (10 ) (5 ) (438 ) Net book value At 31 December 2016 232 193 360 303 204 1,292 At 31 December 2015 233 193 296 326 178 1,226 At 1 January 2015 74 – 264 176 129 643 At 31 December 2018 313 250 500 67 13 1,143 At 31 December 2017 237 193 464 64 9 967 At 1 January 2017 232 193 360 66 7 858 a 2015,the year, the Group acquired KimptonRegent and the UK portfolio (see note 10)11) resulting in the recognition of goodwill of $167m$83m and brands of $193m,$58m, together with management contracts of $6m. The Kimpton acquisition in 2015 resulted in the recognition of goodwill of $167m, brands of $193m and management contracts of $71m. 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.134 IHG | Annual Report and Form 20-F 2018 2016 2015 2018 2017 Goodwill
$m Brands
$m Goodwill
$m Brands
$m CGU Americas Managed 63 193 63 193 69 203 63 193 Americas Franchised 37 – 37 – 37 – 37 – Europe Managed 21 – 21 – Europe Franchised 10 – 10 – AMEA Managed and Franchised 101 – 102 – EMEAA – Europe Managed 29 13 21 – EMEAA – Europe Franchised 10 – 10 – EMEAA – rest of region 113 23 106 – Greater China 7 11 – – Allocated to CGUs (including Regent) 265 250 237 193 UK portfolio 48 – – – 232 193 233 193 313 250 237 193 Notes to the Group Financial Statements IHG Annual Report and Form 20-F 2016 119NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED13. Goodwill and other intangible assetscontinuedThe UK portfolio goodwill remained unallocated at 31 December 2018 pending completion of the portfolio acquisition in early 2019.arehave been determined from value in use calculations. These calculations coverinclude a five-yearthree-year period using pre-tax cash flow forecasts derived from the most recent financial budgets and strategic plans approved by management, incorporating growth rates based on management’s past experience and industry growth forecasts. AThe key assumptions that underpin the financial budgets are RevPAR growth and net System size growth. RevPAR is based on market forecasts provided by Oxford Economics adjusted for historical experience of how the Group has performed compared to these expectations. Cash flows beyond the three-year period are extrapolated using terminal value is added using growth rates that do not exceed the average long-term growth rates for the relevant markets. TheA 10% contingency factor is applied to reduce all cash flows areflow projections before being discounted using pre-tax rates that are based on the Group’s weighted average cost of capital adjusted to reflect the risks specific to the business model and territory of the CGU being tested.in the impairment testswhich are considered to be key assumptions, are as follows: Terminal growth rate Americas Managed 2.0 2.5 9.8 10.2 Americas Franchised 2.0 2.5 8.8 9.2 Europe Managed 2.0 2.5 9.3 9.9 Europe Franchised 2.0 2.5 8.4 8.9 AMEA Managed and Franchised 3.5 3.5 13.0 12.5 Terminal
growth
rate % Discount
rate %
growth Discount
rate % Americas Managed 2.0 10.5 2.0 10.4 Americas Franchised 2.0 9.6 2.0 9.4 EMEAA – Europe Managed 2.0 11.4 2.0 10.8 EMEAA – Europe Franchised 2.0 10.5 2.0 9.8 EMEAA – rest of region 3.5 13.4 3.5 14.1 Greater China 2.5 12.3 2.5 13.6 20162018 or 31 December 2015.2017.At 31 December 2016,Given the Americas Managedcontingency factor applied to the cash flow projections and Europe Managed CGUs hadthe significant amounts by which the recoverable amounts that exceededof the CGUs exceed their carrying amounts, by $81m and $48m respectively; this headroommanagement have determined that impairment charges would be eroded if the discount rate assumptions were increased to 10.8% and 11.7% respectively. In respect of the other CGUs, the headroom is of a magnitude thatnot arise from reasonably possible changes to key assumptions would not result in the recoverable amounts falling below their carrying amounts.key assumptions.$151m$273m relating to the development of the next-generation Guest Reservation System with Amadeus. This asset isOf this amount $109m relating to Phase 2 of the project was not yet in useamortised during the year as it has not been completed and therefore not being amortised.rolled out to hotels.In addition to the managementManagement contracts acquired with thecomprise $61m (2017: $64m) in respect of Kimpton acquisitionand $6m (2017: $nil) in 2015, additions to management contracts relate to contract values recognised as partrespect of the proceeds for hotels sold.Regent.At 31 December 2016, the net book value and remaining amortisation period of the principal management contracts were as follows: 2016 2015
value Remaining
amortisation
period
Years
value Remaining
amortisation
period
Years Hotel InterContinental Hong Kong 62 36 64 37 InterContinental New York Barclay 38 47 39 48 InterContinental London Park Lane 29 46 36 47 InterContinental Paris – Le Grand 31 48 32 49 3125 years (2015: 32(2017 restated: 27 years).120 IHG | Annual Report and Form 20-F 20162018 | Group Financial Statements | Notes135 Joint
ventures
$m Cost At 1 January 2015 92 27 119 Additions 29 1 30 Share of (losses)/profits (2 ) (1 ) (3 ) Capitalisation of a receivable 10 – 10 Dividends (5 ) – (5 ) Exchange and other adjustments (3 ) – (3 ) At 31 December 2015 121 27 148 Additions 14 – 14 Share of (losses)/profits (3 ) 1 (2 ) Capital return – (2 ) (2 ) Transfer to financial assets (14 ) – (14 ) Dividends (5 ) – (5 ) At 31 December 2016 113 26 139 Impairment At 1 January 2015 (3 ) – (3 ) Charge for the year (9 ) – (9 ) At 31 December 2015 (12 ) – (12 ) Charge for the year (16 ) – (16 ) At 31 December 2016 (28 ) – (28 ) Net book value At 31 December 2016 85 26 111 At 31 December 2015 109 27 136 At 1 January 2015 89 27 116 Associates
$m Joint
ventures
$m Total
$m Cost At 1 January 2017 113 26 139 Additions 47 – 47 Share of profits/(losses) 2 1 3 Disposals (9 ) – (9 ) Distributions (4 ) – (4 ) Exchange and other adjustments 2 – 2 At 31 December 2017 151 27 178 Additions 3 – 3 Share of (losses)/profits (6 ) 5 (1 ) Distributions (5 ) (32 ) (37 ) Exchange (3 ) – (3 ) At 31 December 2018 140 – 140 Impairment At 1 January 2017 (28 ) – (28 ) Charge for the year (18 ) – (18 ) Disposals 9 – 9 At 31 December 2017 (37 ) – (37 ) Exchange 1 – 1 At 31 December 2018 (36 ) – (36 ) Net book value At 31 December 2018 104 – 104 At 31 December 2017 114 27 141 At 1 January 2017 85 26 111 an investment for which the Group hasreceived a 30% interest was transferred to other financial assetsdistribution of $32m from a joint venture following loss of significant influence over the operating and financial policy decisionssale of the entity.hotel owned by the joint venture.The impairment chargeImpairment charges of $18m and $16m in 2017 and 2016 relatesrespectively, related to the Barclay associate (see following page) and resultsbelow), resulted 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 beenwas 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%.On 20 November 2015, the Group disposed of an associate investment in the AMEA region realising a gain on disposal of $9m. At the time of disposal, the investment had a $nil net book value.Notes to the Group Financial Statements IHG Annual Report and Form 20-F 2016 121NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED14. Investment in associates and joint venturescontinued2016,2018, a 19.9% interest in 111 East 48th Street Holdings, LLC (the Barclay associate) which owns InterContinental New York Barclay (the hotel), a hotel managed by the Group. The hotel reopened for trading in April 2016 following a major renovation. The investment is classified as an associate and equity accounted asaccounted. Whilst the Group has the ability to exercise significant influence through certain decision rights, approval rights relating to the hotel’s operating and its involvementcapital 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.hotel renovation and financingBarclay associate in conjunction with a refinancing of the entity.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.136 IHG | Annual Report and Form 20-F 2018
2016
2015 Non-current assets 552 480 529 540 Net current liabilities (264 ) (7 ) Current assets 70 41 Current liabilities (17 ) (19 ) Non-current liabilities (39 ) (226 ) (319 ) (287 ) Net assets 249 247 263 275 Group share of reported net assets at 19.9% 50 49 52 55 Adjustments to reflect capitalised costs, and additional rights and obligations under the shareholder agreement (7 ) 10 7 10 Carrying amount 43 59 59 65
31 December
2016
31 December
2015
31 December Revenue 45 – 103 90 Loss for the period (34 ) (21 ) (13 ) (16 ) Group’s share of loss for the period (8 ) (4 ) Group’s share of loss for the period, including the cost of funding owner returns (8 ) (4 ) Associates Joint ventures Total 2016
$m 2015
$m 2014
$m 2016
$m 2015
$m 2014
$m 2016
$m 2015
$m 2014
$m Share of profits/(losses) Operating profits/(losses) before exceptional items 5 3 1 1 (1 ) – 6 2 1 Associates Joint ventures Total 2018
$m 2017
$m 2016
$m 2018
$m 2017
$m 2016
$m 2018
$m 2017
$m 2016
$m Share of profits/(losses) Operating profits before exceptional items 2 6 5 5 1 1 7 7 6 122 IHG | Annual Report and Form 20-F 20162018 | Group Financial Statements | Notes137 2016
$m 2015
$m 2018
$m 2017
$m Equity securities available-for-sale Equity securities measured at fair value Quoted equity shares 14 14 8 10 Unquoted equity shares 142 136 108 117 156 150 116 127 Loans and receivables Financial assets measured at amortised cost Trade deposits and loans 43 54 50 43 Restricted funds 31 34 55 32 Bank accounts pledged as security 38 46 40 42 112 134 145 117 Total other financial assets 268 284 261 244 Analysed as: 20 – 1 16 248 284 260 228 268 284 261 244 available-for-sale are measured at fair value (see note 23)through other comprehensive income and loans and receivables are held at amortised cost.Equity securities available-for-sale were denominated in the following currencies: US dollars $121m (2015: $102m), Hong Kong dollars $24m (2015: $28m) and other currencies $11m (2015: $20m). Unlisted equity shares are mainly comprise strategic investments in entities that own hotels which the Group manages. DividendThe fair value of the most significant investments at 31 December 2018 together with the dividend income from available-for-sale equity securities of $7m (2015: $9m)received in 2018 is reportedas follows: Dividend Fair value income a 2018 2018 $m $m Investment in entity which owns: 31 – 31 6 16 2 38 1 116 9 a $46m$66m made to a hotel owner in connection with a portfolio of management contracts. The deposits are non-interest-bearing and repayable at the end of the management contract terms, and are therefore held at a discounted value of $19m (2015: $14m)$30m (2017: $28m); the discount unwinds to the income statement within ‘financial income’ over the period to repayment.other financial assetsequity securities during the year is as follows: 2016
$m 2015
$m At 1 January (28 ) (28 ) Disposals 6 – At 31 December (22 ) (28 ) The provision is used to record impairment losses unless the Group is satisfied that no recovery of the amount is possible; at that point the amount considered irrecoverable is either written off directly to the income statement or, if previously provided, against the financial asset with no impact on the income statement. 2018
$m 2017
$m At 1 January (18 ) (22 ) Elimination of provision on adoption of IFRS 9 18 – Disposals – 4 At 31 December – (18 ) Notes to the Group Financial Statements 138IHG | Annual Report and Form 20-F 2016 1232018NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED 2016
$m 2015
$m 2018
$m 2017
$m Current Trade receivables 368 354 474 452 Other receivables 25 28 27 23 Prepayments 77 74 111 74 Loans to and receivables from associates 2 6 1 2 472 462 613 551 Non-current Loans to associates 8 3 are designated as loans and receivables and are held at amortised cost. 2016
$m 2015
$m 2018
$m 2017
$m Americas 256 233 325 305 Europe 43 54 Asia, Middle East and Africa 61 66 EMEAA 125 122 Greater China 43 38 52 50 403 391 502 477 2016 2015 Net
$m
$m Net
$m Gross
$m Credit loss
allowance
$m Net
$m Not past due 289 (1 ) 288 280 (1 ) 279 356 (1 ) 355 333 (1 ) 332 Past due 1 to 30 days 58 (3 ) 55 64 (3 ) 61 71 (1 ) 70 68 (2 ) 66 Past due 31 to 180 days 64 (7 ) 57 52 (5 ) 47 86 (9 ) 77 82 (7 ) 75 Past due more than 180 days 61 (58 ) 3 51 (47 ) 4 – – – 71 (67 ) 4 472 (69 ) 403 447 (56 ) 391 513 (11 ) 502 554 (77 ) 477 provisionallowance for impairmentexpected lifetime credit losses of trade and other receivables during the year is as follows: 2016
$m 2015
$m 2014
$m At 1 January (56 ) (47 ) (43 ) Provided (25 ) (28 ) (22 ) Amounts written back 5 12 9 Amounts written off 5 7 9 Exchange adjustments 2 – – At 31 December (69 ) (56 ) (47 ) 2018
$m 2017
$m 2016
$m At 1 January (77 ) (69 ) (56 ) Adjustment arising on adoption of IFRS 9 67 – – Provided (28 ) (15 ) (25 ) Amounts written back – 2 5 Amounts written off 26 6 5 Exchange adjustments 1 (1 ) 2 At 31 December (11 ) (77 ) (69 ) 124 IHG| Annual Report and Form 20-F 20162018 |Group Financial Statements| Notes139 2016
$m 2018
$m 2017
$m Cash at bank and in hand 131 145 202 164 Short-term deposits 75 703 234 4 Repurchase agreements – 289 268 – 206 1,137 704 168 $91m (2015: $41m)$106m (2017: $116m) which are matched by bank overdrafts of $89m (2015: $39m)$104m (2017: $110m) 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. 2016
$m 2018
$m 2017
$m Cash at bank and in hand 131 145 202 164 Short-term deposits 75 703 234 4 Repurchase agreements – 289 268 – 206 1,137 704 168 Bank overdrafts (note 20) (89 ) (39 ) (104 ) (110 ) 117 1,098 600 58 2016
$m 2015
$m Current Trade payables 94 87 Other tax and social security payable 38 45 Deferred revenue 37 39 Other payables 206 138 Accruals 306 307 681 616 Non-current Deferred revenue 78 7 Other payables 122 145 200 152 Notes to the Group Financial Statements IHG Annual Report and Form 20-F 2016 125NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED 2018
$m 2017
Restated
$m Current Trade payables 132 81 Other tax and social security payable 44 48 Other payables 95 108 Contingent purchase consideration 7 – Accruals 340 360 618 597 Non-current Other payables 34 36 Deferred and contingent purchase consideration 124 – 158 36 Kimpton
Security
Incident
$m Litigation
$m At 1 January 2015 – 10 10 Provided – 5 5 At 31 December 2015 – 15 15 Provided 5 – 5 Utilised – (12 ) (12 ) At 31 December 2016 5 3 8 Analysed as: 3 15 5 – 8 15 Security
Incidents
$m Litigation
$m Insurance
reserves
$m Total
$m At 1 January 2017 and 31 December 2017 5 3 – 8 Reclassification from other trade and other payables – – 25 25 (Released)/provided (2 ) (1 ) 7 4 Utilised (3 ) – (7 ) (10 ) At 31 December 2018 – 2 25 27 2018
$m 2017
$m Analysed as: 10 3 17 5 27 8 informationKimpton Security IncidentIncidents provision.The amount provided in the year140 IHG | Annual Report and Form 20-F 2018 Kimpton Security Incident has been recognised within Central costsGroup’s workers compensation, employment practices liability and third-party general liability insurances. The amounts are based on reserves held in the Group income statement.Litigation largely relates to actions brought against the Group in The Americas region. In relation to the $12m settled during the year, anGroup’s captive insurance recovery of $8m was also recorded by the System Fund.company, SCH Insurance Company, and are established using independent actuarial assessments wherever possible, or a reasonable assessment based on past claims experience. 2016 2015 2018 2017 Current
$m Non-current
$m Total
$m Current
$m Non-current
$m Total
$m Current
$m Non-current
$m Current
$m Non-current
$m Bank overdrafts 89 – 89 39 – 39 Unsecured bank loans – 107 107 – – – – – – – 262 262 Finance lease obligations 17 210 227 17 207 224 16 219 235 16 215 231 £250m 6% bonds 2016 – – – 371 – 371 £400m 3.875% bonds 2022 – 489 489 – 588 588 – 509 509 – 538 538 £300m 3.75% bonds 2025 – 370 370 – 444 444 – 385 385 – 406 406 £350m 2.125% bonds 2026 – 430 430 – – – – 447 447 – 472 472 Total borrowings 106 1,606 1,712 427 1,239 1,666 €500m 2.125% bonds 2027 – 569 569 – – – 16 2,129 2,145 16 1,893 1,909 Bank overdrafts 104 – 104 110 – 110 Total loans and other borrowings 120 2,129 2,249 126 1,893 2,019 Denominated in the following currencies: – 1,289 1,289 373 1,032 1,405 – 1,341 1,341 – 1,416 1,416 101 317 418 46 207 253 110 219 329 124 477 601 2 – 2 4 – 4 8 569 577 2 – 2 3 – 3 4 – 4 2 – 2 – – – 106 1,606 1,712 427 1,239 1,666 120 2,129 2,249 126 1,893 2,019 Bank overdraftsBank overdrafts are matched by equivalent amountsLoans and other borrowings (excluding bank overdrafts) and currency swaps comprise the liabilities included in the financing activities section of the Group statement of cash flows and cash equivalents undertheir movements are analysed as follows:
2018 Cash flows
$m Exchange
adjustments
$m Other
$m
2018 Unsecured bank loans 262 (268 ) 3 3 – Finance lease obligations 231 – – 4 235 £400m 3.875% bonds 2022 538 – (30 ) 1 509 £300m 3.75% bonds 2025 406 – (23 ) 2 385 £350m 2.125% bonds 2026 472 – (26 ) 1 447 €500m 2.125% bonds 2027 – 559 9 1 569 1,909 291 (67 ) 12 2,145 Currency swaps: – (5 ) – (2 ) (7 ) – 3 – (3 ) – – (2 ) – (5 ) (7 ) 1,909 289 (67 ) 7 2,138
2017 Cash flows
$m Exchange
adjustments
$m Other $m
2017 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 IHG | Annual Report and Form 20-F 2018 | Group Financial Statements | Notes 141 Group’s cash pooling arrangements (see note 17 for further details).Group Financial Statements continuedfacilities.Facilities. Amounts are classified as non-current when the facilities have more than 12 months to expiry.2021, with a one-year extension option exercisable in 2017.2022.2021, with a one-year extension option exercisable in 2017.2022. The Bilateral Facility contains the same terms and covenants as the Syndicated Facility.Facility (see note 22).was 1.37%were undrawn at 31 December 2016.126 IHG Annual Report and Form 20-F 2016 Group Financial Statements20. Loans and other borrowingscontinued8987 years remain) on the InterContinental Boston hotel, are payable as follows: 2016 2015 2018 2017 Minimum
lease
payments
$m Present
value of
payments
$m Minimum
lease
payments
$m Present
value of
payments
$m Less than one year 17 17 17 17 16 16 16 16 Between one and five years 64 48 65 49 72 53 67 49 More than five years 3,252 162 3,268 158 3,212 166 3,234 166 3,333 227 3,350 224 3,300 235 3,317 231 Less: amount representing finance charges (3,106 ) – (3,126 ) – (3,065 ) – (3,086 ) – 227 227 224 224 235 235 231 231 £250m 6% bonds 2016The 6% fixed interest sterling bonds were issued on 9 December 2009 and were repaid in full on 9 December 2016. 2016 2015 Utilised
$m Unutilised
$m Utilised
$m Unutilised
$m Committed 110 1,240 1,350 – 1,350 1,350 Uncommitted – 70 70 – 64 64 110 1,310 1,420 – 1,414 1,414 Unutilised facilities expire: 70 64 1,240 1,350 1,310 1,414 2018 2017 Committed – 1,350 1,350 264 1,086 1,350 Uncommitted – 53 53 1 69 70 – 1,403 1,403 265 1,155 1,420 Unutilised facilities expire: Within one year 53 69 After two but before five years 1,350 1,086 1,403 1,155 142 Notes to the Group Financial Statements IHG | Annual Report and Form 20-F 2016 1272018NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED Cash and cash equivalents 206 1,137 704 168 Loans and other borrowings – current (106 ) (427 ) (120 ) (126 ) – non-current (1,606 ) (1,239 ) (2,129 ) (1,893 ) Derivatives hedging debt values (note 22) 15 – Net debt (1,506 ) (529 ) (1,530 ) (1,851 ) Movement in net debt Net (decrease)/increase in cash and cash equivalents, net of overdrafts (920 ) 1,107 Net increase/(decrease) in cash and cash equivalents, net of overdrafts 563 (75 ) Add back cash flows in respect of other components of net debt: (459 ) (458 ) – (400 ) 315 – – 400 (109 ) 355 (Increase)/decrease in net debt arising from cash flows (1,173 ) 1,004 (554 ) – 268 (153 ) Decrease/(increase) in net debt arising from cash flows 277 (228 ) Non-cash movements: (4 ) (6 ) (4 ) (4 ) (6 ) (7 ) (3 ) 1 206 13 51 (114 ) (Increase)/decrease in net debt (977 ) 1,004 Decrease/(increase) in net debt 321 (345 ) Net debt at beginning of the year (529 ) (1,533 ) (1,851 ) (1,506 ) Net debt at end of the year (1,506 ) (529 ) (1,530 ) (1,851 ) 
non-GAAPNon-GAAP measures can26.36.IHG | Annual Report and Form 20-F 2018 | Group Financial Statements | Notes 143 liquidityinterest rate risk, interest rateliquidity risk, credit risk and capital risk. There are Board approved policies in place to manage these risks. Treasury activities to manage these risks may include money market investments, repurchase agreements, spot and forward foreign exchange instruments, currency swaps, interest rate swaps and forward rate agreements.assetsliabilities and its interest cover. The most significant exposures of the Group are in currencies that are freely convertible. The Group’s reported debt has an exposure to borrowings held in pounds sterling.sterling and euros.20162018 or 31 December 2015.2017.The Group also uses short-dated foreign exchange swaps to manage sterling surplus cash and reduce US dollar borrowings whilst maintaining operational flexibility. At 31 December 2016,2018, the Group held short-dated foreign exchangecurrency swaps with principalsa principal of $120m (2015: $481m).thesethe currency swap comprises two components: $15m gain relating to exchange movements on the underlying principal and $8m loss relating to other fair value movements. The fair value movement has been recorded in the cash flow hedging reserve and there was no material hedge ineffectiveness. The element relating to the underlying principal is disclosed as a component of net debt (see note 21).31 December 2016 was a $3m liability (2015: $3m liability).their fair values (see note 23) as follows: 2018
$m 2017
$m Currency swapsa 7 – Forward foreign exchange contractsb 1 – 8 – Analysed as: Non-current assets 7 – Current assets 1 – 8 – a b €nil (2015:€285m) and $325m (2015: $315m) $100m (2017: $160m).128 IHG Annual Report and Form 20-F 2016 Group Financial Statements22. FinancialThe currency swaps are designated as hedging instruments in cash flow hedges of the exposure to foreign exchange risk managementcontinuedon the€500m 2.125% bonds. The change in value of the hedged item used as the basis for recognising hedge ineffectiveness for the period was $9m. Amounts recognised in the cash flow hedging reserve are analysed in note 27.93%100% of borrowings were fixed rate debt at 31 December 2016 (2015: 100%2018 (2017: 86%).2016, 20152018, 2017 or 2014.2016.144 IHG | Annual Report and Form 20-F 2018 assets,liabilities, and the impact of a rise in US dollar, euro and sterling interest rates on the Group’s profit before tax. 2016
$m 2015
$m 2014
$m Increase/(decrease) in profit before tax Sterling: US dollar exchange rate 5¢ fall 5.2 4.8 4.5 Euro: US dollar exchange rate 5¢ fall (2.2 ) (1.9 ) (2.2 ) US dollar interest rates 1% increase (1.8 ) (0.9 ) (6.7 ) Euro interest rates 1% increase – – (0.9 ) Sterling interest rates 1% increase 1.3 7.9 0.7 Increase/(decrease) in net assets Sterling: US dollar exchange rate 5¢ fall 47.2 23.7 29.1 Euro: US dollar exchange rate 5¢ fall (5.5 ) (7.6 ) (10.9 ) 2018
$m 2017
$m 2016
$m Increase/(decrease) in profit before tax Sterling: US dollar exchange rate 5¢ fall 4.1 4.0 5.2 Euro: US dollar exchange rate 5¢ fall (2.4 ) (2.1 ) (2.2 ) US dollar interest rates 1% increase (0.9 ) (2.9 ) (1.8 ) Sterling interest rates 1% increase 5.5 0.3 1.3 Decrease/(increase) in net liabilities Sterling: US dollar exchange rate 5¢ fall 25.8 44.1 47.2 Euro: US dollar exchange rate 5¢ fall 23.1 (4.1 ) (5.5 ) Sterling: euro exchange rate 5¢ fall 31.9 – – position plus, in 2014, the $400m bilateral term loan drawn in 2015 to finance the Kimpton acquisition.position.$3m (2015: $1m)$2m (2017: $3m) is held in countries where repatriation is restricted as a result of foreign exchange regulations.facilitiesFacilities contain two financial covenants: interest cover and net debt divided by earningsoperating profit before interest, tax,exceptional items, depreciation and amortisation (EBITDA).and System Fund revenues and expenses. The Group has been in compliance with all of the financial covenants in its loan documents throughout the year and expects to continue to have significant headroom for the foreseeable future.Notes to the Group Financial Statements IHG Annual Report and Form 20-F 2016 129NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED22. Financial risk managementcontinuedpayments:
1 year Between 1
and 2 years
$m Between 2
and 5 years
$m
5 years 31 December 2016 Non-derivative financial liabilities: 89 – – – 89 110 – – – 110 19 19 57 510 605 14 14 42 419 489 9 9 28 473 519 17 16 48 3,252 3,333 644 173 210 192 1,219 3 5 – – 8 Derivative financial liabilities: 3 – – – 3 31 December 2015 Non-derivative financial liabilities: 39 – – – 39 393 – – – 393 23 23 69 638 753 17 17 50 521 605 17 17 48 3,268 3,350 839 178 263 192 1,472 15 – – – 15 Derivative financial liabilities: 3 – – – 3 Trade and other payables above includes the cash flows relating to the future redemption liabilitypayments. The payment profile of the Group’s loyalty programme. The repayment profilecontingent consideration has been determined by actuaries based on expected redemption profilesmanagement’s forecasts and could in reality be different from expectations.
1 year
5 years 31 December 2018 Non-derivative financial liabilities: 7 8 37 262 314 104 – – – 104 20 20 550 – 590 14 14 43 412 483 10 10 28 475 523 6 12 37 621 676 16 16 56 3,212 3,300 611 5 9 20 645 Derivative financial liabilities: (1 ) – – – (1 ) 20 20 58 625 723 (6 ) (12 ) (37 ) (621 ) (676 ) 31 December 2017 Non-derivative financial liabilities: 110 – – – 110 264 – – – 264 21 21 601 – 643 15 15 46 445 521 10 10 30 510 560 16 16 51 3,234 3,317 597 5 11 20 633 IHG | Annual Report and Form 20-F 2018 | Group Financial Statements | Notes 145 AAA AA- A Total Short-term deposits 76 70 88 234 Collateral by type 2018 Government bonds 60 Supranational bonds 208 268 Collateral by credit rating 2018 AAA 207 AA 34 AA- 27 268 Tiertier 1 capital and share price volatility of the relevant counterparty. Note 2016
$m Cash and cash equivalents 17 206 1,137 Equity securities available-for-sale 15 156 150 Loans and receivables: 15 112 134 16 403 391 877 1,812 130 IHG Annual Report and Form 20-F 2016 Group Financial Statements Note 2018
$m 2017
$m Cash and cash equivalents 17 704 168 Derivative financial instruments 22 8 – Financial assets measured at amortised cost: 15 145 117 16 502 477 1,359 762 22. Financial risk managementcontinued$739m$445m at 31 December 2016 (2015: $838m)2018 (2017: $543m restated). The structure is managed to maintain an investment grade credit rating, to provide ongoing returns to shareholders and to service debt obligations, whilst maintaining maximum operational flexibility. A key characteristic of IHG’s managed and franchised business model is that it is highly cash generative, with a high return on capital employed. Surplus cash is either reinvested in the business, used to repay debt or returned to shareholders. The Group’s debt is monitored on the basis of a cash flow leverage ratio, being net debt divided by EBITDA, with the objective of maintaining an investment grade credit rating.146 IHG | Annual Report and Form 20-F 2018 2016 2015 Note
value
value Financial assets Cash and cash equivalents 17 206 206 1,137 1,137 Equity securities available-for-salea 15 156 156 150 150 Loans and receivables: 15 112 112 134 134 16 403 403 391 391 877 877 1,812 1,812 Financial liabilities £250m 6% bonds 2016 20 – – (371 ) (386 ) £400m 3.875% bonds 2022 20 (489 ) (541 ) (588 ) (608 ) £300m 3.75% bonds 2025 20 (370 ) (408 ) (444 ) (443 ) £350m 2.125% bonds 2026 20 (430 ) (411 ) – – Finance lease obligations 20 (227 ) (297 ) (224 ) (305 ) Unsecured bank loans 20 (107 ) (107 ) – – Bank overdrafts 20 (89 ) (89 ) (39 ) (39 ) Loyalty programme liability 32 (685 ) (685 ) (649 ) (649 ) Trade and other payables 18 (881 ) (881 ) (768 ) (768 ) Derivativesa (3 ) (3 ) (3 ) (3 ) Provisions 19 (8 ) (8 ) (15 ) (15 ) (3,289 ) (3,430 ) (3,101 ) (3,216 ) aFinancial assets and liabilities which are measured at fair value. 2018 2017 Note
value Fair
value
$m Financial assets Financial assets measured at fair value: 15 116 116 127 127 22 8 8 – – 124 124 127 127 Financial assets measured at amortised cost: 17 704 704 168 168 15 145 145 117 117 16 502 502 477 477 1,351 1,351 762 762 1,475 1,475 889 889 Financial liabilities Financial liabilities measured at fair value: 18 (131 ) (131 ) – – Financial liabilities measured at amortised cost: £400m 3.875% bonds 2022 20 (509 ) (543 ) (538 ) (593 ) £300m 3.75% bonds 2025 20 (385 ) (399 ) (406 ) (441 ) £350m 2.125% bonds 2026 20 (447 ) (417 ) (472 ) (454 ) €500m 2.125% bonds 2027 20 (569 ) (566 ) – – 20 (235 ) (313 ) (231 ) (318 ) 20 – – (262 ) (262 ) 20 (104 ) (104 ) (110 ) (110 ) 18 (645 ) (645 ) (633 ) (633 ) 19 (27 ) (27 ) (8 ) (8 ) (2,921 ) (3,014 ) (2,660 ) (2,819 ) (3,052 ) (3,145 ) (2,660 ) (2,819 ) the future redemption liability of the Group’s loyalty programme and current provisions approximates to their carrying value.Notes to the Group Financial Statements IHG Annual Report and Form 20-F 2016 131NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED23. Fair value measurementcontinued 2016 2015 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: 14 – – 14 14 – – 14 – – 142 142 – – 136 136 Liabilities £250m 6% bonds 2016 – – – – (386 ) – – (386 ) £400m 3.875% bonds 2022 (541 ) – – (541 ) (608 ) – – (608 ) £300m 3.75% bonds 2025 (408 ) – – (408 ) (443 ) – – (443 ) £350m 2.125% bonds 2026 (411 ) – – (411 ) – – – – Finance lease obligations – (297 ) – (297 ) – (305 ) – (305 ) Derivatives – (3 ) – (3 ) – (3 ) – (3 ) IHG | Annual Report and Form 20-F 2018 | Group Financial Statements | Notes 147 2018 2017 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 measured at fair value: 8 – – 8 10 – – 10 – – 108 108 – – 117 117 Derivatives – 8 – 8 – – – – Liabilities Deferred and contingent purchase consideration – – (131 ) (131 ) – – – – £400m 3.875% bonds 2022 (543 ) – – (543 ) (593 ) – – (593 ) £300m 3.75% bonds 2025 (399 ) – – (399 ) (441 ) – – (441 ) £350m 2.125% bonds 2026 (417 ) – – (417 ) (454 ) – – (454 ) €500m 2.125% bonds 2027 (566 ) – – (566 ) – – – – Finance lease obligations – (313 ) – (313 ) – (318 ) – (318 ) 20162018 was 7.2% (2015: 7.0%7.1% (2017: 6.9%).24.5 (2015: 21.9)19.9 (2017: 30.7) and a non-marketability factor of 30% (2015:(2017: 30%) is applied. A 10% increase in the average P/E ratio would result in a $2m increase (2015: $3m)(2017: $2m) in the fair value of the investments and a 10% decrease in the average P/E ratio would result in a $2m decrease (2015: $3m)(2017: $2m) in the fair value of the investments. A 10% increase in net assets would result in a $7m$8m increase (2015: $8m)(2017: $7m) in the fair value of the investments and a 10% decrease in net assets would result in a $7m$8m decrease (2015: $8m)(2017: $7m) in the fair value of the investments.investmentsfinancial instruments classified as Level 3 during the year: 2016
$m 2015
$m Equity
securities
$m
consideration At 1 January 136 128 At 1 January 2017 142 – Additions 2 5 2 – Disposals (15 ) – (3 ) – Reclassification of associate (note 14) 14 – Valuation gains recognised in other comprehensive income 5 4 48 – Valuation gains reclassified to the income statement on disposal (73 ) – Exchange and other adjustments – (1 ) 1 – At 31 December 142 136 At 31 December 2017 117 – Additions 4 – Acquisition of businesses (note 11) – 131 Disposals (1 ) – Valuation losses recognised in other comprehensive income (10 ) – Contingent consideration paid – (4 ) Change in fair value recorded in finance costs – 5 Exchange and other adjustments (2 ) (1 ) At 31 December 2018 108 131 132 148IHG | Annual Report and Form 20-F 2016 Group Financial Statements2018For the year ended 31 December 2016 Note 2016
$m 2014
$m For the year ended 31 December 2018 Note 2018
$m 2017
Restated
$m 2016
Restated
$m Profit for the year 417 1,224 392 352 541 459 Adjustments for: 87 87 80 81 72 80 7 174 188 208 8 133 115 173 96 96 96 80 78 75 45 36 31 5 16 36 – 6 – 18 16 5 13 (855 ) (29 ) 6 151 (13 ) 13 26 17 19 21 26 38 27 23 14 5 5 2 14 5 4 5 (24 ) 3 (18 ) 32 65 42 58 31 21 20 102 (13 ) 41 19 (4 ) – (2 ) (44 ) (71 ) (27 ) (3 ) (5 ) (4 ) 141 43 109 7 35 39 19 (6 ) – (4 ) (32 ) (4 ) (6 ) (12 ) (1 ) (32 ) (19 ) (45 ) (114 ) (137 ) (44 ) (19 ) 19 17 13 9 6 4 4 (3 ) – Total adjustments 536 (414 ) 361 502 308 491 Cash flow from operations 953 810 753 Cash flow from operations before contract acquisition costs 854 849 950 &and Customs registered and governed by an independent trustee, assisted by professional advisers as and when required. The overall operation of the plan is subject to the oversight of The Pensions Regulator.20162018 (see note 15) is currently held as security on behalf of the remaining members.TheDuring the year, the Group also maintainscompleted a termination of the following US-based defined benefit plans: theUS funded Inter-Continental Hotels Pension Plan (the Plan), which involved certain qualifying members receiving lump-sum cash-out payments of $20m with the remaining pension obligations subject to a buy-out by Banner Life Insurance Company (Banner), a subsidiary of Legal & General America, through the purchase of a group annuity contract for $124m. Banner assumed responsibility for the payment of the Plan’s pension obligations on 12 June 2018. A further amount of $6m was transferred to the Pension Benefit Guaranty Corporation in respect of members who it had not been possible to trace. The transactions were funded using the assets of the Plan and a final Company contribution of $12m, $1.5m of which was subsequently returned to the Company as a ‘mistake-in-fact’ contribution refund.Plan. AllPlan, both of which are defined benefit plans. Both plans are closed to new members. In respect of the Plan, an InvestmentA Retirement Committee, comprising senior Company employees and assisted by professional advisors as and when required, has responsibility for the oversight and management of the plan’s assets, which are held in a separate trust. The Committee comprises senior company employees and is assisted by professional advisers as and when required.plans.During 2016, the Group made a funding contribution of $32m to the Plan which has enabled it to achieve full funding. The assets of the Plan have subsequently been invested 100% in liability-matching assets.During 2015, the Group made a lump sum cash-out offer to the terminated vested members of the Inter-Continental Hotels Pension Plan. Members accepting the offer received lump sum cash payments totalling $11m on 1 November 2015.The Group previously maintained defined benefit pension plans in Hong Kong and the Netherlands. During 2015, the Hong Kong plan was transferred to the new owner of InterContinental Hong Kong (see note 11) and the Dutch pension obligations became fully insured resulting in the cessation of defined benefit accounting.Notes to the Group Financial Statements IHG | Annual Report and Form 20-F 2016 1332018 | Group Financial Statements | Notes149 NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDGroup Financial Statements Pension plans Pension plans UK US and other Total UK US benefits Total 2016
$m 2015
$m 2014
$m 2016
$m 2015
$m 2014
$m 2016
$m 2015
$m 2014
$m 2016
$m 2015
$m 2014
$m 2018
$m 2017
$m 2016
$m 2018
$m 2017
$m 2016
$m 2018
$m 2017
$m 2016
$m 2018
$m 2017
$m 2016
$m Current service cost – – – – – 1 – – – – – 1 Net interest expense 1 1 2 2 3 3 1 1 1 4 5 6 1 1 1 2 2 2 1 1 1 4 4 4 Administration costs – 1 3 1 1 – – – – 1 2 3 – – – – 1 1 – – – – 1 1 Settlement gain – – – – (2 ) – – – – – (2 ) – Operating profit before exceptional items 1 2 5 3 2 4 1 1 1 5 5 10 1 1 1 2 3 3 1 1 1 4 5 5 Exceptional items: – – 6 – – – – – – – – 6 – – – 15 – – – – – 15 – – 1 2 11 3 2 4 1 1 1 5 5 16 1 1 1 17 3 3 1 1 1 19 5 5 gain in 2015 resultedloss arises from the partial cash-outtermination of the US Inter-Continental Hotels Pension Plan and comprisedcomprises the difference between cash cost of the termination arrangements and the accounting value of the liabilities extinguished, and the amount of the lump sum payments.The settlement cost in 2014 resulted from the partial cash-out of the UK unfunded pension arrangements and comprisedtogether with related transaction and related social security costs of $9m, offset by the $3m difference between the accounting value of the liabilities extinguished and the amount of the committed cash-out payments. In 2014, related cash payments of $53m are included in cash flows relating to exceptional items in the Group statement of cash flows.costs. 2016 2015 2014 Plan
assets
$m Plan
obligations
$m Total
$m Plan
assets
$m Plan
obligations
$m Total
$m Plan
assets
$m Plan
obligations
$m Total
$m 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) – – – (7 ) – (7 ) 88 – 88 (8 ) – (8 ) 9 – 9 – – – Actuarial gains and losses arising from changes in: – 6 6 – 5 5 – (3 ) (3 ) – – – – 1 1 – 6 6 – (11 ) (11 ) – 10 10 – (113 ) (113 ) – 14 14 – (9 ) (9 ) – (11 ) (11 ) – 1 1 – 2 2 – 4 4 – 3 3 – (2 ) (2 ) – 1 1 Change in asset restriction (excluding amounts included in interest) – – – 3 – 3 (1 ) – (1 ) 3 – 3 (3 ) – (3 ) – – – Other comprehensive income – (4 ) (4 ) (4 ) 17 13 87 (112 ) (25 ) (5 ) 17 12 6 (10 ) (4 ) – (4 ) (4 ) Pension plans US and other US Post-employment
benefits Total 2016
$m 2015
$m 2016
$m 2015
$m 2016
$m 2015
$m Retirement benefit obligations Fair value of plan assets – – 148 121 – – 148 121 Present value of benefit obligations (27 ) (27 ) (195 ) (202 ) (22 ) (21 ) (244 ) (250 ) Total retirement benefit obligations (27 ) (27 ) (47 ) (81 ) (22 ) (21 ) (96 ) (129 ) Pension plans US Post-employment UK US benefits Total 2018
$m 2017
$m 2018
$m 2017
$m 2018
$m 2017
$m 2018
$m 2017
$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 – – – – – – – – Present value of benefit obligations (24 ) (29 ) (45 ) (51 ) (22 ) (24 ) (91 ) (104 ) Total retirement benefit obligations (24 ) (29 ) (45 ) (51 ) (22 ) (24 ) (91 ) (104 ) Total fair value of plan assets – – – 152 – – – 152 Total present value of benefit obligations (24 ) (29 ) (45 ) (197 ) (22 ) (24 ) (91 ) (250 ) 134 150IHG | Annual Report and Form 20-F 2016 Group Financial Statements2018 Pension plans Pension plans US Post-employment UK US UK US benefits 2016
% 2015
% 2014
% 2016
% 2015
% 2014
% 2016
% 2015
% 2014
% 2018
% 2017
% 2016
% 2018
% 2017
% 2016
% 2017
% 2016
% Pensions increases 3.3 3.2 3.3 – – – – – – 3.2 3.2 3.3 – – – – – – Discount rate 2.7 4.0 3.7 3.7 3.9 3.6 3.8 3.9 3.7 3.0 2.6 2.7 3.9 3.3 3.7 4.0 3.3 3.8 Inflation rate 3.3 3.2 3.3 – – – – – – 3.2 3.2 3.3 – – – – – – Healthcare cost trend rate assumed for next year: 7.0 7.5 8.0 8.3 9.0 12.5 7.1 7.7 7.0 7.6 8.7 8.3 Ultimate rate that the cost trend rate trends to 4.5 4.5 5.0 4.5 4.5 4.5 CMI_2015CMI_2017 model and a 1.25% per annum long-term trend with age rated down by 0.7 and 2.3 years for pensioners and 0.5 and 2.6 years for non-pensioners, male and female respectively. In the US, the current assumptions are based on the RP-2014 Employee/Healthy Annuitant Generationally Projected with Scale MP-2016MP-2018 mortality tables.reduced life expectancy at retirement age as follows: Pension plans Pension plans UK US UK US 2016
Years 2015
Years 2014
Years 2016
Years 2015
Years 2014
Years 2018
Years 2017
Years 2016
Years 2018
Years 2017
Years 2016
Years Current pensioners at 65a – male 24 26 26 21 21 22 – male 24 24 24 21 21 21 – female 26 29 29 23 23 24 – female 26 26 26 23 23 23 Future pensioners at 65b – male 25 28 28 22 23 23 – male 25 25 25 22 22 22 – female 28 31 31 24 25 25 – female 28 28 28 24 24 24 a Relates to assumptions based on longevity (in years) following retirement at the end of the reporting period.a b Relates to assumptions based on longevity (in years) relating to an employee retiring in 2036.b a materialan impact on the income statement and the statement of financial position. The key assumptions are the pensionpensions 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.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
(lower)
pension
cost Increase/
(decrease)
in liabilities
$m
(lower)
pension
cost Increase/
(decrease)
in liabilities
$m Pensions increases – 0.25% decrease (0.1 ) (1.0 ) – – – 0.25% decrease – (1.0 ) – – – 0.25% increase – 1.2 – – – 0.25% increase 0.1 1.0 – – Discount rate – 0.25% decrease 0.1 1.4 – 5.6 – 0.25% decrease – 1.0 (0.1 ) 1.6 – 0.25% increase – (1.2 ) – (5.3 ) – 0.25% increase 0.1 (1.0 ) 0.1 (1.5 ) Inflation rate – 0.25% increase – 1.2 – – – 0.25% increase 0.1 1.0 – – – 0.25% decrease (0.1 ) (1.0 ) – – – 0.25% decrease – (1.0 ) – – Mortality rate – one year increase – 0.7 0.3 8.7 – One year increase 0.1 0.6 0.1 3.3 20162018 by $1.7m (2017: $1.9m, (2015: $2.0m, 2014: $2.4m)2016: $1.9m) and a one percentage point decrease would decrease the obligations by $1.7m (2015:$1.6m (2017: $1.8m, 2014: $2.2m)2016: $1.7m).Notes to the Group Financial Statements IHG | Annual Report and Form 20-F 2016 1352018 | Group Financial Statements | Notes151 NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDGroup Financial Statements Pension plans Pension plans US Post-employment US and other US Post-employment
benefits Total UK US benefits Total 2016
$m 2015
$m 2016
$m 2015
$m 2016
$m 2015
$m 2016
$m 2015
$m 2018
$m 2017
$m 2018
$m 2017
$m 2018
$m 2017
$m 2018
$m 2017
$m Benefit obligation at 1 January 27 31 202 255 21 24 250 310 29 27 197 195 24 22 250 244 Interest expense 1 1 7 8 1 1 9 10 1 1 4 7 1 1 6 9 Settlement gain before costs – – – (2 ) – – – (2 ) Benefits paid – – (13 ) (14 ) (1 ) (1 ) (14 ) (15 ) (1 ) (1 ) (9 ) (13 ) (1 ) (1 ) (11 ) (15 ) Committed cash-out payments – – – (11 ) – – – (11 ) Re-measurement losses/(gains) 4 (4 ) (1 ) (10 ) 1 (3 ) 4 (17 ) Derecognised on buy-out – – – (11 ) – – – (11 ) Transfers to non-current assets classified as held for sale – – – (12 ) – – – (12 ) Settlement payments – – (150 ) – – – (150 ) – Settlement loss – – 14 – – – 14 – Re-measurement (gains)/losses (4 ) – (11 ) 8 (2 ) 2 (17 ) 10 Exchange adjustments (5 ) (1 ) – (1 ) – – (5 ) (2 ) (1 ) 2 – – – – (1 ) 2 Benefit obligation at 31 December 27 27 195 202 22 21 244 250 24 29 45 197 22 24 91 250 Comprising: – – 145 150 – – 145 150 – – – 146 – – – 146 27 27 50 52 22 21 99 100 24 29 45 51 22 24 91 104 27 27 195 202 22 21 244 250 24 29 45 197 22 24 91 250 Pension plans Pension plans US Post-employment US and other US Post-employment
benefits Total UK US benefits Total 2016
$m 2015
$m 2016
$m 2015
$m 2016
$m 2015
$m 2016
$m 2015
$m 2018
$m 2017
$m 2018
$m 2017
$m 2018
$m 2017
$m 2018
$m 2017
$m Fair value of plan assets at 1 January – 8 121 167 – – 121 175 – – 152 148 – – 152 148 Company contributions – – 36 8 1 1 37 9 1 1 14 4 1 1 16 6 Benefits paid – – (13 ) (14 ) (1 ) (1 ) (14 ) (15 ) (1 ) (1 ) (9 ) (13 ) (1 ) (1 ) (11 ) (15 ) Settlement payments – – (150 ) – – – (150 ) – Interest income – – 5 5 – – 5 5 – – 2 5 – – 2 5 Re-measurement losses – – – (7 ) – – – (7 ) Administration costs – (1 ) (1 ) (1 ) – – (1 ) (2 ) Derecognised on buy-out – – – (22 ) – – – (22 ) Transfer to defined contribution plan – (7 ) – – – – – (7 ) Transfers to non-current assets classified as held for sale – – – (15 ) – – – (15 ) Re-measurement (losses)/gains – – (8 ) 9 – – (8 ) 9 Settlement transaction costs – – (1 ) (1 ) – – (1 ) (1 ) Fair value of plan assets at 31 December – – 148 121 – – 148 121 – – – 152 – – – 152 $5m$6m in 2017.2019. US 2016
$m 2015
$m Investments quoted in active markets Investment funds: – 17 146 101 – 2 Unquoted investments Cash 2 1 148 121 US 2018
$m 2017
$m Investments quoted in active markets Investment funds: fixed income securities – 150 Unquoted investments Cash – 2 – 152 Pension plans US Post-employment UK US benefits Total 2018
$m 2017
$m 2018
$m 2017
$m 2018
$m 2017
$m 2018
$m 2017
$m Movement in asset restriction Balance at 1 January – – 3 – – – 3 – Re-measurement (losses)/gains – – (3 ) 3 – – (3 ) 3 Balance at 31 December – – – 3 – – – 3 136 152IHG | Annual Report and Form 20-F 2016 Group Financial Statements2018 Pension plans Pension plans US Post-employment US US Post-employment
benefits Total UK US benefits Total 2016
$m 2015
$m 2016
$m 2015
$m 2016
$m 2015
$m 2016
$m 2015
$m 2018
$m 2017
$m 2018
$m 2017
$m 2018
$m 2017
$m 2018
$m 2017
$m Within one year – – 14 14 1 1 15 15 – – 4 14 1 1 5 15 Between one and five years 2 2 54 54 5 5 61 61 3 3 14 53 6 6 23 62 After five years 13 16 63 65 7 7 83 88 More than five years 16 17 15 62 7 7 38 86 15 18 131 133 13 13 159 164 19 20 33 129 14 14 66 163 Average duration of obligation (years) 21.0 22.0 10.3 10.1 10.2 10.5 19.5 20.5 9.2 10.3 9.6 10.4 335,775 (2015: 265,285, 2014: 305,345)175,944 (2017: 234,918, 2016: 335,775) shares were awarded to participants. In 20162018 this number included 103,071 (2015: 58,338, 2014: 58,455)48,771 (2017: 79,471, 2016: 103,071) shares awarded as part of recruitment terms or for one-off individual performance-related awards.Performance-related awards: Awards to the Executive Directors, and some awards to other eligible employees, are granted subject to the achievement of performance conditions set by the Remuneration Committee, which are normally measured over the vesting period.Restricted stock units: Awards to eligible employees are granted subject to continued employment.1,355,721 (2015: 1,803,308, 2014: 2,171,390)784,119 (2017: 805,045, 2016: 1,355,721) shares were awarded to employees under the plan, comprising 888,518 (2015: 1,803,308, 2014: 2,171,390)257,240 (2017: 280,458, 2016: 888,518) performance-related awards and 467,203 (2015: nil, 2014: nil)526,879 (2017: 524,587, 2016: 467,203) restricted stock units.2015–172015-17 and subsequent LTIP cycles. The new plan rules contain substantially the same terms as the superseded plan rules. Executive6472 to 81.85.Notes to the Group Financial Statements IHG| Annual Report and Form 20-F 20162018 |Group Financial Statements 137| Notes153 NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDGroup Financial Statements$17m (2015: $19m, 2014: $21m)$27m (2017: $21m, 2016: $17m) in operating profit and $1m (2017: $2m, 2016: $nil) within exceptional administrative expenses related to equity-settled share-based payment transactions during the year, net of amounts borne by the System Fund. An additional $11m (2017: $6m, 2016: $6m) has been charged to the System Fund.TheNo aggregate consideration was received in respect of ordinary shares issued under option schemes during the year was $nil (2015: $nil, 2014: $nil).2018, 2017 or 2016.2016, 20152018, 2017 and 2014:2016: APP LTIP APP LTIP Binomial valuation model Binomial valuation model 2016 2015 2014 2016 2015 2014 2018 2017 2016 2018 2017 2016 Weighted average share price 2,725.0p 2,565.0p 1,925.0p 2,846.0p 2,634.0p 1,916.0p 4,645.0p 3,781.0p 2,725.0p 4,774.0p 4,300.0p 2,846.0p Expected dividend yield n/a n/a n/a 2.55% 2.34% 2.55% n/a n/a n/a 2.27% 2.05% 2.55% Risk-free interest rate 0.36% 0.59% 1.29% 0.84% 0.10% 0.36% Volatilitya 24% 22% 28% 25% 24% 24% Term (years) 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 a APP LTIP APP LTIP Number
of shares
thousands
related awards
Number
thousands
stock units
Number
thousands Number of shares
thousands
awards
thousands Restricted
stock units
Number of shares
thousands Outstanding at 1 January 2014 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 – Granted 265 1,803 – Vested (307 ) (1,278 ) – Lapsed or cancelled (37 ) (1,370 ) – Outstanding at 31 December 2015 689 5,275 – Outstanding at 1 January 2016 689 5,275 – Granted 336 889 467 336 889 467 Vested (229 ) (915 ) – (229 ) (915 ) – Share capital consolidation (104 ) – – (104 ) – – Lapsed or cancelled (7 ) (1,048 ) (18 ) (7 ) (1,048 ) (18 ) Outstanding at 31 December 2016 685 4,201 449 685 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 Granted 176 257 527 Vested (199 ) (702 ) – Lapsed or cancelled (2 ) (860 ) (142 ) Outstanding at 31 December 2018 591 1,088 1,301 Fair value of awards granted during the year (cents) 2018 6,066.2 4,748.7 5,966.0 2017 4,959.3 4,133.2 5,251.0 2016 3,671.9 1,768.0 3,624.5 3,671.9 1,768.0 3,624.5 2015 3,874.5 1,734.5 – 2014 3,134.6 1,202.1 – Weighted average remaining contract life (years) At 31 December 2018 1.0 0.8 1.2 At 31 December 2017 1.2 0.6 1.7 At 31 December 2016 1.2 0.9 2.2 1.2 0.9 2.2 At 31 December 2015 1.2 1.1 – At 31 December 2014 1.1 1.1 – 2,511.1p (2015: 2,592.1p)4,583.8p (2017: 3,804.7p). The closing share price on 31 December 20162018 was 3,638.0p4,237.0p and the range during the year was 2,193.0p3,948.0p to 3,638.0p4,966.0p per share.138 154IHG | Annual Report and Form 20-F 2016 Group Financial Statements2018 Number
of shares
millions
value Share
premium
$m Equity
share
capital
$m Allotted, called up and fully paid At 1 January 2014 (ordinary shares of 14194/329p 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 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 On 7 August 2012, the Company announced a $1bn return of funds to shareholders comprising a $500m special dividend with share consolidation and a $500m share repurchase programme. The share consolidation was approved on 8 October 2012 at a General Meeting (GM) of the Company and became effective on 9 October 2012 on the basis of 14 new ordinary shares of 14194/329p each for every 15 existing ordinary shares of 1329/47p each. The special dividend of 172.0¢ per share was paid to shareholders on 22 October 2012 at a total cost of $505m. Under the authority granted by shareholders at the GM on 8 October 2012, the share repurchase programme commenced. Between 8 October 2012 and 31 December 2014, 17.3m shares were repurchased for a consideration of $500m. Of the 17.3m shares repurchased, 12.5m were held as treasury shares and 4.8m were cancelled. The cost of treasury shares was deducted from retained earnings.
millions Allotted, called up and fully paid At 1 January 2016 (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 Exchange adjustments – (3 ) (5 ) (8 ) At 31 December 2018 (ordinary shares of 1917/21p each) 197 50 96 146 64 May 20162018 to purchase its own shares was still valid at 31 December 2016.2018. A resolution to renew the authority will be put to shareholders at the AGM on 53 May 2017.2019.On 6 August 2013, theThe Company announced a special dividend of 133.0¢ perno longer has an authorised share amounting to $355m which was paid to shareholders on 4 October 2013.capital.On 2 May 2014, the Company announced a $750m return to shareholders by way of a special dividend and share consolidation. On 30 June 2014, shareholders approved the share consolidation at a GM of the Company on the basis of 12 new ordinary shares of 15265/329p per share for every 13 existing ordinary shares of 14194/329p each, which became effective on 1 July 2014. The special dividend of 293.0¢ per share was paid to shareholders on 14 July 2014, at a total cost of $763m.As a result of the 2014 share consolidation, the number of shares held in treasury reduced from 12.5m to 11.5m.319318/329p per share for every 6 existing ordinary shares of 15265/329p, which became effective on 9 May 2016. The special dividend was paid to shareholders on 23 May 2016, at a total cost of $1.5bn.2016. The dividend and share consolidation had the same economic effect as a share repurchase at fair value, therefore previously reported earnings per share has not been restated.During 2016, 0.9m treasuryOn 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 were transferredof 1917/21p per share for every 47 existing ordinary shares of 18318/329p, which became effective on 8 May 2017. The special dividend was paid to shareholders on 22 May 2017. The dividend and share consolidation had the employeesame economic effect as a share trusts. Asrepurchase at fair value, therefore previously reported earnings per share has not been restated.result$500m return of funds to shareholders by way of a special dividend of $2.621 per ordinary share, together with a share consolidation. On 11 January 2019, shareholders approved the share consolidation and payment of the 2016special dividend. The dividend of $510m was paid on 29 January 2019. The dividend and share consolidation had the number of shares held in treasury reduced from 10.6m to 8.9m.same economic effect as a share repurchase at fair value, therefore reported earnings per share has not been restated.TheAt 31 December 2018, 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 181931817/32921p shares. The share premium reserve represents the amount of proceeds received for shares in excess of their nominal value.In February 2017, the Board proposed a $400m return of funds to shareholders by way of a special dividend of 202.5¢ per ordinary share, together with a share consolidation.The Company no longer has an authorised share capital.Notes to the Group Financial Statements IHG Annual Report and Form 20-F 2016 139NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED27. Equitycontinued9398 to 95100 of the Group Financial Statements is as follows:$10.5m (2015: $18.3m, 2014: $34.5m)$3.6m (2017: $5.4m, 2016: $10.5m) in respect of 0.3m (2015: 0.5m, 2014: 0.9m)0.2m (2017: 0.2m, 2016: 0.3m) InterContinental Hotels Group PLC ordinary shares held by employee share trusts, with a market value at 31 December 20162018 of $15.0m (2015: $19.8m, 2014: $38.2m)$8.3m (2017: $12.1m, 2016: $15.0m).Unrealised gains and lossesFair value reservefair value of available-for-sale financial assets measured at fair value. This reserve was previously called the unrealised gains and losses reserve. The change in name reflects that gains and losses will no longer be reflected in the income statement following adoption of IFRS 9.IHG | Annual Report and Form 20-F 2018 | Group Financial Statements | Notes 155 Cash flow hedging reserve Value of
currency
swaps
$m Costs of
hedging
$m Total
$m At 1 January 2018 – – – Costs of hedging deferred and recognised in other comprehensive income – (1 ) (1 ) Change in fair value of currency swaps recognised in other comprehensive income 4 – 4 Reclassified from other comprehensive income to profit or loss – included in financial expenses (8 ) – (8 ) Deferred tax 1 – 1 At 31 December 2018 (3 ) (1 ) (4 ) thehedging instruments used in cash flow hedges pending subsequent recognition in profit or loss.instruments relatedreflects the gain or loss on the portion excluded from the designated hedging instrument that relates to hedged transactions that have not yet occurred.the value of the foreign currency basis spread of currency swaps. It is initally recognised in other comprehensive income and accounted for similarly to changes in value of currency swaps.20162018 was a$1m net asset (2017: $nil, 2016: $3m net liability (2015: $3m net liability, 2014: $2m net asset)liability).2016, 8.9m2018, 6.8m shares (2015: 11.5m, 2014: 11.5m)(2017: 7.6m, 2016: 8.9m) with a nominal value of $2.1m (2015: $2.7m, 2014: $2.8m)$1.7m (2017: $2.0m, 2016: $2.1m) were held as treasury shares at cost and deducted from retained earnings.2016, $84m (2015: $77m, 2014: $72m)2018, $101m (2017: $86m, 2016: $84m) was recognised as an expense in the Group income statement in respect of operating leases, net of amounts borne directly by the System Fund. An additional $5m (2017: $6m, 2016: $7m) has been charged to the System Fund. The expense, recorded in the Group income statement, includes contingent rents of $51m (2017: $32m, (2015: $29m, 2014: $27m)2016: $32m). $2m (2015: $3m, 2014: $4m)(2017: $2m, 2016: $2m) was recognised as income from sub-leases. 2016
$m 2015
$m Due within one year 53 47 56 56 One to two years 49 42 54 46 Two to three years 43 42 67 45 Three to four years 41 38 35 60 Four to five years 58 37 31 30 More than five years 346 402 266 297 590 608 509 534 1715 years (2015: 17(2017: 15 years). No material restrictions or guarantees exist in the Group’s lease obligations.$4m (2015: $5m)$3m (2017: $4m).140 156IHG | Annual Report and Form 20-F 2016 Group Financial Statements2018 2016
$m 2015
$m Contracts placed for expenditure not provided for in the Financial Statements: 11 29 46 18 86 47 7 27 83 59 97 76 136 104 The Groupa committedbeen made available to a hotel owner; this was undrawn at 31 December 2018.a number of its associates with an estimated outstanding commitment of $36m at 31 December 2016 (2015: $45m) based on current forecasts.2018 (2017: $33m).During the first half ofIn 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). Based on the estimated number of cards affected and opinion of external advisers, an amount of $5m has been provided in the Financial Statements (see note 19) to cover the estimated cost of reimbursing the impacted payment card networks for counterfeit fraud losses and related expenses. This estimate involves significant judgement based on currently available information and is subject to change as actual claims are made and new information becomes available.In December 2016, the Group was notified of a(b) security incidentincidents at a number of IHG branded hotels in The Americas region (the Americas Security Incident). The Group issued a Substitute Notice on 3 February 2017 notifying guests thatincluding the installation of malware was installed on servers that processed payment cards used at restaurants and bars of 12 IHG managed properties. An investigationproperties, together the Security Incidents. A provision of other properties$5m was made at 31 December 2016 (see note 19), to cover the estimated cost of reimbursing the impacted card networks for counterfeit fraud losses and related expenses. During the year, the Group has reached agreement with the card networks on the assessments payable, $3m in The Americas regiontotal, the vast majority of which have been settled under the Group’s insurance programmes, with the balance expected to be similarly recovered. As a consequence, a provision is ongoing. It is not practicable to make a reliable estimate of the possible financial effect of any claims concerning the Americas Security Incidentno longer required at this time.31 December 2018.although no claims have been received to date. In addition, the Group is exposed toand legal action from individuals and organisations impacted by the security incidents. ASecurity Incidents. Due to the general nature of the regulatory enquiries received and class action has been filed in the courts in relationfilings to the Kimpton Security Incident, although alleged damages have not been specified. Itdate, other than mentioned below, it is not practicable to make a reliable estimate of the possible financial effecteffects of any such claims on the Group at this time.In respect of the $5m provided in the Financial Statements, it is expected that a proportion will be These contingent liabilities are potentially recoverable under the Group’s insurance programmes, although this, together with any potential recoveries in respect of the contingent liabilities detailed above,specific agreement will need to be subject to specific agreementreached with the relevant insurance providers.providers at the time any claim is made.2016,2018, the amount providedincluded within trade and other payables in the Financial Statements was $5m (2015: $1m)$3m (2017: $6m) and the maximum unprovided exposure under such guarantees was $14m (2015: $13m)$42m (2017: $31m).2016,2018, the Group had outstanding letters of credit of $37m (2015: $37m)$29m (2017: $35m) mainly relating to self insurance programmes.in which the Group has an equity interest.under IHG management or franchise contracts. At 31 December 2016,2018, there were guarantees of $33m$43m in place (2015: $30m)(2017: $54m).In connection with the Barclay associate (see note 14), the Group has provided an indemnity to its joint venture partner for 100% of the obligations related to a $43m supplemental bank loan made to the Barclay associate on 31 December 2015.172.192. The Group has also given warranties in respect of the disposal of certain of its former subsidiaries. It is the view of the Directors that, other than to the extent that liabilities have been provided for in these Financial Statements, it is not possible to quantify any loss to which these proceedings or claims under these warranties may give rise, however, as at the date of reporting, the Group does not believe that the outcome of these matters will have a material effect on the Group’s financial position.Notes to the Group Financial Statements IHG Annual Report and Form 20-F 2016 141NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED 2016
$m 2015
$m 2014
$m Total compensation of key management personnela Short-term employment benefits 19.2 19.5 21.5 Contributions to defined contribution pension plans 0.8 0.7 0.7 Equity compensation benefits 7.4 6.2 7.9 27.4 26.4 30.1 aIn 2014, excludes ICETUS cash-out payment of £9.4m. 2018
$m 2017
$m 2016
$m Total compensation of key management personnel Short-term employment benefits 18.2 21.3 19.2 Contributions to defined contribution pension plans 0.5 0.6 0.8 Equity compensation benefits 13.0 10.2 7.4 Termination benefits – 1.9 – 31.7 34.0 27.4 2016, 20152018, 2017 or 2014.2016.IHG | Annual Report and Form 20-F 2018 | Group Financial Statements | Notes 157 Associates Joint ventures Total Associates Joint ventures Total 2016
$m 2015
$m 2014
$m 2016
$m 2015
$m 2014
$m 2016
$m 2015
$m 2014
$m 2018
$m 2017
$m 2016
$m 2018
$m 2017
$m 2016
$m 2018
$m 2017
$m 2016
$m Revenue from associates and joint ventures 5 3 4 1 – – 6 3 4 9 8 5 1 1 1 10 9 6 Loans to associates 9 7 3 – – – 9 7 3 – – 9 – – – – – 9 Other amounts owed by associates and joint ventures 1 2 11 – – – 1 2 11 1 2 1 – – – 1 2 1 Amounts owed to associates and joint ventures 2 – – – – – 2 – – (2015:(2017: $237m) are offset in accordance with the provisions of IAS 32 and presented net in the Group statement of financial position. Interest payable and receivable under the loans is equivalent (average interest rate of 1.4%2.7% in 2016 (2015: 1.7%2018 (2017: 2.0%)) 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.The Group operates a System Fund (the Fund) to collect and administer assessments and contributions from hotel owners (other than for Kimpton and InterContinental hotels) for specific use in marketing, the IHG Rewards Club loyalty programme and the Guest Reservation System. The Fund and loyalty programme are accounted for in accordance with the accounting policies set out on page 103 of the Financial Statements.Following the announcement on 14 April 2015 of the introduction of an expiration policy for points earned under the loyalty programme, the Group released $156m from the programme’s future redemption liability in 2015. The amount released was based on the advice of an external actuary using statistical models to estimate the impact of the programme change on members’ behaviour. The liability release resulted in a corresponding increase in the System Fund surplus which was also recorded in the Group statement of financial position.The following information is relevant to the operation of the Fund:revenues comprise: Incomea: 1,439 1,351 1,271 283 222 196 Key elements of expenditurea: 335 308 267 360 345 296 311 295 267 Net surplus/(deficit) for the yeara 41 118 (18 ) Interest payable to the Fund 3 2 2 2017 2016 2018 Restateda Restateda Assessment fees and contributions received from hotels 979 934 887 Loyalty programme revenuesb 254 308 312 1,233 1,242 1,199 System Fund expenses include: Marketingc 427 405 415 Payroll costs (note 4) 347 339 311 Depreciation and amortisation 45 36 31 a Not included in the Group income statement in accordance with the Group’s accounting policies.The payroll costs above relate to 5,434 (2015: 5,416, 2014: 4,975) employees whose costs are borne by the Fund.The following liabilities relating to the Fund are included in the Group statement of financial position: 2016
$m 2015
$m 2014
$m System Fund surplusa 227 186 68 Loyalty programme liabilityb 685 649 725 912 835 793 aThe System Fund surplus is included in Trade and other payables.b Comprising current liabilities$291m and non-current liabilitiesthe cost of $394m.point redemptions.c net change inassets and liabilities acquired largely comprise intangible assets, being the loyalty programme liabilitySix Senses’ brands, management contracts and Fund surplus contributed an inflow of $65m (2015: $42m, 2014: $58m)goodwill. Due to the Group’s cash flow from operations.142 158IHG | Annual Report and Form 20-F 2016 Group Financial Statements201833.34. Group companies20162018 are disclosed below. Unless otherwise stated the share capital disclosed comprises ordinary shares which are indirectly held by InterContinental Hotels Group PLC.(l)(k)(k)(cj)Luxembourg SARL (q)BHR Pacific Holdings, Inc. (k)(k)(cj)(l)(k)(l)(k)Crowne Plaza Amsterdam (Management)B.V. (r)(k)(l)(k)(ci)Cairns Pty. Ltd (aa)Holiday Inn Mexicana S.A. de C.V. (ab)(k)(l)Ltd.Limited (n)(k)(l)(k)(l)(k)Holiday Inns (Malaysia) Ltd. (ac)(l)Ltd.Limited (ac)(k)(l)(k)(l)Holiday Inns (South East Asia) Inc. (k)(k)(l)(k)(l)Ltd.Limited (n)IHC (Thailand) Limited (ah)(k)(ci)(k)IHG Cyprus Limited (bw)(ci)(am)(co)(bc)(bd)LtdLimited (ap)IHG IT Services (India) Private Limited (aq)(k)(cj)(n)(ay)(ak)(q)(Germany) (av)Inter-Continental Hotels (Overseas) Limited (ay)(k)(l)Services Ltd.Limited (n)(bd)(bc)Trustee Limited (n)(k)(ck)Inter-ContinentalInterContinental Management (Australia) PtyAM LLC (cm)Limited (aa)Notes to the Group Financial Statements IHG Annual Report and Form 20-F 2016 143NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED33. Group companiescontinuedFully owned subsidiaries (continued)InterContinental Management Bulgaria EOOD (bp)IHG | Annual Report and Form 20-F 2018 | Group Financial Statements | Notes 159 (l)(k)(l)(bz)(l)(k)(l)(k)(l)(k)(l)(k)(l)(k)(l)KHRG Alexandria LLC (g) (l)(k)(l)(k)(l)(k)(l)(k)(l)(k)(l)(k)(l)(k)(l)(k)(l)(k)(l)(k)(l)(k)(l)(k)(l)(k)(l)(k)(l)(k)(l)(k)(l)(k)(l)KHRG Hillcrest, LLC (g) (l)(k)(l)(k)(l)(k)(l)(k)(l)(k)(l)(k)(l)(k)(l)(k)(l)(k)(l)(k)(l)(k)(l)(k)(l)(k)(l)(k)(l)(k)(l)(k)(l)(k)(l)(k)(l)(k)(l)(k)(l)(k)(l)(k)(l)(k)(l)(k)(l)(k)(l)(k)(l)(k)(l)(k)(l)(k)(l)(k)(l)KHRG WPB LLC (g) (l)(k)(l)(k)(l)(k)(l)(k)(l)(k)(l)(k)(l)(k)(k)(cl)(k)(ci)RM Lodging LLC (g) (l)Roxburghe Hotel Edinburgh OpCo Limited (n)SC Cellars Limited (n)Luxembourg Investments SARL (q)SC NAS 2 Limited (n)SC NAS 3 (ay)(k)(l)(ci)(ch)(n)(ay)(l)(k)(ch)(bq)(bz)(k) ManagementD.I.H. (Cyprus) SPV (No.2) Limited (24%) (bo)D.I.H. (Cyprus) SPV (No.4) Limited (24%) (bo)D.I.H. (Cyprus) SPV (No.6) Limited (24%) (bo)D.I.H. (Cyprus) SPV (No.7) Limited (24%) (bo)D.I.H. (Cyprus) SPV (No.12) Limited (24%) (bo)Duet India Hotels (Ahmedabad) Private Ltd (24%) (bp)Duet India Hotels (Bangalore) Private Ltd (24%) (bp)Duet India Hotels (Chennai OMR) Private Ltd(24%) (bp)Duet India Hotels (Chennai) Private Ltd (24%) (bp)Duet India Hotels (Hyderabad) Private Ltd (24%) (bp)Duet India Hotels (Mumbai) Private Ltd (24%) (bp)Duet India Hotels (Nagpur) Private Ltd (24%) (bp)Duet India Hotels (Navi Mumbai) Private Ltd(24%) (bq)Duet Smart Hotels (India) Limited (24%) (bo)Duet Smart Hotels (India) SPV (No. 1) Limited(24%) (bo)Duet Smart Hotels (India) SPV (No. 3) Limited(24%) (bo)(16.67%(17.8%) (c) (g) (cb)Maya Baiduri Sdn Bhd (49%) (bt) 144 160IHG | Annual Report and Form 20-F 2016 Group Financial Statements201833.34. 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) Registered addresses(j)Beograd, Cincar, Jankova 3, SerbiaRegistered addresses (j) Krunska 73, Beograd, 11000, Serbia (k) Three Ravinia251 Little Falls Drive, Suite 100, Atlanta, GA 30346,Wilmington, DE 19808, USA(l) 222 Kearny Street – Suite 200, San Francisco, CA 94108,2908 Poston Avenue, Nashville, TN 37203, USA (m) Clarendon House, 2 Church Street, West,Hamilton HM11, 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, LuxembourgAlameda Jau 536, Suite 3s-A, 01420-000 Sao Paulo, Brazil (r) Nieuwezijds Voorburgwal 5, 1012 RC Amsterdam, The NetherlandsGedung Mega Plaza Lantai 12, JI. H. R. Rasuna Said Kav. C-3, Kelurahan Karet, Kecamtan Setiabudi, Jakarta Seltan, Indonesia (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.ChinaP.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) 24, Rusakovskaya Str., Moscow 107014, Russian Federation (ah) 967 Rama I Road, Patumwan, Bangkok, Thailand10 Bo Yar Zar Street, Kyaukkone Yankin Township, Yangon, Myanmar (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 7H, Ploenchit Road, Khwaeng Lumpini, Khet Pathumwan, Bangkok Metropolis, 10330, Thailand (ak) Alameda Jau 536, #3S-B,Suite 3S-B, 01420-000 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-107887,10787 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,Alameda Jau 536, Suite 3S-E, 01420-000 Sao Paulo, 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) 2nd22nd Floor, Citigroup Tower, No. 33 Huayuanshiqiao Road, Pudong, Shanghai, P.R. China (bc) Almeda Santos 1893 – 3o Andar, Cerqueira Cesar,Alameda Jau 536, Suite 3S-C, 01420-000 Sao Paulo, Brazil (bd) Alameda Santos, 1893, 3rs Floor,Jau 536, Suite 3S-D, 01420-000 Sao Paulo, Brazil(be) Via Settembrini 35,Bastioni di Porta Nuova 21, 20121 Milano, Italy (bf) Am Hauptbahnhof, D-60329,Thurn-und-Taxis-Platz 6 – 60313 Frankfurt am Main, 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, No28–51, Variante las Palmas,49, Sur 45 A 300 Of 1102 Envigado Antioquia, Colombia(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 166 East Wen Hua YuanRoad, 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.ChinaP.R. China(bo) 36, Byron Avenue,Nicosia Tower Center, 8th floor, 1096 Nicosia, CyprusCesta v Mestni log 1, 1000 Ljubljana, Slovenia (bp) No 1, Unitech Trade Centre, Sector-43, Gurgaon HR 122002, India51B Bulgaria Blvd, 4th Floor, District Triaditsa, Sofia, 1404, Bulgaria (bq) 146, 14th Floor, Makers Chambers 6, Nariman Point, Mumbai MH 400021, IndiaC/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, MalaysiaMaples Corporate Services Ltd. – PO Box 309, Ugland House, Grand Cayman – KY-1104, Cayman Islands (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.ChinaP.R. China(bw) 195 Arch. Markarios III Ave., Neocleous House, 3030 Limassol, Cyprus14th Floor, South China Building, 1-3 Wyndham Street, Hong Kong (bx) Eski Büyükdere Cd. Park Plaza No:14 K:4 Maslak – Sarıyer, Istanbul, Turkey (by) Paseo de la Castellana 49, 28046 Madrid, Spain (bz) 111 East 48th Street, New York NY 10017,2710 Gateway Oaks Drive, Suite 150N, Sacramento, CA 95833-3505, USA (ca) Carr Hospitality, LLC, 1455 Pennsylvania Avenue, NW, Suite 100, Washington, DC 20004, USA (cb) 3811 Turtle Creek Blvd.,2711 Centerville Road, Suite 1450, Dallas, TX 75219,400, 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,Avenida Ejercito Nacional Mexicano No. 769, Torre B Piso 8, Granada, Miguel Hidalgo, Ciudad de México, CP 11520, Mexico (ch) Port Moresby Travelodge, Hunter Street, Section 27, Allotments 26 and 27, Granville, Port Moresby, National Capital District, Papua New Guinea(ci)Ground Floor, Al Kamel Law Building, Plot 52-b, Banks Area, Six of October City, Egypt (ci) 40 Technology Pkwy South, #300 Norcross GA 30092, USA (cj) 80 State Street, Albany NY 12207-2543, USA (ck) 2215-B Renaissance Drive, Las Vegas, NV 89119, USA (cl) 11003 Onion Creek Court, Austin, TX 78747, USA (cm) 10 Vazgen Sargsyan, Office 114, Yerevan, RA 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 (cp) Brumby Centre, Lot 42, Jalan Muhibbah, 87000 Labuan F.T., Malaysia (cq) Charlottenstrasse 49, Berlin, 10117, Germany Notes to the Group Financial Statements IHG | Annual Report and Form 20-F 2016 1452018 | Group Financial Statements | Notes161 [THIS PAGE IS INTENTIONALLY LEFT BLANK]146 IHG Annual Report and Form 20-F 2016 Parent Company Financial StatementsParent Company Financial Statements 162IHG | Annual Report and Form 20-F 2016 1472018[THIS PAGE IS INTENTIONALLY LEFT BLANK]148 IHG Annual Report and Form 20-F 2016 Parent Company Financial Statements
Notes to the Parent Company Financial Statements IHG | Annual Report and Form 20-F 2016 149[THIS PAGE IS INTENTIONALLY LEFT BLANK]150 IHG Annual Report and Form 20-F 20162018 | Parent Company Financial Statements | Notes163 Notes to the Parent Company Financial Statements 164IHG | Annual Report and Form 20-F 2016 1512018[THIS PAGE IS INTENTIONALLY LEFT BLANK]152 IHG Annual Report and Form 20-F 2016 Parent Company Financial StatementsNotes to the Parent Company Financial Statements IHG | Annual Report and Form 20-F 2016 1532018 | Parent Company Financial Statements | Notes165 Information156166 Other financial informationIHG | Annual Report and Form 20-F 2018160IHG | Annual Report and Form 20-F 2018 | Parent Company Financial Statements | Notes Directors’ Report167164Group information164History and developments164Risk factors167Directors’ and Executive Committee members’ shareholdings168 Executive Directors’ benefits upon termination of officeIHG | Annual Report and Form 20-F 2018168IHG | Annual Report and Form 20-F 2018 | Parent Company Financial Statements | Notes Description of securities other than equity securities169
169Additional Information Articles of Association170Additional
Information Working Time Regulations 1998171172 Material contractsOther financial information172 Legal proceedings172178 Exchange controls and restrictions on payment of dividendsDirectors’ Report173 Shareholder information173182 TaxationGroup information175 Disclosure controls and procedures176Summary of significant corporate governance differences from NYSE listing standards177Selected five-year consolidated financial information178Return of funds178Purchases of equity securities by the Company and affiliated purchasers179Share price information179Dividend history180Shareholder profiles181Exhibits182 History and developments 182 Risk factors 187 Directors’ and Executive Committee
members’ shareholdings187 Executive Directors’ benefits
upon termination of office188 Description of securities other
than equity securities189 Articles of Association 190 Working Time Regulations 1998 191 Material contracts 192 Legal proceedings 192 Exchange controls and restrictions
on payment of dividends193 Shareholder information 193 Taxation 196 Disclosure controls and procedures 196 Summary of significant corporate
governance differences from
NYSE listing standards197 Selected five-year consolidated
financial information198 Return of funds 199 Purchases of equity securities
by the Company and
affiliated purchasers199 Dividend history 200 Shareholder profiles 201 Exhibits 202 Form 20-F cross-reference guide 184 204 Glossary 186 206 Useful information 186 206 Investor information 187 207 Financial calendars 187 Contacts188207 Contacts 208 Forward-looking statements 
154 avid hotel Oklahama City – Qual Springs, USA170 2016 Additional Information2018
Additional Information IHG| Annual Report and Form 20-F 2016 1552018 |Additional Information171 26.36.• showreconcile• show; and.reconcile Group underlying revenue and underlying operating profit to the GAAP measures included in the Group Financial Statements.Highlights for the year ended 31 December 2016 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 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 674 614 60 9.8% 676 614 62 10.1% Group fee margin 48.8% 45.5% – 3.3ppts 48.0 45.5% – 2.5ppts Revenue Operating profit 2016
$m 2015
$m Underlying at actual exchange rates 1,553 1,513 700 641 Owned asset disposals – 128 – 30 Managed leases 162 159 7 6 Liquidated damages – 3 – 3 Exceptional items – – (29 ) 819 Per Group income statement 1,715 1,803 678 1,499 a 20162018 and 2015,2017, the Group Financial Statements would report revenue of $135m$133m in 20162018 and $154m$128m in 2015,2017, using the respective average exchange rates for the year of $1=£0.740.75 and $1=£0.65.0.78. For constant currency reporting, 20162018 revenue would be translated at $1=£0.650.78 giving a US dollar value of $154m,$128m, thereby showing that underlying revenue was flat year-on-year. An exception to this approach is made for currencies experiencing high volatility in order to remove the distorting effect on underlying results where the average daily rate broadly keeps pace with inflation. In 2018 this exception has been applied to fees earned from hotels in Venezuela. Revenue Operating profit At actual exchange rates 2018
$m 2017
Restated
$m Change
$m Change
% 2018
$m 2017
Restated
$m Change
$m Change
% Per Group income statement 4,337 4,075 262 6.4 566 728 (162 ) (22.3 ) Significant liquidated damages – (13 ) – (13 ) – (13 ) – Exceptional items – – – – 104 (4 ) 108 2,700.0 Acquisition of businesses (85 ) – (85 ) – 1 – 1 – System Fund (1,233 ) (1,242 ) 9 0.7 146 34 112 329.4 Reimbursement of costs (1,171 ) (1,103 ) (68 ) (6.2 ) – – – – Underlying at actual exchange rates 1,835 1,730 105 6.1 804 758 46 6.1 At actual exchange rates At constant currency 2018
$m Change
$m 2018
$m 2017
Restated
$m Change
$m Underlying revenue Americas 1,051 999 52 5.2 1,053 999 54 5.4 EMEAA 478 457 21 4.6 471 457 14 3.1 Greater China 136 117 19 16.2 135 117 18 15.4 Central 170 157 13 8.3 169 157 12 7.6 Underlying Group revenue 1,835 1,730 105 6.1 1,828 1,730 98 5.7 Owned, leased and managed lease revenue included above (363 ) (351 ) (12 ) (3.4 ) (359 ) (351 ) (8 ) (2.3 ) Underlying Group fee revenue 1,472 1,379 93 6.7 1,469 1,379 90 6.5 Underlying operating profit Americas 662 637 25 3.9 663 637 26 4.1 EMEAA 197 171 26 15.2 196 171 25 14.6 Greater China 62 52 10 19.2 62 52 10 19.2 Central (117 ) (102 ) (15 ) (14.7 ) (116 ) (102 ) (14 ) (13.7 ) Underlying Group operating profit 804 758 46 6.1 805 758 47 6.2 Owned, leased and managed lease operating profit included above (33 ) (35 ) 2 5.7 (34 ) (35 ) 1 2.9 Underlying Group fee operating profit 771 723 48 6.6 771 723 48 6.6 Group fee margin 52.4% 52.4% – 0.0ppts 52.5% 52.4% – 0.1ppts 156 172IHG | Annual Report and Form 20-F 2016 Additional Information201820152017 At actual exchange rates At constant currency Change
$m Change
% Change
$m Change
% Underlying revenue Americas 858 803 55 6.8% 874 803 71 8.8% Europe 160 173 (13 ) (7.5)% 186 173 13 7.5% AMEA 195 201 (6 ) (3.0)% 214 201 13 6.5% Greater China 109 103 6 5.8% 111 103 8 7.8% Central 135 129 6 4.7% 137 129 8 6.2% Underlying Group revenue 1,457 1,409 48 3.4% 1,522 1,409 113 8.0% Owned and leased revenue included above (164 ) (154 ) (10 ) (6.5)% (170 ) (154 ) (16 ) (10.4)% Underlying Group fee revenue (exc Kimpton) 1,293 1,255 38 3.0% 1,352 1,255 97 7.7% Kimpton 56 – 56 – 56 – 56 – Underlying Group fee revenue (inc Kimpton) 1,349 1,255 94 7.5% 1,408 1,255 153 12.2% Underlying operating profit Americas 579 538 41 7.6% 591 538 53 9.9% Europe 76 73 3 4.1% 90 73 17 23.3% AMEA 81 80 1 1.3% 87 80 7 8.7% Greater China 41 47 (6 ) (12.8)% 42 47 (5 ) (10.6)% Central (151 ) (155 ) 4 2.6% (160 ) (155 ) (5 ) (3.2)% Underlying Group operating profit 626 583 43 7.4% 650 583 67 11.5% Owned and leased profit included above (27 ) (22 ) (5 ) (22.7)% (28 ) (22 ) (6 ) (27.3)% Underlying Group fee profit (exc Kimpton) 599 561 38 6.8% 622 561 61 10.9% Kimpton 15 – 15 – 15 – 15 – Underlying Group fee profit (inc Kimpton) 614 561 53 9.4% 637 561 76 13.5% Group fee margin (exc Kimpton) 46.3% 44.7% – 1.6 ppts 46.0% 44.7% – 1.3 ppts Revenue Operating profit 2015
$m 2015
$m 2014
$m Underlying at actual exchange rates 1,457 1,409 626 583 Owned asset disposals 128 273 30 55 Managed leases 159 169 6 6 Kimpton (excluding liquidated damages) 56 – 15 – Liquidated damages 3 7 3 7 Exceptional items – – 819 29 Per Group income statement 1,803 1,858 1,499 680 
Revenue Operating profit At actual exchange rates Change
% 2017
Restated
$m 2016
Restated
$m Change
$m Change
% Per Group income statement 4,075 3,912 163 4.2 728 712 16 2.2 Exceptional items – – – – (4 ) 29 (33 ) (113.8 ) System Fund (1,242 ) (1,199 ) (43 ) (3.6 ) 34 (35 ) 69 197.1 Reimbursement of costs (1,103 ) (1,046 ) (57 ) (5.4 ) – – – – Underlying at actual exchange rates 1,730 1,667 63 3.8 758 706 52 7.4 At actual exchange rates At constant currency 2017
Restated
$m 2016
Restated
$m Change
$m Change
% 2017
Restated
$m 2016
Restated
$m Change
$m Change
% Underlying revenue Americas 999 969 30 3.1 1,004 969 35 3.6 EMEAA 457 439 18 4.1 460 439 21 4.8 Greater China 117 112 5 4.5 119 112 7 6.3 Central 157 147 10 6.8 158 147 11 7.5 Underlying Group revenue 1,730 1,667 63 3.8 1,741 1,667 74 �� 4.4 Owned, leased and managed lease revenue included above (351 ) (338 ) (13 ) (3.8 ) (350 ) (338 ) (12 ) (3.6 ) Underlying Group fee revenue 1,379 1,329 50 3.8 1,391 1,329 62 4.7 Underlying operating profit Americas 637 626 11 1.8 642 626 16 2.6 EMEAA 171 157 14 8.9 173 157 16 10.2 Greater China 52 46 6 13.0 52 46 6 13.0 Central (102 ) (123 ) 21 17.1 (105 ) (123 ) 18 14.6 Underlying Group operating profit 758 706 52 7.4 762 706 56 7.9 Owned, leased and managed lease revenue included above (35 ) (33 ) (2 ) (6.1 ) (35 ) (33 ) (2 ) (6.1 ) Underlying Group fee operating profit 723 673 50 7.4 727 673 54 8.0 Group fee margin 52.4% 50.6% – 1.8ppts 52.3% 50.6% – 1.7ppts Other financial information IHG | Annual Report and Form 20-F 2016 1572018 | Additional Information | Other financial information173 OTHER FINANCIAL INFORMATION CONTINUEDAdditional InformationRevPAR,Underlying earnings per ordinary share reconciliation Basic earnings per ordinary share Profit available for equity holders 351 540 Basic weighted average number of ordinary shares (millions) ` 190 193 Basic earnings per ordinary share (cents) 184.7 279.8 Underlying earnings per ordinary share Profit available for equity holders 351 540 Adjusted for: (13 ) – 3 – 1 – 5 – 146 34 (19 ) (13 ) – 3 104 (4 ) (22 ) 2 (5 ) (90 ) 1 – Underlying profit available for equity holders 552 472 Underlying earnings per ordinary share (cents) 290.5 244.6 2017
Restated
$m Net cash from investing activities (189 ) (206 ) Adjusted for: (54 ) (57 ) 2 25 45 36 38 – Net capital expenditure (158 ) (202 ) Add back: (10 ) (104 ) (32 ) – (45 ) (36 ) Gross capital expenditure (245 ) (342 ) Analysed as: (108 ) (115 ) (38 ) (85 ) (99 ) (142 ) Gross capital expenditure (245 ) (342 ) 174 IHG | Annual Report and Form 20-F 2018 12 months ended 31 December 2018
$m 2017
Restated
$m 2016
Restated
$m Net cash from operating activities 666 577 710 Adjusted for: 54 57 42 Less: (3 ) (3 ) (10 ) (108 ) (115 ) (96 ) – – (95 ) Free cash flow 609 516 551 12 months ended
31 December 2017
Restated
$m Net financial expenses 5 4 (86 ) (76 ) (81 ) (72 ) Adjusted for: (14 ) (7 ) (5 ) (6 ) Underlying interest (100 ) (85 ) IHG | Annual Report and Form 20-F 2018 | Additional Information | Other financial information 175 a key performance measureis the primary metric used by management (see page 26 for further information)to track hotel performance across regions and brands. RevPAR is also a commonly used performance measure in the hotel industry. RevPAR comprises IHG System rooms revenue divided by the number of room nights available and can be mathematically derived from occupancy rate multiplied by average daily rate.rate (ADR). Occupancy rate is rooms occupied by hotel guests expressed as a percentage of rooms that are available. Average daily rateADR is rooms revenue divided by the number of room nights sold.isoccupancy and average daily rate are presented on a key indicatorcomparable basis comprising groupings of hotels that have traded in all months in both the current and prior year. The principal exclusions in deriving this measure are new hotels, hotels closed for major refurbishment and hotels sold in either of the two years. RevPAR and ADR are quoted at a constant US$ conversion rate, in order to allow a better understanding of the comparable year-on-year trading performance as it measures period-over-period changeexcluding distortions created by fluctuations in rooms revenue for comparable hotels.exchange rates.31, 20162018 and a comparison to 2015. Franchised,2017. Fee business and owned, leased and managed owned and leasedlease statistics are for comparable hotels, and include only those hotels in the Group’s systemSystem at 31 December 31, 20162018 and franchised, managed, owned, leased or managed leased by the Group since 1 January 1, 2015.20152017 is at constant US$ exchange rates. Franchised Managed Owned and leased Change vs Change vs Change vs Americas 2016 2015 2016 2015 2016 2015 InterContinental Occupancy 68.7% (0.0)ppt 78.1% (1.3)ppt 81.5% 1.0ppt Average daily rate $147.42 6.3% $232.80 4.4% $319.06 2.2% RevPAR $101.32 6.3% $181.81 2.7% $260.05 3.4% Kimpton Occupancy – – 82.4% 1.7ppt – – Average daily rate – – $233.90 0.8% – – RevPAR – – $192.85 2.9% – – Crowne Plaza Occupancy 68.0% (0.2)ppt 80.7% (0.5)ppt – – Average daily rate $119.91 1.9% $140.52 6.4% – – RevPAR $81.56 1.5% $113.46 5.7% – – Hotel Indigo Occupancy 71.6% (0.9)ppt 86.0% (0.3)ppt – – Average daily rate $143.44 0.4% $192.70 (1.0)% – – RevPAR $102.76 (0.8)% $165.74 (1.3)% – – EVEN Hotels Occupancy – – – – 69.5% 9.0ppt Average daily rate – – – – $130.02 0.5% RevPAR – – – – $90.34 15.5% Holiday Inn Occupancy 66.5% 0.1ppt 72.8% 1.9ppt 73.2% 2.1ppt Average daily rate $111.59 2.5% $134.89 2.1% $155.99 (1.2)% RevPAR $74.25 2.6% $98.25 4.9% $114.18 1.7% Holiday Inn Express Occupancy 68.8% 0.2ppt – – – – Average daily rate $111.52 1.4% – – – – RevPAR $76.74 1.7% – – – – Staybridge Suites Occupancy 75.9% (0.3)ppt 82.3% 0.8ppt – – Average daily rate $112.37 1.7% $137.74 4.2% – – RevPAR $85.26 1.2% $113.38 5.3% – – Candlewood Suites Occupancy 72.4% (0.3)ppt 80.4% (0.6)ppt – – Average daily rate $82.25 0.8% $81.74 2.0% – – RevPAR $59.53 0.3% $65.69 1.2% – – Franchised Managed Owned and leased Change vs Change vs Change vs Europe 2016 2015 2016 2015 2016 2015 InterContinental Occupancy 66.4% (4.3)ppt 69.6% (1.0)ppt – – Average daily rate $189.65 (0.5)% $217.49 (0.9)% – – RevPAR $125.93 (6.6)% $151.33 (2.4)% – – Crowne Plaza Occupancy 69.9% (1.7)ppt 78.0% 3.7ppt – – Average daily rate $121.67 2.2% $142.41 1.0% – – RevPAR $85.06 (0.2)% $111.09 6.1% – – Hotel Indigo Occupancy 78.1% 1.0ppt 75.7% (2.5)ppt – – Average daily rate $148.81 2.9% $171.48 (5.5)% – – RevPAR $116.21 4.2% $129.77 (8.6)% – – Holiday Inn Occupancy 71.5% 0.3ppt 70.3% 8.1ppt – – Average daily rate $103.16 1.7% $69.27 (1.4)% – – RevPAR $73.79 2.1% $48.71 11.5% – – Holiday Inn Express Occupancy 77.3% 1.2ppt 61.9% 1.5ppt – – Average daily rate $95.94 2.6% $56.22 1.4% – – RevPAR $74.14 4.3% $34.78 4.0% – – Staybridge Suites Occupancy 81.8% (1.6)ppt – – – – Average daily rate $124.47 7.2% – – – – RevPAR $101.77 5.2% – – – – Fee business Owned, leased and
managed lease 2018 Change vs
2017 2018 Change vs
2017 Americas InterContinental Occupancy 73.8% – 80.1% (3.9)ppt Average daily rate $208.07 4.6% $282.86 6.0% RevPAR $153.66 4.6% $226.48 1.1% Kimpton Occupancy 79.9% (0.2)ppt – – Average daily rate $240.59 1.5% – – RevPAR $192.16 1.2% – – Crowne Plaza Occupancy 68.2% (1.0)ppt – – Average daily rate $127.32 1.7% – – RevPAR $86.86 0.3% – – Hotel Indigo Occupancy 74.3% 2.2ppt – – Average daily rate $158.71 1.5% – – RevPAR $117.91 4.7% – – EVEN Hotels Occupancy 83.8% 8.6ppt 72.1% 1.2ppt Average daily rate $203.70 (1.7)% $156.04 3.9% RevPAR $170.66 9.5% $112.58 5.6% Holiday Inn Occupancy 66.5% (0.1)ppt 82.4% 2.3ppt Average daily rate $113.99 2.0% $173.78 8.4% RevPAR $75.79 1.8% $143.19 11.5% Holiday Inn Express Occupancy 69.0% 0.4ppt – – Average daily rate $114.33 1.0% – – RevPAR $78.83 1.6% – – Staybridge Suites Occupancy 77.4% 1.1ppt – – Average daily rate $120.31 1.9% – – RevPAR $93.16 3.3% – – Candlewood Suites Occupancy 73.9% 0.2ppt – – Average daily rate $85.54 1.5% – – RevPAR $63.24 1.7% – – 158 176IHG | Annual Report and Form 20-F 2016 Additional Information2018 Franchised Managed Owned and leased 2016 Change vs
2015 2016 Change vs
2015 2016 Change vs
2015InterContinental Occupancy 76.9% 2.4ppt 70.0% 0.4ppt 53.4% (1.3)ppt Average daily rate $178.97 0.2% $204.64 0.5% $118.79 1.8% RevPAR $137.55 3.4% $143.20 1.0% $63.38 (0.6)% Crowne Plaza Occupancy 73.6% (2.3)ppt 72.4% (0.2)ppt – – Average daily rate $93.39 4.8% $120.03 (1.0)% – – RevPAR $68.78 1.5% $86.95 (1.3)% – – Holiday Inn Occupancy 67.6% 0.6ppt 74.0% 0.7ppt 95.5% 1.5ppt Average daily rate $102.73 (3.2)% $98.26 (2.8)% $114.04 2.8% RevPAR $69.40 (2.4)% $72.68 (1.9)% $108.90 4.5% Holiday Inn Express Occupancy 66.8% (1.0)ppt 70.6% 5.8ppt – – Average daily rate $64.37 (6.6)% $64.64 (6.1)ppt – – RevPAR $42.97 (7.9)% $45.63 2.3% – – Staybridge Suites Occupancy – – 71.8% (4.2)ppt – – Average daily rate – – $162.21 3.3% – – RevPAR – – $116.41 (2.4)% – – Other Occupancy 79.5% (3.3)ppt 88.9% (1.3)ppt – – Average daily rate $68.07 0.6% $93.69 12.3% – – RevPAR $54.12 (3.4)% $83.28 10.7% – – Franchised Managed Owned and leased Greater China 2016 Change vs
2015 2016 Change vs
2015 2016 Change vs
2015InterContinental Occupancy 83.6% (0.6)ppt 60.5% 1.8ppt – – Average daily rate $206.81 (4.1)% $132.63 (1.3)% – – RevPAR $172.80 (4.7)% $80.19 1.7% – – Crowne Plaza Occupancy – – 59.9% 3.4ppt – – Average daily rate – – $84.36 (1.5)% – – RevPAR – – $50.53 4.5% – – Hotel Indigo Occupancy – – 67.9% (2.3)ppt – – Average daily rate – – $178.21 0.9% – – RevPAR – – $120.95 (2.4)% – – Holiday Inn Occupancy 75.2% (5.0)ppt 66.4% 3.9ppt – – Average daily rate $111.48 (8.5)% $73.75 (3.2)% – – RevPAR $83.82 (14.2)% $48.93 2.9% – – Holiday Inn Express Occupancy 72.1% (10.5)ppt 72.7% 2.1ppt – – Average daily rate $36.15 13.5% $51.24 0.6% – – RevPAR $26.06 (1.0)% $37.26 3.5% – – 2018 Change vs
2017 2018 Change vs
2017 EMEAA InterContinental Occupancy 73.3% 0.7ppt 67.2% 1.4ppt Average daily rate $214.04 1.6% $212.94 (3.6)% RevPAR $156.98 2.6% $143.15 (1.6)% Crowne Plaza Occupancy 73.0% 0.3ppt – – Average daily rate $127.83 3.0% – – RevPAR $93.35 3.4% – – Hotel Indigo Occupancy 80.7% 2.1ppt – – Average daily rate $152.38 2.0% – – RevPAR $122.93 4.7% – – Holiday Inn Occupancy 73.9% 0.8ppt 95.4% (1.7)ppt Average daily rate $105.03 1.9% $141.57 8.8% RevPAR $77.63 3.0% $135.02 6.9% Holiday Inn Express Occupancy 77.6% 0.7ppt – – Average daily rate $92.42 1.0% – – RevPAR $71.75 2.0% – – Staybridge Suites Occupancy 77.4% (0.6)ppt – – Average daily rate $127.62 2.0% – – RevPAR $98.75 1.1% – – Greater China InterContinental Occupancy 66.1% 2.9ppt – – Average daily rate $135.75 1.6% – – RevPAR $89.79 6.2% – – HUALUXE Occupancy 60.3% 9.3ppt – – Average daily rate $77.16 2.7% – – RevPAR $46.50 21.5% – – Crowne Plaza Occupancy 64.1% 2.8ppt – – Average daily rate $85.13 3.4% – �� – RevPAR $54.60 8.2% – – Hotel Indigo Occupancy 73.9% 4.8ppt – – Average daily rate $176.26 2.2% – – RevPAR $130.17 9.3% – – Holiday Inn Occupancy 69.5% 1.4ppt – – Average daily rate $75.01 2.8% – – RevPAR $52.17 4.8% – – Holiday Inn Express Occupancy 68.2% 0.6ppt – – Average daily rate $53.42 5.9% – – RevPAR $36.43 6.9% – – Other financial information IHG | Annual Report and Form 20-F 2016 1592018 | Additional Information | Other financial information177 4855 to 6371 and incorporated by reference herein.300360 subsidiaries, joint ventures and associated undertakings. A complete list of these entities is provided at note 3334 of the Group Financial Statements on pages 143 and 145.159 to 161.5056 and 51.57.2016.2018.169189 and 170.190.20162018 consisted of 206,379,760197,597,600 ordinary shares of 181931817/⁄32921 pence each, including 8,862,3806,827,020 shares held in treasury, which constitute 4.3 per centconstituted 3.5% 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.2016:trust.903,6002018, 780,410 shares were transferred from treasury to the employee share ownership trust; andIn January 2019, the Company’s issued 169) as part of which 6,827,020 treasury shares were consolidated.shareshares capital was subject to a five19 for six20 share consolidation effective as of 9 May 201614 January 2019 (see page 153).In 2016,At the AGM held on 4 May 2018, shareholders authorised the Directors to issue new shares and the Company did not issue any new shares, nor did itto buy back any existing shares. During 2018 these routine authorities were not exercised, save for the repurchase of 10 ordinary shares of 1917⁄21 pence in the capital of the Company for cancellation in December 2018 in connection with the $500 million special dividend.2016,2018, the Company announced a $1,500m$500 million return of funds to shareholders via special dividend and share consolidation on the basis of five19 ordinary shares of 1820318340/⁄329399 pence perfor share for every six existing20 ordinary shares of 151926517/⁄32921 pence each (effective as of 9 May 2016)14 January 2019).Dividend Ordinary shares ADRsSpecial dividend438.2p632.9¢A special dividend was paid to shareholders on the register on 6 May 2016Ordinary shares ADRs Interim dividend 22.6p 30.0¢An interim dividend was paid on 75 October 20162018 to shareholders on the register at the close of business on 2 September 201631 August 201827.7p 36.3¢ Final dividend 64.0¢a 64.0¢Subject to shareholder approval, payable on 2214 May 2019 to shareholders on the register at the close of business on 5 May29 March 2019N/Aa 78.1¢ Special dividend A special dividend was paid on 29 January 2019 to shareholders on the register at the close of business on 11 January 2019 203.8p 262.1¢ a 11 May 201726 April 2019 using the average of the daily exchange rates from 8 May 201723 April 2019 to 10 May 201725 April 2019 inclusive. 31 December 201631 December 2016,18 February 2019, the Company had been notified of the following significant holdings in its ordinary shares under the UK Disclosure Guidance and Transparency Rules (DTRs): Shareholder Ordinary
shares
/ADSsa %a Ordinary
shares
/ADSsa %a Ordinary
shares
/ADSsa %a BlackRock, 10,930,440b 5.53 12,916,001b 5.47 n/a n/a Inc. Boron 11,850,000 5.02 11,850,000 5.02 7,500,000 3.18 Investments BV Cedar Rock 14,923,417 5.07 14,923,417 5.07 14,923,417 5.07 Capital Limited Fundsmith 10,222,246 5.18 n/a n/a n/a n/a LLP The Capital n/a n/a n/a n/a 8,557,888 3.30 Group Companies, Inc. As at 18 February 2019 As at 19 February 2018 As at 20 February 2017 Ordinary Ordinary Ordinary Shareholder shares/ADSs a % a shares/ADSs a % a shares/ADSs a % a BlackRock, Inc. 10,165,234 b 5.60 11,280,241 5.92 10,930,440 5.53 Boron Investments B.V. 11,450,000 6.01 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 9,662,767 5.07 7,707,008 4.06 n/a n/a Fundsmith LLP 10,222,246 5.18 10,222,246 5.18 10,222,246 5.18 The Capital Group Companies, Inc. 9,670,450 5.09 9,670,450 5.09 9,864,894 4.99 FMR LLC 10,593,666 c 5.84 n/a n/a n/a n/a a b 473,742 contracts for difference and 523,1271,079,442 qualifying financial instruments to which voting rights are attached.In the period from 31 December 2016 to 20 February 2017 no further notifications have been received. c 178 IHG | Annual Report and Form 20-F 2018 200.180.160 IHG Annual Report and Form 20-F 2016 Additional Information20162018 share awards and grants to employeescompanyCompany (adjusted for share issuance and cancellation) in any 10 year10-year period. During the financial year ended 31 December 2016,2018, the Company transferred 903,600780,410 treasury shares (0.4%(0.39% of issued share capital) to satisfy obligations under its share plans.shareplansshare plans over the last 10 years is 1.9%2.6%.2016,2018, no options were outstanding.2016,2018, the ESOT released 1,290,4601,150,901 shares and at 31 December 20162018 it held 846,236568,786 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.45.51.350,000400,000 people worked globally across IHG’s brands as at 31 December 2016.2018.2016:2018:6,5877,598 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;5,4345,214 people who worked directly on behalf of the System Fund and whose costs were borne by the System Fund; and22,00222,518 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.notes 3 and 32note 4 of the Group Financial Statements on pages 111 and 162page 123 for more information.14 and 15.22 to 25.176.196.1822 to 25, and 19.our websitewww.ihgplc.com/responsible-business Directors’ Report IHG | Annual Report and Form 20-F 2016 1612018 | Additional Information | Directors’ Report179 DIRECTORS’ REPORT CONTINUEDAdditional Information12 per cent6-7% across our entire estate by 31 December 20172020 (against a 20122020 baseline). See page 2535 for progress. Measure 2016a 2015a Global – corporate Scope 1 Direct 1,523,036.72 1,421,059.96 offices and emissions (tCO2e) franchised, Scope 2 Indirect 3,965,854.95 3,802,419.31 managed, emissions (tCO2e) owned and Total GHG 5,488,891.67 5,223,479.27 leased hotelsb emissions (tCO2e) (a KPI and part of IHG’s chosen intensity 31.30 31.39 our five-year targets) measurement GHG emissions per occupied room (kgCO2e per occupied room) Global – corporate Scope 1 Direct 557,848.94 514,546.74 offices and managed, emissions (tCO2e) owned and Scope 2 Indirect 1,922,767.88 1,817,196.67 leased hotelsb emissions (tCO2e) (as required under Total GHG 2,480,616.83 2,331,743.40 the Companies Act 2006) emissions (tCO2e) IHG’s chosen intensity 52.19 53.20 measurement GHG emissions per occupied room (kgCO2e per occupied room) Reporting boundary Measure 2018ª 2017a Global – corporate offices and franchised, managed, owned, leased and managed lease hotelsb(a KPI and part of our five-year targets) Scope 1 Direct emissions (tCO2e) 448,690.74 443, 548.52 Scope 2 Indirect emissions (tCO2e) 1,979,416.52 1,896,581.18 Scope 3 Indirect (tCO2e) 2,635,736.66 2,535,330.40 Total GHG emissions (tCO2e) 5,063,843.91 4,875,460.09 IHG’s chosen intensity measurement GHG emissions per occupied room (kgCO2e per occupied room) 26.02 26.61 Global – corporate offices and managed, owned, leased and managed lease hotelsb(as required under the Companies Act 2006) Scope 1 Direct emissions (tCO2e) 448,690.74 443,548.52 Scope 2 Indirect emissions (tCO2e) 1,979,416.52 1,896,581.18 Total GHG emissions (tCO2e) 2,428,107.25 2,340,129.69 IHG’s chosen intensity measurement GHG emissions per occupied room (kgCO2e per occupied room) 41.59 43.60 a b 105339 hotels. We do not have sufficient data to estimate their emissions and believe them to be immaterial.23 emissions as defined by the GHG protocol as follows:(Direct emissions): combustionemissions are direct emissions produced by the burning of fuel and operationfuels of facilities; andthe emitter.(Indirect emissions):emissions are indirect emissions (generated by the electricity heat, steamconsumed and cooling purchased for own use.by the emitter).2016,2018, in line with the methodology set out in the GHG Protocol Corporate Standard, the sample covered 4,2674,673 (86%) of our 4,9705,463 hotels. As IHG’s System size is continually changing and the number of hotels reporting data to the IHG Green EngageEngage™ system increases annually, we are restating the impacts for all years from the baseline year (2012) annually to enable comparisons to be made.have restated 2017 data.2022 to the Group Financial Statements on pages 128144 to 131.146.theThe 10-year £400m£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 $1.275bnThe $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;theThe 10-year £300m£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; andtheThe 10-year £350 million bond issued by the Company on 24 August 2016, under which, if the bond’s credit rating was downgraded in connection with a change of control, the bond holders would have the option to require the Company to redeem or, at the Company’s option, repurchase the outstanding notes together with interest accrued; andThe 8.5-year€500 million bond issued by the Company on 15 November 2018, under which, if the bond’s credit rating was downgraded in connection with a change of control, the bond holders would have option to require the Company to redeem or, at the Company’s option, repurchase the outstanding notes together with interest accrued.171 .191.180 IHG | Annual Report and Form 20-F 2018 During 2012, theThe Group entered intois party to a five-year technology outsourcing agreement with International Business Machines Corporation (IBM)Amadeus Hospitality Americas, Inc. (Amadeus), pursuant to which IBM operatesfor the development and maintains the infrastructurehosting of the Group’s next generation Guest Reservation System. The initial term of 10 years will expire in 2028, and the Group has the right to extend this agreement for two additional periods of up to 10 years each on the same terms, conditions and pricing. The financial and performance obligations in this agreement are guaranteed by Amadeus IT Group S.A., the parent company of Amadeus Hospitality Americas, Inc.85.88.Events after the reporting periodIn February 2017, we proposed a further $400 million return of funds to shareholders via a special dividend with share consolidation.Section Applicable sub-paragraph within LR 9.8.4C Location 1 Interest capitalised Group Financial Statements, note 7, page 125 Statements, note 6, page 1134 Details of long-term incentive schemes Directors’ Remuneration Directors’ Remuneration Report, pages 72 to 85 Report, pages 66 to 75162 IHG Annual Report and Form 20-F 2016 Additional Information4751 and in the Group information on pages 128182 to 131.186. Information on the Group’s treasury management policies can be found in note 22 to the Group Financial Statements on pages 91144 to 97.146. In February 2016, the Group extended the maturity of its $1.275bn facility to March 2021 and a further one-year extension is exercisable in 2017. In August 2016,November 2018, the Group issued a ten-year £350m€500m bond which replaces the £250m bond that maturedmatures in December 2016.May 2027.2016,2018, the Group was trading significantly within its banking covenants and debt facilities.2230 for the Directors’ assessment of the viability of the Group.2018 February 20172019 Directors’ Report IHG | Annual Report and Form 20-F 2016 1632018 | Additional Information | Directors’ Report181 The Group agreed in May 2018 to sell InterContinental Paris – Le Grand on 7 December 2014 for€330 million,rebrand and operate under long-term ‘managed leases’ a portfolio of hotels in the transaction was completed on 20 May 2015.UK.The Group agreedacquired a 51% interest in Regent Hotels and Resorts in July 2018 for $39 million, of which $13 million has been paid to acquire Kimpton Hotels & Restaurants on 15date. The remaining $26 million is to be paid in future years, this deferred consideration has a fair value of $22 million at 31 December 2014, and2018. Options exist over the transaction was completed on 16 January 2015 for $430 million (before working capital adjustments and cash acquired).remaining 49% interest which are exercisable in a phased manner from 2026.The Group agreed to sell InterContinental Hong Kong on 10 July 2015acquired Six Senses Hotels Resorts Spas and its management business in February 2019 for $938$300 million and the transaction was completed on 30 September 2015.in cash.The Group also divested a number of investments for total proceeds of $25$95 million in 2016.2017 and $8 million in 2018.Capital expenditure in 20162018 totalled $241$245 million compared with $264$342 million in 20152017 and $271$241 million in 2014.2016 (see page 174). The lower level of expenditure in 2018 was partly attributable to costs borne in 2017 relating to the roll out of IHG Concerto. Recyclable investments in 2017 included $43 million in connection with a refinancing of the InterContinental New York Barclay hotel.At 31 December 2016,2018, capital committed (being contracts placed for expenditure on property, plant and equipment, and intangible assets and key money not provided for in the Group Financial Statements) totalled $97$136 million.The Group has also committed to invest in a number of its associates, with an estimated outstanding commitment of $36 million, based on current forecasts. The risk factors should also be considered in connection with any financial and forward-looking information in this Annual Report and Form 20-F and the cautionary statements regarding forward-looking statements on page 188.The principal risks are on pages 26 to 30, the cautionary statements regarding forward-looking statements are on page 208 and financial and forward-looking information including note 8 on pages 125 to 129, and note 22 on pages 144 to 146. 20172019 may worsen due to continued uncertainty in relation to Brexit, (see page 26 for a statement on the materiality of this risk to the Company), Greater China, and the Eurozone, potential disruptions in the US economy, the impact of decliningfluctuating commodity prices (including oil) on economies dependent on such exports, and continued unrest in parts of the Middle East, Africa and Africa.Asia, and barriers to global trade, including unforeseeable changes in regulations, imposition of tariffs or embargoes, and other trade restrictions or controls. The interconnected nature of economies suggests any of these, or other events, could trigger a recession that164 IHG Annual Report and Form 20-F 2016 Additional Information182 IHG | Annual Report and Form 20-F 2018 completed the acquisition of Kimpton Hotels & Restaurants in January 2015 and may seek to make other strategic transactions, including acquisitions, in the future. The Group may not be able to identify opportunities or complete transactions on commercially reasonable terms, or at all, and may not realise the anticipated benefits from such transactions. Strategic transactions come with inherent valuation, financial and commercial risks, and regulatory and insider information risks during the execution of the transactions. The Group may also continue to make organisational adjustments to support delivery of our growth ambitions, including the integration of acquisitions into the Group’s operating processes and systems. This creates inherent risks of complexity and that any changes made could be unsustainable or that we are unable to achieve the return envisaged through reinvestment. In addition, the Group may face unforeseen costs and liabilities, diversion of management attention, as well as longer-term integration and operational risks, which could result in a failure to realise benefits, financial losses, lower employee morale and loss of talent.breadthrange 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.or to secure management contracts.contracts or open hotels in our development pipeline. For example, the availability of suitable sites, market saturation, planning and other local regulations or the availability and affordability of finance may restrict the supply of suitable hotel development opportunities under franchise or management agreements.agreements and mean that not every hotel in our development pipeline may develop into a new hotel that enters our system. In connection with entering into franchise or management agreements, the Group may be required to make investments in, or guarantee the obligations of, third parties or guarantee minimum income to third parties. There are also risks that significant franchisees or groups of franchisees may have interests that conflict, or are not aligned, with those of the Group, including, for example, the unwillingness of franchisees to support brand 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.mobiledata technology grows, and new and disruptive technology solutions are developed, customer needs evolve at pace, thepace. The Group may find that its evolving technology capability is not sufficient and may have to make substantial additional investments in new technologies or systems to remain competitive. Failure to keep pace with developments in technologies or systems, and also with regulatory, risk and ethical considerations of how these developments are used, may put the Group at a competitive disadvantage. In addition, the technologies or systems that the Group chooses to deploy may not be commercially successful or the technology or system strategy may not be sufficiently aligned with the needs of the business. AnyIHG | Annual Report and Form 20-F 2018 | Additional Information | Group information 183 Group information IHG Annual Report and Form 20-F 2016 165GROUP INFORMATION CONTINUEDRisk factorscontinuedcause the failure of these systemsdisrupt their operation and/or integrityinternalother processes and systems and linked to multiple sales channels, including the Group’s own websites, in-house and third-party managed call centres, hotels, third-party intermediaries and travel agents.successability to operate hotels and our corporate support functions, achieve business growth targets or impact the profitability of the Group’s operations in these markets.our operations. Additionally, unless skills are supported by a sufficient infrastructure to enable knowledge and skills to be passed on, the Group risks losing accumulated knowledge if key employees leave the Group.The Group is exposedCollective bargaining activity could disrupt operations, increase our labour costs or interfere with the ability of our management to focus on executing our business strategies.varietylabour dispute could harm our reputation and reduce customer demand for our services.risks associated with its financial stabilitynew or existing collective bargaining agreements could lead to higher wage and benefit costs, changes in work rules that raise operating expenses, legal costs and limitations on our ability or the ability of our third-party property owners to take cost saving measures during economic downturns. We do not have the ability to borrowcontrol the negotiations of collective bargaining agreements covering unionised labour employed by our third-party property owners and satisfy debt covenantsfranchisees. Increased unionisation of our workforce, new labour legislation or changes in regulations could disrupt our operations, reduce our profitability or interfere with the ability of our management to focus on executing our business strategies.184 IHG | Annual Report and Form 20-F 2018 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.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. (See also legal proceedings on page 192.)information securitycybersecurity and data privacyproviders.providers, in our company managed hotels, and by our franchisees, who are subject to the same or similar risks.cyber attacks,cyber-attacks, fraudulent use, loss or misuse by employees and breaches of our vendors’ security arrangements, amongst others.payment-cardpayment card industry surrounding information security across the many jurisdictions in which the Group operates are constantly evolving.evolving, (such as the EU GDPR, China cybersecurity law, and California privacy law). 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.our sales of certain products.DuringWe are also required to comply with marketing and advertising laws relating to our direct marketing practices, including email marketing, online advertising, and postal mailings. Further restrictions to the first halfcontent or interpretations of 2016,these laws could adversely impact our current and planned activities and the Group was notifiedeffectiveness or viability of a security incident at a numberour marketing strategies to maintain, extend and acquire relationships with customers, and impact the amount and timing of Kimpton hotels that resulted in unauthorised access to guest payment card data (the Kimpton Security Incident) and166 IHG Annual Report Form 20-F 2016 Additional informationdata privacy during 2018, see pages 157 and 192.in December 2016 the Group was notified of a security incident at a number of hotels in the Americas region (the Americas Security Incident). In both instances, we launched an investigation and engaged third-party cyber security experts. The investigation concerning the Kimpton Security Incident identified unauthorised access to payment card information and is now closed. A class action has been filed in the courts in relation to the Kimpton Security Incident, although alleged damages have not been specified. The Americas Security Incident investigation is on-going. The Group may be exposed to investigations and fines for non-compliance with applicable data security standards and State and Federal regulatory fines and to legal action from individuals and organisations impacted by the incidents. We may be subject to future cyber threats including attempts to breach our systems and other similar incidents. Because of the dynamic nature of cyber threats, the scope and complexity of our information technology infrastructure and our reliance on third parties to support and protect our infrastructure and our data, we may be vulnerable to cyber threats. In addition, although we carry insurance that is designed to protect us against certain losses related to cyber risks, such insurance coverage may be insufficient to cover the Group in respect of all losses or all types of claims that may arise in connection with cyber attacks, security breaches and other related breaches.properties,properties.wellEVEN Hotels, HUALUXE, avid Hotels, voco, Kimpton Hotels & Restaurants, Regent Hotels, and entered into co-branded credit card relationships to support the IHG Rewards Club programme. As the roll out, integration and growth of these brands (including associated loyalty programmes) is dependent on market conditions, guest preference and owner investment, and also continued cooperation with third parties, there are inherent risks that we will be unable to recover costs incurred in developing or acquiring the brands or any new programmes or products, or those brands, programmes, or products will not succeed as we intend. The Group’s ongoing agenda to accelerate growth and strategic initiatives creates risks relating to the anticipated future revenue from properties.transition of systems, operating models and processes, and may result in failures to improve commercial performance, leading to financial loss and undermining stakeholder confidence. IHG | Annual Report and Form 20-F 2018 | Additional Information | Group information 185 186 IHG | Annual Report and Form 20-F 2018 2018 February 2017:2019: (i) Executive Directors had the number of beneficial interests in shares (including Directors’ share awards under IHG’s share plans) set out in the table on page 72;81; (ii) Non-Executive Directors had the number of beneficial interests in shares set out in the table on page 74;84; 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 2018 February 2017,2019, no Director or Executive Committee member held more than 0.3 per cent1.0% of the total issued share capital. None of the Directors have a beneficial interest in the shares of any subsidiary. Executive Committee member 20 Feb
2017 31 Dec
2016 31 Dec
2015 20 Feb
2017 31 Dec
2016 31 Dec
2015 20 Feb
2017 31 Dec
2016 31 Dec
2015 20 Feb
2017 31 Dec
2016 31 Dec
2015 Keith Barr 18,767 18,767 22,522 26,876 26,876 29,557 92,902 92,902 96,044 138,545 138,545 148,123 Angela Brav 27,270 27,270 32,724 23,996 23,996 25,569 80,709 80,709 86,969 131,975 131,975 145,262 Federico Lalatta Costerbosa – – n/a 18,401 18,401 n/a 59,202 59,202 n/a 77,603 77,603 n/a Yasmin Diamond – – n/a 6,351 6,351 n/a 38,363 38,363 n/a 44,714 44,714 n/a Elie Maalouf 2,481 2,481 – 10,810 10,810 – 96,052 96,052 73,662 109,343 109,343 73,622 Kenneth Macpherson 7,600 7,600 7,472 24,569 24,569 31,279 74,344 74,344 73,861 106,513 106,513 112,612 Eric Pearson – – – 24,636 24,636 28,748 86,264 86,264 90,087 110,900 110,900 118,835 Ranjay Radhakrishnan – – n/a 25,061 25,061 n/a 31,836 31,836 n/a 56,897 56,897 n/a Jan Smits – – 30,476 23,724 23,724 28,742 71,755 71,755 86,177 95,479 95,479 145,395 George Turner – 18,000 17,975 21,815 21,815 26,047 76,744 76,744 80,914 98,559 116,559 124,936 Group information IHG Annual Report and Form 20-F 2016 167GROUP INFORMATION CONTINUED Number of shares held outright APP deferred share awards LTIP share awards (unvested) Total number of shares held 18 Feb
2019 31 Dec
2018 31 Dec
2017 18 Feb
2019 31 Dec
2018 31 Dec
2017 18 Feb
2019 31 Dec
2018 31 Dec
2017 18 Feb
2019 31 Dec
2018 31 Dec
2017 Keith Barr 40,642 42,782 31,116 26,847 28,262 24,586 97,211 97,211 90,987 164,700 168,255 146,689 Paul Edgecliffe-Johnson 24,385 25,669 27,443 25,404 26,742 28,384 87,482 87,482 97,970 137,271 139,893 153,797 Elie Maalouf 23,534 24,773 – 41,753 42,058 – 82,694 82,694 – 147,981 149,525 – Claire Bennett – – – 14,340 14,406 13,105 28,788 28,788 13,019 43,128 43,194 26,124 Jolyon Bulley 52,164 54,910 50,275 6,022 6,341 8,180 38,087 38,087 38,413 96,273 99,338 96,868 Yasmin Diamond 1,351 1,423 – 6,876 7,239 6,561 33,521 33,521 35,209 41,748 42,183 41,770 Nicolette Henfrey – – – 5,678 – – 18,675 – – 24,353 – – Kenneth Macpherson 7,296 7,681 – 30,535 31,468 29,057 53,121 53,121 59,675 90,952 92,270 88,732 Eric Pearson 10,295 10,837 – 20,531 21,613 22,979 63,635 63,635 72,633 94,461 96,085 95,612 Ranjay Radhakrishnan 7,902 8,318 – 24,983 25,258 31,836 49,101 49,101 41,851 81,986 82,677 73,687 George Turner 18,815 19,806 11,507 16,878 17,768 18,683 54,341 54,341 61,511 90,034 91,915 91,701 
IHG | Annual Report and Form 20-F 2018 | Additional Information | Group information 187 (as Depositary actions Depositary actions Associated fee Depositing or substituting the underlying shares $5 for each 100 ADSs (or portion thereof)shareShare distributions, stock splits, rights, mergers; andmergersexchangeExchange of securities or any other transactions or event or other distribution affecting the ADSs or the deposited securities $5 for each 100 ADSs (or portion thereof) Receiving or distributing dividends Distribution of stock dividends $5 for each 100 ADSs (or (or portion thereof) Distribution of cash $0.02 or less per ADS (or (or portion thereof)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 (or portion thereof)Withdrawing an underlying security Acceptance of ADRs surrendered for withdrawal of deposited securities $5 for each 100 ADSs (or (or portion thereof)Transferring, splitting or grouping receipts Transfers, combining or grouping of depositary receipts $1.50 per ADS 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) anot 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 distributionsaExpenses of the depositary Expenses payable at the sole discretion ofthe ADR Depositary by billing ADR holders or by deducting charges from one ormore cash dividends or other cash distributions are $20 per transactioncomplianceCompliance with foreign exchange control regulations or any law or regulation relating to foreign investment;investment.theThe ADR Depositary’s or its custodian’s compliance with applicable laws, rules or regulations;regulationsstockStock transfer or other taxes and other governmental charges;chargescable,Cable, telex, facsimile transmission/delivery;deliverytransferTransfer or registration fees in connection with the deposit and withdrawal of deposited securities;securitiesexpensesExpenses of the ADR Depositary in connection with the conversion of foreign currency into US dollars (which are paid out of such foreign currency); andanyAny other charge payable by the ADR Depositary or its agents Expenses payable at the sole discretion of the ADR Depositary by billing ADR holders or by deducting charges from one or more cash dividends or other cash distributions are $20 per transaction a 2016,2018, the Company received $300,000$376,007.95 from the ADR Depositary in respect of legal, accounting and other fees incurred in connection with the preparation of the Annual Report and Form 20-F, ongoing SEC compliance and listing requirements, investor relations programmes, and advertising and public relations expenditure. 168 188IHG | Annual Report and Form 20-F 2016 Additional Information2018284 May 20102018 and are available on the Company’s website atwww.ihgplc.com/investorsunder Corporate governance. The following summarises material rights of holders of the Company’s ordinary shares under the material provisions of the Articles and English law. This summary is qualified in its entirety by reference to the Companies Act and the Articles.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.he isthey are interested, nor may hethey count in the quorum of the meeting at which such business is transacted.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.he hasthey have any material interest (except in respect of the limitedhethey count in the quorum of the meeting at which such business is transacted.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.IHG | Annual Report and Form 20-F 2018 | Additional Information | Group information 189 the chairmanThe Chair of the meeting;atAt least five shareholders present in person or by proxy and entitled to vote at the meeting;anyAny shareholder or shareholders present in person or by proxy representing in the aggregate not less than one-tenth of the total voting rights of all shareholders entitled to vote at the meeting; oranyAny shareholder or shareholders present in person or by proxy holding shares conferring a right to vote at the meeting and on which there have been paid up sums in the aggregate at least equal to one-tenth of the total sum paid up on all the shares conferring that right.Group information IHG Annual Report and Form 20-F 2016 169GROUP INFORMATION CONTINUEDArticles of AssociationcontinuedanAn ordinary resolution, which includes resolutions for the election of Directors, the approval of financial statements, the cumulative annual payment of dividends, the appointment of the Auditor, the increase of share capital or the grant of authority to allot shares; andshares.aA special resolution, which includes resolutions amending the Articles, disapplying statutory pre-emption rights, modifying the rights of any class of the Company’s shares at a meeting of the holders of such class or relating to certain matters concerning the Company’s winding up or changing the Company’s name.The Articles specify that each Director shall retire every three years at the AGM and, unless otherwise decided by the Directors, shall be eligible for re-election. However, the Code recommends that all directors of FTSE 350 companies submit themselves for election orre-election (as appropriate) by shareholders every year. Therefore, all Directors will retire and offer themselves for election or re-election at the 2017 AGM.afterAfter the payment of all creditors including certain preferential creditors, whether statutorily preferred creditors or normal creditors; andsubjectSubject to any special rights attaching to any class of shares. 2016,2018, the minimum wage for individuals aged 18 to 20 was £5.55£5.90 per hour, aged 21 to 24 was £6.95£7.38 per hour and for those aged 25 or over was £7.20£7.83 per hour in each case, excluding apprentices aged under 19 years or,government.Government. 170 190IHG | Annual Report and Form 20-F 2016 Additional Information2018may requesthas exercised its ability to extend the term of the Syndicated Facility by up to two additional periods of 12 months, and exercisedtaking the first extension option in February 2016.term of the Syndicated Facility to 2022. The interest margin payable on borrowings under the Syndicated Facility is linked to IHG’s consolidated net debt to consolidated EBITDA ratio. The margin can vary between LIBOR + 0.40% and LIBOR + 1.00% depending on the level of the ratio. The Syndicated Facility was drawn as to $110mundrawn as at 31 December 2016.Disposal of InterContinental Hong KongOn 10 July 2015, a share sale and purchase agreement was entered into between Hotel InterContinental London (Holdings) Limited (a Group company) and Supreme Key Limited. Under the agreement, Hotel InterContinental London (Holdings) Limited agreed to sell Trifaith Investments Limited, the owner of InterContinental Hong Kong Limited, which in turn is the owner of InterContinental Hong Kong, to Supreme Key Limited. The gross sale proceeds agreed were $938 million in cash. The disposal completed on 30 September 2015.In connection with the sale, IHG secured a 37-year management contract on the hotel, with three 10-year extension rights at IHG’s discretion, giving an expected contract length of 67 years.Under the agreement, Hotel InterContinental London (Holdings) Limited gave certain customary warranties and indemnities to Supreme Key Limited.2018.2016,2018, the Group updated its Euro Medium Term Note programme (Programme) and issued a tranche of £350€500 million 2.125% notes due 24 August 2026 (201615 May 2027 (2018 Issuance).EachA Tranche of Notes willmay be issued on the terms and conditions set out in the updateda base prospectus dated 11 August 2016 (Base Prospectus) as amended and/or supplemented by a document setting out the final terms (Final Terms) of such Tranche or in a separate prospectus specific to such Tranche.previous base prospectus dated 9 November)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(pursuant to the Base Prospectusa base prospectus dated 16 June 2015) on 12 August 2015 in respect of the 2015 Issuance.issue of a Tranche of £300 million 3.75% Notes due 14 August 2025 (2015 Issuance). Final Terms were issued pursuant(pursuant to the Base Prospectusbase prospectus dated 11 August 2016) on 22 August 2016 in respect of the 2016issue of a Tranche of £350 million 2.125% Notes due 24 August 2026 (2016 Issuance). Final Terms were issued (pursuant to the base prospectus dated 13 August 2018) on 13 November 2018 in respect of the 2018 Issuance.20162018 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-gradeinvestment grade credit rated by the end of the Change of Control Period.Base Prospectus,base prospectus, dated 13 August 2018, a copy of which is available (as is a copy of each of the Final Terms dated 26 November 2012 relating to the 2012 Issuance, the Final Terms dated 12 August 2015 relating to the 2015 Issuance, and the Final Terms dated 22 August 2016 relating to the 2016 Issuance)Issuance and the Final Terms dated 13 November 2018 relating to the 2018 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, the Notes issued pursuant to the 2016 Issuance and the Notes issued pursuant to the 20162018 Issuance are referred to as ‘£400 million 3.875% bonds’bonds 2022’, ‘£300 million 3.750% bonds’ andbonds 2025’, ‘£350 million 2.125% bonds’bonds 2026’, and ‘€500 million 2.125% bonds 2027’ respectively in the Group Financial Statements.1113 August 2016,2018, the Issuer and the Guarantors entered into aan amended and restated dealer agreement (Dealer Agreement) with HSBC Bank plc as arranger and Barclays Bank PLC, Commerzbank Aktieengesel, HSBC Bank plc, SunTrust Robinson Humphrey, Inc., Merrill Lynch International, MUFG Securities EMEA plc, SunTrust Robinson Humphrey, Inc. and The Royal Bank of Scotland plcWells Fargo Securities international Limited as dealers (Dealers), pursuant to which the Dealers were appointed in connection with the Programme and the Notes. Group information IHG | Annual Report and Form 20-F 2016 1712018 | Additional Information | Group information191 GROUP INFORMATION CONTINUEDLegal proceedingsAdditional Information2018 February 2017,2019, the outcome of these matters cannot be reasonably determined.InterContinentalInter-Continental Hotels Corporation. The claimant originally identified eight causes of action with the respect to the management and sale of the InterContinental New Orleans. The following claims remain pending: claims for breach of fiduciary duty, fraud, civil conspiracy, alter ego, and unfair trade practices. As of 20 FebruaryOn 21 August 2017, the likelihoodcourt granted summary judgment to the defendants on all of the claimant’s remaining claims. The claimant appealed the ruling. On 12 December 2018, the appellate court affirmed the lower court ruling that granted summary judgment to both IHG defendants. The claimant did not pursue a favourable or unfavourable result cannot be reasonably determined and it is not possible to determine whether any loss is probable or to estimatefurther appeal, concluding the amount of any loss.claims against IHG in this matter.licenselicence agreement and seeks a declaratory judgment from the court that it has the right to terminate its licenselicence with HHF. HHF and InterContinental Hotels Group Resources, Inc. filed a claim against CPTS Hotel Lessee, LLC also seeking a declaratory judgment and alleging breach of contract and fraud. On 1 May 2018, the court granted IHG’s motion for preliminary injunction and ruled that the license agreement at issue is not terminable at will by CPTS. As of 2018 February 2017,2019, the likelihood of a favourable or unfavourable result cannot be reasonably determined and it is not possible to determine whether any loss is probablelikely or to estimate the amount of any loss.2018 February 2017,2019, 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 effectamount of any claims.loss. 172 192IHG | Annual Report and Form 20-F 2016 Additional Information2018certainCertain 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.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.IHG | Annual Report and Form 20-F 2018 | Additional Information | Shareholder information 193 Shareholder information IHG Annual Report and Form 20-F 2016 173SHAREHOLDER INFORMATION CONTINUEDTaxationcontinued(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.20162018 taxable year. However, this conclusion is an annual factual determination and thus may be subject to change. If the Company were a PFIC for any taxable year during which a US holder owned ordinary shares or ADSs, gain realised on the sale or other disposition of ordinary shares or ADSs would, in general, not be treated as capital gain. Instead, gain would be treated as if the US holder had realised such gain rateably over the holding period for the ordinary shares or ADSs and, to the extent allocated to the taxable year of the sale or other disposition and to any year before the Company became a PFIC, would be taxed as ordinary income. The amount allocated to each other taxable year would be taxed at the highest tax rate in effect (for individuals or corporations, as applicable) for each such year to which the gain was allocated, together with an interest charge in respect of the tax attributable to each such year. In addition, similar rules would apply to any ‘excess distribution’ received on the ordinary shares or ADSs (generally, the excess of any distribution received on the ordinary shares or ADSs during the taxable year over 125 per cent125% of the average amount of distributions received during a specified prior period), and the. The preferential rates for qualified dividend income described above would not apply.apply if the Company were a PFIC in the taxable year of the distribution or the preceding taxable year. (under certain existing UK rules relating to previous domicile or long residence, or under proposed expanded UK rules expected to take effect from 6 April 2017) is only chargeable to UK inheritance tax to the extent the individual owns assets situated in the UK. As a matter of UK law, it is not clear whether the situs of an ADS for UK inheritance tax purposes is determined by the place where the depositary is established and records the entitlements of the deposit holders, or by the situs of the underlying share which the ADS represents, but the UK tax authorities may take the view that the ADSs, as well as the ordinary shares, are or represent UK-situs assets.194 IHG | Annual Report and Form 20-F 2018 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.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 Government has confirmed that it will not reintroduce the 1.5% charge on the issue of shares (and transfers integral to the raising of capital) into clearance service or depositary receipt systems following the UK’s exit from the EU. In HMRC’s view, the 1.5 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.174 IHG Annual Report and Form 20-F 2016 Additional InformationThis view is currently being challenged in further litigation. Accordingly, specific Specific professional advice should be sought before paying the 1.5 per cent1.5% SDRT or stamp duty charge in any circumstances.0.5 per cent0.5% of the amount ofor 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.Internal Revenue Service (IRS)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 itsor entities closely held by 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. IHG | Annual Report and Form 20-F 2018 | Additional Information | Shareholder information 195 Shareholder information IHG Annual Report and Form 20-F 2016 175SHAREHOLDER INFORMATION CONTINUEDSeptember 2014April 2016 by the Financial Reporting Council (the Code) is set out on pages 6270 and 63.71.board,Board, excluding the Chairman,Chair, should consist of independentIndependent Non-Executive directors.Directors. As at 2018 February 2017,2019, the Board consisted of the Chairman,Chair, independent at the time of his appointment, twothree Executive Directors and sixseven Independent Non-Executive Directors. NYSE listing rules applicable to US companies state that companies must have a majority of independent directors. The NYSE set out five bright line tests for director independence. The Board’s judgement is that all of its Non-Executive Directors are independent. However, it did not explicitly take into consideration the NYSE’s tests in reaching this determination.ChairmanChair and Chief Executive OfficerchairmanChair and chief executive officerChief 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 ChairmanChair and Chief Executive Officer were, as at 2018 February 20172019 and throughout 2016,2018, fulfilled by separate individuals.ChairmanChair and all the Independent Non-Executive Directors.ChairmanChair of the Company is not a member of either the Remuneration or the Audit Committee. As set out on page 57,64, the Audit Committee is chaired by an Independent Non-Executive Director who, in the Board’s view, has the experience and qualifications to satisfy the criterion under US rules for an ‘audit committee financial expert’.ChairmanChair 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 ChairmanChair present to appraise the Chairman’sChair’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.161,179, 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/investorsunder Corporate governance. No waivers have been granted under the Code of Conduct. 176 196IHG | Annual Report and Form 20-F 2016 Additional Information20182012, 2013, 2014, 2015, 2016, 2017 and 20162018 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. $m, except earnings per ordinary share For the year ended 31 December 2016 2015 2014 2013 2012 Revenue 1,715 1,803 1,858 1,903 1,835 Total operating profit before exceptional items 707 680 651 668 605 Exceptional items (29 ) 819 29 5 (4 ) Total operating profit 678 1,499 680 673 601 Financial income 6 5 3 5 3 Financial expenses (93 ) (92 ) (83 ) (78 ) (57 ) Profit before tax 591 1,412 600 600 547 Tax: On profit before exceptional items (186 ) (180 ) (179 ) (175 ) (151 ) On exceptional items 12 (8 ) (29 ) (6 ) 1 Exceptional tax – – – (45 ) 141 (174 ) (188 ) (208 ) (226 ) (9 ) Profit for the year from continuing operations: 417 1,224 392 374 538 Attributable to: Equity holders of the parent 414 1,222 391 372 537 Non-controlling interest 3 2 1 2 1 Earnings per ordinary share (continuing and total operations): Basic 195.3 ¢ 520.0¢ 158.3¢ 140.9¢ 187.1¢ Diluted 193.5 ¢ 513.4¢ 156.4¢ 139.3¢ 183.9¢ Group statement of financial position data $m, except earnings per ordinary share 2017 2016 For the year ended 31 December 2018 Restated a Restated a 2015 2014 Total revenue 4,337 4,075 3,912 1,803 1,858 Operating profit before exceptional items 670 724 741 680 651 Exceptional items (104 ) 4 (29 ) 819 29 Operating profit 566 728 712 1,499 680 Financial income 5 4 6 5 3 Financial expenses (86 ) (76 ) (86 ) (92 ) �� (83 ) Profit before tax 485 656 632 1,412 600 Tax: (160 ) (203 ) (185 ) (180 ) (179 ) 22 (2 ) 12 (8 ) (29 ) 5 90 – – – (133 ) (115 ) (173 ) (188 ) (208 ) Profit for the year from continuing operations: 352 541 459 1,224 392 351 540 456 1,222 391 1 1 3 2 1 Earnings per ordinary share (continuing and total operations): 184.7¢ 279.8¢ 215.1¢ 520.0¢ 158.3¢ 182.8¢ 278.4¢ 213.1¢ 513.4¢ 156.4¢ $m, except number of shares 2017 2016 For the year ended 31 December 2018 Restated a Restated a 2015 2014 Goodwill and other intangible assets 1,143 967 858 1,226 643 Property, plant and equipment 447 425 419 428 741 Investments and other financial assets 364 369 359 420 368 Non-current trade and other receivables – – 8 3 3 Retirement benefit assets – 3 – – 8 Non-current derivative financial instruments 7 – – – – Non-current tax receivable 31 16 23 37 34 Deferred tax assets 60 75 69 49 87 Non-current contract costs 55 51 45 – – Non-current contract assets 270 241 185 – – Current assets 1,376 863 796 1,606 624 Assets classified as held for sale – – – – 310 Total assets 3,753 3,010 2,762 3,769 2,818 Current liabilities 1,370 1,280 1,150 1,369 943 Long-term debt 2,129 1,893 1,606 1,239 1,569 Net (liabilities)/assets (1,077 ) (1,301 ) (1,146 ) 319 (717 ) Equity share capital 146 154 141 169 178 IHG shareholders’ equity (1,085 ) (1,308 ) (1,154 ) 309 (725 ) Number of shares in issue at end of the year (millions) 197 197 206 248 248 $m, except number of shares 31 December 2016 2015 2014 2013 2012 Goodwill and other intangible assets 1,292 1,226 643 518 447 Property, plant and equipment 419 428 741 1,169 1,056 Investments and other financial assets 359 420 368 321 239 Non-current trade and other receivables 8 3 3 – – Retirement benefit assets – – 8 7 99 Non-current tax receivable 23 37 34 16 24 Deferred tax assets 48 49 87 108 204 Current assets 778 1,606 624 700 852 Assets classified as held for sale – – 310 228 534 Total assets 2,927 3,769 2,818 3,067 3,455 Current liabilities 1,134 1,369 943 928 972 Long-term debt 1,606 1,239 1,569 1,269 1,242 Net (liabilities)/assets (759 ) 319 (717 ) (74 ) 317 Equity share capital 141 169 178 189 179 IHG shareholders’ equity (767 ) 309 (725 ) (82 ) 308 Number of shares in issue at end of the year (millions) 206 248 248 269 268 a Shareholder information IHG | Annual Report and Form 20-F 2016 1772018 | Additional Information | Shareholderinformation197 SHAREHOLDER INFORMATION CONTINUEDAdditional Information2004,2003, the Group has returned over £5.9bn£6.6 billion of funds to shareholders by way of special dividends, capital returns and share repurchase programmes. On 23 February 2016,19 October 2018, the Company announced a $1,500m$500 million return of funds to shareholders via special dividend with share consolidation. The special dividend was paid on 23 May 2016.in January 2019.Return of funds programme TimingTotal return Timing Total return Returned to date £501m special dividenda Paid in December 2004 £501m £501m £250m share buyback Completed in 2004 £250m £250m £996m capital returna Paid in July 2005 £996m £996m £250m share buyback Completed in 2006 £250m £250m £497m special dividenda Paid in June 2006 £497m £497m £250m share buyback Completed in 2007 £250m £250m £709m special dividenda Paid in June 2007 £709m £709m £150m share buyback n/a b £150m £120m $500m special dividenda,c Paid in October 2012 £315m d £315m e ($500m ) ($505m ) $500m share buyback Completed in 2014 £315m d £315m ($500m ) ($500m )f $350m special dividend Paid in October 2013 £229m g £228m ($350m ) ($355m )h $750m special dividenda Paid in July 2014 £447m i £446m ($750m ) ($763m )j $1,500m special dividenda Paid in May 2016 £1,038mk £ 1,036m1,038mk £1,038m ($1,500m ) ($1,500m ) Total$400m special dividendaPaid in May 2017 £309m l £310m ($400m ) ($404m ) $500m special dividenda Paid in January 2019 £ 5,947m389mm £388m ($500m ) ($510m ) Total £ 5,913m6,645m£6,613m a b c d e f g h iI j k =£0.6923,= £0.6923, as announced on 12 May 2016.l m 198 IHG | Annual Report and Form 20-F 2018 2016, 269,9352018, 10 ordinary shares were purchased by the Company’s employee share ownership trust,Company at prices ranging from 2,577 pence4,159 to 2,5934,176 pence per share forunder the purpose of satisfying future share awards to employees.purchase announced by the Company on 18 December 2018 in connection with the $500 million special dividend and consolidation. Total number of shares Maximum number 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
plans or programmes (or units) purchased as of shares (or units) that may Total number of shares Average price paid part of publicly announced plans be purchased under the plans or (or units) purchased per share (or unit) or programmes programmes Month 1 200,000 2,593.0763 nil 23,611,725a Month 2 69,935 2,576.8975 nil 23,611,725a Month 1 (no purchases this month) nil nil nil 18.999.018 a Month 2 (no purchases this month) nil nil nil 18.999.018 a Month 3 (no purchases this month) nil nil nil 23,611,725a nil nil nil 18.999.018 a Month 4 (no purchases this month) nil nil nil 23,611,725a nil nil nil 18.999.018 a Month 5 (no purchases this month) nil nil nil 19,751,738b nil nil nil 18,999,018 b Month 6 (no purchases this month) nil nil nil 19,751,738b nil nil nil 18,999,018 b Month 7 (no purchases this month) nil nil nil 19,751,738b nil nil nil 18,999,018 b Month 8 (no purchases this month) nil nil nil 19,751,738b nil nil nil 18,999,018 b Month 9 (no purchases this month) nil nil nil 19,751,738b nil nil nil 18,999,018 b Month 10 (no purchases this month) nil nil nil 19,751,738b nil nil nil 18,999,018 b Month 11 (no purchases this month) nil nil nil 19,751,738b nil nil nil 18,999,018 b Month 12 (no purchases this month) nil nil nil 19,751,738b Month 12 10 4.166 10 18,999,018 b a 85 May 2015.2017.
2018.b 64 May 2016.178 IHG Annual Report and Form 20-F 2016 Additional InformationThe 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 ADSa Year ended 31 December high low high low 2012 17.25 11.60 27.82 18.25 2013 20.39 17.37 33.54 26.90 2014 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 Quarters in the year ended 31 December 2015 First quarter 27.56 25.33 41.59 38.32 Second quarter 28.80 25.66 43.55 38.90 Third quarter 27.43 22.09 42.68 33.52 Fourth quarter 27.74 22.87 40.41 34.91 2016 First quarter 28.71 21.84 41.27 32.11 Second quarter 29.28 25.25 41.86 35.14 Third quarter 33.65 27.59 44.67 36.81 Fourth quarter 36.38 30.21 44.33 38.16 2017 First quarter (to 20 February) 38.89 36.66 48.33 44.96 Month ended August 2016 33.65 30.14 44.67 40.31 September 2016 32.85 30.98 43.95 40.66 October 2016 33.22 31.30 42.47 38.81 November 2016 33.31 30.21 41.94 38.16 December 2016 36.38 32.17 44.33 41.14 January 2017 37.85 36.66 47.43 44.96 February 2017 (to 20 February) 38.89 36.81 48.33 46.45 aFluctuations 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. 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 2018 27.7 36.3 N/A a 78.1 N/A a 114.4 203.8 d 262.1 d 2017 24.4 33.0 50.2 71.0 74.6 104.0 156.4 b 202.5 b 2016 22.6 30.0 N/Aa 64.0 N/Aa 94.0 438.2 b 632.9 b 22.6 30.0 49.4 64.0 72.0 94.0 438.2 b 632.9 b 2015 17.7 27.5 40.3 57.5 58.0 85.0 17.7 27.5 40.3 57.5 58.0 85.0 – – 2014 14.8 25.0 33.8 52.0 48.6 77.0 174.9 b 293.0 b 14.8 25.0 33.8 52.0 48.6 77.0 174.9 b 293.0 b 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 64.0 108.4 b 172.0 b 13.5 21.0 27.7 43.0 41.2 64.0 108.4 b 172.0 b 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 – – 2008b 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 40.7 200 b – 5.7 11.5 14.9 29.2 20.6 40.7 200 b – 2006 5.1 9.6 13.3 25.9 18.4 35.5 118 b – 5.1 9.6 13.3 25.9 18.4 35.5 118 b – 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 72.0 b – a 11 May 201726 April 2019 using the average of the daily exchange rates from 8 May 201723 April 2019 to 10 May 201725 April 2019 inclusive.b c d Sharefolder information IHG | Annual Report and Form 20-F 2016 1792018 | Additional Information | Shareholder information199 SHAREHOLDER INFORMATION CONTINUEDShareholder profilesAdditional Information20162018Category of shareholder Number of
shareholders Number of
ordinary shares Percentage of
issued share capital Private individuals 33,811 93.62 9,062,327 4.58 Nominee companies 1,421 3.93 159,881,084 80.91 Limited and public limited companies 782 2.17 14,993,201 7.59 Other corporate bodies 92 0.25 13,547,738 6.86 Pension funds, insurance companies and banks 10 0.03 113,250 0.06 Total 36,116 100 197,597,600 100 Shareholder profile by size as at 31 December 2018 Range of shareholdings Number of
shareholders Percentage of
total shareholders Number of
ordinary shares Percentage of
issued share capital 1–199 24,346 67.41 1,463,101 0.74 200–499 6,493 17.98 2,030,722 1.03 500–999 2,687 7.44 1,863, 709 0.94 1,000–4,999 1,816 5.03 3,480,091 1.76 5,000–9,999 225 0.62 1,588,042 0.80 10,000–49,999 294 0.81 6,748,648 3.42 50,000–99,999 77 0.21 5,560,335 2.81 100,000–499,999 121 0.34 25,665,203 12.99 500,000–999,999 30 0.08 20,451,816 10.35 1,000,000 and above 27 0.07 128,745,897 65.16 Total 36,116 100 197,597,600 100 Shareholder profile by geographical location as at 31 December 2018 Country/Jurisdiction Percentage of UK 46.0 Rest of Europe 17.5 US (including ADRs) 34.3 Rest of world 2.2 Total 100 Category of shareholder Number of
shareholders Percentage
of total
shareholders Number of
ordinary
shares Percentage
of issued
share capital Private individuals 37,186 94.29 10,731,170 5.43 Nominee companies 1,322 3.35 171,537,462 86.85 Limited and public limited companies 771 1.95 12,399,108 6.28 Other corporate bodies 154 0.39 2,787,306 1.41 Pension funds, insurance companies and banks 7 0.02 62,334 0.03 Total 39,440 100 197,517,380 100 ShareholderThe geographical profile presented is based on an analysis of shareholders (by manager) of 40,000 shares or above where geographical ownership is known. This analysis only captures 90.7% of total issued share capital. Therefore, the known percentage distributions have been multiplied by size as at 31 December 2016100/90.7 (1.102) to achieve the figures shown in the table above.Range of shareholdings Number of
shareholders Percentage
of total
shareholders Number
of ordinary
shares Percentage
of issued
share capital 1 – 199 26,328 66.75 1,600,862 0.81 200 – 499 7,255 18.40 2,263,937 1.15 500 – 999 3,093 7.84 2,136,043 1.08 1,000 – 4,999 2,037 5.16 3,903,056 1.98 5,000 – 9,999 200 0.51 1,401,141 0.71 10,000 – 49,999 273 0.69 6,049,459 3.06 50,000 – 99,999 80 0.20 5,868,279 2.97 100,000 – 499,999 112 0.28 25,611,958 12.97 500,000 – 999,999 32 0.08 22,940,558 11.61 1,000,000 and above 30 0.08 125,742,087 63.66 Total 39,440 100 197,517,380 100 Shareholder profile by geographical location as at 31 December 2016Country/JurisdictionPercentageof issuedshare capitalaUK53.0Rest of Europe15.2US (including ADRs)29.4Rest of world2.4Total100aThe geographical profile presented is based on an analysis of shareholders (by manager) of 40,000 shares or above where geographical ownership is known. This analysis only captures 90.3% of total issued share capital. Therefore, the known percentage distributions have been multiplied by 100/90.3 (1.107) to achieve the figures shown in the table above.2018 February 2017, 14,821,0772019, 14,213,048 ADSs equivalent to 14,821,07714,213,048 ordinary shares, or approximately 7.18 per cent7.84% of the total issued share capital, were outstanding and were held by 573438 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.2018 February 2017,2019, there were a total of 39,26835,179 recorded holders of ordinary shares, of whom 261 had registered addresses in the US and held a total of 427,456383,344 ordinary shares (0.21 per cent(0.2% of the total issued share capital).180 200IHG | Annual Report and Form 20-F 2016 Additional Information2018SEC.SEC, and are publicly available through the SEC’s website atwww.sec.govExhibit1a Exhibit 1 Articles of Association of the Company (incorporated by reference to Exhibit 1 of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 11 April 2011)Exhibit 4(a)(i)4 May 2018 Exhibit 4(a)(i)a Amended and restated trust deed dated 11 August 2016 relating to a £2 billion Euro Medium Term Note Programme, among InterContinental Hotels Group PLC, Six Continents Limited, InterContinental Hotels Limited and HSBC Corporate Trustee Company (UK) Limited.Exhibit 4(a)(ii)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 4a(i)4(a)(i) of the InterContinental Hotels Group plcPLC Annual Report on Form 20-F (File No. 1 – 1040.9) dated 310409) date 2 March 2016)Exhibit 4(a)(iii)a2017) Exhibit 4(a)(ii)a Five-year $1.275 billion bank facility agreement dated 30 March 2015, among InterContinental Hotels Group PLC and certain of its subsidiaries, and Bank of America Merrill Lynch International Limited, Barclays Bank PLC, Citibank, N.A. London Branch, Commerzbank Aktiengesellschaft, London Branch, DBS Bank Ltd., London Branch, HSBC Bank plc, SunTrust Bank, The Bank of Tokyo-Mitsubishi UFJ, Ltd., The Royal Bank Of Scotland plc, U.S. Bank National Association and Wells Fargo Bank N.A., London Branch (incorporated by reference to Exhibit 4a(iii) of the InterContinental Hotels Group plcPLC Annual Report on Form 20-F (File No. 1 – 1040.9)10409) dated 3 March 2016)Exhibit 4(a) (iv)a(iii) $400 million bank facilityShare purchase agreement between Sustainable Luxury (BVI ) Limited Partnership (acting by its General Partner, Sustainable Luxury (BVI) Limited), Sustainable Luxury Holdings (BVI) Limited and Inter-Continental Hotels Corporation 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 2612 February 2015)2019Exhibit 4(c)(i)a Paul Edgecliffe-Johnson’s service contract dated 6 December 2013, commencing on 1 January 2014 (incorporated by reference to Exhibit 4(c) (i) of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 26 February 2014)Exhibit 4(c)(ii)aTracy 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)a26 February 2014) Richard Solomons’ service contract dated 16 March 2011, commencing on 1 July 2011 (incorporated by reference to Exhibit 4(c)(iii) of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 11 April 2011)Exhibit 4(c)(iv)a Exhibit 4(c)(ii)a Rules of the InterContinental Hotels Group Long Term Incentive Plan as amended on 2 May 2014 (incorporated by reference to Exhibit 4(c)(ix) of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 26 February 2015) Exhibit 4(c)(v)a Exhibit 4(c)(iii)a Rules of the InterContinental Hotels Group Annual Performance Plan as amended on 2 May 2014 (incorporated by reference to Exhibit 4(c)(x) of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 26 February 2015) Exhibit 4(c)(iv)a Keith Barr’s service contract dated 5 May 2017, commencing on 1 July 2017(incorporated by reference to Exhibit 4(c)(v) of the InterContinental Hotels Group Annual Report on Form 20-F (File No. 1-10409) dated 1 March 2018) Exhibit 4(c)(v)a Elie Maalouf’s service contract dated 19 October 2017, commencing on 1 January 2018(incorporated by reference to Exhibit 4(c)(vi) of the InterContinental Hotels Group Annual Report on Form 20-F (File No. 1-10409) dated 1 March 2018) Exhibit 8 List of subsidiaries as at 31 December 20162018 (can be found on pages 143159 to 145)161)Exhibit 12(a) Certification of Richard SolomonsKeith 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 Richard SolomonsKeith Barr and Paul Edgecliffe-Johnson furnished pursuant to 17 CFR 240.13a–14(b) and 18 U.S.C.1350Exhibit 15(a) Consent of independent registered public accounting firm, Ernst & Young LLP Exhibit 101 XBRL Instance Document and related items a Exhibits IHG | Annual Report and Form 20-F 2016 1812018 | Additional Information | Exhibits201 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 197 Shareholder information: Dividend history 199 3B – Capitalisation and indebtedness Not applicable – 3C – Reason for the offer and use of proceeds Not applicable – 3D – Risk factors Group information: Risk factors 182-186 4 Information on the Company 4A – History and development of the Company Group information: History and developments 182 Shareholder information: Return of funds 198 Useful information: Contacts 207 4B – Business overview Strategic Report 2-51 Group information: Working Time Regulations 1998 190 Group Information: Risk factors 182-186 4C – Organisational structure Group Financial Statements: Note 34 – Group companies 159-161 Group Information – history and development 182 4D – Property, plants and equipment Strategic Report: Key performance indicators 31-35 Directors’ Report: Greenhouse gas (GHG) emissions 180 Group Financial Statements: Note 12 – Property, plant and equipment 133-134 4A Unresolved staff comments None – 5 Operating and financial review and prospects 5A – Operating results Strategic Report: Performance 36-51 Group Financial Statements: Accounting policies 103-108 Group Financial Statements: New accounting standards and presentational changes 109-114 Viability statement 30 5B – Liquidity and capital resources Strategic Report: Performance – Liquidity and capital resources 50-51 Group Financial Statements: Note 17 – Cash and cash equivalents 140 Group Financial Statements: Note 20 – Loans and other borrowings 141-142 Group Financial Statements: Note 22 – Financial risk management 144-146 Group Financial Statements: Note 23 – Fair value measurement 147-148 Group Financial Statements: Note 24 – Reconciliation of profit for the year 149 to cash flow from operations before contract acquisition costs 5C – Research and development; intellectual property Not applicable – 5D – Trend information Strategic Report: Performance 36-51 5E – Off-balance sheet arrangements Strategic Report: Performance – Liquidity and capital resources 51 – Off-balance sheet arrangements 5F – Tabular disclosure of contractual obligations Strategic Report: Performance – Liquidity and capital resources 50-51 5G – Safe harbour Additional Information: Forward-looking statements 208 5H – Non-GAAP financial measures Strategic Report: Performance 36 Other financial information 172-177 Group Financial Statements: Note 6 – Exceptionals 124 Group Financial Statements: Note 10 – Earnings per ordinary share 130 Group Financial Statements: Note 21 – Net debt 143 6 Directors, senior management and employees 6A – Directors and senior management Corporate Governance: Our Board of Directors and Our Executive Committee 56-59 6B – Compensation Directors’ Remuneration Report 72-85 Group Financial Statements: Note 25 – Retirement benefits 149-153 Group Financial Statements: Note 31 – Related party disclosures 157-158 Group Financial Statements: Note 26 – Share-based payments 153-154 6C – Board practices Corporate Governance 52-71 Service contracts and notice periods 81,84 6D – Employees Group Financial Statements: Note 4 – Staff costs and Directors’ emoluments 123 Group information: Working Time Regulations 1998 190 Directors’ Report: Employees and Code of Conduct 179 6E – Share ownership Directors’ Remuneration Report: Annual Report on Directors’ Remuneration – Scheme interests awarded during 2018 80 Directors’ Remuneration Report: Annual Report on Directors’ Remuneration – Statement of Directors’ shareholdings and share interests 81,84 Group Financial Statements: Note 26 – Share-based payments 153-154 Group information: Directors and Executive Committee members’ shareholdings 187 7 Major shareholders and related party transactions 7A – Major shareholders Directors’ Report: Major institutional shareholders 178 Shareholder information: Shareholder profiles 200 7B – Related party transactions Group Financial Statements: Note 14 – Investment in associates and joint ventures 136-137 Group Financial Statements: Note 31 – Related party disclosures 157-158 7C – Interests of experts and counsel Not applicable – 202 IHG | Annual Report and Form 20-F 2018 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 – 45 Group information: Working Time Regulations 1998 170 Group Information: Risk factors 164 – 167 4C – Organisational structure Group Financial Statements: Note 33 – Group companies 143 – 145 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 118 4A Unresolved staff comments None – 5 Operating and financial review and prospects 5A – Operating results Strategic Report: Performance 26 – 45 Group Financial Statements: Accounting policies 98 – 105 5B – Liquidity and capital resources Strategic Report: Performance – Liquidity and capital resources 22, 45 Group Financial Statements: Note 17 – Cash and cash equivalents 125 Group Financial Statements: Note 20 – Loans and other borrowings 126 – 127 Group Financial Statements: Note 22 – Financial risk management 128 – 131 Group Financial Statements: Note 23 – Fair value measurement 131 – 132 Group Financial Statements: Note 24 – Reconciliation of profit for the year to cash flow from operations 133 Not applicable – 5D – Trend information Strategic Report: Performance 26 – 45 5E – Off-balance sheet arrangements Strategic Report: Performance – Liquidity and capital resources 45 5F – Tabular disclosure of contractual obligations Strategic Report: Performance – Liquidity and capital resources 45 5G – Safe harbour Additional Information: Forward-looking statements 188 5H – Non-GAAP financial measures Strategic Report: Performance 26 Other financial information 156 – 157 Group Financial Statements: Note 9 – Earnings per ordinary share 117 Group Financial Statements: Note 21 – Net debt 128 6 Directors, senior management and employees 6A – Directors and senior management Corporate Governance: Our Board of Directors and Our Executive Committee 50 – 53 6B – Compensation Directors’ Remuneration Report 64 – 81 Group Financial Statements: Note 25 – Retirement benefits 133 – 137 Group Financial Statements: Note 31 – Related Party Disclosures 142 Group Financial Statements: Note 26 – Share-based payments 137 – 138 6C – Board practices Corporate Governance 49 – 63 6D – Employees Executive Directors’ benefits upon termination of office 168 Group Financial Statements: Note 3 – Staff costs and Directors’ emoluments 111 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 – Scheme interests 71 awarded during 2016 Directors’ Remuneration Report: Annual Report on Directors’ Remuneration – Statement of Directors’ 72 shareholdings and share interests Group Financial Statements: Note 26 – Share-based payments 137 – 138 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 121 – 122 Group Financial Statements: Note 31 – Related party disclosures 142 7C – Interests of experts and counsel Not applicable – Item Form 20-F caption Location in this document Page 8 Financial Information 8A – Consolidated statements and Directors’ Report: Dividends 178 Group Financial Statements 86-161 Group Information: Legal proceedings 192 Strategic Report: Performance – Other financial information 49-50 8B – Significant changes None – 9 The offer and listing 9A – Offer and listing details Useful information: Trading markets 206 9B – Plan of distribution Not applicable – 9C – Markets Useful information: Trading markets 206 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 189-190 Group information: Rights attaching to shares 189-190 10C – Material contracts Group information: Material contracts 191 10D – Exchange controls Shareholder information: Exchange controls and restrictions on payment of dividends 192 10E – Taxation Shareholder information: Taxation 193-195 10F – Dividends and paying agents Not applicable – 10G – Statement by experts Not applicable – 10H – Documents on display Useful information: Investor information – Documents on display 206 10I – Subsidiary information Not applicable �� – 11 Quantitative and qualitative disclosures about market risk Group Financial Statements: Note 22 – Financial risk management and derivatives 144-146 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 188 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 Disclosure controls and procedures 196 88 Independent Auditor’s US Report 95 16A 16A – Audit committee financial expert Corporate Governance: Audit Committee Report 64-67 Shareholder information: Summary of significant corporate governance 196 differences from NYSE listing standards – Committees 16B – Code of ethics Directors’ Report: Employees and Code of Conduct 179 Strategic Report: Our culture, key stakeholders and doing business responsibly 22-25 Shareholder information: Summary of significant corporate governance 196 differences from NYSE listing standards 16C – Principal accountant fees and services Corporate Governance: Audit Committee Report – External auditor 66-67 Corporate Governance: Audit Committee Report – Non-audit services 66 Group Financial Statements: Note 5 – Auditor’s remuneration paid 123 to Ernst & Young LLP 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 equity securities by the Company and affiliated purchasers 199 16F – Change in registrant’s certifying accountant Not applicable – 16G – Corporate Governance Shareholder information: Summary of significant corporate governance differences from NYSE listing standards 196 16H – Mine safety disclosure Not applicable – 17 Financial statements Not applicable – 18 Financial statements Group Financial Statements 86-161 19 Exhibits Additional Information: Exhibits 201 182 IHG | Annual Report and Form 20-F 20162018 | Additional informationItem 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 91 – 145 Group Information: Legal proceedings 172 Strategic Report: Performance – other financial information 44 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 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 Group Financial Statements: Note 22 – Financial risk management 128 – 131 market risk 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 Not applicable – holders and use of proceeds 15 Controls and Procedures Shareholder information: Disclosure controls and procedures 175 Group Financial Statements: Statement of Directors’ Responsibilities – Management’s report 84 on internal control over financial reporting Group Financial Statements: Independent Auditor’s US Report 90 16 16A – Audit committee financial expert Corporate Governance: Audit Committee Report 57 Shareholder information: Summary of significant corporate governance differences from NYSE listing 176 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 differences from NYSE 176 listing standards 16C – Principal accountant fees and services Corporate Governance: Audit Committee Report – External Auditor 59 Corporate Governance: Audit Committee Report – Non-audit services 59 Group Financial Statements: Note 4 – Auditor’s remuneration paid to Ernst & Young LLP 111 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 178 16F – Change in registrant’s certifying accountant Not applicable – 16G – Corporate governance Shareholder information: Summary of significant corporate governance differences from NYSE listing standards 176 16H – Mine safety disclosure Not applicable – 17 Financial statements Not applicable – 18 Financial statements Group Financial Statements 91 – 145 19 Exhibits Additional Information: Exhibits 181 Information | Form 20-F cross-reference guide IHG Annual Report and Form 20-F 2016 183203 GlossaryAdditional Informationadjustedexcluding the effect of exceptional items and any relevant tax.(JPMorgan)(J.P. Morgan)JPMorganJ.P. Morgan Chase Bank N.A.1820318340/329299pence each of the Company.AMEAEMEAAAsia,Europe, Middle East, Asia and Africa.20–F20-F in relation to the years ending 31 December 20152017 or 20162018 as relevant.plc.PLC.September 2014April 2016 by the Financial Reporting Council in the UK. The Code was revised in 2018; references to the revised Code are indicated as the ‘new Code’ or ‘2018 Code’.exchangeaverage xchange rates.PlanPlan.third partythird-party intermediaries. The revised DR Policy is on pages 76 to 81 of this Report.earningearnings excluding exceptional items and the impact of the System Fund, before interest, tax, depreciation and amortisation.Union.Union.leasedmanaged lease hotels, managed leases, Kimpton in 2015 only, and significant liquidated damages.system, currently HOLIDEX, IHG’s proprietary system.leasedmanaged lease hotels, including room nights, food and beverage sales.ICETUSInterContinental Executive Top-Up Scheme.IC PlanInterContinental Hotels UK Pension Plan.204 IHG | Annual Report and Form 20-F 2018 184 IHG Annual Report and Form 20-F 2016 Additional Informationand from 69 May 2016 the ordinary shares of 18318/329 pence each in the Company; from 8 May 2017 the ordinary shares of 1917/21 pence each in the Company; and from 14 January 2019 the ordinary shares of 20340/399 pence each in the Company.leasedmanaged lease by IHG.Six ContinentsSix Continents Limited; previously Six Continents PLC and re-registered as a private limited company on 6 June 2005.leasedmanaged lease hotels/rooms, globally (the IHG System) or on a regional basis, as the context requires.per centpercentage of rooms revenue delivered through IHG’s direct and indirect systems and channels.specificallyactivities that drive revenue to our hotels including marketing, the IHG Rewards Club loyalty programme and the global reservation system.our distribution channels.leasedmanaged lease hotels. Other than owned, leased and leasedmanaged lease hotels, it is not revenue wholly attributable to IHG, as it is mainly derived from hotels owned by third parties.underlying fee revenueGroup revenue excluding revenue from owned and leased hotels, managed leases, and significant liquidated damages. Glossary IHG | Annual Report and Form 20-F 2016 1852018 | Additional Information | Glossary205 20162018 has been made available to shareholders through our website atwww.ihgplc.com/investors under Annual Report.20172019 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.page 187)the opposite page). Visit www.ihgplc.com/responsible-business for details.The IHG® FoundationLaunched in 2016, the IHG Foundation is an independent charitable trust that sets the foundations for stronger, healthier and more prosperous communities around the world. Visit www.ihgfoundation. com to learn more.
2132a2132a (calls from within the UK) or +44 (0) 121 415 7034 (calls from outside the UK).2268a. See www.shareview.co.uk/info/drip for 2268a DRIP application form and information booklet..187)opposite).Go to www.shareview.co.uk/info/ops for further information.page 187)the opposite page).0371 384 2244a.0345 300 0430a.20032004 to December 2016,January 2019, for UK Capital Gains Tax purposes, may be found on our website atwww.ihgplc.com/investors under Shareholder centre in the Tax information section.36648671 or email info@prosearchassets.com for further details.consumers/consumers on the Financial Conduct Authority website.JPMorganJ.P. Morgan Chase Bank, N.A., our ADR Depositary bank (contact details shown on page 187)the opposite page).D.C.DC 20549. For further information and copy charges please call the SEC at 1-800-SEC-0330. The Company’s SEC filings since 22 May 2002 are also publicly available through the SEC’s website atwww.sec.gov Copies of the Company’s Articles can be obtained via the website at www.ihgplc. com/www.ihgplc.com/investors under corporateCorporate governance or from the Company’s registered office on request.a 8.30am08:30 to 5.30pm17:30 Monday to Friday, excluding UK public holidays.b 8.00am08:00 to 4.30pm16:30 Monday to Friday, excluding UK public holidays. 186 IHG Annual Report and Form 20-F 2016 Additional InformationDividends206 20162016 Special dividend of 438.2p per ordinary share(632.9¢ per ADR)Record date6 MayEx-dividend date9 MayPayment date23 May2016 Interim dividend of 22.6p per share(30.0¢ per ADR)Payment date7 October20172016 Final dividend of 64.0¢ per ordinary shareaEx-dividend date4 MayRecord date5 MayPayment date22 MayIHG | Annual Report and Form 20-F 2018Other datesFinancial calendarsDividends Other dates 2018 Interim dividend of 27.7p per share Announcement of 2019 First Quarter Interim 3 May Special dividend of 203.8p per ordinary share Announcement of 2019 Third Quarter Interim 18 October 2016Financial year end31 December2017Announcement of Preliminary Results for 201621 FebruaryAnnouncement of 2017 First Quarter5 MayInterim Management StatementAnnual General Meeting5 MayAnnouncement of Half-Year Results for 20178 AugustAnnouncement of 2017 Third Quarter20 OctoberInterim Management StatementFinancial year end31 December2018Announcement of Preliminary Results for 2017Februarya 11 May 201726 April 2019 using the average of the daily exchange rates from 8 May 201723, April 2019 to 10 May 201725 April 2019 inclusive.Fax:+44 (0) 1895 512 101JPMorganJ.P. Morgan Chase Bank N.A., PO Box 64504,55120-0854,55164-0504, United States of Americajpmorgan.adr@wellsfargo.comjpmorgan.adr@eg-us.com0871 226 1111+44 (0) 2033 499 033a (UK)+44 20 3349 9033b (Europe(UK and other countries inside Europe and Africa)cb (US and Canada)cb (Mexico)+1 801 975 3063d (English) (Central and South America)dc (Spanish) (Central and South America)dc (Middle East)0261 2 9935 8362dc (Australia)dc (Mandarin and Cantonese) (China and Hong Kong)(China)dc (Japan)dc (Korea)dc (all other countries in Asia Pacific)a Telephone calls to this number are charged at 13p per minute. Standard network rates apply. Calls from mobiles will be higher.bb c Toll-free.d Useful information IHG | Annual Report and Form 20-F 2016 1872018 | Additional Information | Useful information207 20162018 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’sChair’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.acquisitions;acquisitions and restructuring; the Group’s dependence upon a wide range of external stakeholders and business partners; the Group’s exposure to increasing competition from online travel agents and intermediaries; the risks related to identifying, securingis exposedexposure 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 causedisrupt the failureoperation and/or integrity 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 collective bargaining activity which could disrupt operations, increase labour costs or interfere with the ability of management to focus on executing business strategies; 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 securitycybersecurity 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.business; the risks associated with uncertainties associated with brand development and expansion; the Group’s exposure to an impairment of the carrying value of its brands, goodwill or other tangible and intangible assets negatively affecting its consolidated operating results; the risk associated with the Group’s operations being dependent on maintaining sufficient liquidity to meet all foreseeable medium-term requirements and provide headroom against unforeseen obligations; the risks associated with credit risk on treasury transactions; and the risks associated with changes in tax rates.2016.2018. Designed and produced byAddison Groupwww.addison-group.netManaged byRR DonnelleyInterContinental Hotels Group PLC’s commitment to environmental issues is reflected in this Annual Report.This report has been printed on Symbol Matt Plus. Environmental friendly ECF (Elemental Chlorine Free Guaranteed) paper, certified by the FSC® (Forest Stewardship Council). Containing a High content of selected recycled materials (minimum 25% guaranteed).The FSC® (Forest Stewardship Council) is a worldwide label which identifies products obtained from sustainable and responsible forest management.Printed by CPI Colour in the UK, using the latest environmental printing technology and vegetable based inks.CPI Colour is a CarbonNeutral® company. Registered with the Environmental Management System ISO14001 and are Forest Stewardship Council (FSC®) chain-of-custody certified.The unavoidable carbon emissions generated during the manufacturing and delivery of this document have been reduced to net zero through a verified carbon offsetting project.
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InterContinental Hotels Group PLCBroadwater Park, Denham,Buckinghamshire UB9 5HRUnited KingdomTel +44 (0) 1895 512 000Fax +44 (0) 1895 512 101Web www.ihgplc.comMake a booking at www.ihg.com
InterContinental Lijiang Ancient Town Resort,People’s Republic of ChinaInterContinental Hotels & ResortsThe world’s largest luxury hotel brand,celebrated its 70th anniversary in 2016.With more than 185 InterContinentalhotels worldwide, we have the internationalknow-how and local cultural wisdom todeliver ‘The InterContinental Life’.SIGNATURESSIGNATURE (Registrant)By: /s/ Paul Edgecliffe-Johnson Name: Paul Edgecliffe-Johnson Title: Chief Financial Officer 2 March 2017February 28, 2019
