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
| þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20132014
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 | New York Stock Exchange | |
Ordinary Shares of | 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 þ No ¨
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934: Yes ¨ No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days: Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer þ | Accelerated filer ¨ | Non-accelerated filer ¨ | Smaller reporting company ¨ | |||
| (Do not check if a smaller reporting company) |
Indicate by check mark which financial statement item the registrant has elected to follow:
Item 17 ¨ Item 18 þ
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 þ
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
US GAAP ¨ | International Reporting Standards as issued by the International Standards Accounting Board þ | Other ¨ |
and Form 20-F 2013
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| Independent Auditor’s US Report | ||
| Group Financial Statements | ||
| Accounting policies | ||
| Notes to the Group Financial Statements | ||
| Group information | ||
| Shareholder information | ||
| Useful information | ||
| 181 | Exhibits | |
| Form 20-F cross-reference guide | ||
| Glossary | ||
| Forward-looking statements | ||
The Strategic Report on pages 2 to 51 was approved by the Board on 16 February 2015
George Turner, Company Secretary
Dream
‘Guest Journey’ – Step One
TheDream phase of the ‘Guest Journey’ is one of the most exciting parts of travel for many of our guests as they research, seek inspiration, and dream, about their future trip.
| Front cover: EVEN Hotel, Rockville, Maryland, US |
2013 marked 10 years since InterContinental Hotels Group PLC (IHG) became a standalone company. Today, we are one of the world’s leading hotel companies with almost 4,700 hotels in nearly 100 countries and territories, and a portfolio of nine preferred brands that have a deep history and heritage. Highlighted below are just some of the milestones, achievements and innovations that have come to define IHG and our family of brands.
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Our strategy for high-quality growth
We focus on strengthening our portfolio of preferred and differentiated brands, building scale in key markets, creating a long-lasting relationship with our guests and delivering revenue to hotels through the lowest cost, direct channels. Our proposition to owners is highly competitive and drives superior returns.
We execute our asset-light strategy in the most attractive, high-growth markets and industry segments. We take a disciplined approach to capital allocation, investing for the future growth of our brands. This enables us to drive sustainable growth in our profitability and deliver superior shareholder returns over the long term.
| Our strategy is detailed on pages 14 to 33. |
 Our business model We predominantly franchise our brands to, and manage hotels on behalf of, third-party owners; our focus is therefore on building preferred brands and strong revenue delivery systems. Franchised: 4,096 hotels (514,984 rooms)* 2013: 3,977 hotels (502,187 rooms) Managed: 735 hotels (192,121 rooms)* 2013: 711 hotels (180,724 rooms) Owned and leased: 9 hotels (3,190 rooms)* 2013: 9 hotels (3,962 rooms) Our business model is detailed on pages 12 and 13. Our portfolio of brands is detailed on pages 4 and 5. Our revenue delivery systems are detailed on pages 17 and 22. Hotels in the IHG System pay IHG: • management and/or franchise fees; and • assessments and contributions which are collected for specific use within the System Fund (this does not result in profit or loss for IHG). Information on the System Fund is detailed on page 49. | Group highlights*
Total gross revenue in IHG’s System (2013: $21.6bn†) Group Revenue down 2% to
-3%: $651m‡ Total operating profit
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| +10%: 77¢ (48.6p) 2014 Full-year dividend¶ (2013: 70.0¢ (43.2p))
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“We are delighted to have delivered another year of strong performance in 2013, my first yearas Chairman of IHG.”
+9%: 70.0¢
Total full-year dividend
(sterling equivalent of 43.2p)
+3.8%
Revenue per available room*
686,873 rooms (4,697 hotels)
operating in the IHG System
+4%
Fee revenue†
+6.1% Revenue per available room**(2013: +3.8%) 710,295 rooms (4,840 hotels) operating in the IHG System +7% Fee revenue††(2013: + 4%). Driven by 6.1% (2013: 3.8%) of RevPAR growth and 3.4% (2013: 1.6%) net IHG System size growth Our global and regional performance is set out on pages 34 to 51. * Unless otherwise stated, all facts and figures as at 31 December 2014. † ‡ Includes two liquidated damages receipts in 2014: $7m, both in The Americas. § Includes three liquidated damages receipts in 2013; $31m in The Americas, $9m in Europe and $6m in AMEA. ¶ Subject to shareholder approval of 2014 final dividend. **Total IHG System rooms revenue divided by the number of room nights available.Driven by 3.8% of RevPAR growth This comprises total rooms revenue from franchised hotels and total hotel revenue from managed, owned and leased hotels. It is not revenue attributed to IHG.
†† | Group revenue excluding owned and leased hotels, managed leases and significant liquidated damages. Growth stated at constant currency. |
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Where we operate
We operate in nearly 100 countries globally.
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| IHG Annual Report and Form 20-F 2014 |
Each of the brands in our portfolio are complementary and differentiated to meet the changing, multifaceted needs of our guests and be commercially compelling to third-party hotel owners.
Supported by the IHG brand and IHG Rewards Club (our loyalty programme), our portfolio of hotel brands is aimed at meeting evolving guests’ needs.
Driving brand preference for our guests Each of our brand strategies revolves around guest research and insight, allowing us to develop each brand to deliver unique guest experiences against specific needs, occasions and price points. To drive brand preference, our brands must deliver a truly holistic experience for our guests, from the moment travel plans are conceived, across the planning and booking experience, throughout the hotel stay and thereafter – we call this the ‘Guest Journey’ (see pages 17 and 22). In January 2015, we acquired Kimpton Hotels & Restaurants, the world’s largest independent boutique hotel operator. This, alongside Hotel Indigo and EVEN Hotels, strengthens our brand portfolio and creates a leading boutique and lifestyle hotel business in one of the fastest growing industry segments (see page 21). | Delivering preferred brands by our people We recognise that our people deliver the brand experience for our guests and we therefore invest heavily in our talented people (see page 23). Having preferred brands for owners Given our asset-light business model, strong owner relationships are vital to building scale (see pages 16 and 17). Integral to this, is a portfolio comprising strong, clearly defined brands enabling third-party hotel owners to choose the right IHG brand for their hotel. | |||||||||||
180† Hotels open 61,235† Rooms open 50† Hotels in the pipeline 15,664† Rooms in the pipeline | InterContinental® Hotels & Resorts Our international luxury brand is located in most of the world’s key cities and many resort destinations across more than 60 countries worldwide. The brand’s ethos is to provide insightful, meaningful experiences to our guests to make their world feel bigger. |
24† Hotels in the pipeline 7,551† Rooms in the pipeline | HUALUXE® Hotels and Resorts Launched in March 2012, it was the first luxury international hotel brand where every element has been designed specifically to suit the tastes and sensibilities of the Chinese guest. It focuses on the unique aspects of Chinese etiquette, the importance of rejuvenation, status recognition, local customs and heritage. | |||||||||
406† Hotels open 113,562† Rooms open 92† Hotels in the pipeline 25,336† Rooms in the pipeline | Crowne Plaza® Hotels & Resorts With hotels in major business centres around the world, Crowne Plaza is our modern business hotel dedicated to business travel that is ever more flexible, more connected, and more mobile. We enable our guests to be their most productive by simply making business travel work. |
61† Hotels open 6,731† Rooms open 63† Hotels in the pipeline 9,096† Rooms in the pipeline | Hotel Indigo® Hotel Indigo artfully combines the unique design and authentic local experiences of a boutique hotel, with the ease and peace of mind of a recognised brand name. Each hotel reflects the local culture, character and history of the surrounding area. | |||||||||
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1,212†* Hotels open 225,159†* Rooms open 269†§ Hotels in the pipeline 52,713†§ Rooms in the pipeline | Holiday Inn® At Holiday Inn, we believe the joy of travel is for everyone. Warm and friendly, Holiday Inn has been opening its doors to guests since 1952, affordably blending the familiar with the new, and putting everyone at ease no matter the reason for their stay. Holiday Inn Resort® properties offer great value, warm and friendly service and the peace of mind of a trusted brand name. The Holiday Inn Resort brand champions the family holiday. Holiday Inn Club Vacations® is a vacation ownership club that opens the door to the joy of owning a vacation home. The portfolio is a collection of resorts in the US, offering spacious villa accommodation for families in great vacation destinations. |
2,365† Hotels open 229,110† Rooms open 522† Hotels in the pipeline 62,954† Rooms in the pipeline | Holiday Inn Express® Holiday Inn Express champions smart and simple travel for everyone. We support guests without hassle, without complication, without extravagance – but always with a warm smile. Our mantra is ‘everything you need, nothing you don’t’. | |||||||||
* Includes 12 Holiday Inn Club Vacations properties (4,027 rooms) and 42 Holiday Inn Resort properties (9,904 rooms). § Includes 18 Holiday Inn Resort properties (4,412 rooms). | ||||||||||||
322† Hotels open 30,708† Rooms open 89† Hotels in the pipeline 7,717† Rooms in the pipeline | Candlewood Suites® IHG’s extended-stay brand in North America aimed at providing guests with a relaxed, casual and home-like environment at a great value. |
205† Hotels open 22,409† Rooms open 99† Hotels in the pipeline 10,908† Rooms in the pipeline | Staybridge Suites® IHG’s extended-stay brand for business and leisure travellers who are spending an extended time away from home and prefer a warm, home-like and community environment. | |||||||||
2† Hotels open 296† Rooms open 3† Hotels in the pipeline 584† Rooms in the pipeline | EVENTMHotels Launched in February 2012, the brand was created to meet the large and growing demand for a hotel brand to help wellness-minded travellers maintain their balance on the road. |
62‡ Hotels open 11,300‡ Rooms open 16‡ Hotels in the pipeline 3,000‡ Rooms in the pipeline | Kimpton® Hotels & Restaurants Acquired by IHG in January 2015, this is a leading collection of boutique hotels and award-winning destination restaurants in the US. The brand is renowned for its distinctive design and personal approach to guest service, using thoughtful perks and amenities and a sense of fun to make them feel truly at home. | |||||||||
† As at 31 December 2014. ‡ These were part of the acquisition which completed on 16 January 2015. | IHG System size of 4,840 hotels (710,295 rooms) includes 87 hotels (21,085 rooms) that are unbranded. | |||||||||||
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| IHG Annual Report and Form 20-F 2014 |
We have continued to execute our strategy to deliver high-quality growth. Our strong performance was underpinned by our successful Winning Model, which is our framework for delivering value for our shareholders and owners through our portfolio of preferred brands, talented people and leading revenue delivery systems.
“We made excellent progress against our well-established strategy to deliver high-quality growth and returned over $1 billion to shareholders.” Patrick Cescau Chairman | Our highlights in 2014 included the opening of the first two hotels under the EVEN Hotels brand, and the progress made in both strengthening our digital offer and enhancing our loyalty programme, IHG Rewards Club, with the aim of building lifetime loyalty with our guests and enhancing their experience with our brands before, during, and after, their stay. We also continued our strong track record of delivering attractive returns for shareholders, with over $1 billion (including ordinary dividends) returned in the year. We ended the year on a high, with the announcement that we had agreed to acquire Kimpton Hotels & Restaurants, making IHG the clear market leader in the boutique segment. I have seen, first hand, this momentum in the business. I have visited many hotels in our established markets, as well as our growth markets, and I continue to be enormously impressed. Our continued success is testament to our strong relationship with our owners and the passion and commitment our 350,000 colleagues globally bring to the business on a daily basis. Views on the year as a whole With hotels in nearly 100 countries around the world, our scale position has been a key driver of our consistently strong performance. It allowed us to allocate resources in a focused way to grow in our attractive markets (described on page 18), whilst ensuring we maintain a strong presence in growth markets of the future. | One of IHG’s greatest strengths is our ability to adapt and evolve in a changing global landscape. We are a dynamic business. In 2014, we saw some of the world’s biggest economies return to growth and others faced uncertainty in the shape of natural, economic and political upheaval. In this context, our expertise and discipline was critical to us delivering consistently good results. Shareholder returns We remain committed to delivering long-term shareholder value, returning surplus funds to our shareholders and thereby maintaining an efficient balance sheet with an investment grade credit rating. In the 11 years since IHG became a standalone business, we have consistently delivered superior and sustainable returns for our shareholders. In May 2014, we announced a $750 million special dividend with share consolidation which we paid on 14 July 2014. During the year, we also successfully completed our $500 million share buyback programme. In total, we have now returned $10.4 billion (including ordinary dividends) to shareholders since our 2003 demerger. I am pleased to announce that the Board is recommending a final dividend of 52 cents (33.8 pence) per ordinary share, an increase of 11 per cent on the final dividend for 2013, resulting in a full-year dividend of 77 cents (48.6 pence) per share, up 10 per cent on 2013. Total Shareholder Return was 32 per cent in the year; the 10th best performance in the FTSE 100. |
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InterContinental Paris - Le Grand, France Crowne Plaza Costa Mesa Orange County, California, US
The Board and its areas of focus
IHG is an ambitious company with an impressive scale position and a proven strategy for high-quality growth. Ensuring we have the right balance of skills, style and expertise at both the Board level and across the business is an important factor in supporting our future growth (see pages 57 to 62).
In last year’s Annual Report, I shared mysaid how impressed I was by the strength and diversity of the IHG Board. This continues to be the case. I also stressed the importance of evolving the composition of the Board to best support the business as it grows and develops.
In 2014, a key priority for me was to appoint a Non-Executive Director with a strong background in consumer-facing technology. On 1 September 2014, we were therefore delighted to welcome Jo Harlow to the Board and as a member of the Audit, Nomination and Remuneration Committees. Jo has a wealth of experience and knowledge, particularly on the role digital technology plays in driving consumer behaviour.
On 31 December 2014, Jonathan Linen retired from the Board and I would like to thank him for his tremendous contribution to IHG. In December 2014, we announced that Kirk Kinsell would step down from the Board and his role as President of our Americas business on 13 February 2015. Kirk was succeeded by Elie Maalouf as Chief Executive Officer, The Americas, who became a member of IHG’s Executive Committee. We are also pleased that, effective from 1 March 2015, Anne Busquet will be joining the Board as a Non-Executive Director and she will also sit on the Audit, Nomination and Corporate Responsibility Committees. Anne has an impressive breadth of experience in digital commerce, hospitality, finance and marketing.
During the year, the Board remained focused on IHG’s strategy and the execution of our Winning Model, as well as on maintaining our deep understanding of both the risks facing the business and the controls we have in place. These are further described on pages 14 to 33.
Governance
High standards of corporate governance are fundamental to the way IHG operates and reflect our values and commitment to being a truly responsible business. In last year’s Annual Report, we explained how we had commissioned a formal evaluation of the Board from an external independent consultant. This year we undertook an internal Board effectiveness evaluation and internal performance evaluations of each Director. The Board also considered the performance of each of its Committees. It was confirmed that the Board and its Committees were operating effectively, and that each Director continues to bring relevant knowledge, diversity of perspective, an ability and initial impressionswillingness to challenge and retains a strong commitment to the role. The progress against our 2013 evaluation, and details of our 2014 evaluation and action plan, can be found on pages 63 and 64.
Detailed information on our Board and governance processes, including the Directors’ Remuneration Report, can be found on pages 54 to 91.
In line with our commitment to responsible business practices (see pages 24 and 25), this year, we have decided to produce a broader Responsible Business Report in place of the Corporate Responsibility Report, which can be downloaded at www.ihgplc.com/responsiblebusiness.
Outlook
We continue to remain confident in the long-term growth prospects of the hotel industry. There are some major structural tailwinds and socio economic trends which mean that the hotel industry will experience significant growth into the future. Our proven strategy for high-quality growth means that we are well placed to continue to outperform.
Patrick Cescau
Chairman
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| IHG Annual Report and Form 20-F 2014 |
Chief Executive Officer’sreview
2014 was an excellent year for IHG. IWe made significant progress in delivering our winning strategy for high-quality growth, and reported strong financial and operational performance. We also made good progress with our
asset-light strategy.
“IHG is in a position of strength, a position which has been enhanced by another year of delivery against our strategic priorities.”
Richard Solomons
Chief Executive Officer
IHG is in a position of strength, a position which has been enhanced by another year of excellent delivery against our strategic priorities. We remained focused on building our compelling scale position in what is a growing global marketplace, as we continued to build, develop, and shape our business and our brands for the future. We achieved strong RevPAR performance, opened the highest number of hotels since 2009 and reported growth in net System size.
We also made good progress with our asset-light strategy with the sale of InterContinental Mark Hopkins San Francisco and the disposal of 80 per cent of our interest in InterContinental New York Barclay, as well as the acceptance of a binding offer for InterContinental Paris – Le Grand.
Our Winning Model
The Winning Model is our framework for delivering value for our shareholders and owners through our portfolio of preferred brands, talented people and leading revenue delivery systems. We are focused on delivering against all components of this model, combining it with a targeted approach to building our portfolio and disciplined execution, all underpinned by our commitment to being a responsible business. On pages 16 and 17, we have notset out why each element of the model is so critical to our business and have provided more detail on the excellent progress we made during the course of 2014. This includes our superior owner proposition. On our website, www.ihgplc.com/ihgowners, you will find a message from Buggsi Patel, 2014 Chairman of the IHG Owners Association, on his highlights from the year.
Our acquisition of Kimpton Hotels & Restaurants (see page 21), which completed in January 2015, is an example of how each element of the model came into play and will help support our ambitions for the brand in the medium term.
Our Winning Model in action
Kimpton Hotels & Restaurants is a well-established and highly successful business that has grown to become the world’s leading boutique hotel business with a portfolio of world-class hotels and destination restaurants. This distinctive and innovative brand fits perfectly into our brand family, alongside our highly successful Hotel Indigo and EVEN Hotels brands, creating the world’s largest boutique hotel business. We will use our scale, network of owner relationships and powerful digital platforms to accelerate its growth both within the US and globally
(see page 21).
Our scale
With a five per cent share of the global industry supply of rooms and 13 per cent of the active industry pipeline, IHG enjoys significant scale advantages in what is a competitive industry. During 2014, we continued to build our scale, focusing on our priority markets such as the United States and Greater China (see page 18). This resulted in us achieving a series of milestones in the year, including our highest ever number of hotel openings in Greater China
(see pages 19 and 46 to 48).
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Epic Miami, A Kimpton Hotel, Florida, US EVEN Hotel Rockville, Maryland, US HUALUXE Hotels and Resorts, People’s Republic of China
Our brands
Our award-winning preferred brands continued to go from strength to strength. InterContinental Hotels & Resorts is twice the size of any other luxury hotel brand and the Holiday Inn brand family is the largest global mainstream brand. We also opened the 400th Crowne Plaza hotel and 200th Staybridge Suites hotel during the year.
The number of awards our brands receive externally is remarkable, reflecting the work we have been disappointed. Idoing to build awareness, recognition and guest satisfaction. In 2014 alone, our brands won over 300 global, regional and hotel level awards.
For the sixth consecutive year, InterContinental Hotels & Resorts was named ‘World’s Leading Hotel Brand’ at the 2014 World Travel Awards; and for the tenth consecutive year, IHG Rewards Club has been recognised as ‘Best Hotel Rewards Programme in the World’ by Global Traveler magazine. IHG as a company also had a successful year – we were listed as one of FORTUNE Magazine’s ‘World’s Most Admired Companies’, named as the ‘Best British Business’ in China and came third in The Sunday Times ‘25 Best Big Companies to Work For’ list.
Innovating for the future
We have continued to be deeply impressedbuild on our long history of innovation to help us both navigate and evolve our business for success in what is a changing world. This is supported by the skills, dedication and energy of our people, our award-winning brand portfolio and our relentless focus on delivering preferred brands, building lifetime relationships with our strategy. On behalfguests and developing our strong direct channels.
In 2014, we opened the first two EVEN Hotels (see page 20) to critical acclaim, and in February 2015, we opened the first hotel for the HUALUXE Hotels and Resorts brand. Both of these new brands address previously unmet guests’ needs.
We have also taken an innovative approach to evolving our loyalty and digital offer around the Board, I would therefore like to extend my sincere thanks‘Guest Journey’ with the launch of initiatives such as Mobile Check-in and Check-out and further improvements to our 350,000 colleagues aroundnumber one rated mobile app. Continuing to evolve and enhance our digital capabilities will be a key area of focus for us over the world who have strived to putcoming years.
Trust
In the context of this changing landscape, the theme of ‘Trust’ was more important than ever and was the main theme of our 2015 Trends Report (see page 10 for more details). The report argues that ‘Trust Capital’ is now the ‘4th C’ of organisational value – alongside Human, Financial and Intellectual Capital – and is a key factor for consumers in making brand choices. Our people play a critical role in building trust with our guests at the heart of everything they do with pride and dedication.owners. They are responsible for delivering a differentiated brand experience for our guests (see pages 16 and 23) and as such we work hard to build our ‘winning culture’ and our employer brand and maintain our high Employee Engagement survey scores
(see page 32).
Responsible BusinessRichard Solomons
Being a responsible business is an integral part of delivering on our strategy. It is not only reflected in our culture, but also in our approach to governance and doing the right thing. Our commitment to serve the local communities in which we operate is stronger than ever and we recently launched stretching Corporate Responsibility (CR) targets to reflect this. You can find more information on our CR programmes and targets on page 32.
A robust and effective system of internal controls and risk management processes is an essential part of IHG’s governance structure and a key part of being a responsible business. More detail on our approach to risk management can be found on pages 34 to 37.
Shareholder returns and financial position
IHG has an excellent track record of delivering sustainable and attractive returns for shareholders. Last year we announced a $350 million special dividend, which was paid alongside the ordinary interim dividend on 4 October 2013. We also bought back $283 million of shares in the year, in addition to the $107 million bought back in 2012, leaving $110 million of our existing $500 million share buyback programme to complete. Once complete, total funds returned to shareholders since our 2003 demerger, excluding ordinary dividends, will amount to $8.0 billion.Chief Executive Officer
I am also pleased to announce that the BoardIHG is recommending a 9 per cent increase to the final dividend for 2013 resulting in a full-year dividendposition of 70 cents (43.2 pence) per share, up 9 per centstrength, a position which has been enhanced by another year of excellent delivery against our strategic priorities. We remained focused on 2012.
We continuebuilding our compelling scale position in what is a growing global marketplace, as we continued to honour our commitment to maintaining an efficient balance sheet whilst retaining an investment grade credit rating through the cycle. This approach has delivered significant value for investors. Over the three-year period to 31 December 2013, IHG’s annualised total shareholder return (TSR) was 22 per cent, compared with 9 per cent for the FTSE 100 as a whole.
Board
I have been impressed by the strengthbuild, develop, and diversity of the IHG Board. We have a very strong balance of skills, knowledge, experience and diversity among our Directors. Critical to the success of the business is ensuring we maintain this breadth and balance of skills to suit both the existing shape of the business and to support our future growth. We have, for example, recognised that consumer facing technology will continue to be an important part of our business and that we need to strengthen ourselves accordingly. We have therefore taken the decision to look to further enhance the Board by appointing an additional Non-Executive Director with strong experience in this area. Equally important, is ensuring the Board has absolutely the right processes in place to ensure it is operating as efficiently and effectively as possible, and is helping to set the agendaour brands for the business to succeed bothfuture. We achieved strong RevPAR performance, opened the highest number of hotels since 2009 and reported growth in the short and long term. This will continue to be a priority in 2014 and beyond.
Reflecting these commitments, this year, we announced a number changes to the Board.
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We welcomed two new independent Non-Executive Directors to the Board. Jill McDonald joined IHG on 1 June 2013 and Ian Dyson joined on 1 September 2013. Jill has a wealth of experience in franchising and marketing and Ian has a range of experience in senior executive and finance roles. Both Jill and Ian are members of the Audit and Nomination Committees and Ian is also a member of the Remuneration Committee.
David Kappler will be stepping down from the Board and his roles as Chairman of the Audit Committee and Senior Independent Non-Executive Director in 2014. David joined IHG’s Board in June 2004 and has been a great asset to the business and an invaluable support to me in my first year as Chairman. Ian Dyson will take over as Chairman of the Audit Committee with effect from 1 April 2014. David will retire from the Board on 31 May 2014 and Dale Morrison, who has been an independent Non-Executive Director of IHG since June 2011, will become the Senior Independent Non-Executive Director, ensuring a smooth transition of David’s duties.net System size.
We said goodbye to Tom Singer, who stepped down from his position as Chief Financial Officeralso made good progress with our asset-light strategy with the sale of InterContinental Mark Hopkins San Francisco and the Board on 1 January 2014. Tom played a key roledisposal of 80 per cent of our interest in the success of the Group since he joined IHG’s Board and Executive Committee in September 2011. We thank him for his contribution and wish him the best for the future.
I am pleased to welcome Paul Edgecliffe-Johnson to the Board. Paul was appointed Chief Financial Officer on 1 January 2014, becoming a member of IHG’s Board and Executive Committee at that time. Paul joined IHG in August 2004 and has worked in a number of senior roles across the Group, most recently as Chief Financial Officer of IHG’s Europe and Asia, Middle East and Africa regions.
Governance
High standards of corporate governance are fundamental to the way IHG operates. The Board is committed to ensuring that we not only operate effectively, but that each Director is committed to the role and continues to make a valuable contribution to the business.
This year we commissioned a formal evaluation of the Board from an independent consultant. The findings from the evaluation are outlined on page 65.
Our Annual Report this year includes, for the first time, our US Annual Report on Form 20-F reporting requirements,InterContinental New York Barclay, as well as taking into consideration the new requirementsacceptance of the UK Corporate Governance Code and changes to UK legislation, providing all reporting information in a single report.binding offer for InterContinental Paris – Le Grand.
Remuneration
Recruiting and retaining an outstanding executive leadership team is critical to ensuring that IHG succeeds over both the short and long term. Our Directors’ Remuneration Policy is designed to help achieve this objective. The policy requires a significant proportion of remuneration to be linked to the delivery of both strong financial and operational results and market-beating performance. Details of the policy are set out in the Directors’ Remuneration Report on pages 74 to 97. We believe that our policy, which is largely unchanged from last year, is aligned with best practice and remains fit for purpose.
We have historically tried to make the Directors’ Remuneration Report as transparent and easy to read as possible, and were pleased to receive the PwC Building Public Trust Award for Executive Remuneration Reporting in the FTSE 100 for our 2012 Directors’ Remuneration Report. In preparation for the first binding shareholder vote on our Directors’ Remuneration Policy in the 2013 Directors’ Remuneration Report,
we have worked hard to present both the policy and the reward paid to our Board in an open and accessible way, as well as complying with the regulatory requirements.
Outlook
We remain confident in the long-term growth prospects of the hotel industry. This reflects our belief that we will continue to see an increase in demand for hotels over the next few decades. This belief is supported by the positive socio-economic, demographic and technological changes that we see across the globe which will ultimately mean record numbers of people join the travel market each year.
As a result, we start 2014 with confidence that the business will continue to deliver high-quality growth and generate long-term value to all stakeholders. Our significant scale, broad geographical exposure as well as our strong understanding of the industry and how it is evolving, particularly in terms of consumer trends and technological innovation, means we are well-positioned for future growth. This will allow us to continue to deliver attractive shareholder returns whilst further enhancing our guest propositions to create brands which are truly preferred.
Patrick Cescau
Chairman
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“2013 marked IHG’s tenth anniversary as a standalone company, and was another year of strong performance.”
+10%: $668m*
Operating profit before exceptional items
+2%: $21.6bn†
Total gross revenue in IHG’s System Revenue up 4% to $1,903m*
6.4m
New IHG Rewards Club members added
(total members 77.4m)
IHG’s Winning Model
IHG’sThe Winning Model is our framework for delivering superior value creationfor our shareholders and owners through our portfolio of preferred brands, ourtalented people and ourleading revenue delivery systems. We deliver preferred experiences for guests through our targeted brand propositions, consistently delivered by over 350,000 talented colleagues across the world. Our brands are brought to life by our people and last year we launched two new training programmes for hotel General Managers to ensure the strongest possible connection between what each brand stands for and the delivery of the brand experience at the front line, encouraging General Managers to behave like Brand Managers.
Our brands already deliver superior and consistent experiences, which we measure by continuous guest satisfaction surveys, and which, in 2013, told us that we drove increased guest satisfaction globally across each of our brands. This drives revenue per available room (RevPAR) premiums and, in turn, better returns for our owners. We are very proud of the large number of industry awards our brands win and are focused on ensuring that they stay relevantdelivering against all components of this model, combining it with a targeted approach to the changing needs ofbuilding our guests.
To help do this, we conduct extensive, industry-leading researchportfolio and disciplined execution, all underpinned by our commitment to ensurebeing a responsible business. On pages 16 and 17, we have set out why each element of the best possible understandingmodel is so critical to our business and have provided more detail on the excellent progress we made during the course of 2014. This includes our guests’ needs. This unique insightsuperior owner proposition. On our website, www.ihgplc.com/ihgowners, you will find a message from Buggsi Patel, 2014 Chairman of the IHG Owners Association, on his highlights from the year.
Our acquisition of Kimpton Hotels & Restaurants (see page 21), which completed in January 2015, is allowing us to better differentiatean example of how each element of the model came into play and will help support our hotel experiences andambitions for the brand in the medium term.
Our Winning Model in action
Kimpton Hotels & Restaurants is a key driverwell-established and highly successful business that has grown to become the world’s leading boutique hotel business with a portfolio of world-class hotels and destination restaurants. This distinctive and innovative brand fits perfectly into our abilitybrand family, alongside our highly successful Hotel Indigo and EVEN Hotels brands, creating the world’s largest boutique hotel business. We will use our scale, network of owner relationships and powerful digital platforms to continue to grow ahead of the market.
Furthermore, our annual Trends Report demonstrates the insight and consumer understanding that helps us adapt to, and stay ahead of, the latest trendsaccelerate its growth both within the hospitality industryUS and more widely. This year’s report, ‘Creating Moments of Trust’ – the key to building successful brand relationships in the Kinship Economy’, suggests that the rise of technology-aided personalisation means that to continue to win and maintain guest loyalty in the future, hotels need to deliver global, local and personalised appeal for their guests.
Hotel brands that are able to become truly ‘3D’ – by delivering local, global and personal experiences through trusted global brands – will build the trust that is needed to sustain lasting relationships with guests and outperform in the future. This marks a step-change in the thinking that has dominated the travel and hospitality industry over the last two decades, a period during which hotel brands have traditionally concentrated on being 2D – solely global and local.
An important part of building trust is offering a strong loyalty programme that is tailored to guests needs. To enable us to better meet the different needs and occasions of our guests and to strengthen our proposition to owners, on 1 July 2013, we relaunched our loyalty programme with a new name: IHG Rewards Club. This name clearly communicates to consumers that all of our brands are part of the same IHG brand family. No other hotel loyalty programme gives its members more places to use their points than IHG, and from July 2013, we also added new benefits, including being the first hotel company to offer free internet to members in all our hotels globally.
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Our strong brand portfolio and loyalty programme are underpinned by our channel management strategy which is aimed at delivering the highest quality revenues to IHG hotels at the lowest possible cost. Only the largest companies who understand these trends, and are able to deliver consistent, locally relevant and differentiated guest experiences, will win in this environment.
IHG is focused on delivering guest needs across the entirety of their journey, which we break down into five distinct steps: Dream, Plan, Book, Travel and Share. Our strategy is led by our multi-lingual websites and mobile apps, call centres, global sales force, strong brand portfolio and 77.4 million member loyalty programme. These provide compelling experiences that allow guests to use the most appropriate channel for their needs. In 2013, IHG’s direct and indirect systems and channels delivered 69 per cent of total room revenues to our hotels.globally
(see page 21).
Targeted PortfolioOur scale
IHG has hotels in nearly 100 countries and territories around the world. Our growth strategy is focused primarily on the largest and/or fastest growing markets in which IHG has a strong existing brand presence, where our scale and revenue delivery systems confer the greatest benefits, and where the growth opportunities available are aligned to our asset-light business model. With a five per cent share of the global hotel industry supply of rooms supply and a 1213 per cent share of the active industry pipeline, IHG enjoys significant scale advantages in what is a competitive industry. During 2014, we continued to build our scale, focusing on our priority markets such as the United States and Greater China (see page 18). This resulted in us achieving a series of milestones in the year, including our highest ever number of hotel pipeline, we are well-positionedopenings in Greater China
(see pages 19 and 46 to continue to take share into the future.48).
During 2013, we opened 237 hotels
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Epic Miami, A Kimpton Hotel, Florida, US EVEN Hotel Rockville, Maryland, US HUALUXE Hotels and signed a further 444 hotels into our pipeline, the highest number for five years, reinforcing our already strong brand distribution platform and with it the promiseResorts, People’s Republic of further high-quality growth.China
Our brands
Our commitmentaward-winning preferred brands continued to an asset-light model continuesgo from strength to be corestrength. InterContinental Hotels & Resorts is twice the size of any other luxury hotel brand and the Holiday Inn brand family is the largest global mainstream brand. We also opened the 400th Crowne Plaza hotel and 200th Staybridge Suites hotel during the year.
The number of awards our brands receive externally is remarkable, reflecting the work we have been doing to build awareness, recognition and guest satisfaction. In 2014 alone, our strategybrands won over 300 global, regional and is key tohotel level awards.
For the resilience of our income stream. During 2013, we completedsixth consecutive year, InterContinental Hotels & Resorts was named ‘World’s Leading Hotel Brand’ at the disposal of2014 World Travel Awards; and for the InterContinental London Park Lane and agreed to dispose of an 80 per cent interest in InterContinental New York Barclay, both with long-term, valuable management contracts. This has driven up IHG’s return on capital employed, reduced the capital intensity of the business whilst forming a relationship with a great new owner.
In February 2014, we signed an agreement to sell the InterContinental Mark Hopkins San Francisco.
Disciplined Execution
Successful delivery of our strategy for high-quality growth requires Disciplined Execution.tenth consecutive year, IHG is focused on leveraging our scale to drive efficiencies whilst investing behind the growth of the business. Talent is key to our success and our investment in strengthening our employer brandRewards Club has been recognised externally throughas ‘Best Hotel Rewards Programme in the World’ by Global Traveler magazine. IHG as a numbercompany also had a successful year – we were listed as one of accolades, including being awarded 3rd placeFORTUNE Magazine’s ‘World’s Most Admired Companies’, named as the ‘Best British Business’ in China and came third in The Sunday Times 25‘25 Best Big Companies Toto Work ForFor’ list.
Innovating for the future
We have continued to build on our long history of innovation to help us both navigate and evolve our business for success in what is a changing world. This is supported by our focus on delivering preferred brands, building lifetime relationships with our guests and developing our strong direct channels.
In 2014, we opened the UK.first two EVEN Hotels (see page 20) to critical acclaim, and in February 2015, we opened the first hotel for the HUALUXE Hotels and Resorts brand. Both of these new brands address previously unmet guests’ needs.
BeingWe have also taken an innovative approach to evolving our loyalty and digital offer around the ‘Guest Journey’ with the launch of initiatives such as Mobile Check-in and Check-out and further improvements to our number one rated mobile app. Continuing to evolve and enhance our digital capabilities will be a responsible businesskey area of focus for us over the coming years.
Trust
In the context of this changing landscape, the theme of ‘Trust’ was more important than ever and was the main theme of our 2015 Trends Report (see page 10 for more details). The report argues that ‘Trust Capital’ is partnow the ‘4th C’ of IHG’s DNAorganisational value – alongside Human, Financial and it underpins our business practices, enabling us to makeIntellectual Capital – and is a positive contribution to the communitieskey factor for consumers in which we operate, as well asmaking brand choices. Our people play a critical role in building trust with our guests and preferenceowners. They are responsible for delivering a differentiated brand experience for our brands. Having already met our previous Corporate Responsibility targets in 2012, in September 2013, we announced new ones for the five years from 2013 to 2017. These revolve around three core programmes; IHG Green Engage, IHG Academyguests (see pages 16 and IHG Shelter in a Storm Programme. These are all tightly tied to our Winning Model, which ensures they are sustainable with full support from our owners.
Looking forward, IHG’s strategy for high-quality growth gives us the confidence that we will outperform an industry which is set for good growth for many years to come,23) and as such we will continuework hard to drive superior returns forbuild our shareholders.‘winning culture’ and our employer brand and maintain our high Employee Engagement survey scores
(see page 32).
Richard Solomons
Chief Executive Officer
IHG is in a position of strength, a position which has been enhanced by another year of excellent delivery against our strategic priorities. We remained focused on building our compelling scale position in what is a growing global marketplace, as we continued to build, develop, and shape our business and our brands for the future. We achieved strong RevPAR performance, opened the highest number of hotels since 2009 and reported growth in net System size.
We also made good progress with our asset-light strategy with the sale of InterContinental Mark Hopkins San Francisco and the disposal of 80 per cent of our interest in InterContinental New York Barclay, as well as the acceptance of a binding offer for InterContinental Paris – Le Grand.
Our Winning Model
The Winning Model is our framework for delivering value for our shareholders and owners through our portfolio of preferred brands, talented people and leading revenue delivery systems. We are focused on delivering against all components of this model, combining it with a targeted approach to building our portfolio and disciplined execution, all underpinned by our commitment to being a responsible business. On pages 16 and 17, we have set out why each element of the model is so critical to our business and have provided more detail on the excellent progress we made during the course of 2014. This includes our superior owner proposition. On our website, www.ihgplc.com/ihgowners, you will find a message from Buggsi Patel, 2014 Chairman of the IHG Owners Association, on his highlights from the year.
Our acquisition of Kimpton Hotels & Restaurants (see page 21), which completed in January 2015, is an example of how each element of the model came into play and will help support our ambitions for the brand in the medium term.
Our Winning Model in action
Kimpton Hotels & Restaurants is a well-established and highly successful business that has grown to become the world’s leading boutique hotel business with a portfolio of world-class hotels and destination restaurants. This distinctive and innovative brand fits perfectly into our brand family, alongside our highly successful Hotel Indigo and EVEN Hotels brands, creating the world’s largest boutique hotel business. We will use our scale, network of owner relationships and powerful digital platforms to accelerate its growth both within the US and globally
(see page 21).
Our scale
With a five per cent share of the global industry supply of rooms and 13 per cent of the active industry pipeline, IHG enjoys significant scale advantages in what is a competitive industry. During 2014, we continued to build our scale, focusing on our priority markets such as the United States and Greater China (see page 18). This resulted in us achieving a series of milestones in the year, including our highest ever number of hotel openings in Greater China
(see pages 19 and 46 to 48).
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Epic Miami, A Kimpton Hotel, Florida, US EVEN Hotel Rockville, Maryland, US HUALUXE Hotels and Resorts, People’s Republic of China
Our brands
Our award-winning preferred brands continued to go from strength to strength. InterContinental Hotels & Resorts is twice the size of any other luxury hotel brand and the Holiday Inn brand family is the largest global mainstream brand. We also opened the 400th Crowne Plaza hotel and 200th Staybridge Suites hotel during the year.
The number of awards our brands receive externally is remarkable, reflecting the work we have been doing to build awareness, recognition and guest satisfaction. In 2014 alone, our brands won over 300 global, regional and hotel level awards.
For the sixth consecutive year, InterContinental Hotels & Resorts was named ‘World’s Leading Hotel Brand’ at the 2014 World Travel Awards; and for the tenth consecutive year, IHG Rewards Club has been recognised as ‘Best Hotel Rewards Programme in the World’ by Global Traveler magazine. IHG as a company also had a successful year – we were listed as one of FORTUNE Magazine’s ‘World’s Most Admired Companies’, named as the ‘Best British Business’ in China and came third in The Sunday Times ‘25 Best Big Companies to Work For’ list.
Innovating for the future
We have continued to build on our long history of innovation to help us both navigate and evolve our business for success in what is a changing world. This is supported by our focus on delivering preferred brands, building lifetime relationships with our guests and developing our strong direct channels.
In 2014, we opened the first two EVEN Hotels (see page 20) to critical acclaim, and in February 2015, we opened the first hotel for the HUALUXE Hotels and Resorts brand. Both of these new brands address previously unmet guests’ needs.
We have also taken an innovative approach to evolving our loyalty and digital offer around the ‘Guest Journey’ with the launch of initiatives such as Mobile Check-in and Check-out and further improvements to our number one rated mobile app. Continuing to evolve and enhance our digital capabilities will be a key area of focus for us over the coming years.
Trust
In the context of this changing landscape, the theme of ‘Trust’ was more important than ever and was the main theme of our 2015 Trends Report (see page 10 for more details). The report argues that ‘Trust Capital’ is now the ‘4th C’ of organisational value – alongside Human, Financial and Intellectual Capital – and is a key factor for consumers in making brand choices. Our people play a critical role in building trust with our guests and owners. They are responsible for delivering a differentiated brand experience for our guests (see pages 16 and 23) and as such we work hard to build our ‘winning culture’ and our employer brand and maintain our high Employee Engagement survey scores
(see page 32).
Responsible Business
Operating as a Responsible Business underpins each of our strategic priorities and is a commitment everyone working at IHG is responsible for delivering (see page 24 and 25). We made excellent progress with each of our three corporate responsibility programmes during the course of the year. We announced the global roll-out of our environmental sustainability tool, IHG Green Engage, as a brand standard, which was a powerful demonstration of our commitment to protecting the environment. More recently, we announced the opening of our 600th IHG Academy. Launched in 2006, the programme provides local people with bespoke skills-development and employment opportunities. Finally,
our disaster relief programme, IHG Shelter in a Storm, responded to 18 disasters in nine countries.
Finally, I would like to take this opportunity to thank those who work across IHG and its brands globally for the energy and enthusiasm they bring to the business. With their support, and together with our owners, we can look forward to another excellent year ahead.
Richard Solomons
Chief Executive Officer
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The Strategic Report (pages 10 to 53) was approved by the Board on 17 February 2014.
George Turner, Company Secretary
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Where the industry is now
The global hotel industry
The global hotel industry comprises approximately 14.615.5 million rooms according to Smith Travel Research, and these areis broadly segmented into branded (multiple hotels under the same brand name) and independent (non-branded) hotels. Growth in demand is driven by economic growth and an increasing trend for domestic and global travel, resulting in part from favourable demographics and the globalisation of travel.
Over the long term, the lodging industry has grown broadly in line with Gross Domestic Product (GDP). In the US market (which is the largest market in terms of number of rooms), growth in consumer spend on lodging has exceeded GDP growth by two percentage points per annum over the last 50 years.
There are a number of key industry metrics whichthat are widely recognised and used to track performance.performance and we actively monitor these. These include revenue per available room (RevPAR), average daily rate and rooms supply growth. These are amongst the key performance measures actively monitored by IHG. IHG also monitors macroeconomic indicators such as gross domestic product (GDP) trends, which is a leading indicator in hotel
Global industry trends.RevPAR growth (2014 v 2013)
IHG’s KPIsKey performance indicators (KPIs) are set out on pages 38 and 39.30 to 33.
The branded hotel market
Smith Travel Research estimates that theThe branded hotel market accountsis estimated to account for 51.5%53 per cent of the total hotel market. However, thisWe benchmark our performance against the largest branded players that we consider to be our peer group, with a similar system size and pipeline to ours and who operate in similar market is fragmented in termssegments to us (as explained on page 18).
Five of key brand players with the top fiveleading branded hotel companies (of which IHG is one) accounting(IHG, Accor, Hilton, Marriott and Starwood) account for only 41%approximately 30 per cent of the total branded hotel market in terms of open rooms, and 72%65 per cent of the development pipeline (hotels in planning and under construction but not yet open). However, as can be seen in the graph on the right, globally, the branded hotel market is increasing its share of the total hotel market, due to the advantages a brand can bring to hotel performance over that of independent hotels. Branded hotels have shown an increased resilience through the economic cycles, with the big branded players showing clear revenue outperformance, as well as benefiting from advantages in terms of economies of scale across a broad portfolio of hotels.
In the US, around 70%70 per cent of the industry supply is branded. In fast developing markets, such as China and India, branded penetration of international brands is, however, lower, at around 2045 to 30%. However, this55 per cent. This level of international brand penetration is expected to increase significantly over the coming decades, as large global branded hotels gain traction due to the advantages of reliability, guest safety and security, and consistency of standards that large global brands bring.and the ability to invest in customer experience and technology. IHG has measures in place for all of these – see Our Strategy and Managing Risks on pages 14 to 29.
Source: Smith Travel Research for all of the above industry facts.
IHG’s 2014 Trends Report (see page 20 and www.ihgplc.com/trends_report) identified that consumers trust brands with a heritage and they value the comfort and security established global brands provide. However the collision of globalisation, localisation and personalisation means that brands need to stay relevant by becoming ‘3D’ – managing their global, local and personal assets simultaneously.
The different business models within the hotel industry
The global hotel industry operates under a number of different business models, depending on whether a hotel is branded or independent. The four models typically seen are owned, leased, managed orand franchised:
Other models, such as pay-for-performance or commission-based, are sometimes used by independent hotels to benefit from a brand’s booking distribution system (for example, hotel collections).
Whilst an owner-operated hotel enables the owner to have full control over the hotel operation, it requires high capital investment. In contrast, for hotel brand owners, a managed or franchised model enables quicker rooms growth due to the lower capital investment, but this requires strong relationships with third-party hotel owners. As a franchisor and manager, we therefore recognise that our owner proposition is a key part of our strategy.
IHG’s business model, which is a predominantly managed and franchised model, is set out on page 16.pages 12 and 13.
IHG’s 2015 Trends Report: Building Trust Capital: The new business imperative in the Kinship Economy – released in January 2015 | ||
 | The third in our series of Trends Reports focused on consumer insights impacting the hospitality industry and business in general. Our 2015 Report identifies | |
| the importance for companies to build brand and organisational trust. It demonstrates how to build Trust Capital with different demographics and across different geographies, unveiling a blueprint of seven principles for making it the core driver of an organisation. | ||
Further details about all three Trends Reports can be found at www.ihgplc.com/trends_report | ||
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Where the industry is heading
Short-term drivers and global trends
Short-term industry trends are shaped by differing economic, political or physical factors impacting local geographical markets. Since the economic crisis of 2008/09, GDP growth has returned to key economies, leading to an increase in disposable income and an increase in demand for hotel rooms. Typically, the industry would meet this demand through an increase in the supply of rooms.
In developed markets, recent industry revenue growth has been driven largely by an increase in the room rate as occupancy levels have returned to previous peak levels, but the growth in supply of rooms has been below the long-term average. In emerging markets, growth has been as a result of both an increase in room rate and the supply of rooms. The industry is also impacted in the short-termshort term by local market economic or political factors.
Long-term drivers and global trends
In the long term, growth in the hotel industry is driven by a number of trends:
Economic
The travel and hotel industries have benefited substantially from long-term macroeconomic trends. Global GDP growth in the last 10 years of circa 4%approximately 3.6 per cent per annum has contributed to increasing disposable income and a greater number of middle-class households, particularly in emerging markets such as Greater China, with a greater propensity to travel.
Over the long term, global economic growth and more sophisticated financial markets in emerging countries has led to a 1.8% increase in global total hotel rooms supply over the last eight years.
Improvements in physical infrastructure, particularly in emerging markets, have allowed hotels to more effectively meet the needs of guests more effectively and to open up new destinations for travel.
Our growth strategy focuses on 10 priority markets comprising both developed and emerging ones.
Demographic
During the last 10 years the typical traveller demographic has changed. TravellersTraveller demographics are continuously evolving. Many travellers travel for a variety of reasons and no longer travel for a singular purpose, such as only business or leisure. Across the globe, the typetypes of traveller can range from single people to multi-generation families. The younger workforce is driving more diverse and informal working patterns, with an expectation that hotels willcan cater for flexible working arrangements. A growing ageing population with the desire, and means, to travel is also expected to significantly increase travel flows and lead to an overall increase in demand for travel services.
Having a portfolio of distinct and complementary brands enables IHG to meet a range of guests’ needs and occasions at differing price points.
Social
Other trends also provide new opportunities for increased travel. Growing competition and capacity amongst airlines, lower air fares and more relaxed travel restrictions in many regions have made international travel a viable option for an increasing number of people. Worldwide, international tourist travel is expected to increase by 3.3 per cent a year from 2010 to 2030 reaching 1.8 billion by 2030, according to the UNWTO.
Increasingly, travellers are concerned about the sustainability of hotels and their impact on the environment and local communities.
We are committed to responsible business practices from environmental sustainability to supporting our local communities.
Technology
Technology has playedis playing an increasingly important role in both shaping the travel industry. A decade ago, internet accessindustry and the rolein guests’ appreciation of digital technology in planning, booking and experiencingtheir entire travel was very limited. Today, the reach and role of digital technology is very different.experience. The internet, increasingly accessed through mobile devices, has established itself in developed markets as the preferred method to research, plan and book travel. In emerging markets, online purchasingconsumers are bypassing desktop PCs and international travelgoing straight to mobile – there are relatively new to travellers, and therefore personal interactions remain key, making the role of the traditional travel agent important. Industry experts estimate that about 12 to 15% of tickets and rooms are booked onlinetwice as many smartphone users in China and of that online market, approximately 70 to 80% are booked through third-party intermediaries.than internet users in the US.
The development of social networking and photo sharing has changed the way in which people think about travel, with the sharing of travel experiences, reviews and recommendations having a greater impact on travelinfluencing research and decision-making. These recommendations, combined with the ability to compare prices and review the richer information that is available online, allow travellers toTravellers can make more informed decisions, and book their travel options with greater control and immediacy, leading to an increase in travel to a variety of destinations.
IHG’s 2014 Trends Report (see page 20) foundThe ‘Internet of Things’ is an emerging trend that offers enormous potential. 75 billion devices are forecast to be internet-enabled by 2020 offering the rapid risepotential to transform the in-hotel guest experience.
We focus on delivering across the entirety of technology-enabled personalisation is helping to shape the experience guests want when they travel. It also found that personalised brand experiences which resonate with the local culture are particularly important for the fast-growing number of international travellers from emerging markets.
Changing technological trends‘Guest Journey’ and changesinvest in consumer behaviour will continue to shape the industry.
Social
Other trends also present new opportunities to travel. Increased competition and capacity amongst airlines, lower air fares and more relaxed travel and immigration restrictions in many regions have made international travel a viable option for an increasing number of people.developing strong technology platforms.
Competitors
These long-term drivers and global trends are changing the competitive landscape within the travel industry. Competitors are no longer simply branded or independent hotels, but nowalso include travel intermediaries and companies offering alternative lodging solutions and search options, providing inspiration for travel ideas and aggregating a range of travel solutions. ManyThe consumer peer-to-peer rental market, which is largely unbranded, has also opened up a large supply of travel accommodation. However, many of these businesses are also not subject to regulations such as fire and life safety, food safety and local industry regulations, which apply to traditional hotel operators.
Source: Smith Travel Research for industry facts.
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Overall, global industry RevPAR increased by 4.4% in 2013For booking and IHG’s global RevPAR grew 3.8%. As would be anticipated, performance varied across regions and across segments (see page 29), with each facing different economic, social and physical conditions.
RevPAR is a KPI – see page 38.
IHG’s performance globally and in each of our regions during 2013 is detailed on pages 40 to 50.
Source: Smith Travel Research for industry facts.
The Americas
Industry
Thedistribution, hotel industry performed strongly in the region. RevPAR grew by 6.6% with average daily rate increasing by 5%. On the supply side, the number of rooms only increased by 0.8%. Although RevPAR growth was strong, it was not consistent across all segments,companies also compete with the luxury, upper upscale and upscale segments performing best.
The overall dynamic remains favourable in the US, with industry demand achieving record highs and supply growth still below the 2% per annum historic average. Reflecting this, US RevPAR increased 5.4% during 2013 with average daily rate growing 3.9% and occupancy also continued to grow. On a negative note, the US government’s reducedincreasingly sizeable travel over 2012 and 2013 and complete shutdown in the fourth quarter of 2013, meant that some cities, such as Washington D.C., were impacted. However, this did not outweigh the positive economic trends that contributed to greater demand in the industry.
IHG’s Americas region
IHG’s comparable RevPAR increased 4.3% with 2.6% rate growth. The region is predominantly represented by the US, where comparable RevPAR was up 4.2%. Our upscale and luxury brands (InterContinental, Crowne Plaza and Hotel Indigo) outperformed the industry. In the midscale segment, Holiday Inn and Holiday Inn Express maintained a rate premium to the segment. However, RevPAR grew at a lower rate than the market, reflecting the superior RevPAR performance versus the market in recent years and higher absolute RevPAR. Quality remained a focus, and 17,968 rooms left the IHG System. Overall the number of rooms open in the region increased by 1,807 rooms.
Europe
Industry
Despite continuing challenging economic conditions in the eurozone, overall the industry performed well with RevPAR increasing 3.2% and average daily rate 1.5%. The number of rooms across the industry increased by only 0.9%. Europe is a diverse region and the industry figures were driven by the larger markets, in particular the UK and Germany.
In the UK, RevPAR grew 3.9%, predominantly led by occupancy growth, although average daily rate grew marginally (0.2%). The UK provinces, after a relatively protracted period of weakness, performed particularly well. London’s RevPAR growth was positive in 2013, despite an unprecedented level of new rooms and 2012 figures elevated by the London 2012 Olympic and Paralympic Games.
Economic growth in Germany has tended to be more stable in the recent past. Although RevPAR for Germany did increase by 1.7%, the industry is highly dependent upon trade fairs, which are not consistent in number or size year-on-year. Overall, there were fewer trade fairs in 2013 compared to 2012 and RevPAR growth was positive but not as high as the growth seen in 2012.
IHG’s Europe region
IHG’s comparable RevPAR increased 1.7% led by a 1.5 percentage point increase in occupancy. RevPAR growth was resilient in our priority markets, despite tough comparatives. In London, we outperformed the market, although across the UK we were marginally below market. Overall, comparable UK RevPAR increased by 3%. In Germany, RevPAR grew 0.8% reflecting a weaker trade fair calendar in key cities, particularly Berlin and Dusseldorf. In France, RevPAR grew 2.6%, with 5.3% growth at our owned InterContinental Paris Le Grand.
12 IHG Annual Report and Form 20-F 2013
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Asia, Middle East and Africa (AMEA)
Industry
AMEA is a diverse geographical region comprising many individual country markets. Overall RevPAR increased 6.1%, led by a 5% growth in average daily rate. The number of rooms available across the industry increased by 2.6%.
Strong growth was seen in Southeast Asia, where RevPAR grew 7.9% driven by continued strength in Indonesia and Thailand; Japan, where RevPAR grew by 11.4%; and in the Middle East, where RevPAR growth of 5.5% was achieved despite continuing geopolitical unrest.
In India, 2013 was a challenging year with pricing challenges as a result of rooms supply growth of 4.6% leading to a RevPAR decline of 3.3%.
In Australasia, RevPAR was up 3.9% driven by average daily rate up 2.7%, reflecting strong economic conditions in Australia.
IHG’s AMEA region
IHG is represented widely across the region, both geographically and by brand, and comparisons across the industry are hard to make. In addition, almost all of our net room growth is located in developing markets, where initial RevPAR expectations are on average about 30% of the level achieved by a mature hotel in that region. Even after three to five years, hotels in these markets are expected to achieve around 70% of the absolute RevPAR of primary city hotels. Comparable RevPAR increased 6.1% in the year but, reflecting new hotels in the developing markets, total RevPAR growth was 2.8%. Overall strong trading in Southeast Asia and Japan led the performance with RevPAR up 9.9% and 9.6% respectively. In Australasia, RevPAR increased by 4.5%. In the Middle East, RevPAR was up 3.2%, driven by good performance in Saudi Arabia and the UAE, offset by geopolitical unrest impacting our business in Egypt and Lebanon.
Greater China
Industry
Hotel industry RevPAR in Greater China was lower than industry expectations with full-year RevPAR declining by 4.2%. The RevPAR decline was predominantly led by a reduced average daily rate (an annual reduction of 3.1%), combined with a reduction in occupancy levels. Overall demand for rooms increased over the year, but occupancy rates were impacted by supply growth of 4.6%.
The industry was impacted by a number of factors in 2013 including natural disasters, slower macroeconomic conditions as reflected in GDP growth of only 7.7% (the softest pace of expansion since 1999) and the impact of the China-Japan territorial island dispute. Despite the challenges, travel and tourism continue to be a strategic pillar of the Chinese government’s five-year plan and the continuing growth of the middle-classes and a shift in emphasis to a consumption led economy are all positive factors for the medium to long-term prospects.
IHG’s Greater China region
IHG’s comparable RevPAR increased 1% as the scale and strength of our business drove a significant outperformance compared to the industry throughout 2013. IHG has brands across multiple price points and hotels in 70 cities which positions us well across the region. Conditions were difficult, but we opened 7,669 rooms and added 15,000 rooms to our pipeline, including seven HUALUXE hotels taking our pipeline of this key new brand to 21 hotels. From a growth perspective, almost 70% of the hotels in the pipeline are under construction. As with AMEA, much of the room growth is located in developing tier 2 and tier 3 cities with lower initial RevPAR expectation when compared to primary city hotels.
IHG System
We continued to grow the IHG System size in 2013 (hotels franchised, managed, owned or leased under IHG’s brands – see Our business model on page 16).
As at 31 December 2013, we had 686,873 open IHG hotel rooms (4,697 hotels) in nearly 100 countries and territories around the world.
As part of our ongoing commitment to maintaining only high-quality hotels in our brands, we removed 24,576 rooms (144 hotels) during the year, an increase from 2012, actively strengthening the quality of our estate across our brand portfolio, particularly Holiday Inn.
Information on our preferred brands is set out on pages 17 and 20.
IHG pipeline
As at 31 December 2013, we had 180,461 rooms (1,120 hotels) in the development pipeline (hotels in planning and under construction but not yet opened; a contract for these has been signed and the appropriate fees paid); the largest pipeline in the industry.
Net rooms supply is a KPI –
see page 38.
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Where we operate
We operate in nearly 100 countriesand territories globally.
Details of our Targeted Portfolio are set out on pages 28 and 29.
Our business model
3,977
Franchised hotels
711
Managed hotels
9
Owned and leased hotelsintermediaries.
Our business model is detailed on page 16.
Our strategy forhigh-quality growth
We focus on delivering high-quality growth, which for us means delivering consistent, sustained growth in cash flowschannel management strategic priority considers both direct and profits over the longer term. We do this by staying focused on our Targeted Portfolioindirect booking and building preferred brands, driven by a deep understanding of guests’ needs. IHG’s Winning Model, combined with a Targeted Portfolio underpinned by Disciplined Execution, will drive superior returns for IHG’s shareholders.
Details on our performance globally and in each of our regions is set out on pages 40 to 50.distribution channels.
* All facts and figures as at 31 December 2013.
† Includes three liquidated damages receipts in 2013; $31m in The Americas, $9m in Europe and $6m in AMEA.
àIncludes one significant liquidated damages receipt in 2012; $3m in The Americas.
Our brand portfolio
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Hotels
| 178 | 391 | 55 | 1,168 | 2,258 | |||||||
Rooms
| 60,103 | 108,891 | 6,199 | 212,058 | 214,597 | |||||||
Rooms (hotels) in the pipeline
| 16,860 (51) | 28,369 (94) | 6,807 (51) | 46,958 (249) | 54,744 (473) | |||||||
What is IHG doing in light of these trends?
See Our Strategy on pages 14 to 33 |
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| 10 | 196 | 312 | – | – | 4,697¥ | ||||||
8,818
| 3,701 | 21,518 | 29,778 | – | – | 686,873¥ | ||||||
3,163 (14)
| 120 (1) | 8,728 (80) | 6,914 (80) | 880 (5) | 6,804 (21) | 180,461 (1,120) | ||||||
¥ Includes 21,210 rooms (91 hotels) whichWe franchise and/or manage hotels depending largely on market maturity, owner preference and, in certain cases, on the particular brand. For example, in the US, a mature market, we operate a largely franchised business, working together with our owners to deliver preferred brands. By contrast, in Greater China, an emerging market, we operate a predominantly managed business where we are unbranded.
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Our business model
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*IHG often employsresponsible for operating the General Manager only.
Managed and franchised model
Our business model is focusedhotel on franchising and managing hotels, rather than owning them, enabling us to grow at an accelerated pace with limited capital investment. Currently, 88 per centbehalf of our Group operating profit (before regional and central overheads and exceptional items) is derived from franchised and managed operations. This business model allows us to focus on building preferred brands based on guests’ needs, and on strong delivery systems, such as our branded hotel websites and call centres. Our model allows us to create greater returns for owners whilst leaving asset management and real estate to our local third-party owners with the necessary expertise.
owners. We adapt this business model by market as necessary, for example, in some markets we also have in place managed leases to allow our business to grow. Managed leases are properties(properties structured for legal reasons as operating leases but with the same characteristics as management contracts. In other markets we choosecontracts), partnerships and joint ventures where appropriate.ventures.
AThe key characteristicdifferences in our three main models are summarised below:
| Number | % of our | Hotel | IHG capital | Employees* | Brand ownership, | |||||||
| of hotels | portfolio | ownership | intensity | marketing and distribution | ||||||||
| Franchised | 4,096 | 84.6% | Third party† | Low | Third party | |||||||
| Managed | 735 | 15.2% | Third party† | Low | IHG and third party �� | IHG | ||||||
| Owned and leased | 9 | Less than 1% | IHG | High | IHG |
| * | For information on who are our employees and how we invest in our talent, see page 23. |
| † | We are committed to delivering a compelling and preferred offer to our hotels owners through our owner proposition – see page 17. |
In 2014, over 90 per cent of theour operating profit was generated from our asset-light management and franchise contracts. In addition, approximately 85 per cent of our fee-based income was derived from hotel revenues, and 15 per cent was principally from management fees linked to hotel profits.
The asset-light approach, and franchised and managed business model is that it model:
Dependent upon the market maturity, owner preference and, in certain cases, on the particular brand, hotels can be franchised or managed. For example, in the US, a mature market, IHG operates a largely franchised business, working together with our owners to deliver preferred brands. In contrast, in Greater China, IHG operates a predominantly managed business where IHG is responsiblelimited requirements for operating the hotel on behalf of its owners.
Fee revenuesIHG Revenue and Fee margins are KPIs – see pages 38 and 39.the System Fund
Capital expenditure
In some situations,Third-party hotel owners pay: (i) fees to IHG supports its brands by using its capitalin relation to build or support the funding of flagship assets in high-demand locations in order to drive growth. We plan to recycle capital by selling these assets when the time is right and to reinvest elsewhere in the business and across our portfolio.
We have committed up to $150 million to assist with the launchlicensing of our EVEN Hotels brand to demonstrate the successbrands and/or our hotel management services; and economics of the brand. In 2013, IHG acquired three existing hotels which are being converted to EVEN Hotels, the first of which are due to open in 2014. In the future, we would look to recycle this capital, just as we previously did for both the Staybridge Suites and Hotel Indigo brands.
Asset disposals
As part of our asset-light approach, in May 2013, we disposed of our leasehold interest in InterContinental London Park Lane for gross cash proceeds of £301.5 million ($469 million). IHG secured a 30-year management contract on the hotel, with three 10-year extension options at IHG’s discretion, giving an expected contract length of 60 years.
In December 2013, we announced our agreement to dispose of 80 per cent of our interest in the InterContinental New York Barclay for $240 million and retain the remaining 20 per cent in a joint venture with a total circa $175 million refurbishment. Under the agreement, IHG will secure a 30-year management contract on the hotel, with two 10-year extension options at IHG’s discretion, giving an expected contract length of 50 years.
In February 2014, the Group signed an agreement to sell the InterContinental Mark Hopkins San Francisco for $120 million in cash and enter into a long-term management contract on the hotel.
Our breakdown by managed, franchised, owned and leased hotels for each region is set out on pages 40 to 50.
The System Fund
In addition to management or franchise fees, hotels within the IHG System pay(ii) assessments and contributions 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 (see page 50 for further information).
The System Fund is managed by IHG for the benefit of hotels in the IHG System with the objective of driving revenues for the hotels. Total income for the System Fund in 2013 was $1.35 billion (2012: $1.25 billion) and these funds are used to pay for marketing, the IHG Rewards Club loyalty programme and the global reservation system. The System Fund is planned to operate at break even and does not result in a profit or loss for IHG.
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We focus on delivering high-quality growth, which for us means delivering consistent, sustained growth in cash flows and profits over the longer term. We do this by staying focused on our Targeted Portfolio and building preferred brands, driven by a deep understanding of guests’ needs.
IHG’s Winning Model, combined with a Targeted Portfolio underpinned by Disciplined Execution, will drive superior returns for IHG’s shareholders.
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| 12 |
Disciplined approach to allocation of capital
Our focus on an asset-light business model is supported by a disciplined, long-term approach to allocating capital and reducing the asset intensity of the business. We seek to maintain an efficient balance sheet with an investment grade credit rating.
Our business is highly cash-generative, and we have three primary uses of the cash we generate:
In support of our asset-light strategy, during 2014 we:
Disposals
Acquisitions
IHG’s philosophy to capital expenditure
Capital expenditure incurred by IHG can be summarised as follows:
| Capital expenditure | Examples | |
Maintenance capital expenditure and key money to access strategic growth, particularly intohigh-quality and sought-after opportunities | • Maintenance of our owned and leased hotels, which will reduce as we become increasingly asset-light. • Corporate infrastructure maintenance, for example, in respect of our offices and systems. • Deployment of key money, which is used to access strategic opportunities, particularly in high-quality and sought-after locations when returns are financially and/or strategically attractive. | |
Recyclable investments to drive the growth of our brands and our expansion in priority markets | • Through the acquisition of real estate, investment through joint ventures or via an equity stake. • We aim to seek to recycle this capital by selling these assets when the time is right and to reinvest elsewhere in the business and across our portfolio – we are currently doing this for our EVEN Hotels brand, just as we previously did for the Staybridge Suites and Hotel Indigo brands. | |
System funded capital investments for strategic investment to drive growth at hotel level | • The development of tools and systems that hotels use to drive performance. | |
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| IHG Annual Report and Form 20-F 2014 |
Ourstrategy forhigh-qualitygrowth
We focus on strengthening our portfolio of preferred and differentiated brands, building scale in key markets, creating a long-lasting relationship with our guests and delivering revenue to hotels through the lowest cost, direct channels. Our proposition to owners is highly competitive and drives superior returns.
We execute our asset-light strategy in the most attractive, high-growth markets and industry segments. We take a disciplined approach to capital allocation, investing for the future growth of our brands. This enables us to drive sustainable growth in our profitability and deliver superior shareholder returns over the long term.
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| IHG Annual Report and Form 20-F 2014 |
Our Winning Model is our framework for delivering superior value creationfor our shareholders and owners through our brands, our people and our systems.
Preferred brands delivered through our people
Our portfolio of nine preferred brands (set out on page 17) are brought to life by our people who deliver on each of our brand promises.
Preferred brands
Our portfolio of brands comprises complementary, differentiated brands that clearly and consistently deliver on guests’ needs.
Building a portfolio of preferred brands, that resonate with our guests,talented people and therefore our owners, is crucial. The value is seen through our guests wanting to stay with us and pay more to do so thereby driving RevPAR and delivering better returns on investment for our owners.
For IHG, a hotel brand is a promise of a consistent, relevant and differentiated hospitality experience:
Our research into guest needs and the guest occasions (described on page 29) and our consumer insight research helps us gain a deeper understanding of what travellers around the world want from their relationships with hotel brands (as set out on the right), and together assist us in defining our brands.
We use our guest satisfaction measurement tool, Guest HeartBeat, to measure brand preference and guest satisfaction. We are always looking to find ways to improve Guest HeartBeat scores and meet guest expectations.
RevPAR and Guest HeartBeat are KPIs – see pages 38 and 39 – and are performance measures for our incentive plans – see pages 74 to 97.
The principal risks associated with Preferred brands, Owner proposition and Reputation and brand protection are set out on pages 36 and 37.
IHG’s 2014 Trends Report
IHG’s 2014 Trends Report, ‘Creating Moments of Trust’ – the key to building successful brand relationships in the Kinship Economy’, highlights the need for hotel brands to be ‘3D’ (3 dimensional), managing their global, local and personal assets simultaneously, in order to win future guests.
This primary research is based on a study of 7,000 international travellers worldwide and uncovers critical success criteria for global brands delivering localised and personalised guest experiences, enabled by technology.
www.ihgplc.com/trends_report
20 IHG Annual Report and Form 20-F 2013
Our people
In order to deliver our preferred brands, IHG recognises the importance of the people who work across its hotels to deliver differentiated brand experiences and the brand promise for our guests.
Our people strategy
Our expanding business requires us to continually look for additional colleagues to work in IHG hotels and deliver our preferred brands. To meet the challenges that are associated with recruitment, our people strategy is designed around attracting, retaining and developing the very best talent in the industry to service the needs of our guests, to engage and energise the talented and passionate people who work in our hotels and corporate offices, and to bring our brands to life every single day, creating Great Hotels Guests Love.
The four pillars of our people strategy are:
1. Developing a BrandHearted culture
Each of our brands offers a distinct promise to our guests and being BrandHearted means putting our brands at the heart of everything we do.
2. Making IHG a great place to work
We are dedicated to building a strong employer brand in order to attract the best possible talent to meet our strategic objectives:
Room to be yourself:
Our Employee Engagement survey score is a KPI – see page 38 – and a performance measure for our annual incentive plan – see pages 74 to 97.
Our people
Given our franchised and managed business model, IHG does not employ all those who work in IHG hotels.
Who are our employees?
We employ all those working at our corporate offices and at our owned and leased hotels (including managed lease hotels) and the costs of these are borne by IHG. We typically employ the General Manager and in some cases, other hotel workers at our managed hotels, but the costs of these employees are not borne by IHG. We do not employ any persons working at our franchised hotels.
IHG employed 8,179 people worldwide during the year ended 31 December 2013, whose costs were borne by the Group. Of these, 94 per cent were employed on a full-time basis and 6 per cent were employed on a part-time basis.
The geographic distribution of the average number of these employees over the last three years is shown in the table to the right.
| 2013 | 2012 | 2011 | ||||||||||
| Americas | 2,548 | 2,552 | 2,895 | |||||||||
| Europe | 1,602 | 1,866 | 1,574 | |||||||||
| AMEA | 1,545 | 1,195 | 1,195 | |||||||||
| Greater China | 1,083 | 1,051 | 1,000 | |||||||||
| Central | 1,401 | 1,317 | 1,292 | |||||||||
| Total | 8,179 | 7,981 | 7,956 | |||||||||
In addition, as at 31 December 2013, the Group’s employees included 4,615 (2012: 4,431, 2011: 3,885) employees who worked directly on behalf of the System Fund and whose costs are borne by the System Fund (explained on page 16). In line with IHG’s business model, IHG also employs 578 (2012: 587, 2011: 577) General Managers who work in our managed hotels and whose costs of $135m (2012: $132m, 2011: $125m) are borne by those hotels, and, in the US predominantly, there are 12,588 (2012: 12,494, 2011: 14,596) other hotel workers in our managed hotels who have contracts or letters of service with IHG whose costs of $376m (2012: $430m, 2011: $448m) are borne by those hotels.
When the Group’s entire estate is taken into account (including those working in our franchised and managed hotels) over 350,000 people worked globally across all IHG’s brands as at 31 December 2013.
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3. Delivering world-class People Tools to our owners and hotels
To deliver our preferred brands throughout all of our hotels, we developed a set of People Tools, industry-leading best practices tailored specifically for our brands, to assist hotel management and human resources teams hire, train, involve and recognise colleagues. They work to help increase employee retention, performance, guest satisfaction, drive efficiencies and increase revenue for our owners. In 2013, we launched an e-learning module for our People Tools, available in three languages.
4. Building a strong leadership and performance culture
We build strong leadership from the top and our Board and Executive Committee leadership and governance processes are set out on pages 56 to 76.
The Group performance culture in our corporate offices is aligned with our strategic priorities for our senior executives, as shown in our incentive plan measures, explained in the Directors’ Remuneration Report on pages 74 to 97.
The principal risks associated with People, talent and culture are set out on pages 36 and 37.
2013 initiatives and events
These included:
Case Study – Talent in Greater China
With over 200 open hotels and 170 hotels in the pipeline, IHG leads the market in terms of system size and hotel signings in Greater China. People are our single biggest asset and we have over 50,000 people working across our hotels and in the next three years, we will create circa 30,000 jobs. To assist with this, we leverage our scale in Greater China to provide our people with opportunities to grow their careers within IHG and offer them a variety of locations, roles and different experiences to assist in retaining talent.
As an example, 70 per cent of our General Manager vacancies are filled internally and they are developed through our training programmes (for example see page 26). We also support the career development of the management team in hotels providing a structured way to help them map their career paths across hotel functions accompanied with learning guides. To assist with our recruitment at the entry level, at the end of 2013, we had 30 IHG Academy programmes with local schools and over 2,300 participants undertook placements with IHG. We also started the IHG Management Trainee programme and I-Grad Future Leaders programme, for new graduates from across our hotels in Greater China.
Leveraging our scale, we will continue to invest heavily in developing our people across all levels of the organisation and attract new talent across the region.
22 IHG Annual Report and Form 20-F 2013
Celebrating diversity and inclusion
As a global organisation operating in nearly 100 countries and territories around the world, we recognise the importance and benefit of ensuring our workforce fully represents the communities in which we operate and the guests who stay in our hotels.
In 2013, we introduced a new Global Diversity and Inclusion Policy to further our commitment in this area. We also made progress in our Talent Review processes, enabling us to increase local representation in emerging markets, gender balance in our leadership teams and international representation in our global functions.
In 2014, we will continue to focus on these areas by strengthening the support available internally and also by working with suppliers who comply with our Global Diversity and Inclusion Policy and principles set out therein.
We reviewed the composition of our global management teams and have set out the following objectives:
We are committed to providing equality of opportunity to all employees without discrimination and providing an inclusive environment. Every effort is made to ensure that applications for employment from disabled employees are fully and fairly considered and that disabled employees have equal opportunities in training and promotion.
Our Board’s commitment to supporting diversity is set out on page 62.
External recognition
Our brands and our employer brand have won many awards in 2013, including:
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Key performance indicators (KPIs) and What we have done in 2014 See pages 30 to 33 How we manage principal risks See pages 28 to 29 |
Our portfolio of preferred brands See pages 4 and 5 Where we operate and detailed global and regional Performance See pages 34 to 51 |
 | Preferred brandsdelivered through our people |
Build and leverage scaleWhy we think this is important
ForHaving a strong portfolio of preferred brands is fundamental to our success. In a highly competitive industry, powerful well-defined, consistent and well-known brands assist both guests and owners in choosing an IHG brand over a competitor’s, as well as deciding which IHG brand meets their specific needs. Our people are critical in providing the guest experience, and our ‘winning culture’ encourages and empowers them to bring each of our differentiated brand experiences to life and provide high standards of guest service.
The value of building strong preferred brands results in increased RevPAR, as occupancy will be higher and guests will pay a higher rate to stay at their preferred brand, which, in turn, delivers better returns for our owners through an increase in total gross revenue.
What we are doing
We build brand preference by defining each of our brands we aimso that they can provide a differentiated experience to deliver high-quality growth through building scale positionsmeet both the targeted guest need and occasion and be consistent in the most attractive geographic markets. In key cities, we build scale through increasing our market share of rooms in that location. As our brands focus on a range of occasion segments meeting guest needs in different ways (see page 29), we use our consumer research to target the right brands forexperience they deliver.
We have sharpened each location.
Increased scale enables us to drive more revenue and create cost synergies for both IHG and our owners. More hotels in an area encourages guests to use our direct reservation channels to search and book our hotels and provides corporate customers with good coverage of key locations. We can also centralise and co-ordinate operational support, national or city-level marketing campaigns and deliver efficient procurement practices, including negotiating reduced commission rates with online travel agencies.
Net rooms supply, Total gross revenue, Fee revenues, RevPAR, System contribution to revenue and Fee margins are KPIs – see pages 38 and 39.
The principal risks associated with Owner proposition are set out on page 37.
Case study – IHG Voice
IHG Voice is a premium pay-for-performance solution available to all of our hotels for managing local telephone reservations. The solution transfers reservation enquires made to a specific hotel to experienced sales operatives with expert local and regional knowledge, located inbrand strategies looking at a number of core locations in each region.
The specially trained sales agents useareas, from the proven reservation booking methods of our award-winning central reservations offices, ensuring that guests are able to make the right booking for their needsbrand ambition and for any given occasion. It also maximises cross-sell opportunities. If a particular hotel is unable to meet a guest’s needs then the guest is provided with alternate suitable IHG hotel suggestions. The service therefore maximises guest bookingsposition to the IHG System, delivering incremental revenuebrand platform and strategic brand pillars, to ensure our portfolio meets the hotel with improved average daily rate and RevPAR, whilst providing a superior booking experience for the guest.
The IHG Voice reservations solution means that hotels can concentrate on focusing their attention on providing a great guest service and experience for those staying at their hotel. By driving operational efficiencies and using technology in this way, the service also allows IHG to drive a low cost of sale without compromising the qualityneeds of the channel.
Strongevolving guest and owner. We are also refreshing the brand portfolio
& loyalty programme
By building a strong brand portfolio and loyalty programme, IHG is able to offer an unparalleled choicestandards for guests and owners. Our nine complementary brands are connected through a leading loyalty programme. IHG’s loyalty programme was relaunched on 1 July 2013 with a new name: IHG Rewards Club (previously Priority Club Rewards), reflecting the history of innovation, reliability and integrity that is at the heart of IHG. The name, IHG Rewards Club, clearly identifies all our brands together under the IHG family and has driven a 10 percentage point increase in the awareness of IHG as a brand family.
Through our strong brands and loyalty programme we are able to:
We invest in our talented people who are the face of our brands and help us build brand portfolio, depending on their needs and the occasionpreference (see page 29);
In 2013, IHG Rewards Club delivered around 38.2 per cent of total rooms revenue to our hotels; part of our system contribution to revenue (explained on page 25).
The principal risks associated with Preferred brands and Reputation and brand protection are set out on pages 36 and 37.
IHG® Rewards Club is the world’s first and largest hotel loyalty programme, with 77.4 million members globally. It offers industry-leading benefits and increased opportunity for points redemption across our portfolio. As part of the relaunch, IHG Rewards Club offered enhanced benefits for members including free internet access across all hotels globally.
How we measure it KPIs – Guest HeartBeat, RevPAR, Employee engagement, Total gross revenue
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 | Build andleverage scale |
IHG Rewards Club has been named Best Hotel Rewards Program
Why we think this is important
Scale provides significant advantages in the World for eight years running by Global Traveler magazinehotel industry at the global, national and Programcity level. The size of the Year byIHG System, and our concentration on priority markets and key gateway cities, allows us to benefit from economies of scale, which lead to higher margins and operating leverage. With scale, we can invest in our brands and the Freddie Awardstechnology required to support their continued growth, and deliver efficient sales and marketing and procurement practices, thereby increasing the advantages an IHG brand brings to owners. Scale also enables us to invest in, and grow, new brands and take them global, for example Hotel Indigo.
What we are doing
IHG already benefits from substantial scale advantages. With over 710,000 rooms open at the Middle Eastend of 2014, we delivered our strongest net IHG System size growth since 2009 of 3.4 per cent, opening over 41,000 rooms. Our brand portfolio also reached some significant milestones in 2014 – opening the 400th Crowne Plaza hotel, the 200th Staybridge Suites hotel and Asia/Oceania for 2013the 60th Hotel Indigo hotel in its 10th anniversary year. Our scale has also enabled us to commit $150 million of investment behind the EVEN Hotels brand, opening the first two properties in 2014. We focus on developing our scale in 10 priority markets, where we currently have 85 per cent of our open rooms (see page 18). Benefiting from the strong growth in these markets, Group fee margins were up 1.5 percentage points to 44.7 per cent in 2014 and total gross revenue was up 6 per cent to $23 billion.
For details on how we maximise the scale and efficiency of our operations, see page 22.
How we measure it KPIs – Net rooms supply, Fee revenues, Total gross revenue, Fee margin
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24 IHG Annual Report and Form 20-F 2013
| 16 |
  | Strong brandportfolio and loyalty programme |
 | Effective channelmanagement |
 | Superior ownerproposition |
Why we think this is important
A portfolio of strong, complementary brands allows us to offer solutions for each guest need, which increases cross-selling across different brands. Combined with a strong loyalty programme, it also increases awareness and recognition of the IHG brand, and of each of the individual hotel brands, helping us to drive business. Guests who have an increased loyalty to IHG and its portfolio have also proven to have a higher spend per stay. Both of these result in higher RevPAR premiums, thereby increasing total gross revenue and strengthening our owner proposition.
What we are doing
Our brands are complementary across the segments in which they operate (midscale, upscale and luxury), catering to different guest needs and occasions. One of our newest brands, EVEN Hotels, caters to an identified guest need for maintaining wellness while travelling and the acquisition of the Kimpton brand has a strong strategic fit with our Hotel Indigo and EVEN Hotels brands (see pages 20 and 21). Recognising the importance of a strong loyalty programme, we encourage guests to stay across the portfolio and build lifetime relationships through the IHG Rewards Club programme, which has 84 million members. We continue to evolve our loyalty programme to ensure that it is not just the largest in the market, but also the most preferred – refreshing and reviewing the rewards and benefits available to increase its attractiveness to our guests. We recognise our loyal guests and aim to personalise their experiences.
How we measure it KPIs – Total gross revenue, RevPAR, System contribution to revenue, Guest HeartBeat
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Effective channel managementWhy we think this is important
As a franchisor and manager of hotels, we aim to drive demand to our hotel brands and reduce distribution costs for our owners through strong brand awareness and effective yield-management practices, delivering better returns for our owners. Our channel management strategy aimsdirect channels (digital and voice) are less costly to deliver the highest quality revenues to IHG hotels at the lowest possible cost, recognising that the guest experience changes along the entiretyowners than third-party intermediaries. Our strong brands are a significant driver of theirbookings through indirect channels (online travel journey. Guests use multiple devicesintermediaries (OTIs) and new technology to personalise theirbusiness and leisure travel experience – from choosing where they want to go, to what they want to do and, of course, where they want to stay. Our focus isagents). We therefore to deliver against a guest’s needs across the entirety of this journey, which we break down into five distinct steps: Dream, Plan, Book, Travel, and Share.
We use our systems and technologyaim to drive demand for our hotels through our direct channels and manage revenue per booking, and encourage guest loyalty, thereby delivering the highest quality revenues to IHG hotels at the lowest possible cost, increasing RevPAR and maximising owner returns. However,
What we recognise that guest trends, technology and the competitive environment are continually evolving. It is therefore important that we keep abreast of new technologies and systems to keep pace with these to continue to deliver a consistent, locally relevant and differentiated guest experience.doing
In 2013, IHG’sOur direct and indirect systems and channels delivered 6971 per cent of total rooms revenue to our hotels (system contribution to revenue).
in 2014. Our booking systemsdigital business has significant scale and channels
Our multi-lingual web and mobile sites, call centres and global sales force allow guests to use the channel most appropriateis growing fast, accounting for their needs, to plan and book our hotels.$4 billion in revenue in 2014. We also recognise that social media has an important role to play as part of the booking process as a method of advocacy and influence. As a result, we have changed the way we communicate with our guests, using social marketing innovations to make connections between hotels and guests and, through our Guests Rating and Review tool, providing our guests a forum to share their thoughts.
Web and mobile
Web-based bookings now account for over $3.5 billion of IHG’s total rooms revenue to our hotels. As hotels and other booking competitors continue to invest in features that enhance the onlinedigital experience, we expectwith branded and personalised offerings to encourage guests to book via our direct web sales to continue growing at the expense of traditional reservation services.
Mobile technology is also a growing booking and guest channel. We were the first major hotel chain to offer branded mobile apps across all our brands. Mobile visits accounted for over 30 per cent of our website visits, while over 50 per cent of our emails are opened via a mobile device. We continue to innovate in this area in line with advancing technology.
Reservations centreschannels.
We operate 12 central reservations offices globally, with 13 different language capabilities to help potential guests and IHG Rewards Club members with queries they mayrecognise the impact of OTIs as an indirect booking channel, mainly used by comparison-site shopping leisure travellers searching for a competitive deal. We have in their travel planning and to make bookings. In 2013,therefore leveraged our global call centres answered more than 21 million calls, and accounted for almost $2 billion total rooms revenue to our hotels.
Travel agents
IHG works with a number of third-party distribution partners to support revenue delivery to our hotels, including online travel agencies (OTAs). OTAs represent a role within IHG’s distribution strategy, most specifically around infrequent, comparison-shopping leisure travellers. Therefore, IHG, on behalf of its owners, has leveraged its global footprint to secure dealsbetter terms with the lowest aggregate costOTIs on behalf of sale for our owners, increasing their revenue.
Sales force
Our global sales teams are dedicated to securing profitable deals with corporate clients and travel agents andwhilst leveraging our technology platform to connect hotels to global distributions systems, in ways that independent hotels and small chains cannot do cost-effectively. In 2013, they helped our circa 2,130 corporate accounts understand and plan for their future corporate travel.OTIs as a complementary distribution channel.
Total gross revenue, System contribution to revenue and RevPAR are KPIs – see pages 38 and 39.
The principal risks associated with Channel management andFor details on our investment in developing strong technology platforms, are set out onsee page 36.22.
IHG Rewards Club
We leverage our relaunched loyalty programme, IHG Rewards Club, (further explained on page 24) with 77.4 million members around the world, to encourage more direct bookings. In 2013, this delivered around 38.2 per cent of total rooms revenue to our hotels.
How we measure it
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SuperiorWhy we think this is important
We recognise that hotel owners have a choice of brand, if any, to choose for their property. A strong owner proposition, preferred brands and effective operational support, play a vital part in making us the brand choice for owners. Relationships with new and existing owners therefore have a significant impact on our ability to build scale. A strong owner proposition and relationships with our owners also enable us to deliver the brand promise for our guests and continue building preferred brands.
What we are doing
IHG isWe are committed to delivering a compelling and preferred offerowner offer. We continually review and enhance our owner proposition in many ways, including:
We recognise the importance of owners in a managed and franchised business model and we therefore focus on building excellent relationships with our owners, through the IHG Owners Association.
We compete with other hotel brands when an owner chooses a brand for their hotel and we have therefore developed a strong owner proposition and a range of tools and services to drive revenues and make us the first choice for owners.
Our owner offer
Our owners are provided with a range of tools and services to assist them in all areas of their operations, for example, providing them with access to our revenue systems which work to drive higher revenue streams to hotels, and our booking and reservation channels, to increase guest bookings (thereby increasing system contribution to revenue and total gross revenue, explained on page 25). This is one part of our broader online Hotel Solutions site enabling owners to search for, identify and get assistance with a large range of hotel-based issues, such as human resources and reservations. This network of knowledge is accessible by all IHG hotels worldwide and ensures that IHG continues to deliver solutions for our owners’ needs.
We also manage brand consistency risk for our owners by focusing on driving brand standards – an important set of guidelines for each brand that support the delivery of a consistent branded hotel and guest experience and thereby assist in increasing guest satisfaction (measured through Guest HeartBeat) and driving brand preference and growth in RevPAR (both KPIs).
At our 2013 annual Owners Conference in Las Vegas, we had over 5,500 owners and General Managers attending and we took the opportunity to inform these key stakeholders about our future strategy and receive their feedback.
IHG continues to focus on delivering value to owners by pricing our fees in a way that reflects the services, tools and brand value that we deliver and we therefore drive a competitive branded fee structure to support owners in achieving premium returns. As explained on page 16, a franchised and managed business model requires us to focus on fee revenues and fee margins (both KPIs).
Guests, employees and owners are increasingly looking for confirmation that the business they interact with share their values and act responsibly. We are therefore committed to responsible business practices, and our corporate responsibility programmes are integrated with our business and our owner proposition. As set out on page 27, this is also a key priority area for the IHG Owners Association and are therefore KPIs for IHG.
For our KPIs see pages 38 and 39.
The principal risks associated with Owner proposition are set out on pages 36 and 37.
IHG Owners Association
The IHG Owners Association represents the interests of nearly 2,000 of our owners who together own 3,000 IHG hotels globally. We work together to improve total revenue for our hotels and RevPAR, further strengthen IHG’s brands and enhance the guest experience.
As set out in the Chairman of the IHG Owners Association’s message on page 27, we have worked togetherworking with the IHG Owners Association in 2013(which represents the interests of our hotel owners globally) to make further progress on our agreed priorities.
Progress against IHG Owners Association Priority 4: To develop the strongest General Manager talent in the industry
We have invested heavily in our approach to hiring, training and developing General Managers. To assist with this, we launched:
26 IHG Annual Report and Form 20-F 2013
IHG Owners Association
Chairman’s message
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The IHG Owners Association works together with IHG to create long-term value for owners.
Last year in the Annual Report 2012, the 2013 IHG Owners Association Chairman, Mike Hembree, noted that the IHG Owners Association was changing its ways of working with IHG to better focus on how we work together. In autumn 2012, the following five key priorities around which we would strive to organise our work were agreed between IHG’s Executive Committee (see page 65) and the IHG Owners Association:
As the 2014 IHG Owners Association Chairman, I am proud to note that our new ways of working have reaped solid results.
Together, we launched a new professional development programme for existing and new Holiday Inn brand family General Managers. Our officers and volunteer leaders played an instrumental part in developing the programme, giving an owner perspective on what a General Manager needs to become a successful Brand Manager. This new programme is now rolling out through all IHG brands, and I am confident that they will all see the same success that we have seen in the Holiday Inn brand family.
We have worked with IHG to drive brand preference and have encouraged owners to use IHG’s guest satisfaction measurement tool, Guest HeartBeat, as a measure of how well we are delivering against guests’ expectations. Hotels with higher Guest HeartBeat scores for overall experience tend to see higher RevPAR and we are therefore continuing to find ways to improve Guest HeartBeat scores and meet guest expectations.
Finally, and my personal focus, was the refresh of the approach to brand standards. Strong standards, consistently applied, deliver the brand promise and we have worked with IHG to simplify and clarify the brand standards. IHG started with the Holiday Inn Express brand, and took each and every standard through a rigorous review. At the end, more than 40,000 words were removed from the Holiday Inn Express Standards’ manual for The Americas region and an industry-leading online resource has been created, enabling owners and General Managers to quickly find and implement the standards. IHG will adopt a similar approach for all the other brands.
Looking ahead, the IHG Owners Association will continue its mission to help each owner find success with IHG hotel brands. We will continue to focus on increasing profitable revenue, decreasing operating expenses, and maximising our relationship with IHG.
Buggsi Patel
2014 Chairman
IHG Owners Association
For information on the IHG Owners Association go to www.owners.org.
How we measure it
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Our Targeted Portfolio means we operate in the most attractive markets for IHG and in the highest opportunity segments based on guests’ occasion needs, with an asset-light business model – franchising and managing hotels rather than owning them.
Hotel Indigo Tianjin Haihe, People’s Republic of China
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Key performance indicators (KPIs) and What we have done in 2014 See pages 30 to 33 How we manage principal risks See pages 28 and 29 | ||
Where we operate and detailed global and regional Performance
See pages 34 to 51
Managed and franchised model (our asset-light business model)
See pages 12 and 13
*Source: Smith Travel Research.
Attractive markets
Our growth strategyWhy we think this is focused on the largest and/or fastest growing markets in which IHG has strong existing brand presence or an opportunity to build a brand presence, where ourimportant
Achieving scale and revenue delivery systems conferdriving growth requires us to focus on those markets that are most attractive and where there is the greatest benefitsbest fit with our strategy and markets which are aligned to our asset-light business model. In theseThese markets we seek to take market share through our portfolio of brands, in the right locations, according to guest demand.
US
According to Smith Travel Research, the US is the largest market for branded hotels, with 3.4 million rooms, accounting for 70 per cent of all US rooms available. The segment in the US with the greatest share is midscale, with 1.34 million branded hotel rooms,have large inbound and IHG’s Holiday Inn brand family (comprising Holiday Inn Hotels & Resorts, Holiday Inn Club Vacations, Holiday Inn Resort and Holiday Inn Express) is the largest in this segment. As at 31 December 2013, we had a total of 391,580 rooms (3,244 hotels) open and 63,860 rooms (604 hotels) in the pipeline across the region. Of the open ones, the Holiday Inn brand family comprised 271,936 rooms (2,483 hotels).
Greater China
In Greater China, IHG continues to build on a position of strength. Having entered the market early (2014 will mark our 30th anniversary in the region), we continue to develop our relationships with key local owners and grow our presence rapidly. In a country with 790,670 branded hotel rooms (Smith Travel Research), IHG has over 68,545 rooms (208 hotels) open and 54,590 rooms (174 hotels) in our development pipeline. Our pipeline reflects our strategy to deepen our penetration in key cities such as Beijing and Guangzhou, ensuring we have more hotels in key resort locations such as Sanya, and targeting tier 2 and tier 3 cities with a growing middle-class demographic.
India
During 2013, we continued to increase our presence in India particularly through Holiday Inn and Holiday Inn Express, opening a total of 818 rooms (5 hotels) and signing 1,404 rooms (9 hotels) into our pipeline. Accordingly, as at 31 December 2013, we had a total of 3,152 open rooms (18 hotels) and 9,088 rooms (45 hotels) in the pipeline.
Russia and the Commonwealth of Independent States
These countries present opportunities for new construction and conversions as well as strongdomestic demand for branded hotels and in 2013, we signed 1,737 rooms (10 hotels) into our development pipeline. As at 31 December 2013, the total number of open rooms was 5,283 (19 hotels) with 3,883 rooms (17 hotels)or show great potential to have this in the pipeline.future.
Our priority marketsWhat we are doing
In November 2013,Whilst we statedoperate in nearly 100 countries and territories and continue to expand our presence globally, we primarily focus our efforts on 10 priority markets in which we either have a strong existing competitive position or have a compelling opportunity to build one. These include a number of key emerging markets and more developed markets – US, Middle East, Germany, UK, Canada, Greater China, India, Russia and the Commonwealth of Independent States, Mexico and Indonesia. InformationThese currently represent 85 per cent of the IHG System and 89 per cent of the pipeline. We focus our brand building efforts and prioritise the investment in infrastructure in these markets, for instance, by adapting our websites to the local language and deploying dedicated sales teams. Depending on the market, we will adapt our priority markets can be found at www.ihgplc.com/investors.model and proposition to owners to take into account local market characteristics.
Outside our priority markets
Outside our priority markets,The Performance section provides details of how we focus on building presence in key gateway cities and resorts where our brands can generate revenue premiums from high business and leisure demand. For example, in 2013, we opened an InterContinental hotel in Osaka, our first InterContinental to open in Japan for over 15 years, and an InterContinental in Lagos, Nigeria. We also announced a 15-hotel multiple development agreement in Australia for the Holiday Inn Express brand.
Our performance across the Group andhave performed in each of our regions is set out on pages 40 to 50.
Future developments
As the industry continues to grow, IHG faces increased competition from other global branded hotel companies and other providers of accommodation (discussed in the Industry overview section on pages 10 and 11). We recognise this and have developed our Winning Model, which underpinned by Disciplined Execution, enables us to continue to deliver high-quality growth.priority markets.
For details on our Winning Model see pages 18 and 20 to 27 and Disciplined Execution see pages 18, 19 and 30 to 33.
Our KPIs, including Net rooms supply, are set out on pages 38 and 39.
See pages 36 and 37 for how IHG manages its principal risks.
28 IHG Annual Report and Form 20-F 2013
How we measure it
KPIs – Net rooms supply, Total gross revenue
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Highest opportunity segments
Why we think this is important
Typically, the traditional hotel industry segment definitions areis segmented according to price point, and IHG is focused on the price pointthree segments that generate over 66 per cent* of branded hotels revenue – namely, midscale, upscale and luxury. We believe these segments have the offer (luxury, upscale, midscalehighest growth opportunity and economy).strongest resilience to the industry/economic cycle. However, we also recognise that guests choose hotelsa hotel based on the basis of a range oftheir needs and the occasion, resulting in the possibility of the same guest may staystaying across more than onemultiple hotel segment, dependent upon thesegments.
What we are doing
Our portfolio of brands is targeted around differing occasion and their needs.segments. We are therefore refiningtailor each of our approach, so that we position and tailor our hotelsbrands to meet those guestguests’ needs, as defined bylooking at the differing occasion they are travelling for and their need for travelling.
Guest occasion
We have segmentedused this segmentation analysis to develop the market into nine globally relevantbrand proposition for both the HUALUXE Hotels and differentiating categories of guest occasion (set out below), which have differing strengths dependent upon the geographical location. By understanding these guest occasions, we are able to deliverResorts and EVEN Hotels brands (see page 20). It was also a number of core basic guest needs that are brand agnostic and serve to deliver a baseline level of consistency across all our brands, whilst also focusing on the nine identified guest occasions, so that each of our brands delivers the relevant guest experience for the occasion.
Our portfolio of brands is targeted around these differing occasion segments, focusing on those which we believe have the greatest growth opportunity and strongest resilience to the industry/economic cycle. We also concentrate on those areas where our scale and revenue delivery systems confer greatest benefits.
As shown below, each of IHG’s brands is focused on some of these guest occasions and each brand seeks to address the needs of these in a unique way, through the eyes of its target guests, to bring the guest experience to life.
We have also identified that to be successfulconsideration in the future, a brand needs to provide a global, local and personal experience to build trustacquisition of Kimpton Hotels & Restaurants (see page 21).
How we measure it KPIs – Guest HeartBeat, RevPAR |
Holiday Inn Manhattan – see page 20 and the 2014 IHG Trends Report available at www.ihgplc.com/trends_report.Financial District, New York, US
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RevPAR HUALUXE Hotels and Guest HeartBeatResorts, People’s Republic of China
Crowne Plaza Beijing Lido, People’s Republic of China
Our Targeted Portfolio in action:
Greater China – a priority market
In 2014, IHG celebrated our 30th anniversary of operating in Greater China, one of our priority markets. We were the first international hotel company to enter the country in 1984, and we have developed a leading business in the region with 78,194 rooms open (241 hotels) and a further 54,338 rooms (189 hotels) in our development pipeline. In 2014, Greater China contributed 11 per cent of our Group operating profit before central overheads and exceptional items.
We originally developed our business in China’s tier 1 cities and along the eastern seaboard, and have more rooms today in tier 1 cities than our major international competitors. However, our more recent growth has focused on tier 2 and 3 cities, which are KPIs – see pages 38expected to generate significant long-term demand growth and, 39.by 2022, nearly 80 per cent of the fast growing Chinese middle-class are expected to live in these cities. We achieved several key milestones for our Greater China business in 2014, for example, we:
| • | opened Crowne Plaza Beijing Lido with the same owner as our first hotel in the region (Holiday Inn Beijing Lido), demonstrating our established track record and the strength of our owner relationships in the region; |
| • | opened 10,648 rooms (34 hotels), our highest number of room openings since we started our business in the region, growing the IHG System size by 14 per cent; |
| • | signed 15,754 rooms (64 hotels), our best year for hotel signings since 2007; and |
| • | opened our 50th Holiday Inn Express hotel and signed our 50th pipeline hotel, making Holiday Inn Express the largest international limited-service brand in China. |
In February 2015, we opened our first hotel for the HUALUXE Hotels and Resorts brand in Yangjiang, slightly later than expected. As at 31 December 2014, we had 24 hotels (7,551 rooms) in the pipeline for the brand, which we will continue to build.
In addition to driving growth in Greater China, we are focused on establishing hotels that cater for Chinese guests in other locations outside China. Our China-Ready programme ensures we will be able to cater for the growing number of Chinese guests around the world through cultural and food and beverage training for hotel teams. We currently have 84 hotels in AMEA, The Americas and Europe that have signed up for the programme.
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Targeted Portfolio in action
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We announced the launch of a new hotel brand, EVEN Hotels, in February 2012. In June 2014, we opened our first hotels under the brand in Norwalk, Connecticut and in Rockville, Maryland.
Information on eachWinning Model
 | Preferred brands delivered through our people |
As part of having a portfolio of preferred brands, we continually review our portfolio of brands in light of the evolving needs and preferences of our preferredguests. As part of this, EVEN Hotels was launched in 2012 as the first wellness lifestyle hotel brand. We developed the brand based on a large and growing traveller need for maintaining wellness routines while travelling. More than two years of research into consumer insights showed that there are 17 million wellness-minded travellers in the US alone who struggle to maintain healthy eating and exercise habits, get proper sleep and be productive when they are travelling away from home. Therefore, the brand was developed to meet a guest’s holistic wellness needs in the areas of exercise, food, work and rest. For example, an EVEN branded hotel offers nutritious menus and amenities, such as guest rooms designed for in-room workouts.
 | Build and leverage scale |
IHG has committed up to $150 million of its own capital to the development of the EVEN brand over the next few years. In the future, we will look to recycle this capital, just as we did for both the Staybridge Suites and Hotel Indigo brands. As part of matching the brand to the right location, we are looking at core urban areas, dense office parks and suburban markets as well as considering the expansion of the brand beyond the US. As at 31 December 2014, we had three hotels (584 rooms) signed into our development pipeline and two hotels (296 rooms) open.
 | Strong brand portfolio and loyalty programme |
We have been using our loyalty programme, IHG Rewards Club, to introduce our members to the EVEN Hotels brand, specifically targeting our communications at those guests who travel to, or have expressed an interest in, the locations of our first hotels, wellness or the brand itself.
 | Effective channel management |
As with our other brands, canwe have leveraged our existing booking platforms to create a brand-specific webpage targeted via the app. We have specifically customised it to be foundbrand specific to EVEN Hotels, focusing on page 17.wellness needs with relevant content and healthy lifestyle features such as fitness videos, ambient sounds, a diary of wellness-focused events organised by the hotel, and ‘wellness travel tips’.
 | Superior owner proposition |
The EVEN Hotels brand allows owners to diversify their portfolio with a new IHG brand in a unique guest occasion segment. IHG, through its own capital investment, currently owns and manages the first two open EVEN hotels. Three additional hotels are currently in development. Owning and operating our first hotels enables us to showcase the brand to other potential owners.
Targeted Portfolio
Attractive markets
The US is one of our priority markets, and we opened the first EVEN hotels in cities where we have existing brand presence.
Highest opportunity segments
The EVEN Hotels brand has a strategic fit in our brand portfolio alongside Hotel Indigo, and now Kimpton, in the boutique and lifestyle segment. The brand is targeted at the unique segment of wellness and lifestyle.
Managed and franchised
We have used our own capital to develop the brand and will look to recycle this in the future. We will seek to accelerate growth for the brand through our managed and franchising model.
EVEN Hotel Rockville, Maryland, US
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Acquisition of Kimpton® Hotels & Restaurants
| “We believe the Kimpton brand has enormous potential for growth.” |
Our acquisition of Kimpton Hotels & Restaurants, the world’s largest independent boutique hotel operator, completed in January 2015. Kimpton is a highly successful business with a US-based portfolio comprising 62 managed hotels (11,300 rooms) and a further 16 hotels (3,000 rooms) in the pipeline (as at 16 January 2015). A sophisticated food and beverage operator, Kimpton also runs 71 hotel-based destination restaurants and bars.
Winning Model
 | Preferred brands delivered through our people |
The Kimpton brand is renowned for having distinctive and innovative hotels located in attractive urban and resort locations. Each hotel aims to deliver a deeply personal, genuine and authentic service for guests and, whilst each hotel is unique, the brand has a number of common design and service principles and hallmarks. The Kimpton brand caters for a broad and varied range of guest needs.
The Lumen, A Kimpton Hotel, Dallas, Texas, US
 | Build and leverage scale |
The boutique segment, in which Kimpton operates, is the fastest growing in our industry over the last five years, and there is significant opportunity for future growth based on high levels of demand growth. We also believe the brand has enormous potential for growth outside the US and plan to capitalise on our scale, powerful distribution systems and owner networks to support its growth globally. We did this previously for our Hotel Indigo brand which started with a well-established base in the US and has now been expanded globally to 21 countries (including hotels in the pipeline).
 | Strong brand portfolio and loyalty programme |
The Kimpton brand has a strong strategic fit within our existing brand portfolio at the upper upscale price point. It is also highly complementary with our Hotel Indigo and EVEN Hotels brands, creating a leading boutique and lifestyle hotel business, with over 200 open and pipeline hotels across 21 countries.
We plan to leverage Kimpton’s market-leading insight and strong track record in operational excellence, food and beverage, and design, to add value across our brand portfolio. Kimpton’s loyalty programme (Kimpton Karma) members account for 25 per cent of its room bookings.
 | Effective channel management |
A large proportion of Kimpton’s business already comes through direct channels, driven by its most loyal guests. Each hotel has a dedicated website with engaging content, reflecting the boutique nature of the brand. We will leverage our digital platforms to accelerate Kimpton’s growth, whilst maintaining the uniqueness of Kimpton’s existing channels.
 | Superior owner proposition |
The addition of Kimpton to IHG’s brand portfolio offers owners another attractive option in the boutique segment and access to a brand with a strong track record at the upper upscale price point. Its presence in the most attractive markets in the US has delivered excellent financial performance for both the business and its hotel owners. It also enables IHG to raise awareness of other IHG brands among owners of Kimpton branded hotels. Kimpton’s strong brand, combined with our scale and booking and distribution channels, will drive superior returns for owners.
Targeted Portfolio
Attractive markets
The US is one of our priority markets and Kimpton hotels currently have presence in the most attractive urban and resort locations, as well as the highest RevPAR markets such as San Francisco and New York.
Highest opportunity segments
The boutique hotel segment has been the fastest growing in our industry over the last five years, with demand, supply and RevPAR growth in boutique hotels in the US each significantly outperforming the overall industry.
Managed and franchised
Kimpton is a fully asset-light brand, operating hotels under management contracts.
More information on the acquisition of Kimpton Hotels & Restaurants can be found at www.ihgplc.com/kimpton |
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We recognise that successful delivery of our strategy for high-quality growth requires Disciplined Execution. We prioritise investment in our technology platforms and our people as well as delivering operational efficiencies.
Scale and efficiency of operations | Investment in developing strong technology platforms |
Why we think it is important
Driving efficient operational processes and managing our costs allows us to contribute to hotel performance through efficient practices, tools and systems. It also helps us strengthen our revenue delivery systems which means an increase in system contribution to hotel revenue, supporting our owner proposition and maximising our investment in building preferred brands. Careful cost management, leveraging our scale and focusing on productivity improvements also allows us to drive continued improvement in our margin.
What we are doing
To maximise the scale and efficiency of our operations, we:
How we measure it
KPI – Fee margins See page 32 for the KPI and |
Why we think it is important
As identified on page 11, technology, as used by travellers, is playing an increasingly important role in shaping the travel industry. The internet, which is now more than ever accessed through mobile devices, is used extensively to research, plan and book travel. In emerging markets, consumers are going straight to mobile devices, and there are now twice as many mobile internet users in China than internet users in the US. Guests are also seeking greater levels of personalisation, and are sharing their experiences instantly via social media.
We believe that keeping abreast of the evolving traveller trends and investing in technology systems will assist us in building brand preference, strengthen our loyalty programme and deliver compelling and engaging digital content across the ‘Guest Journey’ (which comprises five steps – Dream, Plan, Book, Stay and Share), thereby enabling us to build lifetime relationships with our guests.
What we are doing
To deliver the highest quality digital content for our guests, we are ensuring that we have the right technology foundations and infrastructure in place. In 2014, we:
Improving our technology infrastructure gives us the foundation to transform the guest experience and make it more interactive through digital content. In 2014, we:
How we measure it KPI – System contribution to delivery See page 30 for the KPI and |
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InterContinental Sydney Double Bay, Australia
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A commitment to responsible business practices underpins our entire strategy and the way we work. We recognise the importance it has for all of our stakeholders in making IHG and its brands their preferred choice.
Why we think it is important
We believe that by ensuring our business is committed to responsible business practices we will enhance and protect the reputation of IHG and our brands. It provides us with the opportunity to protect the environment, create job opportunities, improve community resilience and make us more innovative. Doing the right thing in the right way enables us to make an even greater contribution to the locations where we operate. It also ensures we act in a manner that benefits all of our stakeholders, including employees, guests, corporate customers, owners and the local community, who are increasingly considering whether the businesses with which they interact share their values. This provides us with a competitive edge, assisting us to deliver profitable growth and create shared value for all stakeholders in the long term.
What we have done in 2014
See pages 32 and 33 for progress against our KPIs. Five-year corporate responsibility targets These were released in September 2013, and are centred on measuring our impact on the environment and community (at both global and local level) and demonstrating our commitment to doing business responsibly and creating shared value for IHG and its stakeholders: — some of these are KPIs; and — the progress against others can be found in our Responsible Business Report.
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Scale and efficiency of operations
With almost 687,000 rooms in nearly 100 countries and territories around the world, we leverageFurther information, including our global and regional scale to maximise the efficiency of our operations. We focus on driving efficient operational processes and tightly managing our costs proportionate with our revenues to:
We continue to drive process improvements and cost-saving initiatives:
Information on how we build and leverage scaleReport, can be found on page 24.
at www.ihgplc.com/responsiblebusiness
Investment in developing great talentWhat we are doing
Our commitment to responsible business is part of our culture. Our responsible business practices include:
Governance and technology platformsleadership
We supportOur Chairman, the deliveryBoard and its Committees provide a strong leadership and governance structure. They promote responsible business behaviour by maintaining high standards of the Winning Model by investing in the development of talentcorporate governance, internal controls and technology platforms that provide the foundation for future growth.
Development of great talent
We know that our brands are brought to life by the people working in our hotels who support the consistent delivery of the brand promise in each hotel. Talent is key to our success, both at a corporate levelrisk management and in our hotels. We continue to invest in systemscompliance with relevant laws and tools to develop our people in the corporate environment and at our hotels and our People Tools (explained on page 22) are available for our owners and hotels.regulations.
Our people strategy is detailedFor information on our Board and governance processes, see pages 2154 to 23.91.
Development of great technology platforms
Keeping up with new technologies and systems is also keyCommitment to our success. IHG invests across a range of technology platforms to ensure that our revenue delivery and guest experience systems are at the forefront of innovation in the industry. This includes investment in reservation technology platforms, guest-facing booking channels and new mobile services, as well as investment to support the guest experience in hotels such as the development of digital check-in services and the provision of wifi internet access.
Locally tailored systemsresponsible business practices
We also invest in technologyhave a reputation for delivering a consistent and superior guest experience, we provide a safe and secure environment and we actively engage with our communities. Our brands are valuable assets and doing business responsibly enhances their reputation and builds trust and brand preference.
Responsible procurement
Our Vendor Code of Conduct sets out standards to which we require our supply chain partners to operate. We are committed to promoting diversity across our responsible procurement agenda and have set targets to ensure corporate responsibility criteria are integrated into the selection and evaluation process for preferred suppliers.
Health, safety and security
A safe and secure environment for our revenue deliveryguests, employees and those working at or visiting our hotels and corporate offices is important. IHG has therefore established a set of policies, procedures and measures, and complies with relevant legislation. We ensure the protection and well-being of those working for IHG through suitable work-based strategies, minimise the risk of injury from work activity, ensure that sufficient information is provided and systems are in place to address health and guest experiences are tailored to local markets based on knowledgesafety concerns, and involve employees in the continuous improvement, reporting and review of local market conditionshealth and travellers.safety matters.
For example, in Greater China we have made various technology investments to drive and convert demand and enhance the guest experience, including being the first international hotel company to launch a standalone Chinese website and being the only international hotel company in Greater China working with Alipay, the leading local payment system, to integrate their system into our website. This is of critical importance in a market where credit cards are not the primary means for paying online and enables us to offer more prepaid products for our guests.
Information on our Effective channelRisk management strategy can be found on page 25.
Case study – Revenue Management
Our innovation in revenue management tools and techniques is one particular example of our investment in technology platforms. IHG Revenue Management is a core strategic tool that brings together available rooms, rates and marketing at the hotel level, co-ordinating with our channels to drive reservations to our hotels at the right price.
This expertise is available to hotels through the IHG PERFORM service, a pricing system designed to increase RevPAR and deliver profitable rate recommendations to a hotel. The IHG PERFORM system integrates local demand forecasting, competitive data analysis and price sensitivity modelling to recommend optimum pricing for each day based on the market dynamics and guest type for each hotel. This enables IHG hotels to effectively price their rooms within the context of a highly dynamic competitive market environment.
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Internal programmes, policies and training
We have in place an effective system of internal controls and risk management to identify, assess, prioritise and mitigate risks to our business, guests and employees, which enables us to achieve our shared objectives. This is an essential part of being a responsible business.
For information on our risk management practices and systems of internal controls, see pages 26 to 29.
People
Being a responsible business cannot be achieved without the support and active engagement of our people. They are fundamental to ensuring we operate an ethical business. Our Winning Ways (see page 23) are a set of behaviours that we internally promote to assist with how we interact with our guests and colleagues.
As part of acting responsibly and putting in place a responsible business ethos, we have policies and training in place to ensure our people are kept aware of and understand the key legal and regulatory areas affecting them in their roles, such as competition, anti-bribery and data privacy laws and procedures, crisis management and brand safety standards. We do this through a range of programmes, policies and training, which we regularly keep under review and which are communicated via e-learning and face-to-face training modules in order to raise understanding of key legal and regulatory areas. These include ourmodules.
Our Code of Conduct environment, supporting our community, human rights, competition, anti-bribery, data privacy and crisis management policies and brand safety standards.
Code of Conduct
In 2013, we refreshed our Code of Conduct, which is applicable to all Directors, officers and employees and available on the Company’s website at www.ihgplc.com/investors under corporate governance. It consolidates and clarifies expected standards of behaviour and communicates the ethical values of the Group. It is applicable to all Directors, officers and employees and is available at www.ihgplc.com/investors under corporate governance.
AWe also have a confidential disclosure channel also providesto provide employees with a means to report any ethical concerns they may have.
For information on our investment in developing our talent and who are our employees, see page 23.
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IHG Academy - Holiday Inn Express Stoke On Trent, UK
Human rights
As part of putting the human rights policy into practice, in 2013 we set up a cross-functional working group to ensure we are focusedWe focus on the keythose areas of human rights most relevant to our business, such as making sure we provide decent working conditions for all of our employees, and ensuring the rights of the local people where we operate are protected. We are working to raise further awareness of our human rights approach in our hotels around the worldthrough embedding it as a brand standard, and will continue to add todevelop our suite of training materials over the next year to support these efforts. During the year, we continued to work with the International Tourism Partnership’s Human Trafficking Working Group to address the issue of human trafficking with other hotel companies.materials. We are also a signatory ofto the UN Global Compact, aligning our operations and strategies with the 10 universal principles that include commitments to human rights and labour standards. We are currentlypart of the Business in the Community cross industry working group on human rights as well as the International Tourism Partnership’s Human Trafficking Working Group. We are also working with our internal Procurementprocurement team to embed further embed our human rights policy and vendor code of conduct inapproach into our contracts.
Corporate Responsibility (CR)responsibility
During 2013, we focused our efforts on driving the best use of the tools we provide. In September, we released our external targets (set out above)Our global scale provides us with an opportunity to measure ourmake a positive impact on the environment and communities in which we operate. Our five-year corporate responsibility targets, released in September 2013, focus on measuring this impact.
Each one of our hotels is a globalcentral part of its community, from creating jobs and stimulating local level overeconomic opportunities, to managing their environmental impact in a five-year period from 2013responsible way and providing shelter in times of need. We work to 2017. We aim to create more sustainable communitiesdevelop new and better lives throughways to assist owners to build and operate IHG branded hotels, creating sustainable value for our hotel operationsbrands, business and to achieve this we focus our activities in areas integrated with the way we operate our business.
1. Environmental sustainability
We have committed our hotel estate to designing, buildingstakeholders, as well as addressing social and operating more environmentally sustainable hotels through IHG Green Engage, our online system to measure, monitor, manage and report on energy, carbon, water and waste.
2. Sustainable communities
To reinforce our mission to create shared value in our communities, we:
work very closely with our fundraising activities.
owners and colleagues to maximise the positive impact of these initiatives:
For information on IHG Academy visit www.ihgacademy.com.
For information on IHG Shelter in a Storm Programme visit www.ihgshelterinastorm.com.
| • | IHG Green EngageTMsystem:Helps us minimise our impact on the environment by tracking and managing the use of energy, carbon and water and waste in our hotels. This assists us in delivering both more environmentally sustainable hotels and cost efficiencies for owners. |
| • | IHG® Academy:A collaboration between our hotels and local schools, colleges and community organisations to help people develop the skills they need to improve their employability and secure a job in the hotel industry. |
Our activities are supported by the Board through the Corporate Responsibility Committee, whose Report can be found on page 68.
| • | IHG® Shelter in a Storm: Empowers our hotels to support guests, colleagues and local communities in times of disaster with financial support, vital supplies and accommodation. |
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32 IHG Annual Report and Form 20-F 2013
IHG’s global greenhouse gas (GHG) emissions
| 20131 | 20121 | |||||
| Reporting boundary | Measure | |||||
Global – corporate offices and managed, owned and leased hotels | Scope 1 Direct emissions | 424,329 | 516,586 | |||
| ||||||
| Scope 2 Indirect emissions | 1,561,135 | 1,638,160 | ||||
| ||||||
| Total GHG emissions (tCO2e) | 1,985,464 | 2,154,746 | ||||
| ||||||
| IHG’s chosen intensity measurement GHG emissions per occupied room (kgCO2e per occupied room) | 56 | 64.5 | ||||
| ||||||
Global – corporate offices and franchised, managed, owned and leased hotels | Scope 1 Direct emissions | 1,327,416 | 1,342,670 | |||
| ||||||
| Scope 2 Indirect emissions | 3,358,380 | 3,241,159 | ||||
| ||||||
| Total GHG emissions (tCO2e) | 4,685,796 | 4,583,829 | ||||
| ||||||
| IHG’s chosen intensity measurement GHG emissions per occupied room (kgCO2e per occupied room) | 31.2 | 32 | ||||
1 Reporting period commencing on 1 October and ending on 30 September.
Global greenhouse gas (GHG) emissions
Scope
We are required to report on the GHG emissions from our corporate offices and managed, owned and leased hotels where we have operational control under the Companies Act 2006. We have also chosen to report on our GHG emissions from corporate offices and all of our hotels as our GHG emissions reduction target is based upon this.
We report Scope 1 and 2 emissions as defined by the GHG protocol as follows:
Methodology
We have worked with Best Foot Forward to give us an up-to-date picture of IHG’s carbon footprint and assess the performance over the past few years. Best Foot Forward used a sampling and extrapolation methodology to estimate our GHG emissions.
For 2013, in line with the methodology set out in the GHG Protocol Corporate Standard, the sample covered 1,372 hotels out of our total global estate of 4,697 hotels.
We are continuing to improve the quantity and quality of the data reported by hotels using IHG Green Engage to improve the accuracy of our GHG reporting.
The results in the table above include all of our branded hotels but do not include emissions from 87 hotels. We do not have sufficient data to estimate their emissions and we believe them to be immaterial.
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 and therefore we have defined our GHG emissions reporting year as the period commencing on 1 October and ending on 30 September.
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|
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IHG’s global greenhouse gas (GHG) emissions
By delivering more environmentally sustainable hotels, we can drive cost efficiencies for owners as well as meet the expectations of all our stakeholders. We recognise the importance of reducing our global greenhouse gas emissions for corporate offices and hotels – our target is to reduce our carbon footprint per occupied room by 12% across our entire estate by 2017 (against a 2012 baseline). See page 33 for progress.
|
Scope We report Scope 1 and 2 emissions as defined by the GHG protocol as follows:
• Scope 1 (Direct emissions): combustion of fuel and operation of facilities; and
• Scope 2 (Indirect emissions): electricity, heat, steam and cooling purchased for own use.
Methodology We have worked with external consultants to give us an up-to-date picture of IHG’s carbon footprint and assess the performance over the past few years. The external consultants use a sampling and extrapolation methodology to estimate our GHG emissions.
For 2014, in line with the methodology set out in the GHG Protocol Corporate Standard, the sample covered 1,402 of our 4,840 hotels. As IHG System size is continually changing and the hotels reporting data to the IHG Green Engage system increases annually, we are restating the impacts for all years from the baseline year 2012 annually to enable comparisons to be made.
| |||||||||
Reporting boundary | Measure |
20141
|
20131
| |||||||
Global – corporate offices and managed, franchised, owned and leased hotels2 (a KPI and part of our five-year targets)
| Scope 1 Direct emissions | 1,365,883 | 1,280,973 | |||||||
| Scope 2 Indirect emissions | 3,792,771 | 3,683,737 | ||||||||
| Total GHG emissions (tCO2e) | 5,158,654 | 4,964,710 | ||||||||
IHG’s chosen intensity measurement GHG emissions per occupied room (kgCO2e per occupied room) | 32.3 | 33.4 | ||||||||
Global – corporate offices and managed, owned and leased hotels2(as required under the Companies Act 2006)
| Scope 1 Direct emissions | 496,316 | 486,086 | |||||||
| Scope 2 Indirect emissions | 1,921,077 | 1,847,304 | ||||||||
| Total GHG emissions (tCO2e) | 2,417,393 | 2,333,390 | ||||||||
IHG’s chosen intensity measurement GHG emissions per occupied room (kgCO2e per occupied room)
| 59.2 | 62.2 | ||||||||
1 Reporting period commencing on 1 October and ending on 30 September – due to the delay in hotels receiving their energy bills it is not possible to report accurately GHG emissions from 1 January to 31 December. 2 Includes all of our branded hotels but does not include emissions from 88 hotels. We do not have sufficient data to estimate their emissions and believe them to be immaterial. | ||||||||||
|
IHG believes that an essential part of being a responsible business is having in place robust and effective risk management and internal controls. This supports our business to be resilient, successful and trusted.
Risk management system
IHG has an effective risk management system and internal controls which provide assurance to its shareholders. These are well established and help IHG to protect against known and emerging risks and to cope with the unexpected. The Group develops the risk management system, strategies and controls as a result of continuous learning by management, which in turn drives the focus of the Major Risk Review and Global Internal Audit programme. Our internal controls and risk management system aims to support the achievement of business objectives and protect our business, in particular:
The risk environment that we operate in can be difficult to predict and is rapidly changing. There are many risks that could impact the Group’s brands and reputation and, therefore, IHG is giving particular emphasis to developing its reputation risk management capability and strengthening its culture of doing business responsibly.
The key features of IHG’s risk management system are:
The Board is ultimately accountable for risk management across the organisation. It is supported by the Audit Committee, the Executive Committee and other delegated committees who collectively set the tone and appetite for risk management at IHG.
This is cascaded down to the day-to-day activities of IHG corporate offices and hotels through Strategic, Tacticalwell-established and Operational risk perspectives;
Risks are further identified, assessed, mitigated and monitored by functional specialists and, where deemed necessary, periodically reviewed by internal and external auditors. These activities are typically grouped into ‘Three Lines of Defence’ as shown on the business and reduce unnecessary risk exposure; and
Embedded risk management processes
IHG has in place a Major Risk Review process in placeto:
The Major Risks align closely with our strategy and business priorities, and also identify those issues which are most likely to significantly affect other operational, commercial or reputational matters and, as such, all Major Risks have named Executive Committee members who ensure that effective risk mitigationare regularly discussed at senior leadership team and control strategies are in place.committee meetings.
Underpinning the Group’s Major Risk Review process, each of the regions and functions have their own risk profiles which are updated biannually in line with the activities of the strategic planning cycle. During the interim periods, continuous dialogue
takes place between risk owners and the Global Risk Management team to develop, execute and monitor detailed risk plans and strategies for key risk exposures.
TheOur Risk Working Group (RWG) provides a long-term, globalensures there is sufficient focus and strategic perspective toeffective management of the risks faced by IHG. Its mandate isMajor Risks, and seeks to improve cross-functional working and effective risk management of the highest priority and emerging risks affecting IHG. The RWG is chaired by the General Counsel and Company Secretary and comprises the Headsheads of Global Risk Management, Global Strategy, Programme Office and Global Internal Audit.
Underpinning the Group’s Major Risks are regularly discussed as part of Board, Executive Committee and senior leadership meetings. In addition, the Major Risks are collectively discussed at least twice annually at the meetingsRisk Review process, each of the Executive Committee, Audit Committeeregions and functions have their own risk profiles that are updated quarterly in line with the Board.activities of the strategic planning cycle. During the interim periods, continuous dialogue takes place between risk owners and risk subject-matter experts to develop, execute and monitor detailed risk assessments, risk mitigation strategies, controls and key risk indicators.
| 26 |
Holistic approach to risk assessment
IHG conducts risk assessments to identify, prioritise and distinguish risks it wishesinform decisions on risk mitigation. Risks are first assessed from an inherent or gross risk perspective (unmitigated risk). Then, internal controls and mitigation activities are identified and developed resulting in a residual or net risk assessment (mitigated risk, net of controls). This is informed by the performance monitoring of internal key risk indicators, which provide objective evidence as to take from those it must mitigate.how effectively the risk is being managed. IHG thinksand its Board think broadly and holistically about potential threats – whether they are strategic, tactical or operational in nature.
Strategic risks: these are risks arising from IHG’s relationship with the external environment and can impact on IHG’s ambition and strategy over the long term. Strategic risks are a key feature of the Board and Executive Committee agendas, regional and functional strategy setting and are considered during decision-making on strategic issues such as the selection of future growth markets, the selection of strategic business partners and decisions pertaining to potential new initiatives.
Tactical risks: these are risks that could impact the delivery of IHG’s one to three-year targets including implementation of projects. These include factors influencing IHG’s ability to sign and open new hotels, the performance of existing hotels and delivery of projects. These are managed by senior operators and overseen by the Regional Operating Committees. In addition, project risks are managed by project management teams and business sponsors with oversight provided by the Programme Office.
Operational risks: these include a wide spectrum of day-to-day risks that front-line hotel colleagues and corporate teams face when dealing with guests or ensuring corporate systems and processes are running smoothly. A critical aspect of this is managing the safety and security of our people and assets and the continuity of the business. For some parts of the business, operational risks also include managing third-party service providers andacross the wider supply chain. Due to the nature of operational risks, IHG typically mitigates these through internal controls, operational and business processes, systems and tools. Oversight roles exist through the management line, the Regional Operating Committees and functional leadership teams.following categories:
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Risk actions and outcomes
Fundamental to IHG’s approach to risk management is that it is action-oriented and yields tangible outcomes in the business, thereby reducing risk exposures. There are numerous risk management programmes and activities that achieve this, including our hotel safety and security action plans, business continuity plans and crisis management programmes.
In developing our plans and programmes, we considered both our first-hand experience in managing events at our hotels, such as natural catastrophes and civil unrest and other possibilities which may impact IHG’s central operations, brands and reputation. We have also linked our crisis management programme with the IHG Shelter in a Storm Programme (explained on page 32).
Proactive risk and crisis management culture
IHG believes the value of risk management is realised through a proactive risk management culture and capability. To this end, IHG has developed numerous support and guidance materials, implementation toolkits, training and control systems and made these available to all hotel and corporate colleagues in various languages in order to build our risk management maturity and culture.
| Risk | What are these? | |||||||
|
| |||||||
| Strategic | Risks arising from IHG’s relationship with the external environment that can impact on IHG’s ambition and strategy over the long term. Include major market and environmental changes or events that could impact our reputation across key stakeholder groups. | • Leadership is provided by the Board, the Executive Committee, the Regional Operating Committees and functional leadership teams. • Expertise, co-ordination and oversight is provided by Global Strategy in conjunction with Global Risk Management to drive IHG’s leadership to make decisions around its portfolio of brands, key markets, business model and approach to ethics and other reputational matters. | ||||||
| Tactical | Risks that could impact the delivery of IHG’s one to three-year commitments. Include, but are not limited to, factors influencing IHG’s ability to sign and open new hotels, the performance of existing hotels and the delivery of projects that align with strategic planning processes. | • Performance and delivery risks are managed by senior leaders and reported to the Regional Operating Committees and functional leadership teams. • Project risks are managed by project management teams with oversight provided by our internal Programme Office and supported by Global Risk Management. | ||||||
| Operational | Risks which include a wide spectrum of day-to-day risks that frontline hotel colleagues and corporate teams face when dealing with guests or ensuring corporate systems and processes are running smoothly. Include, but are not limited to, those managing the safety and security of our people and assets, the continuity of the business, third-party service providers and the wider supply chain. | • Operational risks are managed by frontline hotel colleagues. • Oversight is provided, in the context of the managed and franchised business models, by specialist functional teams, with leadership provided by the Regional Operating Committees. • Due to the nature of operational risks, IHG typically mitigates these through policies, operational and business processes and other internal controls supported by systems, tools and training. Subject-matter expertise, leadership and co-ordination is provided by Global Risk Management and functional specialists. | ||||||
|
| IHG Annual Report and Form 20-F 2014 |
Risk managementcontinued
Managing risks in a changing environment
We continue to experience aan increasingly risk aware and dynamic external risk environment with changes in political, economic, social, technological, legal and environmental risks. However, we do see the global macroeconomic conditions improving. We see the Group’s asset-light business model, diversity of brand portfolio and wide geographical spread contributingcontribute to ourIHG’s resilience to events that could affect specific hotels or local areas or all but the most significant countries.areas.
The table below sets out the principal risks and uncertainties (the Major Risks) in the context of delivering against our strategy for high-quality growth (as described on pages 1814 to 33)25). Whilst the external risk environment is increasingly volatile, uncertain and competitive, this is offset by our decision-making and strengthening risk culture, and efforts to continuously improve controls and mitigation actions (some of which is summarised below). These are perceived as the most dynamic risksMajor Risks align to our strategic priorities and are therefore proactively managed and monitored by senior management. TheseThey complement the wider comprehensive risk factors set out on pages 164162 to 167.165.
Risk description
| Controls and mitigations | |||||
| ||||||
Having a portfolio of Failure to achieve this could impact on IHG’s competitive position and
| •
•
•
•
| |||||
Leadership and talent
IHG must recruit and retain the right people and give them the tools, guidance and support to be successful Failure to manage
| •
•
• IHG • Our leadership framework, support tools, and | |||||
How each Major Risk links to our strategic priorities (described on pages 16 to 25)
| ||||||
| 28 |
Risk description | Controls and mitigations | |||||
Channel management and technology platforms
Booking and
Threats to information security, from payment card information
Failure to effectively manage and keep under review our channels and information technology infrastructure
| •
•
• Operating in nearly 100 countries and territories, IHG takes information security very seriously and has applied risk-based methods to build capability and resilience into our systems and processes.
• | |||||
|
|
| |||||
Owner proposition As a result of IHG’s predominantly franchised and managed business model Failure to manage
|
• • IHG works closely with the IHG Owners Association, to ensure we have an understanding and insight into owners’ perspectives, particularly with respect to new programmes and initiatives (see www.ihgplc.com/ihgowners for a message from the 2014 Chairman of the IHG Owners Association).
• The
• the hotel. | |||||
Reputation and brand protection IHG recognises the importance of its brands and reputation as important assets for the business.
Failure to safeguard the reputation of IHG and
|
• • We have in place a comprehensive set of internal policies, processes and other internal controls supported by • Leadership in this area is provided by IHG’s Business Reputation and Responsibility function
•
manage reputational risk. |
|
Keyperformanceindicators (KPIs)
We measure our performance through a holistic set of carefully selected KPIs towhich monitor our success in achieving our strategy and the progress of our Group to deliver high-quality growth. The KPIs are organised around the elementsframework of our strategy – our Winning Model and Targeted Portfolio, underpinned by Disciplined Execution and Disciplined Execution.Doing Business Responsibly.
Winning Model and Targeted Portfolio
| KPIs | ||||||||
Net rooms supply
Net total number of IHG rooms in the IHG System.
Growth in fee revenues
At constant currency Group revenue excluding revenue from owned and leased hotels, managed leases and significant liquidated damages. |
In line with our
•
- 610,274 rooms (4,351 hotels) of the IHG System are in our priority markets – 85%; - IHG’s pipeline – 193,772 rooms (1,221 hotels), with 2014 having the highest signings in six years; and - 173,252 rooms (1,117 hotels) of our pipeline are in our priority markets – 89%.
• - opened our first 2 EVEN hotels in - had 3 EVEN hotels (one of which 31 December 2014). |
¿ Continue to accelerate growth strategies in priority markets, and key locations in agreed scale markets, and continue to leverage scale.
| ||||||
|
Actual $bn Total rooms revenue from franchised hotels and total hotel revenue from managed, owned and leased hotels. It is not revenue attributable to IHG, as it is derived from hotels owned by third parties. It is an indicator of the scale and reach of IHG’s brands. System contribution to revenue1,2
The per cent of room revenue delivered through IHG’s direct and indirect systems and channels. | In line with our 2014 priorities, in relation to: •
- continued to win awards including the ‘Best Hotel Rewards Programme in the World’ by Global Traveler magazine (see www.ihgplc.com/ourbrands); - extended free internet access for all IHG Rewards Club members across our hotels globally; - launched the first global promotion by IHG Rewards Club, ‘Big Win’, aimed at encouraging members to stay at more hotels within IHG’s portfolio; and - enhanced our ancillary programmes such as Business Rewards, Dining Rewards and co-branded credit cards to extend our relationship with guests. • continuing with investment in technology systems and platforms: - we launched Mobile Check-in and Check-out at more than 500 hotels; and - see page 22 for further initiatives undertaken in 2014. • continuing to strengthen our revenue delivery, we delivered 71% system contribution to revenue, including $4bn of digital revenues with 50% growth in mobile bookings to over $900m. • continuing to drive the adoption and impact of our performance tools, systems and processes amongst our owners – there was an increase of over 20% in the adoption of Revenue Management for Hire.
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| 30 |
Link between KPIs and Directors’ remuneration
KPIs which could have an impact on the performance measures for remuneration plans:
1 Annual incentive plan (Annual Performance Plan)
2 Long-term incentive plan (Long Term Incentive Plan)
For more information see Directors’ Remuneration Report pages 76 to 91.
Explanation as to how 2015 priorities have evolved from 2014 priorities:
¿ Same priority as 2014
Specific progress made in 2014 against 2014 priority, the priority has accordingly been updated for 2015
New priority for 2015 in line with changes to our business
| KPIs | 2014 progress | 2015 priorities | ||||
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Global RevPAR growth
Comparable hotels, at constant currency
Revenue per available room: Rooms revenue divided by the number of room nights that are available (can be mathematically derived from occupancy rate multiplied by average daily rate).
Guest HeartBeat1
IHG’s guest satisfaction measurement tool to measure brand preference and guest satisfaction. | In line with our 2014 priorities, in relation to: • - clarified each of the brand propositions (see pages
- received external recognition for our brands and
•
• supporting the openings of the first EVEN and HUALUXE hotels (see pages 19 and 20). • continuing to invest in building long-term brand preference across our brands in line with segmentation by guest needs and occasions: - for - for the InterContinental Hotel & Resorts brand, we rolled out the new signature InterContinental Planet Trekkers menu, created exclusively for children, across our properties; - to deliver the Holiday Inn brand experience, we continued to roll out the ‘Open Lobby’ concept across the brand, having opened five in the UK; - we further delivered on meeting guests’ changing needs by introducing a new Holiday Inn Express prototype design, which was co-created with hotel owners and through guest insights; and - we acquired Kimpton Hotels & Restaurants in January
• - 2,000 hotel General Managers globally have participated in our Journey to Brand Manager programme; and - we embedded the IHG General Manager
|
¿ Strengthen frontline training and capabilities to consistently deliver great guest experiences that build brand preference.
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Our regional priorities and progress in each of the regions are set out on pages 37, 40, 43 and 46.
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| 31 |
| IHG Annual Report and Form 20-F |
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Disciplined Execution
| KPIs | ||||||
Fee margins1
* Restated for IAS19R ‘Employee Benefits’ Operating profit as a percentage of revenue, excluding revenue and operating profit from owned and leased hotels, managed leases and significant liquidated damages.
| • In line with our 2014 priority to continue to focus on sustainable fee margin progression over the medium term, we delivered Group fee margins of • Through leveraging our scale and focusing on productivity improvements, we intend to continue growing fee margins over the medium term. However, we will balance this with |
| ||||
| In line with our 2014 priorities, in relation to: • • strengthening our approach to developing leaders and investing in tools and training that build leadership capabilities we: - launched new global leadership development programmes; - increased leadership succession through new appointments and internal promotions at senior levels and internal organisational changes in line with business priorities; and - improved our human resources systems and services through the introduction of a • continuing to build a ‘winning culture’ (a high performing culture) through strong - introduced a new approach to performance management driving closer alignment of - rolled out a global metrics approach which requires each area of the - built a ‘winning culture’ champions network from our senior leadership population, to shape and deliver this approach globally. • improving the leadership capability of our frontline managers and supervisors, we launched a new frontline manager and a supervisor programme aimed at building critical skills to drive performance within our hotels. Responsible business activities continue to drive high levels of pride in our employees with 92% of respondents of our Employee Engagement survey saying overall they felt more positive about IHG as a result of its responsible business initiatives and/or programmes. |
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| 32 |
Doing business responsibly
| KPIs | 2014 progress | 2015 priorities | ||||
Number of people participating in IHG Academy programmes
| In line with our 2014 priorities to expand the IHG
• 6,666 people benefited from our global IHG Academy programmes in 2014, taking the total to 13,057 people since 2013; and • we expanded our IHG Academy to 626 programmes (as at 31 December 2014), which includes participation by 409 hotels in 58 countries – an increase of 325 programmes from 2013. | ¿ Provide skills and improved employability to a total of 20,000 people via the IHG Academy over
¿ Continue to expand the IHG Academy throughout our hotel estate and work to ensure the programmes deliver positive results for participants, IHG and our hotels. | ||||
Value of monetary donations and in-kind support to communities, including Shelter in a Storm
| In line with our 2014 priorities to contribute to communities, we: •
•
• |
¿ Further increase awareness of, and engagement with, IHG Shelter in a Storm,
| ||||
Carbon footprint per occupied room
* Restated See page 25 for further information on scope and methodology. | In line with our 2014 priorities to reduce our carbon footprint and drive the IHG Green EngageTMsystem, we: •
• reported a Carbon Disclosure Project disclosure rating of • introduced a brand standard for all IHG hotels to be enrolled in the |
¿ Support all our hotels to meet the IHG Green Engage standard. | ||||
Water use per occupied room in areas
* Restated | In line with our 2014 priorities to reduce water use per occupied room in water-stressed areas, we: • • launched a water stewardship programme to understand our risks and impacts allowing us to develop strategies to assist hotels at a local level. |
¿ Launch phase two of the water stewardship programme. ¿ Improve a hotel’s understanding of water stress and pollution, and their relationship with local communities. | ||||
Our regional priorities are set out on pages 42, 44, 46 and 48.
For definitions of each of the above KPIs see the Glossary on pages 186 and 187.
| Our regional priorities and progress in each of the regions are set out on pages 37, 40, 43 and 46. |
|
| IHG Annual Report and Form 20-F 2014 |
Group
| Group results | 12 months ended 31 December | |||||||||||||||||||
2013 $m | 20121 $m | 2013 vs 2012 % change | 20111 $m | 2012 vs 2011 % change | ||||||||||||||||
Revenue | ||||||||||||||||||||
Americas | 916 | 837 | 9.4 | 830 | 0.8 | |||||||||||||||
Europe | 400 | 436 | (8.3 | ) | 405 | 7.7 | ||||||||||||||
AMEA | 230 | 218 | 5.5 | 216 | 0.9 | |||||||||||||||
Greater China | 236 | 230 | 2.6 | 205 | 12.2 | |||||||||||||||
Central | 121 | 114 | 6.1 | 112 | 1.8 | |||||||||||||||
| Total | 1,903 | 1,835 | 3.7 | 1,768 | 3.8 | |||||||||||||||
Operating profit | ||||||||||||||||||||
Americas | 550 | 486 | 13.2 | 451 | 7.8 | |||||||||||||||
Europe | 105 | 112 | (6.3 | ) | 100 | 12.0 | ||||||||||||||
AMEA | 86 | 88 | (2.3 | ) | 84 | 4.8 | ||||||||||||||
Greater China | 82 | 81 | 1.2 | 67 | 20.9 | |||||||||||||||
Central | (155 | ) | (162 | ) | 4.3 | (154 | ) | (5.2) | ||||||||||||
| Operating profit before exceptional items | 668 | 605 | 10.4 | 548 | 10.4 | |||||||||||||||
| Exceptional operating items | 5 | (4 | ) | n/a | 57 | (107.0) | ||||||||||||||
| 673 | 601 | 12.0 | 605 | (0.7) | ||||||||||||||||
| Net financial expenses | (73 | ) | (54 | ) | (35.2 | ) | (62 | ) | 12.9 | |||||||||||
| Profit before tax | 600 | 547 | 9.7 | 543 | 0.7 | |||||||||||||||
Earnings per ordinary share | ||||||||||||||||||||
| Basic | 140.9¢ | 187.1¢ | (24.7 | ) | 160.9¢ | 16.3 | ||||||||||||||
| Adjusted | 158.3¢ | 139.0¢ | 13.9 | 127.7¢ | 8.8 | |||||||||||||||
| Average US dollar to sterling exchange rate |
| $1: £0.64 |
|
| $1: £0.63 |
| 1.6 |
| $1: £0.62 |
| 1.6 | |||||||||
Group results
| 12 months ended 31 December | ||||||||||||||||||||
| 2014 $m | 2013 $m | 2014 vs change | 20121 $m | 2013 vs change | ||||||||||||||||
| Revenue | ||||||||||||||||||||
Americas | 871 | 916 | (4.9 | ) | 837 | 9.4 | ||||||||||||||
Europe | 374 | 400 | (6.5 | ) | 436 | (8.3 | ) | |||||||||||||
AMEA | 242 | 230 | 5.2 | 218 | 5.5 | |||||||||||||||
Greater China | 242 | 236 | 2.5 | 230 | 2.6 | |||||||||||||||
Central | 129 | 121 | 6.6 | 114 | 6.1 | |||||||||||||||
| Total | 1,858 | 1,903 | (2.4 | ) | 1,835 | 3.7 | ||||||||||||||
| Operating profit | ||||||||||||||||||||
Americas | 544 | 550 | (1.1 | ) | 486 | 13.2 | ||||||||||||||
Europe | 89 | 105 | (15.2 | ) | 112 | (6.3 | ) | |||||||||||||
AMEA | 84 | 86 | (2.3 | ) | 88 | (2.3 | ) | |||||||||||||
Greater China | 89 | 82 | 8.5 | 81 | 1.2 | |||||||||||||||
Central | (155 | ) | (155 | ) | – | (162 | ) | 4.3 | ||||||||||||
| Operating profit before exceptional items | 651 | 668 | (2.5 | ) | 605 | 10.4 | ||||||||||||||
| Exceptional operating items | 29 | 5 | 480.0 | (4 | ) | 225.0 | ||||||||||||||
| 680 | 673 | 1.0 | 601 | 12.0 | ||||||||||||||||
| Net financial expenses | (80 | ) | (73 | ) | (9.6 | ) | (54 | ) | (35.2 | ) | ||||||||||
| Profit before tax | 600 | 600 | – | 547 | 9.7 | |||||||||||||||
| Earnings per ordinary share | ||||||||||||||||||||
| Basic | 158.3¢ | 140.9¢ | 12.3 | 187.1¢ | (24.7 | ) | ||||||||||||||
| Adjusted | 158.3¢ | 158.3¢ | – | 139.0¢ | 13.9 | |||||||||||||||
| Average US dollar to sterling exchange rate |
| $1: £0.61 |
|
| $1: £0.64 |
| (4.7 | ) |
| $1: £0.63 |
| 1.6 | ||||||||
| 1 | With effect from 1 January 2013 the Group |
Accounting principles
The Group results are prepared under International Financial Reporting Standards (IFRS). The application of IFRS requires management to make judgements, estimates and assumptions and those considered critical to the preparation of the Group results are set out on pages 115112 and 116113 of the Group Financial Statements.
The Group discloses certain financial information both including and excluding exceptional items. For comparability of the periods presented, some of the performance indicators in this Performance review are calculated after eliminating these exceptional items. Such indicators are prefixed with ‘adjusted’. An analysis of exceptional items is included in note 5 on page 124121 of the Group Financial Statements.
Highlights for the year ended 31 December 2014
Revenue decreased by $45m (2.4%) to $1,858m and operating profit before exceptional items decreased by $17m (2.5%) to $651m during the year ended 31 December 2014, due in part to the disposal of owned hotels in line with the Group’s asset-light strategy.
On 27 March 2014, IHG completed the disposal of its freehold interest in InterContinental Mark Hopkins San Francisco for gross proceeds of $120m and a long-term contract to manage the hotel. On 31 March 2014, IHG completed the disposal of 80% of its interest in InterContinental New York Barclay for gross proceeds of $274m and a 30-year management contract with two 10-year extension rights, retaining the remaining 20% in a joint venture set up to own and refurbish the hotel (see page 49).
On 7 August 2014, the Group received a binding offer to acquire InterContinental Paris – Le Grand for gross proceeds of€330m and a 30-year management contract with three 10-year extension rights. The offer was subsequently accepted on 8 December 2014, with the transaction expected to complete by the end of the first half of 2015, subject to the satisfaction of certain standard conditions.
On an underlying1 basis, revenue and operating profit increased by $94m (6.0%) and $57m (9.6%) respectively. The underlying results exclude InterContinental Mark Hopkins San Francisco and InterContinental New York Barclay whilst under IHG ownership, the results of managed lease hotels, and the benefit of $7m liquidated damages receipts in 2014 and $46m liquidated damages receipts in 2013.
Comparable Group RevPAR (see Glossary on pages 184 and 185) increased by 6.1% (including an increase in average daily rate of 2.7%), led by particularly strong growth of 7.4% in The Americas. Group System size increased by 3.4% to 710,295 rooms whilst Group fee revenue2 increased by 6.7%.
At constant currency, net central overheads decreased by $3m (1.9%) to $152m compared to 2013 (but at actual currency remained flat at $155m), helped by continued cost control, as well as additional technology fee income.
Group fee margin was 44.7%, up 1.5 percentage points on 2013, after adjusting for owned and leased hotels, managed leases and significant liquidated damages. Group fee margin benefited from strong growth in IHG’s scale markets.
Profit before tax of $600m was unchanged on 2013. Basic earnings per ordinary share increased by 12.3% to 158.3¢, whilst adjusted earnings per ordinary share remained flat at 158.3¢.
| 34 |
Highlights for the year ended 31 December 2013
The results for the year reflect the varying economic, physical and social factors influencing the markets that the Group operates in. In the US, favourable supply and demand dynamics have resulted in a strong performance albeit this was tempered slightly by the October government shutdown. In Europe, despite continuing economic challenges, the performance in key markets has remained relatively resilient whilst in AMEA there has been strong growth in key markets including Japan and Southeast Asia but weaker fundamentals in India and specific countries in the Middle East. Greater China overall has experienced slower macroeconomic growth and the hotel industry has also been impacted by a number of one-off
events. With this background, overall Group revenue increased by $68m (3.7%) to $1,903m and operating profit before exceptional items increased by $63m (10.4%) to $668m.
On 1 May 2013, IHG completed the disposal of its leasehold interest in the InterContinental London Park Lane for gross proceeds of $469m and entered into a 30-year management contract with three 10-year extension rights.
On an underlying1 basis, defined as reported results, excluding those from the InterContinental London Park Lane whilst under IHG ownership, results from managed leasedlease hotels, together with the benefit of $46m liquidated damages receipts in 2013 and a $3m liquidated damages receipt in 2012, revenue and operating profit increased by $68m (4.2%) and $44m (7.8%) respectively when translated at constant currency and applying 2012 exchange rates.
Fee revenue*revenue2 increased by 4.3%, with comparable Group RevPAR (see Glossary on pages 186 and 187) growth of 3.8% over the period (including an increase in average daily rate of 1.8%) and IHG System size growth of 1.6% to 686,873 rooms.
At constant currency, net central overheads decreased from $162m to $157m in 2013 ($155m at actual currency), helped by continued tight cost control, as well as additional technology fee income.
Operating profitGroup fee margin was 43.2%, up 1.3 percentage points on 2012, after adjusting for owned and leased hotels, managed leases and significant liquidated damages.
Profit before tax increased by $53m to $600m. Adjusted earnings per ordinary share increased by 13.9% to 158.3¢.
Highlights for
Global total gross revenue
| 12 months ended 31 December | ||||||||||||
| 2014 $bn | 2013 $bn | % change | ||||||||||
InterContinental | 4.7 | 4.5 | 4.4 | |||||||||
Crowne Plaza | 4.2 | 4.0 | 5.0 | |||||||||
Hotel Indigo | 0.3 | 0.2 | 50.0 | |||||||||
Holiday Inn | 6.4 | 6.2 | 3.2 | |||||||||
Holiday Inn Express | 5.7 | 5.2 | 9.6 | |||||||||
Staybridge Suites | 0.7 | 0.6 | 16.7 | |||||||||
Candlewood Suites | 0.6 | 0.6 | – | |||||||||
Other | 0.2 | 0.3 | (33.3 | ) | ||||||||
| Total | 22.8 | 21.6 | 5.6 | |||||||||
One measure of IHG System performance is the year ended 31 December 2012growth in total gross revenue, defined as total room revenue at franchised hotels and total hotel revenue at managed, owned and leased hotels. Total gross revenue is not revenue attributable to IHG, as it represents revenue generated mainly at hotels owned by third parties.
RevenueTotal gross revenue increased by 3.8% to $1,835m and operating profit before exceptional items increased by 10.4% to $605m during the 12 months ended 31 December 2012.
Fee revenue*, increased by 6.8% when translated5.6% (7.4% increase at constant currency and applying 2011 exchange rates.
The 2012 results reflect continuedcurrency) to $22.8bn, primarily driven by strong comparable RevPAR growth in eachacross the Group of the regions,6.1% compared to 2013, coupled with an overall RevPAR increase of 5.2%, including a 3.2% increase in average daily rate. The results also benefited from IHG System size growth of 2.7% year–on–year to 675,982 rooms. Group RevPAR growth remained robust for the year, reflecting favourable supply and demand dynamics in the US over 2011, although trading was also affected by the impact of Eurozone uncertainty as well as industry–wide challenges in Greater China in the latter part of the year.3.4%.
Operating profit improved in each of the regions. RevPAR growth of 6.1% in The Americas helped drive an operating profit increase of $42m (9.5%), after excluding the benefit of a $3m liquidated damages receipt in 2012 and a $10m liquidated damages receipt in 2011. Operating profit in Europe increased by $12m (12.0%), with RevPAR growth of 1.7%. Operating profit in AMEA increased by $13m (17.3%) after adjusting for a $6m liquidated damages receipt in 2011 and the disposal of a hotel asset and partnership interest that contributed $3m in profits in 2011, reflecting RevPAR growth of 4.9%. Strong operating profit growth of $14m in Greater China reflected an 11.6% increase in IHG System size as well as 5.4% RevPAR growth.
At constant currency, central overheads increased from $154m in 2011 to $164m in 2012 ($162m at actual currency), reflecting investment in infrastructure and capabilities to support the growth of the business.
| Underlying excludes the impact of owned asset disposals, managed leases, significant liquidated damages and exceptional items translated at constant currency by applying prior year exchange rates. |
| 2 | Fee revenue is defined as Group revenue excluding revenue from owned and leased hotels, managed leases and significant liquidated |
|
| IHG Annual Report and Form 20-F |
| Performancecontinued |
| Global total gross revenue | 12 months ended 31 December | |||||||||||||
2013 $bn | 2012 $bn | % change | ||||||||||||
InterContinental | 4.5 | 4.5 | – | |||||||||||
Crowne Plaza | 4.0 | 4.0 | – | |||||||||||
Holiday Inn | 6.2 | 6.3 | (1.6 | ) | ||||||||||
Holiday Inn Express | 5.2 | 4.8 | 8.3 | |||||||||||
Staybridge Suites | 0.6 | 0.6 | – | |||||||||||
Candlewood Suites | 0.6 | 0.5 | 20.0 | |||||||||||
Hotel Indigo | 0.2 | 0.2 | – | |||||||||||
Other | 0.3 | 0.3 | – | |||||||||||
| Total | 21.6 | 21.2 | 1.9 | |||||||||||
One measure of IHG System performance is the growth in total gross revenue, defined as totalGlobal hotel and room revenue from franchised hotels and total hotel revenue from managed, owned and leased hotels. Total gross revenue is not revenue attributable to IHG, as it is derived mainly from hotels owned by third parties.count
Total gross revenue increased by 1.9% (2.8% increase at constant currency) to $21.6bn. Total gross revenue for Holiday Inn decreased by $0.1bn (1.6%), primarily because the number of rooms open under the brand fell by 6,911, driven by the removal of 10,933 rooms in the US reflecting the Group’s ongoing focus on quality.
| Global hotel and room count | Hotels | Rooms | ||||||||||||||||||||||||||||||
| Hotels | Rooms | |||||||||||||||||||||||||||||||
| At 31 December | 2013 | Change over 2012 | 2013 | Change over 2012 | 2014 | Change over 2013 | 2014 | Change over 2013 | ||||||||||||||||||||||||
| Analysed by brand | ||||||||||||||||||||||||||||||||
InterContinental | 178 | 8 | 60,103 | 2,789 | 180 | 2 | 61,235 | 1,132 | ||||||||||||||||||||||||
Crowne Plaza | 391 | (1 | ) | 108,891 | 584 | 406 | 15 | 113,562 | 4,671 | |||||||||||||||||||||||
Hotel Indigo | 61 | 6 | 6,731 | 532 | ||||||||||||||||||||||||||||
EVEN Hotels | 2 | 2 | 296 | 296 | ||||||||||||||||||||||||||||
Holiday Inn1 | 1,216 | (31 | ) | 224,577 | (6,911 | ) | 1,212 | (4 | ) | 225,159 | 582 | |||||||||||||||||||||
Holiday Inn Express | 2,258 | 66 | 214,597 | 8,966 | 2,365 | 107 | 229,110 | 14,513 | ||||||||||||||||||||||||
Staybridge Suites | 196 | 7 | 21,518 | 822 | 205 | 9 | 22,409 | 891 | ||||||||||||||||||||||||
Candlewood Suites | 312 | 13 | 29,778 | 1,103 | 322 | 10 | 30,708 | 930 | ||||||||||||||||||||||||
Hotel Indigo | 55 | 5 | 6,199 | 538 | ||||||||||||||||||||||||||||
Other | 91 | 28 | 21,210 | 3,000 | 87 | (4 | ) | 21,085 | (125 | ) | ||||||||||||||||||||||
| Total | 4,697 | 95 | 686,873 | 10,891 | 4,840 | 143 | 710,295 | 23,422 | ||||||||||||||||||||||||
Analysed by ownership type | Analysed by ownership type |
| ||||||||||||||||||||||||||||||
Franchised | 3,977 | 43 | 502,187 | 1,395 | 4,096 | 119 | 514,984 | 12,797 | ||||||||||||||||||||||||
Managed | 711 | 53 | 180,724 | 9,726 | 735 | 24 | 192,121 | 11,397 | ||||||||||||||||||||||||
Owned and leased | 9 | (1 | ) | 3,962 | (230 | ) | 9 | – | 3,190 | (772 | ) | |||||||||||||||||||||
| Total | 4,697 | 95 | 686,873 | 10,891 | 4,840 | 143 | 710,295 | 23,422 | ||||||||||||||||||||||||
| 1 | Includes |
During 2013,2014, the global IHG System (the number of hotels and rooms which are franchised, managed, owned or leased by the Group) increased by 95143 hotels (10,891(23,422 rooms) to 4,840 hotels (710,295 rooms).
The Group continued to expand its global footprint, opening hotels in 33nearly 30 different countries and territories. More than a thirdterritories and delivering its highest net System size growth since 2009. 40% of 20132014 openings were in developing markets, as classified by The World Bank, with 21%22% of the closing rooms balance located in these markets representing an increase of twoone percentage pointspoint from 31 December 2012. Removals of 1422013. 123 hotels (24,576(17,630 rooms) increasedwere removed in 2014, a decrease from the previous year (104(142 hotels, 16,28824,576 rooms) reflecting the Group’s ongoing focus on improving the quality of the estate..
Openings of 237266 hotels (35,467(41,052 rooms) were 4.6%15.7% higher than in 2012.2013. This included 115 hotels (12,448140 hotel openings (15,190 rooms) in the Holiday Inn brand family in The Americas and 33four hotels (4,061(834 rooms) as part of the US government’s Privatisation of Army Lodgings (PAL) initiative. 23initiative, as well as the first two hotels (7,669(296 rooms) for the wellness-focused EVEN Hotels brand. 34 hotels (10,648 rooms) were opened in Greater China across five brands in 2013,2014, up 1.1%38.8% from last year and the region’s highest on record, with the Europe and AMEA regions contributing openings of 2135 hotels (3,528(5,353 rooms) and 2019 hotels (4,495(4,228 rooms) respectively.
In May 2013, the Group completed the disposal of its leasehold interest in the InterContinental London Park Lane and on 19 December 2013, announced the disposal of an 80% interest in the InterContinental New York Barclay for gross proceeds of $240m, with IHG holding the remaining 20% interest. The transaction is expected to be completed in the first quarter of 2014. The Group has secured a 30-year management contract on the hotel, with two 10-year extension rights at IHG’s discretion.Global pipeline
In February 2014, the Group signed an agreement to sell the InterContinental Mark Hopkins San Francisco for $120m in cash and enter into a long-term management contract on the hotel. The hotel had a net book value of $90m at 31 December 2013.
| Global pipeline | Hotels | Rooms | ||||||||||||||||||||||||||||||
| Hotels | Rooms | |||||||||||||||||||||||||||||||
| At 31 December | 2013 | Change over 2012 | 2013 | Change over 2012 | 2014 | Change over 2013 | 2014 | Change over 2013 | ||||||||||||||||||||||||
| Analysed by brand | ||||||||||||||||||||||||||||||||
InterContinental | 51 | 3 | 16,860 | 1,147 | 50 | (1 | ) | 15,664 | (1,196 | ) | ||||||||||||||||||||||
HUALUXE | 24 | 3 | 7,551 | 747 | ||||||||||||||||||||||||||||
Crowne Plaza | 94 | (4 | ) | 28,369 | (2,814 | ) | 92 | (2 | ) | 25,336 | (3,033 | ) | ||||||||||||||||||||
Hotel Indigo | 63 | 12 | 9,096 | 2,289 | ||||||||||||||||||||||||||||
EVEN Hotels | 3 | (2 | ) | 584 | (296 | ) | ||||||||||||||||||||||||||
Holiday Inn1 | 264 | 21 | 50,241 | 5,253 | 269 | 5 | 52,713 | 2,472 | ||||||||||||||||||||||||
Holiday Inn Express | 473 | 21 | 54,744 | 2,984 | 522 | 49 | 62,954 | 8,210 | ||||||||||||||||||||||||
Staybridge Suites | 80 | 9 | 8,728 | 1,184 | 99 | 19 | 10,908 | 2,180 | ||||||||||||||||||||||||
Candlewood Suites | 80 | 2 | 6,914 | 172 | 89 | 9 | 7,717 | 803 | ||||||||||||||||||||||||
Hotel Indigo | 51 | 4 | 6,807 | 938 | ||||||||||||||||||||||||||||
EVEN Hotels | 5 | 4 | 880 | 650 | ||||||||||||||||||||||||||||
HUALUXE | 21 | 6 | 6,804 | 1,900 | ||||||||||||||||||||||||||||
Other | 1 | 1 | 114 | 17 | 10 | 9 | 1,249 | 1,135 | ||||||||||||||||||||||||
| Total | 1,120 | 67 | 180,461 | 11,431 | 1,221 | 101 | 193,772 | 13,311 | ||||||||||||||||||||||||
| Analysed by ownership type | Analysed by ownership type | |||||||||||||||||||||||||||||||
Franchised | 778 | 34 | 86,785 | 3,884 | 843 | 65 | 94,730 | 7,945 | ||||||||||||||||||||||||
Managed | 339 | 30 | 93,176 | 7,047 | 377 | 38 | 98,838 | 5,662 | ||||||||||||||||||||||||
Owned and leased | 3 | 3 | 500 | 500 | 1 | (2 | ) | 204 | (296 | ) | ||||||||||||||||||||||
| Total | 1,120 | 67 | 180,461 | 11,431 | 1,221 | 101 | 193,772 | 13,311 | ||||||||||||||||||||||||
| Global pipeline signings | 444 | 88 | 65,461 | 11,649 | 463 | 19 | 69,696 | 4,235 | ||||||||||||||||||||||||
| 1 | Includes |
At the end of 2013,2014, the global pipeline totalled 1,1201,221 hotels (180,461(193,772 rooms), an increase of 67101 hotels (11,431(13,311 rooms) on 31 December 2012.2013. The IHG pipeline represents hotels where a contract has been signed and the appropriate fees paid. 89% of the closing pipeline at 31 December 2014 was in IHG’s 10 priority markets.
The continued global demand for IHG brands is demonstrated by the Group signing hotels in 3835 different countries and territories in 2013, 40%2014, 35% of which were in developing markets. 51%48% of the closing pipeline at 31 December 20132014 was in developing markets, updown by onethree percentage pointpoints compared to the previous year, including 30%year. 28% of the closing pipeline at 31 December 2014 was in Greater China. More than 45% of the pipeline is under construction.
Excluding 35 hotels (4,118 rooms) signed as part of the US government’s PAL initiative,Group signings increased from 356444 hotels (53,812 rooms) to 409 hotels (61,343(65,461 rooms) in 2013.2013 to 463 hotels (69,696 rooms) in 2014, the strongest level in six years. This included 280307 hotels (39,555(45,522 rooms) insigned for the Holiday Inn brand family, up by 22.7%15.1% compared to 2012. More than half2013, nearly a quarter of this growth waswhich were contributed by Greater China with signings increasing by 4,121 rooms to 7,343 rooms.(45 hotels, 10,860 rooms). The Greater China region signed a further 2719 hotels (8,005(4,894 rooms) across other IHG brands, including the 1,002-room Holiday Inn Express Changbaishan, whilst thebrands. The pipeline for HUALUXE Hotels &and Resorts increased by three hotels (747 rooms) to 2124 hotels (6,804(7,551 rooms). Four EVEN Hotels (644 rooms), of which three are owned and leased, were signed in The Americas, with the pipeline for this brand standing at five hotels (880 rooms) at the end of 2013.
Active management out of the pipeline ofto remove deals that have become dormant or no longer viable reduced the pipeline by 18,563 rooms,96 hotels (15,333 rooms), compared to 31,344 rooms140 hotels (18,563 rooms) in 2012.2013.
|
The Americas
Maximise the performance and growth of our portfolio of preferred brands, focusing on our core upper midscale and upscale segments, mostly through franchise agreements, over the next three years.
Industry performance in 2014
In 2014, prioritiesindustry RevPAR in The Americas grew by 8.4% driven by a 4.2% increase in demand and a 5.0% increase in average daily rate. On the supply side, the number of rooms increased by 1.0%, the fourth year with growth of 1.0% or less. All segments experienced strong growth, with the upper midscale segment, where the Holiday Inn and Holiday Inn Express brands operate, having a 7.5% growth in RevPAR.
The US lodging industry also saw strong growth as the economy continued to recover with GDP up 2.4%. In December, demand reached record highs for the 46th consecutive month, while supply growth of 0.9% remained well below the 1.9% per annum historic average. Average daily rate growth of 4.6% combined with strong demand drove US RevPAR up 8.3%. RevPAR in the US upper midscale segment was up 8.2%, with the US upscale segment up by 8.4%.
IHG’s regional performance in 2014
IHG’s comparable RevPAR increased 7.4% with 3.7% rate growth. The region is predominantly represented by the US, where comparable RevPAR increased 7.5%. Our upper midscale brands in the US performed broadly in line with the segment, with RevPAR for the Holiday Inn brand family leadership position by focusing the ‘mixing business with pleasure’ and ‘family time’ guest occasion segments;
We continued to demonstrate our commitment to quality with 12,230 rooms leaving the IHG System. Strong demand for IHG branded hotels continued with 38,108 rooms signed, with the pipeline increasing by 10,177 rooms over 2013.
Americas comparable RevPAR
movement on previous year
12 months ended 31 December 2014 | ||||||||||||
Franchised | Managed | |||||||||||
Crowne Plaza | 6.9% | InterContinental | 6.9% | |||||||||
Holiday Inn | 7.9% | Crowne Plaza | 12.7% | |||||||||
Holiday Inn Express | 7.0% | Holiday Inn | 9.0% | |||||||||
All brands | 7.2% | Staybridge Suites | 9.7% | |||||||||
Candlewood Suites | 11.7% | |||||||||||
All brands | 8.9% | |||||||||||
Owned and leased | ||||||||||||
All brands | 11.2% | |||||||||||
Progress against 2014 regional priorities
In line with our 2014 regional priorities, we:
IHG’s 2015 regional priorities
| 1. | Continue to increase IHG System size growth through working with owners to accelerate openings, assisting low-performing hotels to improve, and continuing to support our high-performing hotels. |
| 2. | Continue to deliver against our multi-year plan for the Crowne Plaza Hotels & Resorts brand by enhancing the guest experience and driving brand differentiation through innovations. |
| 3. | Continue to strengthen the Holiday Inn brand family position through the delivery of innovations and consistency across our hotels. |
Source: Smith Travel Research for all of the opening of our first hotels for the brand; andabove industry facts.
Americas comparable RevPAR movement on previous year | 12 months ended 31 December 2013 | |||||||
| Franchised | Managed | |||||||
|
| |||||||
Crowne Plaza | 4.8% | InterContinental | 12.6% | |||||
|
|
| ||||||
Holiday Inn | 2.6% | Crowne Plaza | 13.9% | |||||
|
|
| ||||||
Holiday Inn Express | 3.4% | Holiday Inn | 10.6% | |||||
|
|
| ||||||
All brands | 3.2% | Staybridge Suites | 19.8% | |||||
|
| |||||||
Candlewood Suites | 19.3% | |||||||
| ||||||||
All brands | 13.9% | |||||||
| ||||||||
| Owned and leased | ||||||||
| ||||||||
All brands | 6.0% | |||||||
| ||||||||
| Americas results | 12 months ended 31 December | |||||||||||||||||||
2013 $m | 2012 $m | 2013 vs 2012 % change | 2011 $m | 2012 vs 2011 % | ||||||||||||||||
| Revenue | ||||||||||||||||||||
Franchised | 576 | 541 | 6.5 | 502 | 7.8 | |||||||||||||||
Managed | 128 | 97 | 32.0 | 124 | (21.8 | ) | ||||||||||||||
Owned and leased | 212 | 199 | 6.5 | 204 | (2.5 | ) | ||||||||||||||
| Total | 916 | 837 | 9.4 | 830 | 0.8 | |||||||||||||||
| Percentage of Group Revenue | 48.1 | 45.6 | 2.5 | 46.9 | (1.3 | ) | ||||||||||||||
| Operating profit before exceptional items | ||||||||||||||||||||
Franchised | 499 | 466 | 7.1 | 431 | 8.1 | |||||||||||||||
Managed | 74 | 48 | 54.2 | 52 | (7.7 | ) | ||||||||||||||
Owned and leased | 30 | 24 | 25.0 | 17 | 41.2 | |||||||||||||||
| 603 | 538 | 12.1 | 500 | 7.6 | ||||||||||||||||
| Regional overheads | (53 | ) | (52 | ) | (1.9 | ) | (49 | ) | (6.1 | ) | ||||||||||
| Total | 550 | 486 | 13.2 | 451 | 7.8 | |||||||||||||||
| Percentage of Group Operating profit before central overheads and exceptional items | 66.8 | 63.4 | 3.4 | 64.2 | (0.8 | ) | ||||||||||||||
| 37 |
| IHG Annual Report and Form 20-F 2014 |
| Performancecontinued |
Americas results
| 12 months ended 31 December | ||||||||||||||||||||
| 2014 $m | 2013 $m | 2014 vs 2013 % change | 2012 $m | 2013 vs 2012 % change | ||||||||||||||||
| Revenue | ||||||||||||||||||||
Franchised | 630 | 576 | 9.4 | 541 | 6.5 | |||||||||||||||
Managed | 103 | 128 | (19.5 | ) | 97 | 32.0 | ||||||||||||||
Owned and leased | 138 | 212 | (34.9 | ) | 199 | 6.5 | ||||||||||||||
| Total | 871 | 916 | (4.9 | ) | 837 | 9.4 | ||||||||||||||
| Percentage of Group Revenue | 46.9 | 48.1 | (1.2 | ) | 45.6 | 2.5 | ||||||||||||||
| Operating profit before exceptional items | ||||||||||||||||||||
Franchised | 544 | 499 | 9.0 | 466 | 7.1 | |||||||||||||||
Managed | 47 | 74 | (36.5 | ) | 48 | 54.2 | ||||||||||||||
Owned and leased | 18 | 30 | (40.0 | ) | 24 | 25.0 | ||||||||||||||
| 609 | 603 | 1.0 | 538 | 12.1 | ||||||||||||||||
| Regional overheads | (65 | ) | (53 | ) | (22.6 | ) | (52 | ) | (1.9 | ) | ||||||||||
| Total | 544 | 550 | (1.1 | ) | 486 | 13.2 | ||||||||||||||
| Percentage of Group Operating profit before central overheads and exceptional items | 67.5 | 66.8 | 0.7 | 63.4 | 3.4 | |||||||||||||||
Highlights for the year ended 31 December 20132014
In The Americas, the largest proportion of rooms is operated under the franchise business model (91% of rooms in The Americas operate under this model) primarily in the upper midscale segment (Holiday Inn brand family). Similarly, in the upscale segment, Crowne Plaza is predominantly franchised, whereas the majority of the InterContinental brandedWith 3,699 hotels are operated under franchise and management agreements. With 3,616 hotels (451,424(460,017 rooms), The Americas represented 66%65% of the Group’s room count and 67%68% of the Group’s operating profit before central overheads and exceptional operating items duringfor the year ended 31 December 2013.2014. The key profit producing region is the US, although the Group is also represented in each of Latin America, Canada, Mexico and the Caribbean. 91% of rooms in the region are operated under the franchise business model, primarily in the upper midscale segment (Holiday Inn brand family). In the upscale segment Crowne Plaza is predominantly franchised whereas in the luxury segment InterContinental branded hotels are operated under both franchise and management agreements. Eight of the Group’s nine hotel brands are represented in The Americas, including the wellness-focused EVEN Hotels brand, which made its global debut in the region during the year, with two owned hotels (296 rooms) open at 31 December 2014.
In 2013,Revenue and operating profit before exceptional items decreased by $45m (4.9%) to $871m and by $6m (1.1%) to $544m respectively. On an underlying1 basis, revenue increased by $71m (9.7%), while operating profit increased by $39m (7.8%) driven predominantly by strong RevPAR growth in the Group focused onfee business and an increase in net rooms. Regional overheads increased by 22.6% to $65m following investment in IHG’s development and quality teams and unusually high healthcare costs. Revenue and operating profit were negatively impacted by the continued developmentdisposal of its preferred brandsan 80% interest in InterContinental New York Barclay and the deploymentdisposal of IHG operational tools acrossInterContinental Mark Hopkins San Francisco during the estate. 13 Crowne Plazayear, by a combined $95m and $21m respectively compared to 2013. Conversely, revenue and operating profit were positively impacted by the benefit of $7m liquidated damages receipts in 2014 in the franchised business relating to two exited hotels, leftcompared to $31m in the Americas System partly reflectingmanaged business in 2013.
Franchised revenue increased by $54m (9.4%) to $630m including the benefit of the $7m liquidated damages receipts (8.2% excluding these liquidated damages). Royalties growth of 7.6% was driven by comparable RevPAR growth of 7.2% including 7.9% for Holiday Inn and 7.0% for Holiday Inn Express, together with 2.0% rooms growth. Operating profit increased by $45m (9.0%) to $544m.
Managed revenue decreased by $25m (19.5%) to $103m and operating profit decreased by $27m (36.5%) to $47m. Revenue and operating profit included $38m (2013 $34m) and $nil (2013 $nil) respectively from one managed lease property. Excluding results from this hotel, as well as the $31m liquidated damages in 2013 (2014 $nil), revenue increased by $3m (4.8%) and operating profit increased by $4m (9.3%) on a constant currency basis.
Owned and leased revenue decreased by $74m (34.9%) to $138m and operating profit decreased by $12m (40.0%) to $18m. The decrease in revenue and operating profit were driven by the disposal of an 80% interest in InterContinental New York Barclay, and the disposal of InterContinental Mark Hopkins San Francisco (combined negative impact of the Crowne Plaza repositioning programme,$95m and for our newest brand, EVEN Hotels, four new$21m respectively). Excluding these two hotels, were added to the pipeline, with the first expected to open in 2014. Forowned and leased revenue and operating profit increased by $21m and $9m respectively reflecting strong trading at InterContinental Boston and post refurbishment performance at Holiday Inn Aruba.
Highlights for the focus on quality continued and 57 hotels were removed from the Americas System whilst 115 new Holiday Inn brand family hotels were opened.year ended 31 December 2013
Revenue and operating profit before exceptional items increased by $79m (9.4%) to $916m and by $64m (13.2%) to $550m respectively. On an underlying1 basis, revenue and operating profit increased by $52m (6.5%) and $36m (7.5%) respectively. Revenue and operating profit were adversely impacted by $8m lower fees on the exit of eight Holiday Inn hotels owned by FelCor Lodging Trust but were positively impacted by the benefit of a $31m liquidated damages receipt in 2013 in the managed business, compared to $3m in 2012.
The franchise business drove most of the growth in the region (excluding the liquidated damages in the managed estate). Franchised revenue increased by $35m (6.5%) to $576m. Royalties growth of 4.7% was driven by RevPAR growth of 3.2%, including 3.4% for Holiday Inn Express, together with a 0.7% increase in available rooms. Operating profit increased by $33m (7.1%) to $499m. Fees from initial franchising, relicensing and termination of hotels also increased by $6m compared to 2012.
|
Managed revenue increased by $31m (32.0%) to $128m and operating profit increased by $26m (54.2%) to $74m. Revenue and operating profit included $34m (2012 $34m) and $nil (2012 $nil) respectively from one managed lease property. Excluding results from this hotel, as well as the benefit of the $31m liquidated damages in 2013 and the $3m in 2012, revenue grew by $4m (6.7%) and operating profit decreased by $2m (4.4%) on a constant currency basis.
Owned and leased revenue increased by $13m (6.5%) to $212m and operating profit grew by $6m (25.0%) to $30m. The increase in revenue was driven by RevPAR growth of 6.0%.
Highlights for the year ended 31 December 2012
Revenue and operating profit before exceptional items increased by $7m (0.8%) to $837m and by $35m (7.8%) to $486m respectively. RevPAR increased 6.1%, with 4.1% growth in average daily rate. US RevPAR was up 6.3% in 2012 despite uncertainty regarding the presidential election and the ‘fiscal cliff’ in the latter part of the year.
Franchised revenue increased by $39m (7.8%) to $541m. Royalties growth of 8.7% was driven by RevPAR growth of 6.0%, including 6.1% for Holiday Inn Express, together with 2.3% Americas System size growth. Operating profit increased by $35m (8.1%) to $466m.
Managed revenue decreased by $27m (21.8%) to $97m and operating profit decreased by $4m (7.7%) to $48m. Revenue and operating profit included $34m (2011 $59m) and $nil (2011 $1m) respectively from managed leases. Excluding properties operated under this arrangement, as well as the benefit of a $3m liquidated damages receipt in 2012 and a $10m liquidated damages receipt in 2011, revenue and operating profit grew by $5m (9.1%) and $4m (9.8%) respectively. Growth was driven by a RevPAR increase of 7.3%, including 9.6% for Holiday Inn.
Owned and leased revenue declined by $5m (2.5%) to $199m and operating profit grew by $7m (41.2%) to $24m. Excluding the impact of disposals, revenue increased by $4m (2.1%) and operating profit increased by $8m (50.0%). The increase in revenue was driven by RevPAR growth of 6.3%, offset by the impact of the partial closure of an owned hotel in the Caribbean. The operating profit increase of $7m included a $1m year-on-year benefit from lower depreciation recorded for the InterContinental New York Barclay since the hotel was categorised as held for sale in the first quarter of 2011, after which no depreciation was charged, and a $3m year-on-year benefit relating to one-off reorganisation costs at one hotel in 2011.
| Americas hotel and room count | Hotels | Rooms | ||||||||||||||
| At 31 December | 2013 | Change over 2012 | 2013 | Change over 2012 | ||||||||||||
| Analysed by brand | ||||||||||||||||
InterContinental | 51 | (2 | ) | 17,453 | (303 | ) | ||||||||||
Crowne Plaza | 176 | (7 | ) | 47,057 | (1,673 | ) | ||||||||||
Holiday Inn1 | 786 | (34 | ) | 138,830 | (7,831 | ) | ||||||||||
Holiday Inn Express | 1,985 | 54 | 174,431 | 6,033 | ||||||||||||
Staybridge Suites | 188 | 5 | 20,309 | 522 | ||||||||||||
Candlewood Suites | 312 | 13 | 29,778 | 1,103 | ||||||||||||
Hotel Indigo | 37 | – | 4,344 | 37 | ||||||||||||
Other | 81 | 32 | 19,222 | 3,919 | ||||||||||||
| Total | 3,616 | 61 | 451,424 | 1,807 | ||||||||||||
Analysed by ownership type |
| |||||||||||||||
Franchised | 3,394 | 40 | 408,875 | 1,026 | ||||||||||||
Managed | 217 | 21 | 40,147 | 564 | ||||||||||||
Owned and leased | 5 | – | 2,402 | 217 | ||||||||||||
| Total | 3,616 | 61 | 451,424 | 1,807 | ||||||||||||
| Percentage of Group hotel and room count | 77.0 | (0.2 | ) | 65.7 | (0.8 | ) | ||||||||||
| 38 |
Americas hotel and room count
| Hotels | Rooms | |||||||||||||||
| At 31 December | 2014 | Change over 2013 | 2014 | Change over 2013 | ||||||||||||
| Analysed by brand | ||||||||||||||||
InterContinental | 50 | (1 | ) | 16,897 | (556 | ) | ||||||||||
Crowne Plaza | 181 | 5 | 48,366 | 1,309 | ||||||||||||
Hotel Indigo | 39 | 2 | 4,551 | 207 | ||||||||||||
EVEN Hotels | 2 | 2 | 296 | 296 | ||||||||||||
Holiday Inn1 | 770 | (16 | ) | 136,280 | (2,550 | ) | ||||||||||
Holiday Inn Express | 2,060 | 75 | 182,601 | 8,170 | ||||||||||||
Staybridge Suites | 197 | 9 | 21,200 | 891 | ||||||||||||
Candlewood Suites | 322 | 10 | 30,708 | 930 | ||||||||||||
Other | 78 | (3 | ) | 19,118 | (104 | ) | ||||||||||
| Total | 3,699 | 83 | 460,017 | 8,593 | ||||||||||||
| Analysed by ownership type | ||||||||||||||||
Franchised | 3,477 | 83 | 417,215 | 8,340 | ||||||||||||
Managed | 217 | – | 41,172 | 1,025 | ||||||||||||
Owned and leased | 5 | – | 1,630 | (772 | ) | |||||||||||
| Total | 3,699 | 83 | 460,017 | 8,593 | ||||||||||||
| Percentage of Group hotel and room count | 76.4 | (0.6 | ) | 64.8 | (0.9 | ) | ||||||||||
| 1 | Includes |
The Americas System size increased by 6183 hotels (1,807(8,593 rooms) to 3,6163,699 hotels (451,424(460,017 rooms) during 2013. 1732014. 178 hotels (19,775(20,823 rooms) opened in the year, compared to 148173 hotels (16,618(19,775 rooms) in 20122013 and included 33four hotels (4,061(834 rooms) as part of the US government’s PAL initiative.initiative (33 hotels with 4,061 rooms in 2013). Openings included 115140 hotels (12,448(15,190 rooms) in the Holiday Inn brand family, representing more than 60%70% of the region’s openings. 1923 hotels (1,705(2,130 rooms) opened as Staybridge Suites hotels and Candlewood Suites hotels, IHG’s extended-stay brands. The first two hotels (296 rooms) were opened under the wellness-focused EVEN Hotels brand.
95 hotels (12,230 rooms) were removed from The Americas System in 2014, demonstrating IHG’s continued commitment to quality, compared to 112 hotels (17,968 rooms) were removed from the Americas System in 2013, compared to 66 hotels (9,199 rooms) in 2012. More than 60%2013. 45% of 20132014 room removals were Holiday Inn hotelsrooms in the US (34 hotels, 5,499 rooms) compared to 61% in 2013 (53 hotels, 10,933 rooms). 13 Crowne Plaza hotels (3,326 rooms) were removed in 2013, partly reflecting the impact of the Group’s Crowne Plaza repositioning programme. The increase in removals reflects the Group’s ongoing focus on improving the quality of the estate, particularly Holiday Inn.
| Americas pipeline | Hotels | Rooms | ||||||||||||||
| At 31 December | 2013 | Change over 2012 | 2013 | Change over 2012 | ||||||||||||
| Analysed by brand | ||||||||||||||||
InterContinental | 6 | 2 | 1,437 | 512 | ||||||||||||
Crowne Plaza | 16 | – | 3,228 | (509 | ) | |||||||||||
Holiday Inn1 | 139 | – | 19,344 | 517 | ||||||||||||
Holiday Inn Express | 358 | 13 | 33,488 | 1,100 | ||||||||||||
Staybridge Suites | 71 | 7 | 7,495 | 847 | ||||||||||||
Candlewood Suites | 80 | 2 | 6,914 | 172 | ||||||||||||
Hotel Indigo | 23 | – | 3,118 | 42 | ||||||||||||
EVEN Hotels | 5 | 4 | 880 | 650 | ||||||||||||
Other | 1 | 1 | 114 | 114 | ||||||||||||
| Total | 699 | 29 | 76,018 | 3,445 | ||||||||||||
Analysed by ownership type |
| |||||||||||||||
Franchised | 678 | 19 | 72,019 | 1,729 | ||||||||||||
Managed | 18 | 7 | 3,499 | 1,216 | ||||||||||||
Owned and leased | 3 | 3 | 500 | 500 | ||||||||||||
| Total | 699 | 29 | 76,018 | 3,445 | ||||||||||||
Americas pipeline
| Hotels | Rooms | |||||||||||||||
| At 31 December | 2014 | Change over 2013 | 2014 | Change over 2013 | ||||||||||||
| Analysed by brand | ||||||||||||||||
InterContinental | 7 | 1 | 2,337 | 900 | ||||||||||||
Crowne Plaza | 18 | 2 | 3,206 | (22 | ) | |||||||||||
Hotel Indigo | 31 | 8 | 4,259 | 1,141 | ||||||||||||
EVEN Hotels | 3 | (2 | ) | 584 | (296 | ) | ||||||||||
Holiday Inn1 | 139 | – | 20,155 | 811 | ||||||||||||
Holiday Inn Express | 389 | 31 | 37,125 | 3,637 | ||||||||||||
Staybridge Suites | 90 | 19 | 9,594 | 2,099 | ||||||||||||
Candlewood Suites | 89 | 9 | 7,717 | 803 | ||||||||||||
Other | 10 | 9 | 1,218 | 1,104 | ||||||||||||
| Total | 776 | 77 | 86,195 | 10,177 | ||||||||||||
| Analysed by ownership type | ||||||||||||||||
Franchised | 740 | 62 | 78,980 | 6,961 | ||||||||||||
Managed | 35 | 17 | 7,011 | 3,512 | ||||||||||||
Owned and leased | 1 | (2 | ) | 204 | (296 | ) | ||||||||||
| Total | 776 | 77 | 86,195 | 10,177 | ||||||||||||
1Includes nine Holiday Inn Resort properties (1,916 rooms) and nil Holiday Inn Club Vacations (2013: five Holiday Inn Resort properties (694 rooms) and one Holiday Inn Club Vacations (120 rooms)).
At 31 December 2014, The Americas pipeline totalled 699776 hotels (76,018(86,195 rooms) as at 31 December 2013,, representing an increase of 2977 hotels (3,445(10,177 rooms) over 31 December 2012.the prior year. Strong signings of 305319 hotels (33,884(38,108 rooms), demonstrating the continued demand for IHG brand hotels, were ahead of last year by 7914 hotels (8,348(4,224 rooms) and the highest for six years, demonstrating continued demand for IHG branded hotels. Signings included 3514 hotels (4,118(2,012 rooms) signed as part of the US government’s PAL initiative. The majority of 20132014 signings were within the Holiday Inn brand family (193(208 hotels, 20,54424,037 rooms), up by 8.9%17.0% compared to 2012. Four more hotels (644 rooms) were added for2013, and included the EVEN Hotels brand, taking the total pipeline to five hotels (880 rooms), with the first hotel for the brand expected to open in 2014.777-room Holiday Inn Nickelodeon Suites Orlando. Staybridge Suites and Candlewood Suites IHG’s extended stay hotel brands, alsotogether contributed signings of 5773 hotels (5,406(7,091 rooms), up by 50.2%31.2% compared to 2012.2013. Crowne Plaza Atlanta – Midtown, which was signed and opened in the year, is one of 10 signings for the brand. Other notable signings included the 900-room InterContinental Downtown Los Angeles, the largest for the brand in the US.
10364 hotels (10,664(7,108 rooms) were terminatedremoved from the pipeline in 2013,2014, significantly down in terms of both hotels and rooms from terminations in 2012 (1832013 (103 hotels, 20,79510,664 rooms).
| 1 | Underlying excludes the impact of owned asset disposals, managed leases, significant liquidated damages and exceptional items translated at constant currency by applying prior year exchange rates. |
|
| IHG Annual Report and Form 20-F 2014 |
Europe
Continue to grow in priority markets and across key cities, and improve underlying margin through operational excellence over the next three years.
2014 prioritiesEurope is a diverse region and industry figures are driven by the larger markets, in particular the UK and Germany. RevPAR growth was 6.0%, average daily rate grew by 3.5% and demand grew by 3.5%.
RevPAR growth in the UK reached 7.9% due to a 10.5% increase in the UK provinces, which was driven by a 6.5% increase in average daily rate and 4.9% increase in demand. However, RevPAR growth in other European countries was more moderate, with RevPAR
increasing in Germany by 3.8%. In contrast, the RevPAR in Russia declined steeply by 14.8%, as growth was depressed by ongoing conflict between Russia and the Ukraine and the resulting geopolitical instability throughout this area. Although there was a 5.1% decline in demand, supply continued to grow by 8.9%.
IHG’s regional performance in 2014
IHG’s comparable RevPAR increased by 5.1% with the UK particularly strong at 8.9%. Germany was also strong at 4.1%. IHG’s hotels in Russia and the Commonwealth of Independent States (CIS) were, however, impacted by the geopolitical instability in the region but our hotels outperformed the industry with a RevPAR decline of 4.0%.
Europe comparable RevPAR
movement on previous year
| 12 months ended 31 December 2014 | ||||
| Franchised | ||||
All brands | 5.3% | |||
| Managed | ||||
All brands | 5.4% | |||
| Owned and leased | ||||
InterContinental | (4.7)% | |||
Progress against 2014 regional priorities
In line with our 2014 regional priorities, we:
IHG’s 2015 regional priorities
| 1. | Continue to build IHG System size through driving growth in our priority markets of UK, Russia and the CIS, and Germany, localising our brands as necessary. |
| 2. | Continue to improve guest experience and increase satisfaction by focusing on quality and driving innovation to ensure our brands are preferred. |
| 3. | Drive operational excellence and hotel outperformance by delivering a focused and targeted hotel support model, and best-in-class operational tools and training. |
Source: Smith Travel Research for all of the above industry facts.
| 40 |
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|
| Europe results | 12 months ended 31 December | |||||||||||||||||||
2013 $m | 2012 $m | 2013 vs 2012 % change | 2011 $m | 2012 vs 2011 % change | ||||||||||||||||
| Revenue | ||||||||||||||||||||
Franchised | 104 | 91 | 14.3 | 86 | 5.8 | |||||||||||||||
Managed | 156 | 147 | 6.1 | 118 | 24.6 | |||||||||||||||
Owned and leased | 140 | 198 | (29.3 | ) | 201 | (1.5 | ) | |||||||||||||
| Total | 400 | 436 | (8.3 | ) | 405 | 7.7 | ||||||||||||||
| Percentage of Group Revenue | 21.0 | 23.8 | (2.8 | ) | 22.9 | 0.9 | ||||||||||||||
| Operating profit before exceptional items | ||||||||||||||||||||
Franchised | 79 | 65 | 21.5 | 65 | – | |||||||||||||||
Managed | 30 | 32 | (6.3 | ) | 26 | 23.1 | ||||||||||||||
Owned and leased | 30 | 50 | (40.0 | ) | 49 | 2.0 | ||||||||||||||
| 139 | 147 | (5.4 | ) | 140 | 5.0 | |||||||||||||||
| Regional overheads | (34 | ) | (35 | ) | 2.9 | (40 | ) | 12.5 | ||||||||||||
| Total | 105 | 112 | (6.3 | ) | 100 | 12.0 | ||||||||||||||
| Percentage of Group Operating profit before central overheads and exceptional items | 12.8 | 14.6 | (1.8 | ) | 14.2 | 0.4 | ||||||||||||||
Europe results
12 months ended 31 December | ||||||||||||||||||||
| 2014 $m | 2013 $m | 2014 vs 2013 % change | 2012 $m | 2013 vs 2012 % change | ||||||||||||||||
| Revenue | ||||||||||||||||||||
Franchised | 104 | 104 | – | 91 | 14.3 | |||||||||||||||
Managed | 159 | 156 | 1.9 | 147 | 6.1 | |||||||||||||||
Owned and leased | 111 | 140 | (20.7 | ) | 198 | (29.3 | ) | |||||||||||||
| Total | 374 | 400 | (6.5 | ) | 436 | (8.3 | ) | |||||||||||||
| Percentage of Group Revenue | 20.1 | 21.0 | (0.9 | ) | 23.8 | (2.8 | ) | |||||||||||||
| Operating profit before exceptional items | ||||||||||||||||||||
Franchised | 78 | 79 | (1.3 | ) | 65 | 21.5 | ||||||||||||||
Managed | 30 | 30 | – | 32 | (6.3 | ) | ||||||||||||||
Owned and leased | 14 | 30 | (53.3 | ) | 50 | (40.0 | ) | |||||||||||||
| 122 | 139 | (12.2 | ) | 147 | (5.4 | ) | ||||||||||||||
| Regional overheads | (33 | ) | (34 | ) | 2.9 | (35 | ) | 2.9 | ||||||||||||
| Total | 89 | 105 | (15.2 | ) | 112 | (6.3 | ) | |||||||||||||
| Percentage of Group Operating profit before central overheads and exceptional items | 11.0 | 12.8 | (1.8 | ) | 14.6 | (1.8 | ) | |||||||||||||
Highlights for the year ended 31 December 20132014
InComprising 647 hotels (104,208 rooms) at the end of 2014, Europe represented 15% of the Group’s room count and 11% of the Group’s operating profit before central overheads and exceptional operating items for the year ended 31 December 2014. Revenues are primarily generated from hotels in the UK and continental European gateway cities. The largest proportion of rooms isin 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 the InterContinental branded hotels are operated under management agreements. Comprising 629
Revenue and operating profit before exceptional items decreased by $26m (6.5%) to $374m and by $16m (15.2%) to $89m respectively. On an underlying1 basis, revenue and operating profit increased by $4m (1.4%) and $3m (3.5%) respectively. Overall, comparable RevPAR in Europe increased by 5.1%. The UK achieved a particularly strong comparable RevPAR growth of 8.9%, with double-digit growth in the first and third quarters. Comparable RevPAR in Germany was also strong, increasing by 4.1%, driven by continued growth in domestic output and a rise in employment, whilst IHG hotels (102,066 rooms)in the Commonwealth of Independent States (CIS) collectively experienced a comparable RevPAR decline of 4.0%, reflecting a challenging economic climate in the region during 2014.
Franchised revenue remained flat at $104m, whilst operating profit decreased by $1m (1.3%) to $78m. Excluding the benefit of a $9m liquidated damages receipt in 2013, revenue and operating profit increased by $8m (8.4%) and $8m (11.4%) respectively at constant currency. This underlying growth was mainly driven by an increase in royalties of 8.0%, reflecting comparable RevPAR growth of 5.3%, together with 5.7% rooms growth.
Managed revenue increased by $3m (1.9%) to $159m, whilst operating profit was flat with 2013 at $30m. Revenue and operating profit included $90m (2013 $89m) and $2m (2013 $2m) respectively from managed leases. Excluding properties operated under this arrangement and on a constant currency basis, revenue increased by $3m (4.5%), whilst operating profit was flat. At the end of 2013, Europe represented 15%2014, IHG commenced a process to restructure the majority of its UK managed hotels to new franchised contracts.
In the owned and leased estate, revenue decreased by $29m (20.7%) to $111m and operating profit decreased by $16m (53.3%) to $14m. At constant currency and excluding the impact of the Group’s room countdisposal of InterContinental London Park Lane (which contributed revenue and 13%operating profit of $22m and $8m respectively in 2013), owned and leased revenue and operating profit both decreased by $7m. These declines were driven by InterContinental Paris – Le Grand due to the refurbishment of the Group’sSalon Opera ballroom in the first half of 2014. The hotel delivered revenue and operating profit before central overheadsof $111m and exceptional operating items during$15m respectively, a decrease of 5.9% and 34.8% compared to 2013, whilst RevPAR decreased by 4.7%.
Highlights for the year ended 31 December 2013. Profits are primarily generated from hotels in the UK and Continental European gateway cities.
Economic conditions across Europe in 2013 remained challenging but the industry and the Group remained relatively resilient to this, especially in the main markets and in 2013 good progress was made on key priorities for the region. Three new Hotel Indigo hotels were opened and there are now 15 in the pipeline, an increase of two over 2012. In line with a focus on growth in priority markets and key gateway cities, new signings totalled 50 hotels with 18 in the UK, six in Germany and ten in the CIS. Additionally, new openings included the InterContinental Marseille – Hotel Dieu and the InterContinental Davos. Hotel openings were down, year on year, but the pipeline grew and new signings increased over 2012 levels. Continued progress was made on the Group’s asset-light strategy with the sale of the InterContinental London Park Lane in May.
Revenue and operating profit before exceptional items decreased by $36m (8.3%) to $400m and by $7m (6.3%) to $105m respectively. On an underlying1 basis, revenue and operating profit increased by $9m (3.4%) and $8m (10.4%) respectively. Overall, RevPAR in Europe increased by 1.7%. The UK achieved RevPAR growth of 3.0%, with particularly strong performance in the final quarter of 2013 with RevPAR increasing 7.3%. RevPAR in Germany increased by 0.8% despite a weaker year-on-year trade fair calendar, whilst IHG hotels in the CIS collectively achieved RevPAR growth of 2.7%.
|
Franchised revenue increased by $13m (14.3%) to $104m, whilst operating profit increased by $14m (21.5%) to $79m. Excluding the benefit of a $9m liquidated damages receipt in 2013, revenue and operating profit increased by $4m (4.4%) and $5m (7.7%) respectively. Growth was mainly driven by an increase in royalties of 7.0% (6.3% at constant currency) reflecting RevPAR growth of 1.5%, partly offset by a 0.2% decline in available rooms.
| 1 | Underlying excludes the impact of owned asset disposals, managed leases, significant liquidated damages and exceptional items translated at constant currency by applying prior year exchange rates. |
| 41 |
| IHG Annual Report and Form 20-F 2014 |
| Performancecontinued |
Managed revenue increased by $9m (6.1%) to $156m and operating profit decreased by $2m (6.3%) to $30m. Revenue and operating profit included $89m (2012 $80m) and $2m (2012 $2m) respectively from managed leases. Excluding properties operated under this arrangement and on a constant currency basis, revenue was flat and operating profit decreased by $1m (3.3%).
In the owned and leased estate, revenue decreased by $58m (29.3%) to $140m and operating profit decreased by $20m (40.0%) to $30m. At constant currency and excluding the impact of the disposal of the InterContinental London Park Lane, the Group’s remaining owned hotel in Europe, the InterContinental Paris Le Grand,and leased estate delivered a revenue increase of $5m (4.6%) with RevPAR growth of 5.3%. Operating profit increased by $4m (23.5%), benefiting from a one-off $3m property tax recovery in the year.
Highlights for the year ended 31 December 2012
RevenueEurope hotel and operating profit before exceptional items increased by $31m (7.7%) to $436m and by $12m (12.0%) to $112m respectively. RevPAR increased 1.7%, with 1.2% growth in average daily rate despite challenging economic conditions across Europe.room count
Franchised revenue increased by $5m (5.8%) to $91m, whilst operating profit was flat at $65m. At constant currency, revenue increased by $8m (9.3%) and operating profit increased by $3m (4.6%). Growth was mainly driven by an increase in royalties of 2.7% (7.5% at constant currency) reflecting RevPAR growth of 1.8%, together with Europe System size growth of 4.0%.
Managed revenue increased by $29m to $147m (24.6%) and operating profit increased by $6m (23.1%) to $32m. Revenue and operating profit included $80m (2011 $46m) and $2m (2011 $nil) respectively from managed leases. Excluding properties operated under this arrangement and on a constant currency basis, revenue decreased by $1m (1.4%) reflecting a 4.3% decrease in System size partially offset by RevPAR growth of 1.0%. On the same basis, operating profit grew by $5m (19.2%).
In the owned and leased estate, revenue decreased by $3m (1.5%) to $198m and operating profit increased by $1m (2.0%) to $50m. At constant currency and excluding the impact of disposals, revenue increased by $10m (5.1%) and operating profit increased by $4m (8.3%). The InterContinental London Park Lane and the InterContinental Paris Le Grand delivered year-on-year RevPAR growth of 8.0% and 2.5% respectively.
| Europe hotel and room count | Hotels | Rooms | ||||||||||||||||||||||||||||||
| Hotels | Rooms | |||||||||||||||||||||||||||||||
| At 31 December | 2013 | Change over 2012 | 2013 | Change over 2012 | 2014 | Change over 2013 | 2014 | Change over 2013 | ||||||||||||||||||||||||
| Analysed by brand | ||||||||||||||||||||||||||||||||
InterContinental | 31 | 1 | 9,525 | 131 | 30 | (1 | ) | 9,372 | (153 | ) | ||||||||||||||||||||||
Crowne Plaza | 83 | (1 | ) | 19,522 | (44 | ) | 83 | – | 19,395 | (127 | ) | |||||||||||||||||||||
Hotel Indigo | 17 | 4 | 1,568 | 325 | ||||||||||||||||||||||||||||
Holiday Inn1 | 282 | (6 | ) | 45,621 | (989 | ) | 284 | 2 | 45,722 | 101 | ||||||||||||||||||||||
Holiday Inn Express | 215 | 3 | 25,371 | 468 | 226 | 11 | 27,138 | 1,767 | ||||||||||||||||||||||||
Staybridge Suites | 5 | 1 | 784 | 179 | 5 | – | 784 | – | ||||||||||||||||||||||||
Hotel Indigo | 13 | 3 | 1,243 | 294 | ||||||||||||||||||||||||||||
Other | 2 | 2 | 229 | 229 | ||||||||||||||||||||||||||||
| Total | 629 | 1 | 102,066 | 39 | 647 | 18 | 104,208 | 2,142 | ||||||||||||||||||||||||
Analysed by ownership type | Analysed by ownership type |
| ||||||||||||||||||||||||||||||
Franchised | 528 | – | 79,517 | (382 | ) | 565 | 37 | 84,016 | 4,499 | |||||||||||||||||||||||
Managed | 100 | 2 | 22,079 | 868 | 81 | (19 | ) | 19,722 | (2,357 | ) | ||||||||||||||||||||||
Owned and leased | 1 | (1 | ) | 470 | (447 | ) | 1 | – | 470 | – | ||||||||||||||||||||||
| Total | 629 | 1 | 102,066 | 39 | 647 | 18 | 104,208 | 2,142 | ||||||||||||||||||||||||
Percentage of Group hotel and room count | 13.4 | (0.2 | ) | 14.9 | (0.2 | ) | 13.4 | – | 14.7 | (0.2 | ) | |||||||||||||||||||||
| 1 |
During 2013,2014, Europe System size increased by one hotel (3918 hotels (2,142 rooms) to 629647 hotels (102,066(104,208 rooms). The Group opened 35 hotels (5,353 rooms) in Europe in 2014, compared to 21 hotels (3,528 rooms) in Europe in 2013, compared to 39 hotels (5,477 rooms) in 2012. 20132013. 2014 openings included two landmark InterContinental hotels,hotels; the 194-room197-room InterContinental Marseille –Dublin and the 331-room InterContinental Lisbon. Four further Hotel Dieu,Indigo properties (325 rooms) opened in 2014, in prime city locations of Paris, Madrid, Rome and St Petersburg. Additionally, the fourthGroup opened Holiday Inn Express Voronezh - Kirova during 2014, a debut for the brand in France, and the 216-room InterContinental Davos in Switzerland. Three further Hotel Indigo properties (293 rooms) were opened in 2013, comprising a third hotel for the brand in Germany and first openings in Spain and Israel.Russia.
2017 hotels (3,489(3,211 rooms) left the Europe System in the period, compared to 2320 hotels (3,335(3,489 rooms) in the previous year.
Europe pipeline
| Europe pipeline | Hotels | Rooms | ||||||||||||||||||||||||||||||
| Hotels | Rooms | |||||||||||||||||||||||||||||||
| At 31 December | 2013 | Change over 2012 | 2013 | Change over 2012 | 2014 | Change over 2013 | 2014 | Change over 2013 | ||||||||||||||||||||||||
| Analysed by brand | ||||||||||||||||||||||||||||||||
InterContinental | 2 | – | 653 | 249 | 3 | 1 | 845 | 192 | ||||||||||||||||||||||||
Crowne Plaza | 12 | – | 2,624 | (145 | ) | 14 | 2 | 2,917 | 293 | |||||||||||||||||||||||
Hotel Indigo | 12 | (3 | ) | 1,368 | (208 | ) | ||||||||||||||||||||||||||
Holiday Inn | 35 | 15 | 6,612 | 2,345 | 37 | 2 | 6,944 | 332 | ||||||||||||||||||||||||
Holiday Inn Express | 43 | – | 6,016 | (268 | ) | 44 | 1 | 6,374 | 358 | |||||||||||||||||||||||
Staybridge Suites | 3 | 2 | 298 | 130 | 4 | 1 | 414 | 116 | ||||||||||||||||||||||||
Hotel Indigo | 15 | 2 | 1,576 | 284 | ||||||||||||||||||||||||||||
Other | – | – | 31 | 31 | ||||||||||||||||||||||||||||
| Total | 110 | 19 | 17,779 | 2,595 | 114 | 4 | 18,893 | 1,114 | ||||||||||||||||||||||||
Analysed by ownership type | Analysed by ownership type |
| ||||||||||||||||||||||||||||||
Franchised | 97 | 14 | 14,119 | 1,933 | 95 | (2 | ) | 13,996 | (123 | ) | ||||||||||||||||||||||
Managed | 13 | 5 | 3,660 | 662 | 19 | 6 | 4,897 | 1,237 | ||||||||||||||||||||||||
| Total | 110 | 19 | 17,779 | 2,595 | 114 | 4 | 18,893 | 1,114 | ||||||||||||||||||||||||
The Europe pipeline totalled 110114 hotels (17,779(18,893 rooms) as at 31 December 2013,2014, representing an increase of 19four hotels (2,595(1,114 rooms) over 31 December 2012.2013. New signings of 48 hotels (7,804 rooms), compared to 50 hotels (7,542 rooms), compared to 48 hotels (7,023 rooms) in 2012,2013, included 1816 hotel signings in the UK (2,436(2,234 rooms), including signings for six different brands in London, notably the 453-room InterContinental London – The O2.. The Group also signed six new12 hotels (1,116(2,323 rooms) in Germany and tenseven new hotels (1,737(867 rooms) in countries in the CIS. Notable signings in Europe included the 162-room InterContinental Baku, the first for the brand in Azerbaijan.
10Nine hotels (1,419(1,337 rooms) were removed from the pipeline in 2013,2014, compared to 1610 hotels (3,044(1,419 rooms) in 2012.2013.
|
Asia, Middle East and Africa (AMEA)
Execute our strategic plans to strengthen our brands and increase our revenue share through operational excellence and outperformance over the next three years.
Industry performance in 2014
AMEA is the largest region in geographic terms, and performance varies across the countries that comprise the region.
The strongest of the larger markets in AMEA, in which we operate, are Australia, Japan and the Middle East. Australia experienced RevPAR growth of 4.1% due to both occupancy, which increased by 2.1%, and daily rate growth, which increased by 2.0%. Despite its economic contraction in the third quarter of 2014, Japan’s RevPAR grew 9.4% as a result of an 8.2% increase in daily rate. Occupancy growth was 1.1%.
Performance in the smaller AMEA markets, in which we operate, was less consistent. RevPAR in Saudi Arabia experienced an overall increase of 6.0%. Indonesia saw RevPAR growth for the year of 4.3%, primarily driven by a 6.9% increase in daily rate, and RevPAR in India grew by 0.8%.
IHG’s regional performance in 2014
Across this large and diverse geographic region, IHG is widely represented both geographically and by brand, and as such comparisons across the industry are hard to make. Overall IHG RevPAR increased 3.8% driven predominantly through rate growth with performance led by the Middle East (5.6% RevPAR growth) and positive trading in our mature markets of Japan (6.7% RevPAR growth) and Australia (3.9% RevPAR growth). India and Southeast Asia exhibited steady growth, with the exception of Thailand, which was impacted by political instability in the first half of 2014. Indonesia saw RevPAR growth of 9.1%.
AMEA comparable RevPAR
movement on previous year
| 12 months ended 31 December 2014 | ||||
| Franchised | ||||
All brands | 1.7% | |||
| Managed | ||||
All brands | 4.4% | |||
Progress against 2014 regional priorities
In line with our 2014 regional priorities, we:
IHG’s 2015 regional priorities
| 1. | Continue to accelerate IHG System size growth across the region, focusing on any brand gaps in key cities and driving secondary city growth in our priority markets of the Middle East, India and Indonesia. |
| 2. | Focus on strong RevPAR growth through building preferred brands that deliver guest satisfaction. |
| 3. | Following the launch of the Hotel Indigo brand in the region, support the growth of the brand in AMEA. |
Source: Smith Travel Research for all of the above industry facts.
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|
| AMEA results | 12 months ended 31 December | |||||||||||||||||||
2013 $m | 2012 $m | 2013 vs 2012 % change | 2011 $m | 2012 vs 2011 % change | ||||||||||||||||
| Revenue | ||||||||||||||||||||
Franchised | 16 | 18 | (11.1 | ) | 19 | (5.3 | ) | |||||||||||||
Managed | 170 | 152 | 11.8 | 151 | 0.7 | |||||||||||||||
Owned and leased | 44 | 48 | (8.3 | ) | 46 | 4.3 | ||||||||||||||
| Total | 230 | 218 | 5.5 | 216 | 0.9 | |||||||||||||||
| Percentage of Group Revenue | 12.1 | 11.9 | 0.2 | 12.2 | (0.3 | ) | ||||||||||||||
| Operating profit before exceptional items | ||||||||||||||||||||
Franchised | 12 | 12 | – | 12 | – | |||||||||||||||
Managed | 92 | 90 | 2.2 | 87 | 3.4 | |||||||||||||||
Owned and leased | 4 | 6 | (33.3 | ) | 5 | 20.0 | ||||||||||||||
| 108 | 108 | – | 104 | 3.8 | ||||||||||||||||
| Regional overheads | (22 | ) | (20 | ) | (10.0 | ) | (20 | ) | – | |||||||||||
| Total | 86 | 88 | (2.3 | ) | 84 | 4.8 | ||||||||||||||
| Percentage of Group Operating profit before central overheads and exceptional items | 10.4 | 11.5 | (1.1 | ) | 12.0 | (0.5 | ) | |||||||||||||
AMEA results
| 12 months ended 31 December | ||||||||||||||||||||
| 2014 $m | 2013 $m | 2014 vs 2013 % change | 2012 $m | 2013 vs 2012 % change | ||||||||||||||||
| Revenue | ||||||||||||||||||||
Franchised | 16 | 16 | – | 18 | (11.1 | ) | ||||||||||||||
Managed | 187 | 170 | 10.0 | 152 | 11.8 | |||||||||||||||
Owned and leased | 39 | 44 | (11.4 | ) | 48 | (8.3 | ) | |||||||||||||
| Total | 242 | 230 | 5.2 | 218 | 5.5 | |||||||||||||||
| Percentage of Group Revenue | 13.0 | 12.1 | 0.9 | 11.9 | 0.2 | |||||||||||||||
| Operating profit before exceptional items | ||||||||||||||||||||
Franchised | 12 | 12 | – | 12 | – | |||||||||||||||
Managed | 88 | 92 | (4.3 | ) | 90 | 2.2 | ||||||||||||||
Owned and leased | 3 | 4 | (25.0 | ) | 6 | (33.3 | ) | |||||||||||||
| 103 | 108 | (4.6 | ) | 108 | – | |||||||||||||||
| Regional overheads | (19 | ) | (22 | ) | 13.6 | (20 | ) | (10.0 | ) | |||||||||||
| Total | 84 | 86 | (2.3 | ) | 88 | (2.3 | ) | |||||||||||||
| Percentage of Group Operating profit before central overheads and exceptional items | 10.5 | 10.4 | 0.1 | 11.5 | (1.1 | ) | ||||||||||||||
Highlights for the year ended 31 December 20132014
InComprising 253 hotels (67,876 rooms) at 31 December 2014, AMEA 81%represented 9% of the Group’s room count and contributed 10% of the Group’s operating profit before central overheads and exceptional operating items during the year. 82% of rooms in AMEA are operated under the managed business model. The region’s hotels are in the luxury, upscale and upper midscale segments. Comprising 244 hotels (64,838 rooms) at 31 December 2013, AMEA represented 9% of the Group’s room count and 10% of the Group’s
Revenue increased by $12m (5.2%) to $242m whilst operating profit before central overheadsexceptional items decreased by $2m (2.3%) to $84m. On an underlying1 basis, revenue increased by $5m (2.5%) and exceptional operating items duringprofit increased by $4m (5.1%). The results included a $6m benefit from liquidated damages received in 2013 (2014 $nil). AMEA is a geographically diverse region and performance was impacted by political and economic factors affecting different countries.
Comparable RevPAR increased 3.8% driven by 2.4% rate growth. Performance was led by the Middle East, up 5.6%, driven by a solid performance in Saudi Arabia and a recovery in Egypt. This was supported by positive trading in the mature markets of Japan, which grew by 6.7%, and Australia, which grew by 3.9%. Elsewhere, both India and South East Asia exhibited steady growth, with the exception of Thailand which suffered from political instability in the first half of the year.
Franchised revenue and operating profit remained flat at $16m and $12m respectively.
Managed revenue increased by $17m (10.0%) to $187m whilst operating profit decreased by $4m (4.3%) to $88m. Revenue and operating profit included $41m (2013 $21m) and $4m (2013 $1m) respectively from one managed lease property. Excluding results from this hotel, as well as the benefit of $6m liquidated damages in 2013 (2014 $nil), revenue increased by $7m (4.9%) whilst operating profit increased by $2m (2.4%) on a constant currency basis. Comparable RevPAR increased by 4.4%, with room count increasing by 5.9%.
In the owned and leased estate, revenue and operating profit decreased by $5m (11.4%) to $39m and by $1m (25.0%) to $3m respectively, due to a 6.3% decrease in RevPAR.
Highlights for the year ended 31 December 2013.
The number of hotels open in the region increased by 12 in 2013 reflecting delivery against the key priorities of growing the distribution of our core brands and strengthening our position in key strategic markets. The openings included the InterContinental in Osaka and five hotels in India – overall openings totalled 20 hotels against 16 in 2012. Signings into the pipeline remained at 2012 levels which should provide a strong growth platform.
Revenue increased by $12m (5.5%) to $230m and operating profit decreased by $2m (2.3%) to $86m. On an underlying1 basis, revenue and operating profit decreased by $6m (2.8%) and $7m (8.0%) respectively. The results included a $6m benefit from liquidated damages in 2013.2013 (2012 $nil). RevPAR increased by 6.1%, with 3.0% growth in average daily rate. AMEA is a geographically diverse region and performance is impacted by political and economic factors affecting different countries. The Middle East delivered RevPAR growth of 2.9%, driven by strength in the United Arab Emirates and Saudi Arabia, thoughwhilst continuing political uncertainty impacted some of our other markets in the region, particularly Egypt and Lebanon. Performance in Japan was strong, with RevPAR increasing by 9.6%, whilst Australia also achieved solid RevPAR growth of 2.8%. RevPAR growth in developing markets remained buoyant, led by 12.2% RevPAR growth in Indonesia. Revenue and operating profit growth were muted by a $6m negative year-on-year impact from the renewal of a small number of long-standing contracts onto current commercial terms. In addition, there was a $4m negative impact from similar contracts that were not renewed.
Franchised revenue decreased by $2m (11.1%) to $16m, whilst operating profit was flat at $12m.
|
Managed revenue and operating profit increased by $18m (11.8%) to $170m and by $2m (2.2%) to $92m respectively. During 2013, a new property opened under an operating lease structure, with the same characteristics as a management contract, contributing revenue of $21m and operating profit of $1m. Excluding this property together with the benefit of the $6m liquidated damages receipt in 2013, revenue and operating profit decreased by $4m (2.6%) and $4m (4.4%) respectively at constant currency. RevPAR increased by 5.6%, with AMEA System size up 2.6%.
In the owned and leased estate, revenue and operating profit decreased by $4m (8.3%) to $44m and by $2m (33.3%) to $4m respectively, driven by a 7.3% RevPAR decline.
Highlights for the year ended 31 December 2012
Revenue and operating profit before exceptional items increased by $2m (0.9%) to $218m and by $4m (4.8%) to $88m respectively. RevPAR increased 4.9%, with 1.2% growth in average daily rate, with robust trading in Southeast Asia and Japan, partly offset by continuing uncertainty impacting some markets in the Middle East.
On both a constant and actual currency basis, franchised revenue decreased by $1m (5.3%) to $18m and operating profit was flat at $12m.
Managed revenue and operating profit increased by $1m (0.7%) to $152m and by $3m (3.4%) to $90m respectively. At constant currency, excluding the benefit of a $6m liquidated damages receipt in 2011 and after adjusting for the disposal of a hotel asset and partnership interest in Australia, which contributed $3m to operating profit in 2011, revenue and operating profit increased by $7m (4.8%) and $11m (14.1%) respectively. RevPAR growth was 4.6% and although year-end AMEA System size was 7.1% higher than at the end of 2011, due to the phasing of openings towards the end of the year, rooms available during the year grew by only 2.2%. Operating profit in 2012 benefited from a $1m increase in profit from an associate and $2m lower year-on-year bad debt expense.
In the owned and leased estate, revenue and operating profit increased by $2m (4.3%) to $48m and by $1m (20.0%) to $6m respectively.
| AMEA hotel and room count | Hotels | Rooms | ||||||||||||||
| At 31 December | 2013 | Change over 2012 | 2013 | Change over 2012 | ||||||||||||
| Analysed by brand | ||||||||||||||||
InterContinental | 67 | 2 | 21,383 | 592 | ||||||||||||
Crowne Plaza | 67 | 2 | 19,078 | 519 | ||||||||||||
Holiday Inn1 | 81 | 6 | 18,464 | 1,024 | ||||||||||||
Holiday Inn Express | 16 | 4 | 3,500 | 623 | ||||||||||||
Staybridge Suites | 3 | 1 | 425 | 121 | ||||||||||||
Other | 10 | (3 | ) | 1,988 | (778 | ) | ||||||||||
| Total | 244 | 12 | 64,838 | 2,101 | ||||||||||||
Analysed by ownership type |
| |||||||||||||||
Franchised | 51 | 3 | 11,611 | 751 | ||||||||||||
Managed | 191 | 9 | 52,640 | 1,350 | ||||||||||||
Owned and leased | 2 | – | 587 | – | ||||||||||||
| Total | 244 | 12 | 64,838 | 2,101 | ||||||||||||
Percentage of Group hotel and room count | 5.2 | 0.2 | 9.4 | 0.1 | ||||||||||||
| 44 |
AMEA hotel and room count
| Hotels | Rooms | |||||||||||||||
| At 31 December | 2014 | Change over 2013 | 2014 | Change over 2013 | ||||||||||||
| Analysed by brand | ||||||||||||||||
InterContinental | 67 | – | 21,424 | 41 | ||||||||||||
Crowne Plaza | 69 | 2 | 19,688 | 610 | ||||||||||||
Holiday Inn1 | 85 | 4 | 19,750 | 1,286 | ||||||||||||
Holiday Inn Express | 24 | 8 | 5,295 | 1,795 | ||||||||||||
Staybridge Suites | 3 | – | 425 | – | �� | |||||||||||
Other | 5 | (5 | ) | 1,294 | (694 | ) | ||||||||||
| Total | 253 | 9 | 67,876 | 3,038 | ||||||||||||
| Analysed by ownership type | ||||||||||||||||
Franchised | 50 | (1 | ) | 11,569 | (42 | ) | ||||||||||
Managed | 201 | 10 | 55,720 | 3,080 | ||||||||||||
Owned and leased | 2 | – | 587 | – | ||||||||||||
| Total | 253 | 9 | 67,876 | 3,038 | ||||||||||||
| Percentage of Group hotel and room count | 5.2 | – | 9.5 | 0.2 | ||||||||||||
| 1 | Includes 14 Holiday Inn Resort properties |
The AMEA hotel and room count in the yearSystem size increased by 12nine hotels (2,101(3,038 rooms) to 244253 hotels (64,838(67,876 rooms). as at 31 December 2014. The level of openings increased from 16decreased marginally to 19 hotels (4,243(4,228 rooms) in 2012 to2014 from 20 hotels (4,495 rooms) in 2013. ThisOpenings in 2014 included two hotel openings (624hotels (417 rooms) for the InterContinental brand, including the 272-room140-room InterContinental Osaka,Sydney Double Bay, the second for the brand in Sydney, and fivefour hotels in India (818(1,039 rooms) in 2013, including Crowne Plaza and Holiday Inn conversions in New Delhi’s emerging business district of Mayur Vihar.India.
Eight10 hotels (2,394(1,190 rooms) were removed from the AMEA System in 2013,2014, compared to 12eight hotels (2,589(2,394 rooms) in 2012.2013.
AMEA pipeline
| AMEA pipeline | Hotels | Rooms | ||||||||||||||||||||||||||||||
| Hotels | Rooms | |||||||||||||||||||||||||||||||
| At 31 December | 2013 | Change over 2012 | 2013 | Change over 2012 | 2014 | Change over 2013 | 2014 | Change over 2013 | ||||||||||||||||||||||||
| Analysed by brand | ||||||||||||||||||||||||||||||||
InterContinental | 21 | 1 | 5,378 | 12 | 22 | 1 | 5,804 | 426 | ||||||||||||||||||||||||
Crowne Plaza | 14 | (4 | ) | 4,048 | (1,297 | ) | 16 | 2 | 4,412 | 364 | ||||||||||||||||||||||
Hotel Indigo | 10 | 2 | 1,823 | 431 | ||||||||||||||||||||||||||||
Holiday Inn1 | 49 | 2 | 12,341 | 1,446 | 50 | 1 | 13,230 | 889 | ||||||||||||||||||||||||
Holiday Inn Express | 39 | 4 | 7,980 | 889 | 39 | 0 | 8,177 | 197 | ||||||||||||||||||||||||
Staybridge Suites | 6 | – | 935 | 207 | 5 | (1 | ) | 900 | (35 | ) | ||||||||||||||||||||||
Hotel Indigo | 8 | 2 | 1,392 | 460 | ||||||||||||||||||||||||||||
| Total | 137 | 5 | 32,074 | 1,717 | 142 | 5 | 34,346 | 2,272 | ||||||||||||||||||||||||
Analysed by ownership type | Analysed by ownership type |
| ||||||||||||||||||||||||||||||
Franchised | 3 | 1 | 647 | 222 | 8 | 5 | 1,754 | 1,107 | ||||||||||||||||||||||||
Managed | 134 | 4 | 31,427 | 1,495 | 134 | – | 32,592 | 1,165 | ||||||||||||||||||||||||
| Total | 137 | 5 | 32,074 | 1,717 | 142 | 5 | 34,346 | 2,272 | ||||||||||||||||||||||||
| 1 | Includes |
TheAt 31 December 2014, the AMEA pipeline totalled 142 hotels (34,346 rooms) compared to 137 hotels (32,074 rooms) as at 31 December 2013, compared to 1322013. Signings in AMEA of 32 hotels (30,357 rooms) as at 31 December 2012. Signings of 36 hotels (8,687(8,030 rooms) were broadlyslightly below the level seen in line with last year and2013 (36 hotels, 8,687 rooms). Signings in 2014 included 2621 hotels (6,546(5,507 rooms) in the Holiday Inn brand family, notably including the 1,230-room1,000-room Holiday Inn Makkah Al AziziahNewport City in Saudi Arabia, which is set to be the largest Holiday Inn in the world when it opens. ThreeManila. Four InterContinental hotels (671(999 rooms) were signed during 2013, including the 140-room InterContinental Sydney Double Bay in Australia.2014.
11Eight hotels (2,475(1,530 rooms) were removed from the pipeline in 2013,2014, compared to 1011 hotels (2,850(2,475 rooms) in 2012.2013.
| 1 | Underlying excludes the impact of owned asset disposals, managed leases, significant liquidated damages and exceptional items translated at constant currency by applying prior year exchange rates. |
|
| IHG Annual Report and Form 20-F 2014 |
Greater China
Maximise scale and strength and establish multi-segment local operating expertise to drive margin and expand our strong portfolio of brands over the next three years.
2014 priorities
Industry performance in 2014
The Chinese economy achieved GDP growth of 7.4% in 2014, a slowdown against the average of 8.9% growth in the period from 2009 to 2013. This slowdown was attributable to several factors, including lessening domestic demand and manufacturing output, a correction in the real estate market and declining inflation. Growth is expected to reduce further expand our portfolioin 2015 and 2016.
Hotel industry RevPAR in Greater China decreased by 0.9% in the year. Whilst overall occupancy increased by 1.9%, average daily
rates decreased by 2.8%. Much of brands especially Holiday Inn and Holiday Inn Expressthis decrease in the region is due to changes in the industry structure due to growth in tier 2 and 3 cities to cater to evolving market needs;as well as from growth of economy brands.
RevPAR in the People’s Republic of China (excluding Taiwan) decreased by 1.5%. Many major cities, such as Shanghai and Guangzhou, experienced an increase in RevPAR driven by strong occupancy gains. However, RevPAR in Beijing and surrounding North China, East China and South China saw a decrease in year-on-year RevPAR growth.
IHG’s regional performance in 2014
IHG’s comparable RevPAR increased 1.6% in 2014, significantly ahead of the successful launchoverall industry. Trading was strongest in tier 1 cities, whilst tier 2 and 3 cities were softer, impacted by new supply as these markets develop. Our RevPAR growth was driven by occupancy which increased by 2.4%, whilst rate decreased by 2.3% – both ahead of the industry, reflecting our scale and management strength in the region.
Greater China comparable RevPAR
movement on previous year
| 12 months ended 31 December 2014 | ||||
| Managed | ||||
All brands | 1.3% | |||
| Owned and leased | ||||
InterContinental | (1.0)% | |||
Progress against 2014 regional priorities
In line with our 2014 regional priorities, we:
| • | opened 19 hotels during the year for the Holiday Inn brand family (Holiday Inn and Holiday Inn Express), including the opening of the 50th Holiday Inn Express hotel, and signed a further 45 hotels into the pipeline for the Holiday Inn brand family; |
IHG’s 2015 regional priorities
| 1. | Further increase IHG System size, with deeper penetration in tier 2 and 3 cities and strengthen the distribution of the Holiday Inn and Holiday Inn Express brands to capture the growing midscale segment opportunity. |
| 2. | Build a strong pipeline for the HUALUXE Hotels and Resorts brand and support the subsequent hotel openings. |
| 3. | Continue to grow our talent and build a strong local talent pipeline, particularly in tier 2 and 3 cities. |
Source: Smith Travel Research for all of the above industry facts.
| 46 |
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|
| Greater China results | 12 months ended 31 December | |||||||||||||||||||
| 2013 $m | 2012 $m | 2013 vs 2012 % change | 2011 $m | 2012 vs 2011 % change | ||||||||||||||||
| Revenue | ||||||||||||||||||||
Franchised | 3 | 3 | – | 2 | 50.0 | |||||||||||||||
Managed | 92 | 89 | 3.4 | 77 | 15.6 | |||||||||||||||
Owned and leased | 141 | 138 | 2.2 | 126 | 9.5 | |||||||||||||||
| Total | 236 | 230 | 2.6 | 205 | 12.2 | |||||||||||||||
Percentage of Group Revenue | 12.4 | 12.5 | (0.1 | ) | 11.6 | 0.9 | ||||||||||||||
| Operating profit before exceptional items | ||||||||||||||||||||
Franchised | 5 | 4 | 25.0 | 3 | 33.3 | |||||||||||||||
Managed | 51 | 51 | – | 43 | 18.6 | |||||||||||||||
Owned and leased | 47 | 45 | 4.4 | 37 | 21.6 | |||||||||||||||
| 103 | 100 | 3.0 | 83 | 20.5 | ||||||||||||||||
| Regional overheads | (21 | ) | (19 | ) | (10.5 | ) | (16 | ) | (18.8 | ) | ||||||||||
| Total | 82 | 81 | 1.2 | 67 | 20.9 | |||||||||||||||
| Percentage of Group Operating profit before central overheads and exceptional items | 10.0 | 10.6 | (0.6 | ) | 9.5 | 1.1 | ||||||||||||||
Greater China results
| 12 months ended 31 December | ||||||||||||||||||||
| 2014 $m | 2013 $m | 2014 vs 2013 % change | 2012 $m | 2013 vs 2012 % change | ||||||||||||||||
| Revenue | ||||||||||||||||||||
Franchised | 4 | 3 | 33.3 | 3 | – | |||||||||||||||
Managed | 99 | 92 | 7.6 | 89 | 3.4 | |||||||||||||||
Owned and leased | 139 | 141 | (1.4 | ) | 138 | 2.2 | ||||||||||||||
| Total | 242 | 236 | 2.5 | 230 | 2.6 | |||||||||||||||
| Percentage of Group Revenue | 13.0 | 12.4 | 0.6 | 12.5 | (0.1 | ) | ||||||||||||||
| Operating profit before exceptional items | ||||||||||||||||||||
Franchised | 5 | 5 | – | 4 | 25.0 | |||||||||||||||
Managed | 63 | 51 | 23.5 | 51 | – | |||||||||||||||
Owned and leased | 42 | 47 | (10.6 | ) | 45 | 4.4 | ||||||||||||||
| 110 | 103 | 6.8 | 100 | 3.0 | ||||||||||||||||
| Regional overheads | (21 | ) | (21 | ) | – | (19 | ) | (10.5 | ) | |||||||||||
| Total | 89 | 82 | 8.5 | 81 | 1.2 | |||||||||||||||
| Percentage of Group Operating profit before central overheads and exceptional items | 11.0 | 10.0 | 1.0 | 10.6 | (0.6 | ) | ||||||||||||||
Highlights for the year ended 31 December 20132014
In Greater China, 96% of rooms are operated under the managed business model. The majority ofComprising 241 hotels are in the upscale and upper midscale segments. Comprising 208 hotels (68,545(78,194 rooms) at 31 December 2013,2014, Greater China represented 10%11% of the Group’s room count and 10%contributed 11% of the Group’s operating profit before central overheads and exceptional operating items duringfor the year ended 31 December 2013.
Good progress was made2014. 97% of rooms in Greater China are operated under the managed business model. The region’s hotels are in the year on the priorities for the region despite the challenging conditions experienced over the course of the year. Focusing on the distributionluxury, upscale and expansion of the portfolio, a further six hotels were signed into the pipeline for HUALUXEupper midscale segments.
Revenue and a further 11 for Crowne Plaza. The number of open Crowne Plaza hotels alsooperating profit before exceptional items increased by five in the year$6m (2.5%) to $242m and the Holiday Inn portfolio expanded.
Despite good progress on the priorities, market conditions were challenging in the region in 2013. The hotel industry was impacted by a number of factors including the China-Japan territorial islands dispute, a series of natural disasters in Western China, particularly in the second quarter of the year, and slower macroeconomic conditions during 2013 than in prior years.$7m (8.5%) to $89m respectively. Overall, the region achieved comparable RevPAR growth of 1.0% representing a significant decrease on1.6%, slightly stronger than the 5.4%1.0% growth achieved in 2012. IHG did, however,2013. This performance was significantly outperformahead of the industry, reflecting IHG’s scale and management strength in 2013.the region, and was achieved in a challenging environment with slower macro-economic conditions, government austerity measures and protests in Hong Kong. Trading was strongest in tier 1 cities, especially Shanghai and Guangzhou, with good levels of transient and corporate business. Performance in tier 2 and 3 cities continues to be impacted by new supply as these markets develop. Total RevPAR in the region decreased by 3.4% as hotels opened in these lower RevPAR markets.
Franchised revenue increased by $1m (33.3%) to $4m whilst operating profit was flat at $5m. Operating profit was higher than revenue in both 2014 and 2013 due to joint venture dividend income received from a hotel in Hong Kong.
Managed revenue increased by $7m (7.6%) to $99m, whilst operating profit increased by $12m (23.5%) to $63m, reflecting improvements in operating margin, net rooms growth, and a small number of one-off items that contributed approximately $5m to the result. Comparable RevPAR increased by 1.3%, whilst the Greater China System size grew by 14.7%, driving a 8.5% increase in total gross revenue derived from rooms business. Total gross revenue derived from non-rooms business increased by 7.8%.
Owned and leased revenue decreased by $2m (1.4%) to $139m, driven by a RevPAR decrease of 1.0% at InterContinental Hong Kong. Operating profit decreased by $5m (10.6%) to $42m. The decrease in revenue and operating profit at the hotel was driven primarily by the ongoing development of the area adjacent to the hotel and protests in central Hong Kong.
Highlights for the year ended 31 December 2013
Revenue and operating profit before exceptional items increased by $6m (2.6%) to $236m and by $1m (1.2%) to $82m respectively. On an underlying basis, revenue and operating profit increased by $6m (2.6%) and $2m (2.5%) respectively.
Franchised revenue was flat at $3m and operating profit increased by $1m (25.0%) to $5m.
Managed revenue increased by $3m (3.4%) to $92m and operating profit was flat at $51m. RevPAR increased by 0.6%, whilst the Greater China System size grew by 11.8%, driving a 9.2% increase in total gross revenue derived from rooms business. Total gross revenue derived from non-rooms business increased by 3.0%. Operating profit was partly offset by increased investment to drive future growth.
|
Owned and leased revenue at the InterContinental Hong Kong increased by $3m (2.2%) to $141m, driven by a 4.5% increase in total gross revenue derived from non-rooms business, although this was partly offset by a RevPAR decline of 0.1%. Operating profit increased by $2m (4.4%) to $47m.
Highlights for the year ended 31 December 2012
Revenue and operating profit before exceptional items increased by $25m (12.2%) to $230m and by $14m (20.9%) to $81m respectively. RevPAR increased 5.4% with 3.1% growth in average daily rate.
Franchised revenue increased by $1m (50.0%) to $3m and operating profit by $1m (33.3%) to $4m, boosted by the opening of the 1,224-room Holiday Inn Macao Cotai Central.
Managed revenue increased by $12m (15.6%) to $89m and operating profit increased by $8m (18.6%) to $51m. RevPAR growth of 5.6% reflected continued economic growth in the region, although the whole industry was affected in the latter part of the year by the Diaoyu/Senkaku islands territorial dispute and slower macroeconomic conditions. There was also continued significant
| 47 |
| IHG Annual Report and Form 20-F 2014 |
| Performancecontinued |
Greater China System size growth for the managed estate (9.7% rooms growth in 2012 following 14.2% rooms growth in 2011).
Ownedhotel and leased revenue increased by $12m (9.5%) to $138m and operating profit increased by $8m (21.6%) to $45m, with RevPAR growth of 6.7% at the InterContinental Hong Kong.room count
Regional costs increased by $3m (18.8%) to $19m reflecting increased investment in operations and infrastructure in the region.
| Greater China hotel and room count | Hotels | Rooms | ||||||||||||||||||||||||||||||
| Hotels | Rooms | |||||||||||||||||||||||||||||||
| At 31 December | 2013 | Change over 2012 | 2013 | Change over 2012 | 2014 | Change over 2013 | 2014 | Change over 2013 | ||||||||||||||||||||||||
| Analysed by brand | ||||||||||||||||||||||||||||||||
InterContinental | 29 | 7 | 11,742 | 2,369 | 33 | 4 | 13,542 | 1,800 | ||||||||||||||||||||||||
Crowne Plaza | 65 | 5 | 23,234 | 1,782 | 73 | 8 | 26,113 | 2,879 | ||||||||||||||||||||||||
Hotel Indigo | 5 | – | 612 | – | ||||||||||||||||||||||||||||
Holiday Inn1 | 67 | 3 | 21,662 | 885 | 73 | 6 | 23,407 | 1,745 | ||||||||||||||||||||||||
Holiday Inn Express | 42 | 5 | 11,295 | 1,842 | 55 | 13 | 14,076 | 2,781 | ||||||||||||||||||||||||
Hotel Indigo | 5 | 2 | 612 | 207 | ||||||||||||||||||||||||||||
Other | – | (1 | ) | – | (141 | ) | 2 | 2 | 444 | 444 | ||||||||||||||||||||||
| Total | 208 | 21 | 68,545 | 6,944 | 241 | 33 | 78,194 | 9,649 | ||||||||||||||||||||||||
Analysed by ownership type | Analysed by ownership type |
| ||||||||||||||||||||||||||||||
Franchised | 4 | – | 2,184 | – | 4 | – | 2,184 | – | ||||||||||||||||||||||||
Managed | 203 | 21 | 65,858 | 6,944 | 236 | 33 | 75,507 | 9,649 | ||||||||||||||||||||||||
Owned and leased | 1 | – | 503 | – | 1 | – | 503 | – | ||||||||||||||||||||||||
| Total | 208 | 21 | 68,545 | 6,944 | 241 | 33 | 78,194 | 9,649 | ||||||||||||||||||||||||
Percentage of Group hotel and room count | 4.4 | 0.3 | 10.0 | 0.9 | 5.0 | 0.6 | 11.0 | 1.0 | ||||||||||||||||||||||||
| 1 | Includes |
The Greater China hotel and room count in the year increased by 21 hotels (6,944 rooms) to 208 hotels (68,545 rooms). 23 hotels (7,669 rooms) opened during 2013, broadly in line with 2012. InterContinental System size increased by 733 hotels (2,369(9,649 rooms) in the year to 241 hotels (78,194 rooms). 34 hotels (10,648 rooms) opened during 2014, 11 hotels and 2,979 rooms higher than 2013 and a record year for the region. Recent growth in the region has focused on tier 2 and 3 cities, which now represent approximately two-thirds of IHG’s open rooms. The InterContinental brand System size increased by four hotels (1,800 rooms) to 2933 hotels (11,742(13,542 rooms), with openings during the year, including the 294-room InterContinental Sanya Haitang Bay Resort, a second for the brand on the island resort destination of Sanya. The Group also celebrated its 200th opening in Greater China in 2013 with the openingaddition of the 141-room990-room InterContinental Shanghai Ruijin. A further two Hotel Indigo properties (208Chengdu Global Centre. 19 Holiday Inn brand family hotels (4,445 rooms) were opened,also added in the year, including a first for the brand50th Holiday Inn Express, nine hotels (1,078 rooms) higher than in Hong Kong.2013. Nine Crowne Plaza hotels (3,498 rooms) were also added during the year, including the 466-room Crowne Plaza Beijing Lido, increasing the Crowne Plaza System size to 73 hotels (26,113 rooms).
TwoOne hotel (999 rooms) was removed in 2014, compared to two hotels (725 rooms) were removed from the in 2013.
Greater China System in 2013.pipeline
| Greater China pipeline | Hotels | Rooms | ||||||||||||||||||||||||||||||
| Hotels | Rooms | |||||||||||||||||||||||||||||||
| At 31 December | 2013 | Change over 2012 | 2013 | Change over 2012 | 2014 | Change over 2013 | 2014 | Change over 2013 | ||||||||||||||||||||||||
| Analysed by brand | ||||||||||||||||||||||||||||||||
InterContinental | 22 | – | 9,392 | 374 | 18 | (4 | ) | 6,678 | (2,714 | ) | ||||||||||||||||||||||
HUALUXE | 24 | 3 | 7,551 | 747 | ||||||||||||||||||||||||||||
Crowne Plaza | 52 | – | 18,469 | (863 | ) | 44 | (8 | ) | 14,801 | (3,668 | ) | |||||||||||||||||||||
Hotel Indigo | 10 | 5 | 1,646 | 925 | ||||||||||||||||||||||||||||
Holiday Inn1 | 41 | 4 | 11,944 | 945 | 43 | 2 | 12,384 | 440 | ||||||||||||||||||||||||
Holiday Inn Express | 33 | 4 | 7,260 | 1,263 | 50 | 17 | 11,278 | 4,018 | ||||||||||||||||||||||||
Hotel Indigo | 5 | – | 721 | 152 | ||||||||||||||||||||||||||||
HUALUXE | 21 | 6 | 6,804 | 1,900 | ||||||||||||||||||||||||||||
Other | – | – | – | (97 | ) | |||||||||||||||||||||||||||
| Total | 174 | 14 | 54,590 | 3,674 | 189 | 15 | 54,338 | (252 | ) | |||||||||||||||||||||||
Analysed by ownership type | Analysed by ownership type |
| ||||||||||||||||||||||||||||||
Managed | 174 | 14 | 54,590 | 3,674 | 189 | 15 | 54,338 | (252 | ) | |||||||||||||||||||||||
| Total | 174 | 14 | 54,590 | 3,674 | 189 | 15 | 54,338 | (252 | ) | |||||||||||||||||||||||
| 1 | Includes |
TheAt 31 December 2014, the Greater China pipeline totalled 189 hotels (54,338 rooms) compared to 174 hotels (54,590 rooms) as at 31 December 2013, compared to 1602013. Signings of 64 hotels (50,916(15,754 rooms) as at 31 December 2012. Signings ofincreased from 53 hotels (15,348 rooms) increased from 46 hotels (13,387 rooms) in 2012. Seven2013. Three InterContinental hotels (2,129(930 rooms) were signed, together with 11five Crowne Plaza hotels (3,528(1,400 rooms), whilst the total pipeline for the HUALUXE Hotels &and Resorts brand increased to 2124 hotels (6,804(7,551 rooms). 2645 hotels (7,343(10,860 rooms) were signed infor the Holiday Inn brand family, includingwith the 1,002-room Holiday Inn Express Changbaishan, which subsequently opened as the Group’s largest Holiday Inn Express in 2013.brand pipeline increasing to 50 hotels.
1615 hotels (4,005(5,358 rooms) were removed from the pipeline in 2014, compared to 16 hotels (4,005 rooms) in 2013.
|
Central
| Central results | 12 months ended 31 December | |||||||||||||||||||
2013 $m | 2012 $m | 2013 vs 2012 % change | 2011 $m | 2012 vs 2011 % change | ||||||||||||||||
| Revenue | 121 | 114 | 6.1 | 112 | 1.8 | |||||||||||||||
| Gross central costs | (276 | ) | (276 | ) | – | (266 | ) | (3.8 | ) | |||||||||||
| Net central costs | (155 | ) | (162 | ) | 4.3 | (154 | ) | (5.2 | ) | |||||||||||
Central results
| 12 months ended 31 December | ||||||||||||||||||||
| 2014 $m | 2013 $m | 2014 vs 2013 % change | 2012 $m | 2013 vs 2012 % change | ||||||||||||||||
| Revenue | 129 | 121 | 6.6 | 114 | 6.1 | |||||||||||||||
| Gross central costs | (284 | ) | (276 | ) | (2.9 | ) | (276 | ) | – | |||||||||||
| Net central costs | (155 | ) | (155 | ) | – | (162 | ) | 4.3 | ||||||||||||
Highlights for the year ended 31 December 2014
Central revenue, which mainly comprises technology fee income, increased by $8m (6.6%) to $129m, driven by increases in both comparable RevPAR (6.1%) and IHG System size (3.4%) in 2014 compared to 2013. At constant currency, gross central costs increased by $4m (1.4%) compared to 2013 (an $8m or 2.9% increase at actual currency).
Highlights for the year ended 31 December 2013
Central revenue, mainly comprising technology fee income, increased by $7m (6.1%) to $121m, driven by increases to both RevPAR and IHG System size over 2013.2012. Gross central costs were flat at $276m in 2013, reflecting continued tight cost control.
Highlights for the year ended 31 December 2012
Net central costs increased by $8m (5.2%) from $154m in 2011 to $162m in 2012. At constant currency, net central costs increased by $10m (6.5%). The movement was driven by investment in infrastructure and capabilities to support the growth of the business. Central revenue mainly comprised technology fee income.
| 48 |
System Fund
System Fund assessments
| System Fund results | 12 months ended 31 December | |||||||||||||||||||||||||||||||||||||||
| 12 months ended 31 December | ||||||||||||||||||||||||||||||||||||||||
2013 $m | 2012 $m | 2013 vs 2012 % change | 2011 $m | 2012 vs 2011 % change | 2014 $m | 2013 $m | 2014 vs 2013 % change | 2012 $m | 2013 vs 2012 % change | |||||||||||||||||||||||||||||||
| Assessment fees and contributions received from hotels | 1,154 | 1,106 | 4.3 | 1,025 | 7.9 | 1,271 | 1,154 | 10.1 | 1,106 | 4.3 | ||||||||||||||||||||||||||||||
| Proceeds from sale of IHG Rewards Club points | 153 | 144 | 6.3 | 128 | 12.5 | 196 | 153 | 28.1 | 144 | 6.3 | ||||||||||||||||||||||||||||||
| Total | 1,307 | 1,250 | 4.6 | 1,153 | 8.4 | 1,467 | 1,307 | 12.2 | 1,250 | 4.6 | ||||||||||||||||||||||||||||||
In addition to management or franchise fees, hotels within the IHG System pay assessments and contributions which are collected by IHG for specific use within the System Fund. The System Fund also receives proceeds from the sale of IHG Rewards Club points. The System Fund is managed for the benefit of hotels in the IHG System with the objective of driving revenues for the hotels.
The System Fund is used to pay for marketing, the IHG Rewards Club loyalty programme and the global reservation system. The operation of the System Fund does not result in a profit or loss for the Group and consequently the revenues and expenses of the System Fund are not included in the Group Income Statement.
Highlights for the year ended 31 December 2014
In the year to 31 December 2014, System Fund income increased by 12.2% to $1,467m primarily as a result of a 10.1% increase in assessment fees and contributions from hotels resulting from increased hotel room revenues, reflecting increases in RevPAR and IHG System size. Continued strong performance in co-branded credit card schemes drove the 28.1% increase in proceeds from the sale of IHG Rewards Club points.
Highlights for the year ended 31 December 2013
In the year to 31 December 2013, System Fund income increased by 4.6% to $1,307m primarily as a result of growth in hotel room revenues due to increases in RevPAR and IHG System size. The increase in proceeds from the sale of IHG Rewards Club points mainly reflects the continued strong performance of co-brand credit card schemes.
Highlights for the year ended 31 December 2012
In the year to 31 December 2012, System Fund income increased by 8.4% to $1,250m primarily as a result of growth in hotel room revenues. The increase in proceeds from the sale of IHG Rewards Club points mainly reflects the strong performance of co-brand credit card schemes.
|
Other financial
information
Exceptional operating items
Exceptional operating items totalled a net profitgain of $5m. Exceptional gains included $166m from the sale$29m. The exceptional gain of the InterContinental London Park Lane on 1 May 2013 and $6m in relation$130m related to the sale of a hotel byInterContinental Mark Hopkins San Francisco and the disposal of an associate80% interest in The Americas.InterContinental New York Barclay. Exceptional charges included $147m$14m foreign exchange losses resulting from recent changes to the Venezuelan exchange rate mechanisms and the adoption of the SICAD II exchange rate; $29m relating primarily to structural change programmes across the Global Human Resources and Global Technology functions; $6m arising from the buy-ina partial cash-out of the Group’s UK fundedunfunded pension benefit obligations with the insurer, Rothesay Life, on 15 August 2013, $10marrangements; $45m relating to an agreed settlement in respectthe cost of securing a commercial claim and $10m relating to costs incurred in supportrestructuring of the worldwide rebranding of IHG Rewards Club.UK hotel portfolio; and $7m Kimpton Hotels & Restaurants acquisition transaction costs. See note 5 to the Group Financial Statements for further detail.
Exceptional operating items are treated as exceptional by reason of their size or nature and are excluded from the calculation of adjusted earnings per ordinary share in order to provide a more meaningful comparison of performance.
Net financial expenses
Net financial expenses increased by $19m$7m to $73m$80m reflecting an increase in average net debt levels and the issuancetranslation of interest on the 10-year £400m public bond in November 2012 with a coupon of 3.875%.two sterling bonds.
Financing costs included $2m (2012(2013 $2m) of interest costs associated with the 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 20132014 also included $19m (2012(2013 $19m) in respect of the InterContinental Boston finance lease.
Taxation
The effective rate of tax on operating profit excluding the impact of exceptional items was 31% (2013 29% (2012 27%). Excluding the impact of prior year items the equivalent tax rate would be 35% (2013 32% (2012 30%). This rate is higher than the average UK statutory rate of 21.5% (2013 23.25% (2012 24.5%) due mainly to certain overseas profits (particularly in the US) being subject to statutory rates higher than the UK statutory rate, unrelieved foreign taxes and disallowable expenses.
Taxation within exceptional items totalled a charge of $51m (2012$29m (2013 $51m). In 2014 the charge comprised $56m relating to the disposal of an 80% interest in InterContinental New York Barclay offset by a credit of $142m).$27m relating to a restructuring of the UK hotel portfolio and other reorganisation costs. In 2013 the charge comprised $6m relating to the exceptional operating items and $64m consequent upon the disposal of the InterContinental London Park Lane, offset by a credit of $19m relating to an internal restructuring. In 2012 this represented, primarily, the recognition of $104m of deferred tax assets whose value had become more certain as a result of a change in law and the resolution of prior period tax matters, together with the associated release of $37m of provisions.
Net tax paid in 20132014 totalled $97m (2012 $122m)$136m (2013 $97m) including $5m paid (2012 $3m)$nil (2013 $5m) in respect of disposals. Tax paid represents an effective rate of 23% (2013 16% (2012 22%) on total profits and is lower than the effective income statement tax rate of 29%31% primarily due to the impact of deferred taxes (including the realisation of assets such as tax losses), the receipt of refunds in respect of prior years and provisions for tax for which no payment of tax has currently been made.
| 49 |
| IHG Annual Report and Form 20-F 2014 |
| Performancecontinued |
IHG pursues a tax strategy that is consistent with its business strategy and its overall business conduct principles. This strategy seeks to ensure full compliance with all tax filing, payment and reporting obligations on the basis of communicative and transparent relationships with tax authorities. Policies and procedures related to tax risk management are subject to regular review and update and are approved by the Board.
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 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 65%70% of its revenues in the form of franchise, management or similar fees, with almost 90%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.
Earnings per ordinary share
Basic earnings per ordinary share in 2013 was 140.9¢, compared with 187.1¢ in 2012. Adjusted earnings per ordinary share was 158.3¢, against 139.0¢ in 2012.
Dividends
The Board has proposed a final dividend per ordinary share of 47.0¢ (28.1p)52¢ (33.8p). With the interim dividend per ordinary share of 23.0¢ (15.1p)25¢ (14.8p), the full-year dividend per ordinary share for 20132014 will total 70.0¢ (43.2p)77¢ (48.6p), an increase of 9%10.0% over 2012. 2013.
On 4 October 2013,2 May 2014, the Group announced a $750m return to shareholders by way of special dividend and share consolidation. The dividend was paid to shareholders on 14 July 2014.
Under the $500m share buyback programme announced on 7 August 2012, which commenced on 12 November 2012 and completed on 29 May 2014, a total of 133.0¢ (87.1p)17.3m shares have been repurchased for total consideration of $500m.
Earnings per ordinary share
Basic earnings per ordinary share amountingincreased by 12.3% to $355m was paid to shareholders.158.3¢ from 140.9¢ in 2013. Adjusted earnings per ordinary share remained unchanged at 158.3¢.
Share price and market capitalisation
The IHG share price closed at £25.95 on 31 December 2014, up from £20.13 on 31 December 2013, up from £17.07 on 31 December 2012.2013. The market capitalisation of the Group at the year end was £5.4bn.£6.4bn.
|
Liquidity and
capital resources
Sources of liquidity
The Group is financed by a $1.07bn syndicated bank facility which expires in November 2016 (the Syndicated Facility), £250m of public bonds which are repayable on 9 December 2016 and £400m of public bonds which are repayable on 28 November 2022. The$361m was drawn under the $1.07bn Syndicated Facility was undrawn at the year end. The bonds are issued under the Group’s £750m Medium Term Notes programme. Short-term borrowing requirements are met from drawings under bilateral bank facilities. Additional funding is provided by the 99-year finance lease (of which 9291 years remain) on InterContinental Boston and other uncommitted bank facilities (see note 21 to the InterContinental Boston.Group Financial Statements). In the Group’s opinion, the available facilities are sufficient for the Group’s present liquidity requirements.
The Syndicated Facility contains two financial covenants; interest cover and net debt divided by earnings before interest, tax, depreciation and amortisation. The Group is in compliance with all of the financial covenants in its loan documents, none of which is expected to present a material restriction on funding in the near future.
Net debt of $1,153m and available facilities at 31 December 2013 are$1,533m (2013 $1,153m) is analysed by currency as follows:
2013 $m | 2012 $m | 2014 $m | 20131 $m | |||||||||||||
Borrowings | ||||||||||||||||
Sterling | 654 | 638 | 1,028 | 671 | ||||||||||||
US dollar | 629 | 626 | 557 | 709 | ||||||||||||
Euros | 103 | 11 | ||||||||||||||
Other | 4 | 5 | 7 | 10 | ||||||||||||
| Cash and cash equivalents | (134 | ) | (195 | ) | ||||||||||||
| Net debt1 | 1,153 | 1,074 | ||||||||||||||
Sterling | (21 | ) | (87 | ) | ||||||||||||
US dollar | (54 | ) | (40 | ) | ||||||||||||
Euros | (25 | ) | (15 | ) | ||||||||||||
Canadian dollar | (14 | ) | (25 | ) | ||||||||||||
Chinese renminbi | (8 | ) | (15 | ) | ||||||||||||
Other | (40 | ) | (66 | ) | ||||||||||||
| Net debt2 | 1,533 | 1,153 | ||||||||||||||
| Average debt levels | 985 | 651 | 1,322 | 985 | ||||||||||||
1 Including the impact of currency derivatives.
|
| |||||||||||||||
Facilities at 31 December
| 2013 $m | 2012 $m | ||||||||||||||
| Committed | 1,074 | 1,075 | ||||||||||||||
| Uncommitted | 80 | 96 | ||||||||||||||
| Total | 1,154 | 1,171 | ||||||||||||||
| 1 | Restated for the adoption of ‘Offsetting Financial Assets and Financial Liabilities’ (Amendments to IAS 32), see page 107. |
| 2 | Including the impact of currency derivatives. |
Borrowings included bank overdrafts of $107m (2013 $114m) which were matched by an equivalent amount of cash and cash equivalents under the Group’s cash pooling arrangements. Under these arrangements, each pool contains a number of bank accounts with the same financial institution and the Group pays interest on net overdraft balances within each pool. The cash pools are used for day-to-day cash management purposes and are managed daily as closely as possible to a zero balance on a net basis for each pool. Overseas subsidiaries are typically in a cash positive position, with the most significant balances in the US and Canada, and the matching overdrafts are held by the Group’s central treasury company in the UK.
| 50 |
Cash and cash equivalents include $4m (2013 $12m) 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 21 to the Group Financial Statements.
The Group had net liabilities of $74m$717m at 31 December 20132014 reflecting that its brands are not recognised in the Group statement of financial position. At the end of 20132014 the Group was trading significantly within its banking covenants and facilities.
Cash from operating activities
Net cash from operating activities totalled $624m$543m for the year ended 31 December 2013 up $152m2014 down $81m on the previous year largely due to increased cash flows relating to exceptional operating profit before exceptional items of $63m and a $76m reduction in the payment of the additional company contributions to the UK pension plan.items.
Cash flow from operating activities is the principal source of cash used to fund the ongoing operating expenses, interest payments, maintenance capital expenditure and normal dividend payments of the Group. The Group believes that the requirements of its existing business and future investment can be met from cash generated internally, disposition of assets and external finance expected to be available to it.
Cash from investing activities
Net cash inflows due to investing activities totalled $175m, compared to an outflow$123m, a decrease of $128m in 2012, reflecting the sale of the InterContinental London Park Lane for gross proceeds of $469m during the year. Of these proceeds, $52m has been placed in ring-fenced bank accounts which are subject to a charge in favour of the unfunded UK pension arrangements.over 2013. Capital expenditure on property, plant and equipment ofdecreased from $159m (2012 $44m)in 2013 to $84m as the prior year included a significant investment in hotel properties that arewere in the process of being converted to the Group’s EVEN Hotels brand. $394m of disposal proceeds primarily related to the disposal of InterContinental Mark Hopkins San Francisco and the disposal of an 80% interest in InterContinental New York Barclay.
The Group had committed contractual capital expenditure of $83m$117m at 31 December 2013 (2012 $81m)2014 (2013 $83m).
Cash used in financing activities
Net cash used in financing activities totalled $857m,$736m, which was $528m higher$121m lower than in 2012 as last year the Group raised a net $533m from new borrowings.2013. Returns to shareholders of $816m,$1,052m, comprising ordinary dividends, special dividends and share buybacks, were $30m$236m higher than in 2012. $44m (2012 $84m)2013. $68m (2013 $44m) was spent on share purchases in order to fulfil share incentive awards.
Overall net debt increased during the year by $79m$380m to $1,153m$1,533m at 31 December 2013.
|
2014.
Off-sheet balance sheet arrangements
At 31 December 2013,2014, the Group had no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Group’s financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Contractual obligations
The Group had the following contractual obligations outstanding as of 31 December 2013:2014:
Total amounts committed | Less than 1 year | 1-3 years | 3-5 years | After 5 years | Total amounts committed | Less than 1 year | 1-3 years | 3-5 years | After 5 years | |||||||||||||||||||||||||||||||
| $m | $m | |||||||||||||||||||||||||||||||||||||||
| Long-term debt obligations1, 2 | 1,080 | – | 419 | – | 661 | 1,378 | 3 | 751 | – | 624 | ||||||||||||||||||||||||||||||
| Interest payable2 | 308 | 52 | 103 | 51 | 102 | 248 | 52 | 76 | 47 | 73 | ||||||||||||||||||||||||||||||
| Derivatives | 2 | 2 | – | – | – | |||||||||||||||||||||||||||||||||||
| Finance lease obligations3 | 3,380 | 16 | 32 | 32 | 3,300 | 3,364 | 16 | 32 | 32 | 3,284 | ||||||||||||||||||||||||||||||
| Operating lease obligations | 352 | 42 | 62 | 46 | 202 | 349 | 40 | 62 | 47 | 200 | ||||||||||||||||||||||||||||||
| Agreed pension scheme contributions4 | 12 | 12 | – | – | – | 6 | 6 | – | – | – | ||||||||||||||||||||||||||||||
| Capital contracts placed | 83 | 83 | – | – | – | 117 | 117 | – | – | – | ||||||||||||||||||||||||||||||
| Kimpton acquisition | 430 | 430 | – | – | – | |||||||||||||||||||||||||||||||||||
| Total | 5,215 | 205 | 616 | 129 | 4,265 | 5,894 | 666 | 921 | 126 | 4,181 | ||||||||||||||||||||||||||||||
| 1 | Repayment period classified according to the related |
| 2 |
| 3 | Represents the minimum lease payments related to the 99-year lease (of which |
| 4 | Largely relates to US pension obligations. |
As explained in note 2633 to the Group Financial Statements, the Group completed the acquisition of Kimpton Hotel & Restaurant Group, LLC for $430m on 16 January 2015.
The acquisition was primarily financed by a buy-in$400m bilateral term loan with a term of its UK defined benefit obligationssix months plus two six-month extension periods. A variable rate of interest is payable on 15 August 2013. As a result of this transaction, the defined benefit section ofloan which has identical covenants to the UK plan is now fully funded and the Company therefore has no further contributions to make in respect of this obligation.Syndicated Facility.
Contingent liabilities
Contingent liabilities include performance guarantees with possible cash outflows totalling $48m,$29m, guarantees over the debt of equity investments of $20m and outstanding letters of credit of $41m.$40m. See note 3230 to the Group Financial Statements for further details.
Market risk
disclosures
The Group’s risk management policies and additional information regarding the financial instruments used are included in notes 21, 22, 23 and 24 of the Group Financial Statements.
The following table provides information about the Group’s borrowings and derivatives and their sensitivity to interest rates, although at both 31 December 2013 and 31 December 2012, 100% of borrowings in major currencies were fixed rate debt due to the low interest rate environment and current profile of the Group’s debt. For long-term borrowings the table presents the debt principals and related weighted average interest rates by expected maturity dates. For currency swaps, the table presents notional amounts and weighted average interest rates by expected maturity dates. Weighted average variable rates are based on rates set on the last day of the period. The actual currencies of the debt principals are indicated in parentheses.
| Expected to mature before 31 December | ||||||||||||||||||||||||||||
| 2014 | 2015 | 2016 | 2017 | Thereafter | Total | Fair value of liability | ||||||||||||||||||||||
| (local currency million, except percentages) | ||||||||||||||||||||||||||||
Long term debt |
| |||||||||||||||||||||||||||
Fixed rate public bonds (Sterling)
| – | – | 250 | – | 400 | 650 | 671 | |||||||||||||||||||||
| Average fixed rate payable | – | – | 6.0 | % | – | 3.9 | % | 4.7 | % | – | ||||||||||||||||||
Fixed rate lease debt (US dollar)
| – | – | – | – | 215 | 215 | 233 | |||||||||||||||||||||
| Fixed rate payable | – | – | – | – | 9.7 | % | 9.7 | % | – | |||||||||||||||||||
Variable rate bank debt (NZ dollar)
| – | 5 | – | – | – | 5 | 5 | |||||||||||||||||||||
| Variable interest rate payable | – | 4.7 | % | – | – | – | 4.7 | % | – | |||||||||||||||||||
Currency swaps |
| |||||||||||||||||||||||||||
Principal received (Sterling)
| – | – | 250 | – | – | 250 | – | |||||||||||||||||||||
| Fixed rate payable | – | – | 6.0 | % | – | – | 6.0 | % | – | |||||||||||||||||||
Principal paid (US dollar)
| – | – | 415 | – | – | 415 | 11 | |||||||||||||||||||||
| Fixed rate payable | – | – | 6.2 | % | – | – | 6.2 | % | – | |||||||||||||||||||
|
|
|
| IHG Annual Report and Form 20-F |
| Governance |
Governance
Plan
‘Guest Journey’ – Step two
|
| 53 |
| IHG Annual Report and Form 20-F 2014 |
Dear Shareholder
We are committed to maintaining the highest standards of corporate governance. Our governance framework, led by the Board, supports IHG’s culture, values and our commitment to conducting business responsibly, further explained on pages 24 and 25. We have in place strong and effective practices and conduct regular reviews to ensure we are compliant.
Governance and strategy
The Board is accountable for the long-term success of the Group, as well as for setting the strategic priorities and objectives of the Group and its risk appetite. We consider the interests of all of our stakeholders at all times. Shaping and implementing IHG’s strategy is the most critical role of the Board and therefore the Board dedicates ample time to discussing the Group’s strategy, not least as part of our annual strategy meeting. Further information on how the Board spent its time during 2014 can be found on page 56.
Board changes and succession planning
A high-level structure of IHG’s Board and its Committees, along with biographies of current Board and Executive Committee members, can be found on pages 55 and 57 to 61.
As announced in our 2013 Annual Report, David Kappler retired on 31 May 2014 after spending over nine years as a Non-Executive Director at IHG. He was succeeded by Dale Morrison as Senior Independent Non-Executive Director on 31 May 2014. Ian Dyson took over David’s duties as Chairman of the Audit Committee on 1 April 2014. We also said goodbye to Jonathan Linen, who retired from the Board on 31 December 2014 after spending nine years with the business.
In August 2014, we announced the appointment of Jo Harlow to the Board and Audit, Nomination and Remuneration Committees effective as of 1 September 2014. Jo’s appointment fulfils one of the objectives I highlighted last year, which was to enhance the Board’s capabilities and competencies by appointing a Non-Executive Director with specific consumer-facing technology experience given the significance of this area in our strategy.
Finally, in December 2014, we announced Kirk Kinsell would step down from the Board on 13 February 2015. Kirk was succeeded as Chief Executive Officer, The Americas by Elie Maalouf, who sits on IHG’s Executive Committee. I would like to thank Kirk for his long-standing contribution to IHG, most recently as a Board member and President of The Americas region.
We are also pleased to welcome Anne Busquet to the Board as a Non-Executive Director effective as of 1 March 2015. Anne will sit on the Audit, Corporate Responsibility and Nomination Committees. Anne has an impressive breadth of experience in digital commerce, hospitality, finance and marketing.
Our Board Committees
We continually review the Board’s composition to ensure we have the right balance of skills to support the business both today and in the future. This includes a regular review of the
size, experience, diversity and gender of our Board, which is conducted by ourNomination Committee (see page 69 for its report). We value the benefits that diversity brings, having had at least 25 per cent female representation on our Board since 2012. Further details on our approach to diversity from Board level and throughout the organisation, including our policies in this area, can be found on pages 61 and 62.
TheAudit Committee plays a substantial role in ensuring appropriate governance and challenge around our risk and assurance processes. In line with our 2014 priorities, a major focus area has been the risks relating to information security and technology. More information can be found in the Audit Committee Report on pages 65 to 67.
In 2014, theCorporate Responsibility Committee continued to drive engagement of our three corporate responsibility programmes and deliver against our five-year corporate responsibility targets (see page 68 for its report).
At our 2014 AGM, our Directors’ Remuneration Policy was approved with a 90.94 per cent vote in favour. We are not making any changes to this Policy this year, however, we have provided a summary of it in ourDirectors’ Remuneration Report, which can be found on pages 76 to 91. This includes information about the Committee, the Annual Report on Directors’ Remuneration and Implementation of our Directors’ Remuneration Policy in 2015.
Board effectiveness
For 2014, we conducted an internal evaluation on Board effectiveness. During 2014, we progressed the actions that were highlighted from the 2013 external evaluation, which enabled us to further inform enhancements to our Board processes. Details of both the 2013 and 2014 evaluation, including the process and recommendations, can be found on pages 63 and 64.
Structure of the report
This year we have restructured our Corporate Governance Statement, setting out a review of our 2014 activities at the start, followed by each Board Committee’s report and finally details of how we have complied with the UK Corporate Governance Code published in September 2012 (the Code). We have aimed to provide greater transparency on compliance with the Code, making this easier to follow.
I am pleased to report that, during 2014, we complied fully with all principles and provisions of the Code, with the exception of the provision relating to audit tendering (see page 70), as we believe it would not be in the best interests of the Group to undertake an audit tender at this time (see pages 66 and 67).
Objectives for the year
My objectives for the Board this year are to ensure that the focus and composition of the Board continues to evolve to support the execution of our strategy and the opportunities and challenges we face. Our 2015 Board agenda will allow time for continued focus on our technology strategy and in-depth reviews of our brands and our priority markets. This year, our annual strategy meeting will be held in Greater China.
|  | |||||||
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 | Patrick Cescau Non-Executive Chairman
|
| 54 |
Compliance and our dual listing
As a dual listed company with a premium listing on the London Stock Exchange and a secondary listing on the New York Stock Exchange, we are required to file both an Annual Report in the UK, which complies with the Code, and an Annual Report on Form 20-F in the US, which complies with the NYSE rules, US securities laws and the rules of the Securities and Exchange Commission (SEC).
For 2014, to ensure continued consistency of information provided to both UK and US investors, we have for the second time produced a combined Annual Report and Form 20-F.
As required by the SEC, a statement outlining the differences between the Group’s UK corporate governance practices and those followed by US companies can be found on pages 173 and 174.
Our Board and Committee governance structure
The Board leads the strategic direction and long-term objectives and success of the Group through effective oversight and review, setting the Group’s strategic aims and monitoring the performance of the Group and its risk management controls.
A number of key decisions and matters are reserved for the Board’s approval and are not delegated to management, these include matters related to Group business and commercial strategy; significant investment proposals; maintaining an overview and control of the Group’s operating and financial performance; monitoring the Group’s overall system of internal controls and risk management and governance and compliance.
The Board delegates certain responsibilities to its Committees, namely the Audit Committee, Corporate Responsibility Committee, Nomination Committee and Remuneration Committee, to assist it in carrying out its functions.
56
| 55 |
| IHG Annual Report and Form 20-F |
The Board held eight scheduled meetings during 2014 and attendance by each Director is set out in the table below. Attendance at Committee meetings is indicated in each Committee report. Unless otherwise indicated, all Directors held office throughout the year.
 | ||||
| Director | Attendance | |||
| Patrick Cescau (Chairman) | 8/8 | |||
| Richard Solomons (Chief Executive Officer) | 8/8 | |||
| Executive Directors | ||||
| Paul Edgecliffe-Johnson1 | 8/8 | |||
| Kirk Kinsell | 8/8 | |||
| Tracy Robbins | 7/8 | 2 | ||
| Non-Executive Directors | ||||
| Ian Dyson | 8/8 | |||
| Jo Harlow (appointed 1 September 2014) | 3/3 | |||
| David Kappler (retired 31 May 2014) | 3/3 | |||
| Jennifer Laing | 8/8 | |||
| Jonathan Linen (retired 31 December 2014) | 7/8 | 2 | ||
| Luke Mayhew | 8/8 | |||
| Jill McDonald | 7/8 | 2 | ||
Dale Morrison (Senior Independent Non-Executive Director) | 8/8 | |||
| Ying Yeh | 8/8 | |||
| Total meetings held | 8 | |||
1Tom Singer resigned and Paul Edgecliffe-Johnson became Chief Financial Officer effective as of 1 January 2014.
2Tracy Robbins missed one Board meeting due to health reasons and Jonathan Linen and Jill McDonald missed one Board meeting due to a prior commitment known to the Board in advance.
What did the Board consider at its 2014 meetings
Strategy
The Board spends a substantial amount of time considering Group strategy. In addition to its annual strategy meeting, time was spent in 2014 discussing strategic areas and business updates, including:
Annual strategy meeting
We held our 2014 annual two-day strategy meeting in Singapore. This included:
A third day was added to give the Board the opportunity to visit hotels across our brand portfolio in Singapore and interact with general managers of our hotels and their teams.
Governance
Investor relations
Regular agenda items
As part of general monitoring of the Group and its compliance with the governance framework, certain matters are regularly included on Board meeting agendas. These include an update on the business from the Chief Executive Officer, finance updates from the Chief Financial Officer (which includes a financial review of the Group), and deep dives on each region and function presented by Executive Committee members and other senior management.
Meetings without Executive Directors
During 2014, at the end of each Board meeting, our Non-Executive Directors met with the Chairman without the Executive Directors present. They also regularly met with the Chief Executive Officer without the other Executive Directors present.
| 56 |
Who is on our Board of Directors
 | Patrick Cescau Non-Executive Chairman |  | ||
Appointed to the Board: 1 January 2013 | ||||
Skills and experience:From 2005 to 2008, Patrick was Group Chief Executive of Unilever Group, having previously been Chairman of Unilever PLC, Vice-Chairman of Unilever NV and Foods Director, following a progressive career with the Company, which began in France in 1973. Prior to being appointed to the Board of Unilever PLC and Unilever NV in 1999, as Finance Director, he was Chairman of a number of the Company’scompany’s major operating companies and divisions, including in the US, Indonesia and Portugal. He was formerly a Senior Independent Director and Non-Executive Director of Pearson plc and a Director at INSEAD.
Board contribution:Patrick has held Boardboard of director positions for more than 13nearly 15 years in leading global businesses and brings extensive international experience in brands, consumer products, as well as finance. As Chairman, Patrick is responsible for leading the Board and ensuring it operates in an effective manner and promoting constructive relations with shareholders. He is also Chairman of the Nomination Committee.
Other appointments:Currently a Non-Executive Director of International Consolidated Airlines Group S.A. and the Senior Independent Non-Executive Director of Tesco PLC. Patrick is also a trustee of The Leverhulme Trust and Chairman of the St Jude India Children’s Charity. He was formerly a Senior Independent Director and Non-Executive Director of Pearson PLC and a Director at INSEAD.Trust.
 |
Chief Executive Officer Appointed to the Board: 10 February 2003 |
Skills and experience: During his tenure as Chief Executive Officer, Richard has led the continued growth of IHG, including the launch of our two newest brands, HUALUXE Hotels and Resorts and EVEN Hotels and IHG’s acquisition of Kimpton Hotels & Restaurants. Before being appointed Chief Executive Officer, Richard served as Chief Financial Officer and Head of Commercial Development. Richard was integral in shaping and implementing IHG’s asset-light strategy, which has helped the business grow significantly since it was formed in 2003, as well as supporting the return of $10.4 billion to shareholders. In 2008, he served as Interim President of our Americas region. Richard is a member of the Executive Committee of the World Travel and Tourism Council, a member of the Industry Real Estate Financing Advisory Council and a Governor of the Aviation and Travel Industry Group of the World Economic Forum.
Board contribution:Richard is responsible for the executive management of the Group and ensuring the implementation of Board strategy and policy.
 | Paul Edgecliffe-Johnson Chief Financial Officer Appointed to the Board: 1 January 2014
|
Skills and experience: Paul is a chartered accountant and a fellow of the Institute of Chartered Accountants. He was previously Chief Financial Officer of IHG’s Europe and Asia, Middle East &and Africa regions, a position he held since September 2011. He joined IHG in August 2004 and has held a number of senior level finance positions, including Head of Investor Relations, Head of Global Corporate Finance and Financial Planning & Tax and Head of Hotel Development, Europe. Paul also acted as Interim Chief Executive Officer of the Europe, Middle East and Africa regions.
Board contribution:Paul is responsible, together with the Board, for overseeing the financial operations of the Group and setting its financial strategy.
Committee membership key
Audit Committee member
Corporate Responsibility Committee member
Nomination Committee member
Remuneration Committee member
 |
| | ||
Skills and experience:During his tenure as Chief Executive Officer, Richard has led the continued growth of IHG, including the launch of our two newest brands, HUALUXE Hotels & Resorts and EVEN Hotels. He has also overseen the recent relaunch of IHG’s loyalty programme as IHG Rewards Club. Before being appointed Chief Executive Officer, Richard served as Chief Financial Officer and Head of Commercial Development at IHG. 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 £9 billion to shareholders. In 2008, he also served as Interim President of our Americas business.
Board contribution: Richard is responsible for the executive management of the Group and ensuring the implementation of Board strategy and policy.
 |
|
Skills and experience: Kirk has 30 years’ experience in the hospitality industry, including senior franchise positions with Holiday Inn Corporation and ITT Sheraton. He joined the Group in 2002 as Senior Vice President, Chief Development Officer for The Americas region. He became an Executive Committee member in September 2007 and was previously President, Europe, Middle East and Africa until June 2011.
Board contribution:Kirk has vast experience in the hospitality industry and is responsible for the business development and performance of all the hotel brands and properties in The Americas region.
 | Tracy Robbins Executive Vice President, Human Resources and Group Operations Support Appointed to the Board: 9 August 2011
|
Skills and experience:Tracy has over 28nearly 30 years’ experience in human resources roles in service industries. She joined the Group in December 2005 from Compass Group PLC, a world-leading food service company, where she was Group Human Resources Leadership & Development Director. Previously, she acted as Group HR Director for Forte Group plc, a hotel company. SheTracy also spent seven years at Tesco PLC as a Retail Human Resources Manager where she implemented a culture change and restructuring strategy across 150 stores.
Board contribution:Tracy has many years of experience in human resources and is responsible for global talent management, leadership development, employee reward strategy and implementation, organisational capability and operations support.
Board Committee membership key | ||
 | Audit Committee member | |
 | Corporate Responsibility Committee member | |
 | Nomination Committee member | |
 | Remuneration Committee member | |
| Denotes Chairman of a Board Committee | |
|
| IHG Annual Report and Form 20-F 2014 |
CorporateGovernance continued
Who is on our Board of Directorscontinued
 |
Senior Independent Non-Executive Director |  | ||
Appointed to the Board: | ||||
Skills and experience: DavidDale is a fellowfounding partner of the Chartered Institute of Management Accountants. FormerlyTriPointe Capital Partners, a private equity firm. Dale was previously President and Chief FinancialExecutive Officer of Cadbury Schweppes plcMcCain Foods Limited and President and Chief Executive Officer of Campbell Soup Company.
Board contribution: Dale has over 10 years’ experience in sales and marketing positions, and over 25 years’ experience in general management, having held senior positions in the branded foods sector. He was appointed as the Board’s Senior Independent Non-Executive Director on 31 May 2014.
Other appointments:Currently a Non-Executive Director of International Flavors & Fragrances Inc., a producer of flavours and fragrances, and Non-Executive Chairman of Premier Foods plc. He also served asFindus Group, a frozen food company.
 | Ian Dyson Independent Non-Executive Director Appointed to the Board: 1 September 2013 |
Skills and experience:Ian has held a number of senior executive and finance roles including Group Finance & Operations Director of Camelotfor Marks and Spencer Group plc for five years from 2005 to 2010, where he oversaw significant changes in the business. In addition, Ian was Chief Executive Officer of Punch Taverns plc, a pub and HMVbar operator, Finance Director for the Rank Group plc.Plc, a leading European gaming business, and Group Financial Controller and Finance Director for the hotels division of Hilton Group Plc.
Board contribution: David brings over 35 years’ knowledge andIan has gained significant experience from working in financial reporting, risk management and internal financial controls. Asvarious senior finance roles predominantly in the hospitality sector. Ian became Chairman of the Audit Committee heon 1 April 2014 and as such is responsible for leading the Committee to ensure effective internal controls and risk management systems are in place.
Other appointments:Currently a Non-Executive Director of Shire plc, a member of the Europe Advisory Council of Trilantic Capital Partners and Chairman of ADS2 Brands Limited.
 |
| | ||
Skills and experience: Ian has held a number of senior executive and finance roles including Group Finance & Operations Director for Marks & Spencer Group plc for 5 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, and Group Financial Controller and Finance Director for the hotels division of Hilton Hotels & Resorts.
Board contribution: Ian has gained significant experience from working in various senior finance roles predominantly in the hospitality sector.
Other appointments: Currently a Non-Executive Director of Punch Taverns plc, a Non-Executive Director and Chairman of the Audit Committee of BetfairSSP Group plc and Senior Independent Non-Executive Director and Chairman of the Audit Committee of ASOS Plc and Betfair Group plc.
 | Jo Harlow Independent Non-Executive Director Appointed to the Board: 1 September 2014 |
Skills and experience:Jo has held the position of Corporate Vice President of the Phones Business Unit at Microsoft Corporation since May 2014. She was previously Executive Vice President of Smart Devices at Nokia Corporation since February 2011, following a number of senior management roles at Nokia since 2003. Prior to that, she held marketing, sales and management roles at Reebok International Limited from 1992 to 2003 and at Procter & Gamble Company from 1984 to 1992.
Board Contribution:Jo has over 25 years’ experience working in various senior roles predominantly in the branded and technology sectors.
Other appointments:None.
 | Jennifer Laing Independent Non-Executive Director |  | ||
Appointed to the Board: 25 August 2005 | ||||
Skills and experience:Jennifer was Associate Dean, External Relations at London Business School, until 2007. A fellow of the Marketing Society and of the Institute of Practitioners in Advertising, she has over 30 years’ experience in advertising including 16 years with Saatchi & Saatchi where she rose to Chairman of the London office and subsequently Chief Executive Officer and Chairman of Saatchi & Saatchi North America. Until May 2014, she was also a Non-Executive Director of Hudson Global, Inc.
Board contribution:Jennifer has over 30 years’ experience in marketing and advertising and is Chairman of the Corporate Responsibility Committee, responsible for the Corporate Responsibility objectives and strategy.strategy and approach to sustainable development.
Other appointments:Currently a Non-Executive Director of Hudson Global, Inc., a US human resources company and Premier Foods plc, a branded food producer.
 |
|  | ||
Skills and experience: Jonathan was formerly Vice Chairman of the American Express Company, having held a range of senior positions throughout his career of over 35 years with American Express.
Board contribution: Jonathan has over 25 years’ experience working in the financial and branded sectors and is a member of the Remuneration Committee.
Other appointments: Currently a Non-Executive Director of Yum! Brands, Inc. and Modern Bank, N.A., a US private banking company. Jonathan also serves on a number of US councils and advisory boards.
58 |
  | Luke Mayhew Independent Non-Executive Director |  | ||
Appointed to the Board: 1 July 2011 | ||||
Skills and experience:Luke served for 12 years on the Board of John Lewis Partnership plc, including as Managing Director of the Department Store division. Luke also spent five years at British Airways Plc and seven years at Thomas Cook Group PLCplc in senior positions. He was also a Non-Executive Director of WHSmith PLC and Chairman of Pets at Home Group Limited.Plc.
Board contribution:Luke has over 30 years’ experience in senior roles in the branded sector and was Remuneration Committee Chairman at Brambles Limited from 2006 to 2013.2014. As Chairman of the IHG Remuneration Committee he is responsible for setting the remuneration policy.
Other appointments:Currently a Non-Executive Director of Brambles Limited,DFS Furniture Holdings plc, and a global provider of supply chain and information management solutions, and trustee of BBC Children in Need.
  | Jill McDonald Independent Non-Executive Director |  | ||
Appointed to the Board: 1 June 2013 | ||||
Skills and experience:Jill started her career at Colgate-Palmolive Company, spent 16 years with British Airways Plc and held a number of senior marketing positions in the UK and overseas.
Board contribution:Jill has over 26nearly 30 years’ experience working with high-profile international consumer facingconsumer-facing brands at both marketing and operational level.
Other appointments:Currently Chief Executive Officer UK and President for the North West Europe Division for McDonald’s. Prior to that Jill was Chief Executive Officer UK and President for the Northern Division (2010 to 2013) and previously Senior Vice President, Chief Marketing Officer UK and Northern Division (2006 to 2010).
Committee membership key
Audit Committee member
Corporate Responsibility Committee member
Nomination Committee member
Remuneration Committee member
 |
|  | ||
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.
Other appointments:Currently a Non-Executive Director of International Flavors & Fragrances Inc., a producer of flavours and fragrances, and Chairman of Findus Group, a frozen food company.
| Ying Yeh Independent Non-Executive Director | | ||
Appointed to the Board: 1 December 2007 | ||||
Skills and experience:Ying was formerly Vice President and Chairman, Greater China Region, Nalco Company, and Chairman and President, North Asia Region, President, Business Development, Asia Pacific Region and Vice President, Eastman Kodak Company. She was previously a Non-Executive Director of AB Volvo, a transportation related products and services company, and for 15 years, a diplomat with the US Foreign Service in Hong Kong and Beijing until 1997.
Board contribution:Ying has over 20 years’ experience gained from working in senior positions in global organisations across a broad range of sectors.
Other appointments:Currently a Non-Executive Director of AB Volvo, a transportation related products and services company, ABB Ltd, a global leader in power and automation technologies, and Samsonite International S.A., a travel luggage company.
| The Board is supported by the Company Secretary:
Executive Vice President, General Counsel and Company Secretary Appointed to the Executive Committee: January 2009 (Joined the Group: 2008) |
Key responsibilities:These include corporate governance, risk management, insurance, regulatory, internal audit, legal, corporate responsibility, public affairs and standards.
In additionChanges to the Executive Directors on the Board the Executive Committee comprises:
 Tom Singer | Tom resigned as Chief Financial Officer effective as of 1 January 2014. | |
Paul Edgecliffe-Johnson | Paul joined the Board as Chief Financial Officer effective as of 1 January 2014. | |
David Kappler | David retired as Senior Independent Non-Executive Director effective as of 31 May 2014. | |
Jo Harlow | Jo joined the Board as a Non-Executive Director effective as of 1 September 2014. | |
Jonathan Linen | Jonathan retired as a Non-Executive Director effective as of 31 December 2014. | |
Kirk Kinsell | Kirk resigned as President, The Americas effective as of 13 February 2015. | |
Anne Busquet | Anne will be joining as a Non-Executive Director effective as of 1 March 2015. |
| 59 |
| IHG Annual Report and Form 20-F 2014 |
CorporateGovernance continued
Who is on our Executive Committee
In addition to the Executive Directors and the General Counsel and Company Secretary, the Executive Committee comprises:
 | Keith Barr Chief Commercial Officer Appointed to the Executive Committee: April 2011 (Joined the Group: 2000)
|
Skills and experience:Keith has over 20 years’ experience in the hospitality industry. He has held senior appointments at IHG including Vice President of Sales and Revenue Management, Vice President of Operations, Chief Operating Officer, Australia, New Zealand and South Pacific, and Managing Director, Greater China. He became an Executive Committee member in April 2011 and prior to becoming Chief Commercial Officer, was previously Chief Executive, Greater China until May 2013. Keith is currently a member of Leland C. and Mary M. Pillsbury Institute for Hospitality Entrepreneurship Advisory Board.
Key responsibilities: These include global sales, marketing and brand functions, to drive consistent brand strategies across all regions and leverage IHG’s scale and systems to deliver continued industry outperformance.
  | Angela Brav Chief Executive, Europe Appointed to the Executive Committee: August 2011 (Joined the Group: 1988)
|
Skills and experience:Angela has over 25 years’ experience in the hospitality industry, including hotel operations, franchise relations and technology solutions. She has held various senior roles in IHG’s North American and European regions prior to becoming Chief Operating Officer, North America. She was appointed Chief Executive, Europe in August 2011.
Key responsibilities:These include business development and performance of all the hotel brands and properties in Europe.
  | Elie Maalouf Chief Executive Officer, The Americas Appointed to the Executive Committee: February 2015 (Joined the Group: 2015) |
Skills and experience:Elie was appointed Chief Executive Officer, The Americas at IHG in February 2015, having had over 15 years’ experience working in a major global franchise business. He joined the Group having spent six years as President and Chief Executive Officer of HMSHost Corporation, a global travel and leisure company, where he was also a member of the Board of Directors. Elie brings broad experience to IHG spanning development, branding, finance, real estate and operations management, as well as highly relevant food and beverage expertise. He was most recently a Senior Advisor with McKinsey & Company.
Key responsibilities:These include business development and performance of all the hotel brands and properties in The Americas region.
 | Kenneth Macpherson Chief Executive, Greater China Appointed to the Executive Committee: April 2013 (Joined the Group: 2013)
|
Skills and experience:Kenneth joined IHG as Chief Executive, Greater China in April 2013. Prior to joining the Group, he worked for Diageo plc, one of the UK’s leading branded companies, for over 19nearly 20 years and has held senior management positions, including serving as Executive Managing Director of Diageo Greater China. Kenneth has extensive management experience, with a background in sales, marketing strategy, business development and operations. Kenneth also brings substantial knowledge and expertise in Chinese and international business operations.
Key responsibilities:These include business development and performance of all the hotel brands and properties in the Greater China region.
There are no family relationships between any of the Board or Executive Committee members (set out on pages 57 to 61). There are no arrangements or understandings with major shareholders, customers, suppliers or others, pursuant to which any of the Board or Executive Committee were selected as a Director or member of the Executive Committee.
| 60 |
  | Eric Pearson Executive Vice President and Chief Information Officer Appointed to the Executive Committee: February 2012 (Joined the Group: 1997)
|
Skills and experience:Eric has a background in engineering and technology and started his career at IHG over 17nearly 20 years ago. Since then he has held various senior positions in the field of emerging technologies and global e-commerce. Prior to being appointed Chief Information Officer, Eric most recently held the position of Chief Marketing Officer for The Americas region.
Key responsibilities: These include global technology, including IT systems and information management, throughout the Group.
  | Jan Smits Chief Executive, Asia, Middle East and Africa Appointed to the Executive Committee:
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Skills and experience:Jan has 3233 years’ experience in the hospitality industry. He held various senior positions in the Asia and Australasia region. He became Managing Director, Asia Australasia in June 2009. Following the amalgamation of our Middle East and Africa region with our Asia Australasia region, he became Chief Executive, Asia, Middle East and Africa in August 2011.
Key responsibilities:These include business development and performance of all the hotel brands and properties in Asia, Middle East and Africa.
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Skills and experience: George is a solicitor and qualified to private practice in 1995. Prior to joining the Group, George spent 12 years with Imperial Chemical Industries where he held a number of key positions including Deputy Company Secretary. He was appointed Executive Vice President, General Counsel and Company Secretary in January 2009.
Key responsibilities:These include corporate governance, risk management, insurance, regulatory, internal audit, legal, corporate responsibility, public affairs and standards.
There are no family relationships between any of the Board or Executive Committee members (set out on pages 57 to 60). There are no arrangements or understandings with major shareholders, customers, suppliers or others, pursuant to which any of the Board or Executive Committee were selected as a Director or member of the Executive Committee.
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Board
Board membership
During the year, Jill McDonald (1 June 2013) and Ian Dyson (1 September 2013) were appointed to the Board as independent Non-Executive Directors. On 1 January 2014, Paul Edgecliffe-Johnson was appointed to the Board as Chief Financial Officer following Tom Singer’s resignation.
In 2014, David Kappler will retire from the Board (31 May 2014), Ian Dyson will become Audit Committee Chairman (1 April 2014) and Dale Morrison will become the Senior Independent Director (31 May 2014).
Biographical details of each member of the Board including their external commitments, can be found on pages 57 to 59.
Boardcomposition and Committee structurediversity
The Board has delegated authoritybelieves that, in order to four committees:be most effective, objectively challenge management and encourage different perspectives for debate, it must have an appropriate mix of skills, experience, knowledge and diversity in line with our business. The Nomination Committee supports the Board in respect of reviewing Board composition and continuously monitors succession planning. See page 69 for the Nomination Committee Report.
See pages 66 to 69Independence and 74 to 97 for the Committee Reports. There are also three management committees, which together provide a sound governance framework, see page 65.
Key responsibilitiestenure
Board
The Board and Nomination Committee regularly review the independence of each Non-Executive Director. Jennifer Laing has a schedule of matters reserved for it, which are availableserved on the website at www.ihgplc.com/investors under corporate governance. Service contracts and letters of appointment set out in writing the roles of each of the Directors including the Chairman and Chief Executive Officer (see below).
Chairman – Patrick Cescau
Patrick Cescau, in conjunction with Richard Solomons and George Turner, ensure that Directors receive a full, formal and tailored induction to the Group and ongoing training as relevant. The roles of the Chairman and Chief Executive Officer are clearly established and separate.
Chief Executive Officer – Richard Solomons
Richard Solomons is assisted in meeting his responsibilities by Paul Edgecliffe-Johnson, Chief Financial Officer, and the Executive Committee (who head up the Group’s principal operations and functions).
Senior Independent Non-Executive Director – David Kappler
Independent Non-Executive Directors
Company Secretary – George Turner
Board composition
The Board’s current composition meets the requirement of the Code for at least half the Board, excluding Patrick Cescau, to be independent Non-Executive Directors. The Chairman was independent on appointment to the Board.
In the Board’s view, all of the current Non-Executive Directors are independent including David Kappler who has served as a Director for over 9 years and who will be retiring from the Board on 31 May 2014.
Notwithstanding David’s length of tenure, the Board is satisfied that David Kapplershe continues to demonstrate independence in character and judgement and that it remains appropriate to regard himis independent as independentrequired under provision B.1.1 of the Code. David therefore continues to serveThe Board has also considered this and reached the same conclusion. Excluding the Chairman, 70 per cent (as at 16 February 2015) and 67 per cent (as at 31 December 2014) of our Board comprise independent Non-Executive Directors.
As Ying Yeh has also been on the Board as Senior Independent Non-Executive Directorfor over six years, both her and AuditJennifer’s continued appointments were the subject of particular review and scrutiny by the Nomination Committee Chairman.
At each AGM all Directors stand for re-election.
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Length of Non-Executive Director tenure
Theand the Board. Our current Non-Executive Directors’ lengths of tenure as at 31 December 201316 February 2015 are illustratedshown below:
Board balance of skills and experience
Collectively, the Board has an appropriate balance of skills, experience, independence, knowledge and diversity to enable it to discharge its duties and responsibilities effectively.
Below is a chart showing the Board’s balance of skills and experience:
| 61 |
| IHG Annual Report and Form 20-F 2014 |
Corporate Governancecontinued
Board composition and diversitycontinued
Board Diversity Policy (BDP) and Global Diversity and inclusionInclusion Policy (GDIP)
With a presence in nearly 100 countries and territories globally, we value the benefits of diversity, beyond gender, and strongly believe that our leadership should reflect the diversity of our employees, our guests and the local communities in which we operate. TheTherefore, the Board recognises the benefitsseeks diversity of diversityskills, experience, geographical representation and gender both in its composition and throughout our global business.
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.
Further details on our commitment to diversitybusiness. In 2013, we introduced a Board Diversity Policy as well as a Global Diversity and inclusion throughout the business together with statistics are set out on page 23.
Board diversity policy
Our Board diversity policy, introduced in 2013, aimsInclusion Policy to ensure that diversity in its broadest sense remains a key prioritypriority.
Progress against the objectives of the Board.
Our objectives are as follows:each of these policies during 2014:
BDP objective: Whilst all appointments are made on merit, we seek to ensure that the Board maintains an appropriate balance through a diverse mix of experience, backgrounds, skills, knowledge and insight, to further strengthen the diversity of gender and experience already on the Board and improve it further |
Our Board members bring multinational experience to IHG, having themselves worked across a number of countries. The diverse nationalities of our Board are reflected below: |
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| Collectively the Board also has a broad collection of industry skills and experience in line with IHG’s business and strategic focus, to enable it to discharge its duties and responsibilities effectively: |
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We are currently in compliance with all of the above objectives. We firmly believe in the importance of a diverse Board membership and fully support the UK Lord Davies Report on ‘Women on Boards’. Currently, the Board includes four women (31%) and four nationalities.
Our current Board gender and nationality split is illustrated below:
Board gender
Board nationalities
BDP objective: We commit to having diverse and inclusive leadership which supports all colleagues in reaching their full potential, including the development of a pipeline of high-calibre candidates from within the business |
GDIP objective: To strengthen female representation in our global senior leadership population, with a target of reaching 25% by the end of 2015
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| We have 52 people comprising our senior leadership population at our corporate offices and central reservations offices who are employed by the Group and are part of our senior leadership team, 14 of these people are females (27 per cent). This is in line with our 2015 target and is an increase from the 21 per cent in 2013. This reflects both external appointments and internal promotions of female talent during 2014. We have also worked with executive search firms to ensure we have better gender balance on shortlists for senior leadership appointments. |
From 2015, each of our Executive Committee members will be mentoring our high-potential senior leaders. |
BDP and GDIP objective: Maintain a level of at least 25% female directors on the Board over the short to medium term |
We firmly believe in the importance of a diverse Board membership and fully support the Lord Davies Report on ‘Women on boards’. Jo Harlow joined our Board on 1 September 2014. Our Board currently comprises 11 Directors, five of whom are women. This continues our record since 2012 of having more than 25 per cent females on the Board: |
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We remain committed to maintaining at least 25 per cent female representation on the Board over the short to medium term, but the Nomination Committee does recommend appointments based on merit, ensuring there is an appropriate mix on the Board (as set out above and in its report on page 69). |
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Board meetings
The Board meets eight times each year with additional meetings scheduled as necessary. One of the meetings is a two-day strategy meeting, in which the Board considers the Group’s strategy and related issues. This provides an opportunity for the business to have a wide-ranging dialogue with the Board and for the Board to meet many of our senior management and gain a deeper understanding of different markets. In 2013, the Chairman and the Non-Executive Directors met without Executive Directors being present, and intend to continue this practise, before every Board meeting if possible.
Patrick Cescau, in conjunction with George Turner, plans the agenda for each Board meeting. This is a two tier process, combining our annual agenda of regular items, which ensures all critical topics and strategic updates are covered, with a detailed schedule of areas for presentation at Board meetings.
Directors are briefed on the Group’s financial performance and its operations, key commercial matters and progress against key strategic plans and relations with investors, by means of comprehensive papers in advance of, and presentations at, Board meetings.
The Board also receives more in-depth presentations on a wide range of business issues in a more informal context the evening before formal Board meetings. Evening presentation topics during 2013 included:
Should any Director be unable to attend a meeting, he or she would be provided with all the papers and information relevant to that meeting in advance and be able to discuss matters arising with Patrick Cescau and Richard Solomons.
Board annual strategy meeting
During 2013, the Board held its two-day strategy meeting in Washington D.C., US, which enabled the Board to look in depth at the long-term strategic direction of the Group, understand progress against key strategic priorities and confirm those areas which require ongoing Board oversight. The discussion topics included: major trends in the industry, new business development opportunities, and an overview of the medium to long-term financial impacts of our strategic choices. There was also an opportunity to visit a cross-section of competitor hotels.
Key issues discussed in 2013 meetings
At each meeting the Board has the following standing items on the agenda: Chairman’s matters, Chief Executive Officer’s matters, finance updates from the Chief Financial Officer, business updates from various members of the Executive Committee, risk management, secretariat updates (including corporate governance), media and investor relations updates and conflicts of interest review.
Key areas of focus for the Board in 2013 included:
GDIP objective: To sustain a healthy balance of gender in the whole employee organisation
| We continue to take action to sustain a healthy gender balance and review diversity throughout our organisation. Out of the 12,772 people employed by the Group whose costs are borne by the Group or the System Fund (see pages 23, 120 and 152), 7,069 are female (55 per cent). | ||||
• establishing internal forums to increase support and mentoring for female colleagues and high-potential female employees; |
• continuing to review ways to increase local representation on the leadership and management teams in emerging markets. In Greater China, our Regional Operating Committee has three local leaders, thereby strengthening our local leadership talent.
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Independent advice
All Directors have access to the advice and services of George Turner, the Company Secretary, the Company’s external legal advisers and the external Auditor, who is currently Ernst & Young LLP. There is an agreed process by which Directors may seek independent professional advice at the Company’s expense in the furtherance of their duties.
Conflicts of interest and independence
The Board reviews potential conflicts of interest and independence as a standing agenda item at each Board meeting with a review conducted annually. As authorised by the Articles, the Board considers and approves all potential conflicts of interest as it deems appropriate. Directors have continuing obligations to update the Board on any changes to these conflicts or their independence.
Directors and officers liability (D&O) insurance
The Company maintains D&O insurance which covers Directors and officers of the Company against defending civil proceedings brought against them in their capacity as a Director or officer of the Company. There were no indemnity provisions relating to the UK pension plan for the benefit of the Directors during 2013.
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The Board believes that, in order to be most effective, it must have a mix of skills and experience, background and length of service. Further details can be found on page 62. The structure, size and composition of the Board and succession planning is continuously monitored by Patrick Cescau and the Nomination Committee. Further details can be found in the Nomination Committee Report on page 69.
A summary of each Director’s attendance at meetings of the Board and its principal Committees during 2013 is shown below. Unless otherwise indicated, all Directors held office throughout the year:
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Annual re-election of Directors
All Directors retire at each AGM and are subject to shareholder re-election in line with the Code recommendations. Details of Directors’ service contracts and appointment terms are set out on pages 85 and 86.
Director induction, training and development
New Director induction
There isNew Directors receive a tailoredfull and formal induction programme for all Director appointments which is designedtailored to meet their individual needs and accordsin accordance with best practice. Induction programmes were developed for Jill McDonald and Ian Dyson, and Paul Edgecliffe-Johnson has also received an appropriateThis induction, to his role as Chief Financial Officer. All Directors are encouraged to request further information as they consider necessary to fulfil their role.
Key aspects ofled by the induction are as follows:Chairman, includes the following key areas:
On appointment, Directors are advisedJo Harlow’s induction
Jo’s induction centred on providing her with an understanding of IHG and requestedour business to make the necessary time commitment requiredenable her to discharge their responsibilities effectively. Patrick Cescau reviews the time each Non-Executive Director has dedicatedcontribute her knowledge, skills and experience effectively to the Company, as partBoard. The key areas included:
| • | information on the Group, including our history, brands, regional structure and operations; strategy and business model; KPIs; commercial strategy; the IHG Owners Association; and regulatory compliance; |
| • | information on the Board, its Committees and IHG’s governance processes with particular focus on the Audit, Nomination and Remuneration Committees in light of her appointment to these; |
| • | our approach to internal controls and risk management; and |
| • | meetings with members of the Board and the Executive Committee, senior management from functions across the Group and the external Auditor. |
Since her appointment, Jo has had the annual Board performance evaluation.opportunity to visit our UK and US corporate headquarters, meet and address the Group’s senior leaders at our Senior Leaders Meeting held in Seattle, and tour hotels across our brands in Greater China, the US and the UK.
Ongoing Director training and development
The updating of all Directors’ skills and knowledge, ongoing training and development, and understanding of the Group’s business and operations is a progressive exercise.exercise:
During 2013, the Directors received briefings on a number of legal and regulatory developments, including updates on director remuneration legislation, regulatory changes to annual reporting and various ABI and PIRC corporate governance guidelines.
We also invite different Non-Executive Directors to attend our large annual conferences. In 2014, two Non-Executive Directors attended the IHG Americas Investors & Leadership Conference which took place in Las Vegas, US. This enables Directors to interact with current and potential owners and gain an insight first hand of the key areas of focus for the business.
Board performanceeffectiveness evaluation
IHG has always recognised the importance of evaluating the performance of the Board as a whole, its main Committees and its Directors, in line with the Code recommendations.
Progress against our 2013 evaluation
In 2013, we conducted an externally facilitated independent evaluation as detailed in our 2013 Annual Report.
Our progress in 2014 against the actions identified is set out below:
| Observations | Action taken during 2014 | |
Increase the Board’s oversight of new technology | The Board was regularly updated on new technology developments. Technology was an agenda item at Board meetings and the Board also received an evening presentation from external consultants entitled ‘Winning with Technology’. The Audit Committee also discussed the Group approach to information security – see page 66. | |
Enhance the Board’s use of time and gain a deeper understanding of priorities and risks | Board meeting agendas had an increased focus on industry and consumer trends, including information on our competitors, as well as regular updates on our progress on major projects. | |
Consider future Board composition and succession | Five Nomination Committee meetings were held in 2014 reflecting our focus on Board and Executive Committee succession planning and Board composition in light of IHG’s current and future focus (see page 69). We prioritised the search for a Non-Executive Director with experience in consumer-facing technology, which led to the appointment of Jo Harlow in September 2014. |
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| IHG Annual Report and Form 20-F |
Our 2014 evaluation process
Our 2014 evaluation was conducted internally. Each member of the Board completed an effectiveness questionnaire, which centred around the progress against actions identified in our 2013 Board performance evaluation
Process
Boardroom Review, an independent external facilitator with no other connection to IHG, carried outeffectiveness evaluation. Key areas included the 2013 Board performance evaluation. This included confidential interviews with each Directorregularity of meetings, appropriateness of location (especially in enabling us to gain ana better understanding of our Board’s performancebusiness), the decision-making process, executive management succession planning, impact of internal and consider its effectiveness.
Results
external technology developments, and risk management and assurance oversight. It also invited Directors to make other general or specific observations. The results ofwere analysed and the review werereport was presented for discussion at the Board’s February 2015 meeting.
The Board meeting in February considered the performance of its Committees and internal performance evaluations of Directors were undertaken as follows:
| Director being appraised | Appraiser | |
| Chairman | Non-Executive Directors excluding the Chairman and facilitated by the Senior Independent Non-Executive Director | |
Chief Executive Officer | Chairman and all Non-Executive Directors | |
Executive Directors | Chief Executive Officer | |
Non-Executive Directors | Chairman |
2014 Board effectiveness evaluation observations and action plan:
| Observations | Action to be taken | |
| Increase the Board’s focus on brands | Deep dives into each brand strategy to be provided to the Board. | |
| Enhance the Board’s understanding of competitors’ strategy and performance | Presentations on competitors’ strategies and offerings. Competitive analysis to be included in both financial results and strategic reviews. | |
| Increase the Board’s exposure to the Group’s US business | Ensure opportunities are secured for meeting with the newly appointed Chief Executive Officer for The Americas region. Increase the Board’s understanding of the Kimpton brand. Deep dives into the strategy for core brands in the US. Firmer understanding of the EVEN Hotels brand’s growth strategy. |
It was confirmed that the Board and each of its Committees continue to operatewere operating effectively, the composition of the Board is strong and that each Director bringscontinues to bring relevant knowledge, diversity of perspective, an ability and willingness to challenge and retains a strong commitment to the role. Further strengths included the Board culture, use of time, increasingly strategic debate and the control and risk framework oversight at Board level.
2013 and 2012 external Board performance evaluation outcomes and action plan
| 2013 | 2012 | |||||
| Observations | Action taken/to be taken | Observations | Action taken | |||
| Increase the Board’s oversight of new technology | Ensure the Board is regularly updated on developments | Deepen the Board’s focus on the Group’s strategy | Retained focus on strategy with particular attention on the external environment | |||
| Enhance the Board’s use of time and gain a deeper understanding of priorities and risks | Provide the Board with more time to consider industry and consumer trends, further information on the competition and regular updates on major projects | Ensure the smooth integration of the new Chairman | A tailored induction was completed with ongoing support | |||
| Consider future Board composition and succession | Schedule regular Nomination Committee meetings
Prioritise the search for a Non-Executive Director with experience in consumer facing technology
Continually refresh the Board skills inventory | Continue to improve the meeting process, including refining senior management presentations and papers to the Board | Senior management reviewed the optimum level of detail in presentations and papers
More frequent sessions held with the Chief Executive Officer and Non-Executive Directors
Provided the Board annual agenda of regular items to the Directors
Conducted deep dives into regions, functions and current issues
Balanced the time for presentations and discussion | |||
| – | – | Consider growth opportunities for the Group | Continued to review growth opportunities for the Group |
Individual Director internal performance evaluationsBoard engagement with shareholders
The internal performance evaluationsBoard takes its responsibility to represent and promote the interests of membersits shareholders seriously and believes it is very important to engage with them fully. A formal external review of investor perceptions is presented to the Board on an annual basis and both the Executive Committee and the Board receive regular updates on shareholder relations.
Engagement during the year
The Board engaged with shareholders in a number of ways during 2014, which included:
To enable as many shareholders as possible to access conferences and presentations, telephone dial-in facilities are carried out by the following individuals:
Board committees
For the Board’s four Committee Reports, see pages 66 to 69made available in advance and 74 to 97.
Each Committee has written terms of reference whichlive audio webcasts are approved by the Boardmade available after presentations, together with associated data and subject to review each year. Amendments to the terms of reference were made and approved for the Nomination, Remuneration and Audit Committees.
Management committees
Details of our management committees are set out below and their terms of referencedocumentation. These can be found on the Company’s website at www.ihgplc.com/investors under corporate governance/committees or fromfinancial library.
Around 25 sell-side research analysts publish research on the Company Secretary’s office on request.Group; their details are available at www.ihgplc.com/investors under analysts’ details.
Executive CommitteeAGM
The Executive Committee considersAGM is an opportunity for shareholders to vote on certain aspects of Group business. The Board values this as it provides
a useful forum for one-to-one communication with private shareholders. At the AGM, shareholders receive presentations on the Company’s performance and manages a rangemay ask questions of strategicthe Board.
The 2015 AGM will be held at 11:00am on Friday, 8 May 2015. The notice convening this meeting has been sent to shareholders at the same time as publication of this Annual Report and business issues facingForm 20-F, and is available at www.ihgplc.com/investors under financial library.
Meetings with major institutional shareholders
A programme of meetings throughout the Group. It monitorsyear is arranged with major institutional shareholders. These meetings provide an opportunity to discuss, using publicly-available information, the performanceprogress of the business, its performance, plans and objectives. Patrick Cescau, Dale Morrison and other Non-Executive Directors are available to meet with major shareholders to understand their issues and concerns, and to discuss governance and strategy.
Facilitated, structured meetings are encouraged with shareholders, and any new Director is authorisedavailable for meetings with major shareholders as a matter of course.
Details of the Remuneration Committee’s engagement with shareholders is set out on page 76. During the year, Jennifer Laing also met with shareholders to approve capital and revenue investment within levels agreed by the Board.discuss our corporate responsibility strategy.
Governance: The Committee is chaired by Richard Solomons and usually meets monthly. MembersSharedealing programme
In 2014, we offered our small UK-resident retail shareholders a sharedealing service to buy or sell shares in IHG. As part of this, Committee compriseshareholders were given the Executive Directors andoption to donate the most senior executives from the Groupproceeds of any sale of their shares to IHG Shelter in a Storm (see page 60)179). The Committee recommends to the Board significant decisions which require its approval.
Disclosure CommitteeRe-engaging with ‘gone away’ shareholders
The Disclosure Committee is responsible for ensuring that there are procedures in place so that information requiredWe continue to be disclosedsupported by ProSearch to locate shareholders who haven’t kept their details up to date. To date, the programme has been very successful and many asset reunifications (both in reports pursuant to UKterms of the shares themselves and US accounting, statutory or listing requirements, fairly represent the Group’s position in all material respects.
Governance: The Committee is chaired by the Group’s Financial Controller. Members of this Committee comprise of George Turner and other senior officers. The Committee reports to Richard Solomons, Paul Edgecliffe-Johnson and the Audit Committee.
General Purposes Committee
The Committee attends to business of a routine nature and to the administration of matters, the principles of whichunclaimed dividends) have been agreed previously by the Board or an appropriate committee.
Governance: The Committee comprises any one Executive Committee member together with a senior officer from an agreed and restricted list. It is always chaired by an Executive Committee member and Patrick Cescau and Executive Directors are notified in advance of the business of the meeting.made. For further information, see page 179.
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“Our priority is ensuring that standards of good governance are maintained across all areas of the business.”
Dear Shareholder
The Audit Committee continues to focus on the integrity of internal financial controls and risk management systems. As the new Chairman of the Committee, I have also sought to ensure that the Committee (i) has oversight of the Group’s risk management and assurance processes, looking at the processes and structures in place across the Group as a whole and how key projects are being delivered; and (ii) probes the significant risks, particularly in the area of technology, through a balance of presentations, papers and discussion.
Roles and responsibilities
The Audit Committee’s responsibilities fall in tointo five areas: (i) internal controls and risk management; (ii) financial reporting; (iii) internal audit; (iv) fraud and whistleblowing; and (v) external audit and compliance; and (v) whistleblowing and fraud.compliance. While the Board has overall responsibility for the management of business risks, the Committee assists the Board in a number of ways.
Terms of reference (ToR)
The Committee’sOur main role and responsibilities are set out in itsour terms of reference (ToR), which are reviewed annually and no changes were made for 2015. The ToR which have been drafted to be fully compliant with the Code provisions. A copy of the ToR can be foundare available on the Company’s website at www.ihgplc.com/investors under corporate governance/committees or from the Company Secretary’s office on request.
Governance
The Committee was in place throughout 2013 and all Committee members remained independent, as determined annually by the Board. During the year, Ian Dyson and Jill McDonald joined the Committee. Each member has been appointed as they have the experience and expertise necessary to meet the Committee’s responsibilities.
The Board is satisfied that David Kappler continues to remain independent. Having served on the Board since June 2004, he will step down as Audit Committee Chairman on 1 April 2014 and Ian Dyson will be appointed Chairman of the Committee.
The Code requires the Committee to have at least one member with recent and relevant financial experience and the US Sarbanes-Oxley Act (SOX) necessitates a designated financial expert. The Board is satisfied that David Kappler and Ian Dyson meet the requirements of the Code and are financial experts – David is a qualified accountant and former Chief Financial Officer of Cadbury Schweppes plc and Ian is also a qualified accountant and former Group Finance and Operations Director at Marks & Spencer Group plc.
Committee meetings
In 2013, the Committee met five times and the following regular papers were received: an analysis of the audit and non-audit fees; an update on items discussed by the Disclosure Committee; an update on material litigation; a report on significant incidents of fraud and whistleblowing; a report on risk management; an update on SOX compliance; a report from the external Auditor; and a quarterly report on Global Internal Audit (GIA) activities.
At each Committee meeting the internal and external Auditors meet without the presence of management. At the invitation of the Committee, the Chairman (Patrick Cescau), the Chief Executive Officer, Chief Financial Officer, Head of GIA, Group Financial Controller and external Auditor, Ernst & Young LLP (EY), attend meetings. EY attended each meeting in 2013 and provided a report on key activities. PwC, who provide co-assurance for global technology projects and processes, also present key findings at every meeting. Other attendees are invited to meetings as appropriate, to provide a deeper insight into, and understanding of, key decisions.
Key issues discussed in 2013 meetings
The Committee discussed, amongst others, the following matters:
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Significant matters in the 2013 Financial Statements
In respect of significant matters relating to the 2013 Financial Statements the Committee:
A separate sub-committee meeting was held in February 2014 with management and EY to consider the Annual Report and Form 20-F 2013. The report was reviewed as a whole, to consider whether it provided a fair, balanced and understandable view of the Group with the necessary information for shareholders to assess the Group’s performance, business model and strategy. Audit Committee members provided comments on the draft report which were then incorporated into the final version.
External Auditor
EY have been the Group’s Auditor since it listed in 2003 (10 years). While an audit tender has not been carried out since EY’s initial appointment, the Committee considers the appointment of its Auditor annually, and in May 2013 made a recommendation to the Board that a full review of the audit provision should be carried out in 2015 subject to UK and EU legislation. To ensure EY’s independence is safeguarded, lead audit partners rotate every five years. The current lead audit partner has been in place for three years. An evaluation of EY takes place annually where questionnaires on EY’s services are completed by over 30 senior IHG finance employees.
The Committee reviews the independence and effectiveness of EY on an ongoing basis and receives reports from them on their independence annually. As well as Company policies and procedures, which aim to safeguard EY’s independence and effectiveness, EY also have their own protective policies and systems in place, which are explained in a Transparency Report issued by EY on an annual basis.
For the year ended 31 December 2013, the Committee was satisfied with the independence, objectivity and effectiveness of the relationship with EY as the external Auditor.
Non-audit services
EY provide non-audit services to the Group which are governed, to safeguard their objectivity and independence by IHG’s Audit and Non-Audit Services Pre-Approval Policy. The Policy is re-approved by the Audit Committee annually in December. For the 2013 financial year the policy was updated and approved at the Audit Committee meeting on 12 December 2012. The policy requires that pre-approval is obtained from the Audit Committee for all services before any work can be commenced, in line with US Securities and Exchange Commission requirements. Under this policy, the Committee is prohibited from delegating non-audit services approval to management. Compliance with the policy is actively managed and, as such, an analysis of audit and non-audit services are reviewed by the Committee at each meeting.
The Committee is aware of, and sensitive to, investor body guidelines on non-audit fees. During 2013, 12% of services provided to the Group were non-audit services; these included areas such as advisory work and corporate tax compliance.
For fees paid to EY for non-audit work during 2013 see page 123.
Internal control and risk management
The Committee monitors internal controls and risk management, on behalf of the Board, through quarterly reports from both the Head of GIA and from EY. Additionally, the Committee receives frequent risk management reports on relevant issues and developments from the Head of Risk Management and other management. The Committee Chairman updates the Board on the quality and effectiveness of internal controls across the Group through regular Board presentations. Fraud and whistleblowing reports are collated from information provided by the Group’s independent external provider, who facilitates the Group’s helpline phone number for employees with whistleblowing and fraud concerns, and fraud data from Global Risk Management and are presented to the Committee biannually. The Committee would be advised immediately of a significant matter, to ensure a proportionate and independent investigation was performed.
Internal audit
The Committee is responsible for reviewing and monitoring the activities of the GIA department and does this by way of an annual review. The results of the review are analysed and discussed at the Committee’s meeting in May.
Effectiveness of the Committee
Committee effectiveness is dependent on its overall efficiency as well as the efficacy of EY and GIA. The effectiveness of the Committee, EY and GIA is monitored and assessed annually through evaluation questionnaires.
Further details of the evaluation process can be found on page 65.
Key priorities for the Committee in 2014
During 2014, I will ensure a smooth transition to Ian Dyson and the Committee intends to remain focused on the key areas of responsibility delegated to it by the Board, ensuring that standards of good governance are maintained across all areas of the business, with a particular focus on the integrity of the internal financial controls and risk management systems.
David Kappler, Chairman of the Audit Committee
17 February 2014
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Committee Report
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Dear Shareholder
Roles and responsibilities
The Corporate Responsibility Committee advises the Board on the Group’s corporate responsibility objectives and strategy and ensures that IHG’s responsible business priorities deliver against our core purpose, Great Hotels Guests Love.
Terms of reference (ToR)
Our role and responsibilities are set out in the ToR which can be found on the Company’s website at www.ihgplc.com/investors under corporate governance/committees or from the Company Secretary’s office on request.
Governance
All members have the experience and expertise necessary to meet the Committee’s responsibilities. During the year, a majority of the Committeeresponsibilities and all members wereare independent Non-Executive Directors as required under the ToR.
For further information on IHG’s approach to Corporate Responsibility matters see pages 32 and 33.
Committee meetings
In 2013, During the year, Jo Harlow joined the Committee, held three scheduled meetings and one additional meeting to discuss the corporate responsibility targets. Regular papers were received on corporate responsibility performance as well as deep dives into IHG’s core corporate responsibility programmes; IHG Green Engage, IHG Academy and the IHG Shelter in a Storm Programme.
The Heads of Corporate Responsibility and the Chairman (Patrick Cescau) also attend the meetings.
Effectiveness of the Committee
The Committee is monitored and assessed annually as part of the Board and Committee evaluation.
Further details of this process can be found on page 65.
Key issues discussed in 2013 meetings
The Committee discussed, amongst others, the following matters:
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2013-2017 Corporate responsibility targets
On 26 September 2013, the Group announced its corporate responsibility targets for 2013-2017, which are focused on our core Corporate Responsibility programmes: IHG Green Engage, IHG Academy, and IHG Shelter in a Storm Programme.
Our five-year targets are set out on page 32 and include: reducing the carbon footprint per occupied room by 12% across our entire estate; reducing water use per occupied room in water-stressed areas by 12%, providing skills and improved employability to 20,000 people through the IHG Academy; and contributing a total of $10 million to communities through monetary donations and in-kind support, including through the IHG Shelter in a Storm Programme.
We will also track and report supply chain diversity and integrate corporate responsibility criteria into the selection and evaluation process for preferred suppliers.
Key priorities for the Committee in 2014
Corporate responsibility continues to be an area of great importance to IHG and I replaced David Kappler as the Chairman of the Committee am committed to promoting this as a significant part of doing business responsibly. During 2014on 1 April 2014.
The Board is satisfied that both David (during his time on the Committee) and I are independent. The Code requires the Committee will continue to focus on making the best use of our key corporate responsibility programmes around the worldhas at least one member with recent and ensure responsible business remains synonymous with IHG.
Jennifer Laing, Chairman of the Corporate Responsibility Committee
17 February 2014
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Dear Shareholder
Roles and responsibilities
The Nomination Committee considers the structure, size and composition of the Board, advising on succession planning and making appropriate recommendations to ensure the Board retains the appropriate level of diversity, skills and experience. The Committee is also responsible for reviewing the Group’s talent planning and leadership needs.
Terms of reference (ToR)
Our role and responsibilities are set out in the ToR which can be found on the Company’s website at www.ihgplc.com/investors under corporate governance/committees or from the Company Secretary’s office on request.
Governance
All members, excluding the Chairman are independent Non-Executive Directors, as required under its ToR and also the Code. During 2013 Ian Dyson and Jill McDonald joined the Committee. All members have therelevant financial experience and expertise necessary toSarbanes-Oxley Act 2002 (SOX) necessitates a designated financial expert. The Board is satisfied that both David and I meet the Committee’s responsibilities.
Patrick Cescau would not chair the Committee when itthese requirements – David is considering matters relating to his position. In these circumstances, David Kappler, Senior Independent Non-Executive Director, would act as Chairman of the Committee.
2013 Board appointments
The Committee considered a number of Board appointments in 2013. External search agents, Egon Zehnder International, who have no connection to IHG, were engaged to assist in finding two new Non-Executive Directors. The search was undertaken against detailed job specifications setting out the particular skills, knowledgequalified accountant and experience required for these particular positions.
The Committee considered and nominated Jill McDonald and Ian Dyson as Non-Executive Directors, who were appointed by the Board, effective from 1 June 2013 and 1 September 2013 respectively. Paul Edgecliffe-Johnson was considered and nominated asformer Chief Financial Officer by the Committeeof Cadbury Schweppes plc and subsequently appointed by the Board, effective 1 January 2014.I am also a qualified accountant and was formerly Group Finance and Operations Director at Marks and Spencer Group plc.
David Kappler will step down as Audit Committee Chairman and retire from the Board during 2014. In February 2014 the Committee considered and nominated Dale Morrison as Senior Independent Non-Executive Director and Ian Dyson as Audit Committee Chairman.
Committee meetings
In 2013, the Committee met on five occasions and considered executive succession planning and refreshment of the Board.
Key issues discussed in 2013 meetings
The Committee discussed, amongst others, the following matters:
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Succession planning
Independent consultants are engaged for all Non-Executive Director appointment searches. The Committee remains focused, on behalf of the Board, on Board succession planning for both Executive and Non-Executive Directors.
During 2013, the Committee worked with senior management to review and strengthen the talent pool within the business and the appointment of Paul Edgecliffe-Johnson as Chief Financial Officer demonstrates the strength of our succession planning. A number of new senior hires were made in both global and regional leadership positions, further strengthening our internal pipeline.
Board diversity
We recognise the value of diversity in its broadest sense and, whilst all appointments are made on merit, we seek to ensure the Board maintains an appropriate balance through a diverse mix of skills, experience, knowledge and background.
We support the aspirations of the UK Lord Davies Report on ‘Women on Boards’ including the representation of women at the highest level in the organisation. We currently have four women on the Board (31%) and two on the Executive Committee (18%).
Further information on diversity across the Group can be found on page 23.
Key priorities for the Committee in 2014
The Committee will consider enhancements to the Board and Committees and asAs Chairman of the Committee, after each meeting, I am committedreport to ensuring that we continue to look for the right capabilities and competencies for the future, looking in particular in areas such as guest-facing technology.
Patrick Cescau, Chairman of the Nomination Committee
17 February 2014
Board on any key matters arising.
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For information on remuneration see the Remuneration Committee Report on pages 74 to 97.
RiskInternal controls and risk management
The Committee supports the Board has ultimate responsibility for ensuring that business risks are effectively managed. The Board has consideredin reviewing the effectiveness of the Group’s internal control and approved the risk management policy and has delegated regular reviewsystem, having oversight of the risk management procedures toand control activities in operation across the Audit Committee. The review is carried out through a monitoring process,Group. Processes have been established which accords with the Codetest and the Internal Control: Guidance to Directors.
Further details on the Audit Committee’s role in managing risk are set out on page 67.
Day-to-day management of business risks are the responsibility of the Executive Committee. These are managed through established processes which monitor:
Board annual review of internal controls and risk management
The Board conducts an annual review of the effectiveness of the Group’s system of internal controls and risk management. This review covers all material controls, including financial, operational and compliance controls, the principal risks affecting the Group, the risk management systems, and also takes into account any material developments since the year end.
Whilst areas for continuous improvement have been identified and actions initiated as a result of the Group’s processes, no significant shortcomings have been identified from the 2013 risk assessments.
Internal controls
The system of internal controls aims to support the delivery of our strategy by managing the risk of failing to achieve business objectives and the protection of assets (including the Group’s brands and reputation). As such, it must be recognised that it can only provide reasonable and not absolute assurance.
The Group continues to insure against risks, but certain risks remain difficult to insure, due to the breadth and cost of coverage. In some cases, external insurance is not available at all, or not at an economical price. The Group regularly reviews both the type and amount of external insurance that it buys, bearing in mind the availability of such cover, its price and the likelihood and magnitude of the risks involved.
Major Risks register
In 2013, the Audit Committee was satisfied that the Group has an effective risk management system and the Executive Committee, Audit Committee and the Board reviewed the Major Risks affecting the Group.
Our approach to risk management and key risk mitigating activities andin respect of the principal risks and factors that could affect the GroupMajor Risks are set out on pages 3426 to 37.29 and the wider set of risk factors are set out on pages 162 to 165.
GlobalFinancial reporting
The key financial controls across our business have been identified and evaluated, in particular, to comply with our US obligations, arising from SOX. The Committee reviews the approach to SOX compliance each year, and, in 2014, it took into consideration changes in legislation, and the transition from the 1992 to the 2013 Internal Audit (GIA) PlanControl – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Committee regularly reviews reports on the progress of the SOX programme and Effectiveness Reviewthis has enabled appropriate representations regarding the effectiveness of internal financial controls to be made, concluding that no material weaknesses had been found in the internal control environment.
Internal Audit
The Committee is responsible for reviewing and monitoring the activities of the GIA department. In December each year, the Audit Committee discusses the GIA Plan and approves its nature and scope for the forthcoming year. This Plan is reviewed on a quarterly basis to ensure coverage of emerging risks. The Audit Committee then instructs GIA to undertakealso undertakes an agreed schedule of audits during which the effectiveness of the Group’s internal controls are assessed.assessed and reported back to the Committee.
DuringFraud and whistleblowing
Fraud and whistleblowing reports are collated from information provided by the yearGroup’s independent external provider, who facilitates the Group’s confidential disclosure process for employees with whistleblowing and fraud concerns, and fraud data from Global Risk Management, and are presented to the Committee biannually.
The Committee is advised, as appropriate, of any significant matters to ensure a proportionate and independent investigation is performed.
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| IHG Annual Report and Form 20-F 2014 |
Corporate Governancecontinued
Audit Committee Reportcontinued
Committee membership and attendance
| Members1 | Attendance | |||
| Ian Dyson (Chairman from 1 April 2014)2 | 5/5 | |||
| David Kappler (Chairman to 1 April 2014)2 | 1/2 | 3 | ||
| Jo Harlow4 | 2/2 | |||
| Jennifer Laing | 5/5 | |||
| Jill McDonald | 4/5 | 3 | ||
| Dale Morrison | 5/5 | |||
| Total meetings held | 5 | |||
| 1 | For full biographies of current members see pages 58 and 59. |
| 2 | David Kappler retired from, and Ian Dyson was appointed to, the role of Chairman of the Committee effective as of 1 April 2014. |
| 3 | David Kappler and Jill McDonald missed one meeting each due to a prior commitment known to the Committee in advance. |
| 4 | Jo Harlow joined the Committee with effect from 1 September 2014. |
At the invitation of the Committee, the Chairman of the Board, Chief Executive Officer, Chief Financial Officer, Head of Global Internal Audit (GIA), Group Financial Controller and external Auditor, EY, attend meetings. EY attended all meetings in 2014 and provided a report on progress of, and insights from, the annual audit. Other attendees are invited to meetings as appropriate, to provide a deeper insight into, and understanding of, key decisions.
At each meeting, GIA and EY meet without the presence of management.
What did the Committee consider in 2014
In addition to those areas referred to above and routine items of business, during 2014, the Committee:
Internal controls and risk management
and a presentation on the Group’s tax position from the Head of Group Tax. |
Financial reporting, issues and decision making
Internal audit
Financial reporting controls
The key financial controls across all our business units have been identified
Fraud and whistleblowing
External audit and compliance
External Auditor – Ernst & Young LLP (EY)
Relations with shareholdersEY has been the Group’s Auditor since IHG listed in 2003. While an audit tender has not been carried out since EY’s initial appointment, the Committee considers the appointment of its Auditor annually, specifically assessing EY’s performance (including its independence and objectivity).
Share capital and shareholdersTo ensure EY’s independence is safeguarded, lead audit partners rotate every five years. The current lead audit partner has been in place for four years.
The Company’sCommittee reviews the independence and effectiveness of EY on an ongoing basis, including the effectiveness of the relationship between EY and the Group’s management, and receives reports from it on its independence annually. An evaluation of EY takes place annually where questionnaires on EY’s services are completed by more than 30 senior IHG employees that work with EY. As well as Group policies and procedures, which aim to
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safeguard EY’s independence and effectiveness, EY has its own protective policies and systems in place, which are explained in a Transparency Report issued share capital atby EY on an annual basis.
Following an in-depth review for the year ended 31 December 2013 consisted2014, the Committee was satisfied with the independence, objectivity and effectiveness of 268,929,217 ordinary shares of 14194/329 pence each including 9,773,912 shares heldthe relationship with EY as the external auditor, and with the external audit process as a whole.
Audit tender
During 2014, the Committee considered the requirements for audit tender in treasury. There are no special control rights or restrictions on share transfers or limitations online with changes to legislation from the holding of any class of shares. During the year, 604,146 new shares were issued under employee share plansEU and the Company continuedCompetition and Markets Authority. Having reviewed legislative timescales and the share buyback iteffectiveness of the audit, we have concluded that no tender will be undertaken during 2015 but we will continue to monitor this.
Non-audit services
EY provide non-audit services to the Group, which are governed, so as to safeguard their objectivity and independence, by IHG’s Audit and Non-Audit Services Pre-Approval Policy:
The Committee is aware of, and sensitive to, investor body guidelines on 12 November 2012.non-audit fees. During 2014, 29 per cent of services provided to the Group were non-audit services; these included areas such as advisory work and corporate tax compliance.
For further details on shareholder profilesfees paid to EY for non-audit work during 2014, see page 180.120.
Board engagement with shareholdersSignificant matters in the 2014 Financial Statements
The Board engagedCommittee discussed with shareholdersmanagement the key judgements applied in a numberthe Financial Statements, the exceptional items arising in the year and the impact of ways during 2013, which included:any accounting developments or legislative changes. The main items discussed were:
intangible assets. It challenged the key assumptions, including short and long-term growth rates, discount rates and underlying performance assumptions. The Committee also considered EY’s views on the work performed and concluded that the position taken was supportable. |
Annual Report – Fair, balanced and understandable
At the request of the Board, a separate sub-committee meeting was held in February 2015 to consider whether the Annual Report and Form 20-F 2014 provided a fair, balanced and understandable view of the Group with the necessary information for shareholders to assess the Group’s performance, business model and strategy. Audit Committee members provided comments on the draft report that were then incorporated into the draft provided to the Audit Committee and Board for final comment and approval.
Effectiveness of the Committee
Effectiveness of the Committee is dependent on its overall efficiency as well as the efficacy of EY and GIA. The effectiveness of the Committee, EY and GIA is monitored and assessed annually through evaluation questionnaires and interviews.
Our priorities for 2015
During 2015, the Committee will specifically focus on: (i) the integrity of the internal financial controls and risk management systems; (ii) monitoring and continually assessing IHG’s information security arrangements; and (iii) overseeing the implementation of technology projects and the Global Finance function’s talent and succession plans.
Ian Dyson, Audit Committee Chairman
16 February 2015
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| IHG Annual Report and Form 20-F |
Corporate Responsibility Committee Report
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“Ensuring meaningful progress against our five-year targets will remain a key focus of the Committee.”
Dear Shareholder
Roles and responsibilities
The Committee advises the Board on the Group’s corporate responsibility objectives and strategy, its approach to sustainable development, and ensures that IHG’s responsible business priorities deliver against our core purpose, Great Hotels Guests Love.
Our role and responsibilities are set out in our terms of reference (ToR), which are reviewed annually and no changes were made for 2015. The ToR are available on the Company’s website at www.ihgplc.com/investors under corporate governance/ committees or from the Company Secretary’s office on request.
Governance
All members have the experience and expertise necessary to meet the Committee’s responsibilities and a majority of the Committee members are Non-Executive Directors, as required under the ToR.
What did the Committee consider in 2014
During the year, the Committee’s key activities included:
Targets and core programmes
Committee membership and attendance
| Members1 | Attendance | |||
| Jennifer Laing (Chairman) | 3/3 | |||
| Luke Mayhew | 3/3 | |||
| Dale Morrison | 3/3 | |||
| Richard Solomons | 3/3 | |||
| Ying Yeh | 3/3 | |||
| Total meetings held | 3 | |||
| 1 | For full biographies see pages 57 to 59. |
The Heads of Corporate Responsibility and the Chairman of the Board also attend the meetings.
Communication and awareness
The Committee, along with our Corporate Responsibility team and the rest of the Board, also took part in an IHG Race Around the World event in Hyde Park in London, a fundraising event in support of, and building awareness for, IHG Shelter in a Storm.
Our priorities for 2015
During 2015, our priorities will be to: (i) continue to support IHG to ensure meaningful progress on our five-year corporate responsibility targets; (ii) further embed responsible business in the IHG brand and help to deliver external communications to support this; and (iii) further extend the success of IHG Shelter in a Storm by increasing IHG’s disaster preparedness capabilities and developing links with humanitarian agencies to grow IHG’s disaster relief capabilities.
Jennifer Laing, Corporate Responsibility Committee Chairman
16 February 2015
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“The Committee keeps under continuous review the talent pool within the business.”
Dear Shareholder
Roles and responsibilities
The Committee considers the structure, size and composition of the Board, advising on succession planning and making appropriate recommendations to ensure the Board retains an appropriate mix of skills, experience, knowledge and diversity. It is also responsible for reviewing the Group’s leadership needs.
Our role and responsibilities are set out in our terms of reference (ToR), which are reviewed annually and no changes were made for 2015. The ToR are available on the Company’s website at www.ihgplc.com/investors under corporate governance/committees or from the Company Secretary’s office on request.
Governance
All members have the experience and expertise necessary to meet the Committee’s responsibilities and are independent Non-Executive Directors (excluding myself), as required under the ToR. During 2014, David Kappler retired from, and Jo Harlow joined, the Committee. When the Committee is considering matters relating to my position, Dale Morrison, Senior Independent Non-Executive Director, acts as chairman of the Committee.
What did the Committee consider in 2014
During the year, the Committee’s key activities included:
Board appointments
Succession planning
| – | In advance of David Kappler’s plans to retire on 31 May 2014, we recommended the appointment of Ian Dyson as Chairman |
Committee membership and attendance
| Members1 | Attendance | |||
| Patrick Cescau (Chairman) | 5/5 | |||
| Ian Dyson | 5/5 | |||
| Jo Harlow2 | 0/0 | |||
| David Kappler3 | 2/2 | |||
| Jennifer Laing | 5/5 | |||
| Jonathan Linen4 | 5/5 | |||
| Jill McDonald | 5/5 | |||
| Luke Mayhew | 5/5 | |||
| Dale Morrison | 5/5 | |||
| Ying Yeh | 5/5 | |||
Total meetings held | 5 | |||
| 1 | For full biographies of current members see pages 57 to 59. |
| 2 | Jo Harlow joined the Committee effective as of 1 September 2014. |
| 3 | David Kappler retired from the Committee effective as of 31 May 2014. |
| 4 | Jonathan Linen retired from the Committee effective as of 31 December 2014. |
The Chief Executive Officer also attends the meetings.
| of the Audit Committee from 1 April 2014, and Dale Morrison as Senior Independent Non-Executive Director from 31 May 2014. As both Dale and Ian were already members of the Board, this allowed for a smooth transition of duties upon David’s retirement. |
| – | On 31 December 2014, Jonathan Linen retired from the Board after nine years’ service. |
| – | We announced on 2 December 2014 that Kirk Kinsell would step down from the Board and his role as President of IHG’s Americas business on 13 February 2015. An independent executive search agency, Egon Zehnder, was engaged to conduct a review of prospective candidates. Accordingly, Kirk was succeeded by Elie Maalouf as Chief Executive Officer, The Americas, who joined IHG in January 2015 to allow for a handover period with Kirk. While Elie does not sit on the Board, he is a member of IHG’s Executive Committee. |
We have also considered Jennifer Laing and Ying Yeh’s continued appointments on the Board, as both have been on the Board for over six years, and specifically reviewed Jennifer’s independence having been on the Board for over nine years.
Board diversity
We recognise the value of diversity in its broadest sense and, whilst all appointments are made on merit, we seek to ensure the Board maintains an appropriate balance through a diverse mix of skills, experience, knowledge, gender and background – see page 62 for details of our Board Diversity Policy.
Our priorities in 2015
During 2015, we aim to continue to: (i) refresh the Board and Committees in line with our priorities; and (ii) ensure we have the right capabilities for the future.
Patrick Cescau, Nomination Committee Chairman
16 February 2015
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| IHG Annual Report and Form 20-F 2014 |
CorporateGovernancecontinued
Statement of compliance with the UK Corporate Governance Code
Our statement of compliance presents a summary of how the Group has implemented the principles and provisions laid down in the UK Corporate Governance Code as published in September 2012 (the Code). This should be read in conjunction with the Corporate Governance Statement (pages 54 to 72) and the Directors’ Remuneration Report as a whole. The Code is available to view in full on the Financial Reporting Council website (www.frc.org.uk).
The Board considers that the Group has complied in all material respects with the Code for the year ended 31 December 2014 with the exception of Code provision C.3.7, which requires external audit contracts to be put to tender at least every 10 years. The Group has not re-tendered within that period, but the Audit Committee monitors this in line with legislation (further details are provided on pages 66 and 67).
To enableA. Leadership
A.1 The role of the Board
The Board leads IHG’s strategic direction and the long-term objectives and success of the Group. It approves strategic plans and capital and revenue budgets, and reviews significant investment proposals, maintaining an overview and control of IHG’s operating and financial performance. It monitors the Group’s overall system of internal controls and risk management, governance and compliance, considering regulatory changes and developments (where appropriate), while ensuring that the necessary financial and human resources are in place for the Group to meet its objectives. Decisions and matters reserved for the Board and not delegated to management are available on our website at www.ihgplc.com/investors under corporate governance.
The Board meets formally eight times each year, with additional meetings scheduled as many shareholders as possible to access conferencesnecessary. One of the meetings includes a two-day strategy meeting, in which the Board considers the Group’s strategy and presentations, telephone dial-in facilitiesrelated issues. Details of 2014 Board meetings are made available in advance and live audio webcasts are made available after the presentation, together with associated data and documentation. Theseset out on page 56. The attendance by Committee members at Committee meetings can be found in each of their respective reports.
All Directors are covered by the Group’s Directors’ & Officers’ Liability Insurance policy (see page 72).
A.2 Division of responsibilities
The roles of the Chairman and Chief Executive Officer are clearly established.
Chief Executive Officer
As Chief Executive Officer, Richard Solomons leads the development of the Company’s strategic direction and implementation of the agreed strategy. He oversees IHG’s business operations and manages its risks as well as building and leading an effective Executive Committee.
A.3 The Chairman
As Chairman of the Board, Patrick Cescau leads the operation and governance of the Board and its Committees as well as building and maintaining an effective Board. This includes ensuring that Directors receive timely, accurate and clear information on the Group’s business and that all Directors are fully informed of relevant matters. The Chairman oversees corporate governance matters, ensuring they are addressed, and leads the performance and effectiveness evaluations of the Board, its Committees and the Directors.
The Chairman was independent on appointment.
A.4 Non-Executive Directors
As a strong source of advice and judgement for IHG, our Non-Executive Directors constructively challenge and help develop proposals on strategy. They provide significant external commercial experience and a broad range of skills for the Board to draw on.
Senior Independent Non-Executive Director
As Senior Independent Non-Executive Director, Dale Morrison is available to liaise with shareholders who have concerns that they feel have not been addressed through the normal channels of the Chairman, Chief Executive Officer and other Executive Directors. He also leads the annual performance review of the Chairman with the other Non-Executive Directors, and provides advice and judgement for the Chairman as necessary.
After each Board meeting, our Non-Executive Directors and the Chairman meet without Executive Directors being present.
During the year, if any Director has unresolved concerns about the running of IHG or a proposed action, these would be recorded in the minutes of the meeting.
Further information on each of these roles can be found on our website at www.ihgplc.com/investors under corporate governance.
B. Effectiveness
B.1 The composition of the Board
The size and composition of the Board is regularly reviewed for the appropriate balance of skills, experience, independence and knowledge to ensure it can carry out its duties and responsibilities effectively.
The Board’s current composition meets the requirement under the Code for at least half of the Board, excluding the Chairman, to be independent Non-Executive Directors (see page 61). Further details of the composition of the Board are available on pages 57 to 59.
Jennifer Laing has served on the Board for over nine years and the Nomination Committee has specifically reviewed her independence and is satisfied that she continues to demonstrate independence in character and judgement and is independent as required under the Code. The Board has also considered this and reached the same conclusion.
B.2 Appointments
The Board has delegated a number of responsibilities to the Nomination Committee. The Nomination Committee leads the appointment of new Directors to the Board and senior executives in accordance with its terms of reference (available on our website at www.ihgplc.com/investors under corporate governance/ committees 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 2014, including details of the appointment process of Directors, are set out in the Nomination Committee Report on page 69. The overall process of appointment and removal of Directors is overseen by the Board as a whole.
As Ying Yeh and Jennifer Laing have been on the Board for over six years, their continued appointments were the subject of particular review and scrutiny by the Nomination Committee and the Board.
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B.3 Commitment
The terms of appointment of our Non-Executive Directors outlines the time commitment expected to fulfil their role. On appointment, Directors are advised of, and requested to make, the necessary time commitment required to discharge their responsibilities effectively. IHG’s Executive Directors are not permitted to take on more than one external non-executive directorship or chairmanship in addition to their role. Biographical details of all current Directors, including their external commitments, can be found on pages 57 to 59.
Details of Directors’ service contracts and appointment terms are set out on page 81.
The Chairman annually reviews the time each Non-Executive Director has dedicated to IHG as part of the internal performance evaluations of each Director (see page 64) and is satisfied that their other duties and time commitments do not conflict with those as Directors of the Company.
B.4 Development
A full, formal and tailored induction is developed for IHG’s new Directors (see page 63).
The Chairman and Company Secretary ensure that Directors continually update their skills and have the requisite knowledge and familiarity with the Group to fulfil their roles on the Board and its Committees (see page 63). All Directors are encouraged to request further information as they consider necessary to fulfil their role.
B.5 Information and support
The Chairman and the Company Secretary together ensure a good flow of information to the Board and its Committees and between the Executive Committee and the Non-Executive Directors. The Company Secretary also ensures that all Directors and Board Committees have access to independent advice when requested, at the expense of the Group, where it is necessary to discharge their responsibilities as Directors.
The role of the Company Secretary
George Turner, as Company Secretary, ensures a good flow of information to the Board and its Committees and between the Executive Committee and the Non-Executive Directors. He facilitates all new Director inductions. He advises the Board on corporate governance matters and keeps the Board up to date on all relevant legal, regulatory and other developments. The appointment and removal of the Company Secretary is a matter for the Board as a whole.
B.6 Evaluation
The Board undertakes either an internal or external annual Board effectiveness evaluation to inform further enhancements to our Board processes. In 2013, this was carried out externally and in 2014, it was carried out internally. Performance evaluations of all Directors, including the Chairman, are also carried out and the Board considers the effectiveness of each of its Committees. See pages 63 and 64 for further information.
B.7 Re-election
The Company’s amended Articles of Association (the Articles) approved by our shareholders on 28 May 2010 (see page 72) provide that each Director is subject to election at the first Annual General Meeting (AGM) following their appointment and re-election at least every three years if they wish to continue serving in office.
However, in accordance with the recommendations of the Code, all of IHG’s Directors retire and seek election or re-election at each AGM. All of IHG’s current Directors (biographies as set out on pages 57 to 59) will retire and seek election or re-election at the 2015 AGM (as set out in the Notice of Meeting for the AGM (see page 64)).
C. Accountability
C.1 Financial and business reporting
Our Statement of Directors’ Responsibilities (including the Board’s statement confirming that it considers that the Annual Report and Form 20-F, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s performance, business model and strategy) is set out on page 94.
The status of IHG as a going concern is set out in the Directors’ Report on page 75. An explanation of the Group’s performance, business model, strategy and the risks and uncertainties relating to IHG’s prospects is set out in the Strategic Report on pages 2 to 51.
The statement from our Auditor, Ernst & Young LLP, about its reporting responsibilities is set out on pages 95 to 99.
C.2 Risk management and internal control
The Board has ultimate responsibility for determining the nature and extent of the significant risks it is willing to take in line with the strategy.
The Board and Audit Committee monitor the Group’s risk management and internal controls systems and conducts an annual review of the effectiveness of the Group’s system of internal controls and risk management, and reviews the Group’s risk appetite. This review covers all material controls, including financial, operational and compliance controls. Further details are set out in the Strategic Report on pages 26 to 29, and also in the Audit Committee Report on pages 65 to 67.
C.3 Audit Committee and Auditors
The Board has delegated a number of responsibilities to the Audit Committee. The Committee comprises entirely of independent Non-Executive Directors, with at least one member having recent and relevant financial experience. Further details, including its role, responsibilities and activities in 2014, are set out in the Audit Committee Report on pages 65 to 67. The Audit Committee’s terms of reference are available on our website at www.ihgplc.com/investors under corporate governance/ committees or from the Company Secretary’s office on request.
Ernst & Young LLP has expressed its willingness to continue in office as Auditor of the Company and its reappointment will be put to shareholders at the AGM. Further details can be found in the Audit Committee Report on pages 65 to 67.
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| IHG Annual Report and Form 20-F 2014 |
CorporateGovernancecontinued
Statement of compliance with the UK Corporate Governance Codecontinued
D. Remuneration
D.1 The level and components of remuneration
The activities of the Remuneration Committee during 2014, a summary of our Directors’ Remuneration Policy approved at our 2014 AGM, and the Annual Report on Directors’ Remuneration and Implementation of the Directors’ Remuneration Policy are set out in the Directors’ Remuneration Report on pages 76 to 91.
D.2 Procedure
The Board has delegated a number of responsibilities to the Remuneration Committee including developing policy on executive remuneration and for fixing the remuneration packages of individual Directors. Further information can be found in the Director’s Remuneration Report.
The terms of reference of the Remuneration Committee can be found on our website at www.ihgplc.com/investors under corporate governance/committees, or from the Company Secretary’s office on request.
During 2014, no individual Director was present when their own remuneration was discussed.
E. Relations with shareholders
E.1 Dialogue with shareholders
The Board as a whole is responsible for ensuring satisfactory dialogue with all shareholders of the Company to promote mutual understanding of objectives. Further details of the Board’s approach to relations with our shareholders is set out on page 64.
E.2 Constructive use of the AGM
The next AGM of the Company will take place on Friday, 8 May 2015 and will provide an opportunity for shareholders to vote on certain aspects of Group business, as set out in the Notice of Meeting available at www.ihgplc.com/investors under financial library.
Currently around 30 sell-side research analysts publish research on the Group; their details are available at www.ihgplc.com/investors under analysts’ details.
Major institutional shareholders
The Board takes its responsibility to representlibrary and promote the interests of its shareholders seriously and believes it is very important to fully engage with them. As far as is known to management, IHG is not directly or indirectly owned or controlled by another company or by any governments.
As at 17 February 2014, the Company had been notified of the following significant holdings in its ordinary shares under the UK Disclosure and Transparency Rules:
| Shareholder | As at 17 February 2014 | As at 18 February 2013 | As at 13 February 2012 | |||||||||||||||||||||
Ordinary shares/ ADSs | % | Ordinary shares/ ADSs | % | Ordinary shares/ ADSs | % | |||||||||||||||||||
| Cedar Rock Capital Limited | 14,923,417 | 5.07 | 14,923,417 | 5.07 | 14,923,417 | 5.07 | ||||||||||||||||||
| BlackRock, Inc. | 13,061,965 | 5.01 | 14,505,612 | 5.02 | 14,505,612 | 5.02 | ||||||||||||||||||
| The Capital Group Companies, Inc. | 8,557,888 | 3.30 | N/A | N/A | 14,495,664 | 5.02 | ||||||||||||||||||
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.
AGM
The AGM provides a useful forum for one-to-one communication with private shareholders, many of whom are also guests in our hotels. At the AGM, shareholders receive presentations on the Company’s performance and may ask questions of the Board, including Patrick Cescau and the Chairmen of the Committees.
The AGM will be at 11:00am on Friday 2 May 2014 and the notice convening this meeting will bewas sent out to shareholders at the same time as this Annual Report and Form 20-F.
Ernst & Young LLP have expressed their willingness to continue in office as AuditorThe Board ensures where possible that all Board members, particularly the Chairmen of each of the CompanyBoard Committees, attend the AGM and their reappointment will be put to shareholders at the AGM.
Meetings with major institutional shareholders
A programme of meetings throughout the year is arranged with major institutional shareholders. These meetings provide an opportunity to discuss, using publicly-available information, the progress of the business, its performance, plans and objectives. Patrick Cescau, David Kappler and other Non-Executive Directors are available to meet with major shareholders to understand their issues and concerns and to discuss governance and strategy.
Board shareholder updates
Facilitated, structured meetings are encouraged with shareholders and any new Director is available for meetings with major shareholders as a matter of course.
A formal external review of shareholder opinion is presented to the Board on an annual basis and both the Executive Committee and the Board receive regular updates on shareholder relations.
Engagement on remuneration matters
Details of the Remuneration Committee’s engagement with shareholders is set out on page 85.
Re-engaging with ‘gone away’ shareholders
We continue to be supported by ProSearch to locate shareholders who have failed to keep their details up-to-date. To date, the programme has been very successful and many asset reunifications have been made. For further information see page 181.
Director and Executive Committee shareholdings
As at 17 February 2014, Directors and Executive Committee members had the same number of beneficial interests in shares as at 31 December 2013, as set out in the table on page 72. These shareholdings include all beneficial interests and those held by Directors’ spouses and other connected persons. As at 17 February 2014, no Director or Executive Committee member held more than 0.1% of the total issued share capital.
None of the Directors have a beneficial interest in the shares of any subsidiary. The shareholdings set out below do not include Directors’ or Executive Committee members’ entitlements to share awards under the Company’s share plans. These are set out separately in the Directors’ Remuneration Report on page 94 for the Directors and on page 167 for Executive Committee members.
|
| Directors | As at 31 December 2013 ordinary | As at 31 December 2012 ordinary | ||||||
| Chairman | ||||||||
| Patrick Cescau1 | – | – | ||||||
| Chief Executive Officer | ||||||||
| Richard Solomons | 371,198 | 322,379 | ||||||
| Executive Directors | ||||||||
| Paul Edgecliffe-Johnson2 | – | – | ||||||
| Kirk Kinsell | 127,444 | 7 | 155,628 | |||||
| Tracy Robbins | 85,703 | 85,703 | ||||||
| Tom Singer3 | 54,386 | 20,846 | ||||||
| Senior Independent Non-Executive Director | ||||||||
| David Kappler | 1,308 | 1,308 | ||||||
| Independent Non-Executive Directors | ||||||||
| Ian Dyson4 | – | – | ||||||
| Jennifer Laing | 3,148 | 3,148 | ||||||
| Jonathan Linen5 | 6,853 | 6,853 | ||||||
| Luke Mayhew | 1,866 | 1,866 | ||||||
| Jill McDonald6 | – | – | ||||||
| Dale Morrison5 | 4,233 | 4,233 | ||||||
| Ying Yeh | – | – | ||||||
| Executive Committee | ||||||||
| Keith Barr | 24,399 | 24,399 | ||||||
| Angela Brav | 19,286 | 27,135 | ||||||
| Kenneth Macpherson | 1,797 | – | ||||||
| Eric Pearson | 65,293 | 101,914 | ||||||
| Jan Smits | 106,350 | 106,350 | ||||||
| George Turner | 3,277 | 3,277 | ||||||
2013 share awards and grants to employees
No awards or grants over shares were made during 2013 that would be dilutive of the Company’s ordinary share capital. Current policy is to settle the majority of awards or grants under the Company’s share plans with shares purchased in the market, however the Board continues to review its policy and will present its Directors’ Remuneration Policy and Annual Report on Directors’ Remuneration to shareholders for approval at the 2014 AGM. A number of options granted up to 2005 are yet to be exercised and will be settled with the issue of new shares.
The Company has not utilised the authority given by shareholders at any of its AGMs to allot shares for cash without first offering such shares to existing shareholders.
Employee share ownership trust (ESOT)
IHG operates an ESOT for the benefit of employees and former employees. The ESOT purchases shares in the market and releases them to current and former employees in satisfaction of share awards. During the year, the ESOT released 532,152 shares and at 31 December 2013 it held 1,196,061 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.
Directors’ ReportDirectors’ Report
Much of the information previously provided as part of the Directors’ Report is now required under Company Law to be presented as part of the Strategic Report. This Directors’ Report includes the information required to be given in line with the Companies Act or, where provided elsewhere, an appropriate cross reference is given. The Corporate Governance Statement approved by the Board is provided on pages 5654 to 72.72 and incorporated by reference herein.
Subsidiaries, joint ventures and associated undertakings
The Group has over 290 subsidiary,300 subsidiaries, joint ventureventures and associated undertakings.
Directors
During 20132014 the following individuals served as Directors:
Patrick Cescau, Richard Solomons,Ian Dyson, Paul Edgecliffe-Johnson, Jo Harlow, David Kappler, Kirk Kinsell, Tracy Robbins, Tom Singer, David Kappler, Ian Dyson, Jennifer Laing, Jonathan Linen, Luke Mayhew, Jill McDonald, Dale Morrison, Tracy Robbins, Tom Singer, Richard Solomons and Ying Yeh.
Tom Singer served until his resignation onresigned effective as of 1 January 2014.2014, David Kappler retired effective as of 31 May 2014, Jo Harlow joined effective as of 1 September 2014, Jonathan Linen retired effective as of 31 December 2014 and Kirk Kinsell resigned effective as of 13 February 2015.
The
For biographies of the current Directors in office are given onsee pages 57 to 59.
For further information onDirectors’ & Officers’ (D&O) Liability Insurance
The Company maintains the annual re-election ofGroup’s D&O Liability Insurance policy, which covers Directors and details on David Kappler’s resignation see page 61.officers of the Company against defending civil proceedings brought against them in their capacity as a Director or officer of the Company (including those who served as Directors or officers during the year). There were no indemnity provisions relating to the UK pension plan for the benefit of the Directors during 2014.
Articles
The Company’s Articles may only be amended by special resolution. The Articlesresolution and are available on the Company’s website at www.ihgplc.com/investors under corporate governance and agovernance. A summary is provided on pages 169167 to 170.168.
Shares
Share capital
The Company’s issued share capital at 31 December 2014 consisted of 247,655,712 ordinary shares of 15265/329pence each including 11,538,456 shares held in treasury, which constitutes 4.66 per cent of the total issued share capital (including treasury shares). There are no special control rights or restrictions on share transfers or limitations on the holding of any class of shares.
During 2014:
| • | �� | the Company completed the share buyback programme (see page 73). |
As far as is known to management, IHG is not directly or indirectly owned or controlled by another company or by any governments.
The Board focuses on shareholder value creation. When it decides to return capital to shareholders, it considers all the options, including share buybacks and special dividends.
| 72 |
Share issues and buybacks
An ongoingOn 29 May 2014, we completed our $500m share buyback programme is currently in place, which was announced on 7 August 2012 and commenced on 12 November 2012. The current share buyback authority remains in force until the 20142015 AGM, and a resolution to renew the authority will be put to shareholders at that AGM.
In 2013,The table below illustrates the following transactions in ordinary shares of 14194/329 pence each,that took place whichduring 2014 that affected the Company’s issued share capital (268,929,217 as at 31 December 2013):capital:
| Event | Ordinary shares | |||
| 12 for 13 share consolidation1with a special dividend of 174.9p per share (293¢ per ADR) | n/a | |||
| Share plan exercises | ||||
Share buyback2 695,885 shares were bought back and cancelled and 2,726,088 shares were bought back and held in treasury | ||||
| 1 |
|
| 2 |
| Excludes 14 shares included in the ‘Other cancelled shares’ number below. |
| 3 | This comprises 8 shares bought-back and cancelled and 6 treasury shares cancelled as a result of the above-mentioned share consolidation. |
Dividends
As atIn 2014, the 31 December 2013,Company announced a $750m return of funds to shareholders via special dividend and share consolidation on the 9,773,912basis of 12 ordinary shares bought back and held in treasury constitute 3.6% of the total issued share capital (including treasury shares)15265/329 pence each for 13 ordinary shares of 14194/329 pence each (effective as of 1 July 2014).
Share capital and shareholders
For further details see page 70.
Dividends
| Dividend | Ordinary shares | ADR | ||||||
| ||||||||
Paid | ||||||||
| ||||||||
Paid | ||||||||
Final dividend | ||||||||
Subject to shareholder approval, payable on | ||||||||
For more information on IHG’s return of funds and dividends, see note 827 on page 126.149.
Major institutional shareholders
As at 16 February 2015, the Company had been notified of the following significant holdings in its ordinary shares under the UK Disclosure and Transparency Rules:
| As at 16 February 2015 | As at 17 February 2014 | As at 18 February 2013 | ||||||||||||||||||||||
| Shareholder | Ordinary shares/ADSs | % | Ordinary shares/ADSs | % | Ordinary shares/ADSs | % | ||||||||||||||||||
| Cedar Rock Capital Limited | 14,923,417 | 5.07 | 14,923,417 | 5.07 | 14,923,417 | 5.07 | ||||||||||||||||||
| BlackRock, Inc. | n/a | n/a | 13,061,965 | 1 | 5.01 | 1 | 14,505,612 | 5.02 | ||||||||||||||||
| The Capital Group Companies, Inc | 8,557,888 | 3.30 | 8,557,888 | 3.30 | n/a | n/a | ||||||||||||||||||
| Boron Investments NV | 7,500,000 | 3.18 | n/a | n/a | n/a | n/a | ||||||||||||||||||
| 1 | On 7 October 2013, BlackRock, Inc. notified the Company that its shareholding in the Company had increased to above 5% and this notification was announced by the Company on 8 October 2013. Subsequently, on 8 July 2014, BlackRock, Inc. notified the Company that its 7 October 2013 notification had been made in error and that, in fact, BlackRock, Inc. holds less than 5% in the Company. This error was announced by the Company on 8 July 2014. |
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 178.
2014 share awards and grants to employees
No awards or grants over shares were made during 2014 that would be dilutive of the Company’s ordinary share capital. Our current policy is to settle the majority of awards or grants under the Company’s share plans with shares purchased in the market, however, the Board continues to review its policy. Those options, which were previously granted up to 2005, have now all been exercised and therefore, as at 31 December 2014, no options were outstanding.
The Company has not utilised the authority given by shareholders at any of its AGMs to allot shares for cash without first offering such shares to existing shareholders.
Employee share ownership trust (ESOT)
IHG operates an ESOT for the benefit of employees and former employees. The ESOT purchases ordinary shares in the market and releases them to current and former employees in satisfaction of share awards. During the year, the ESOT released 163,130 shares and at 31 December 2014 it held 1,344,726 ordinary shares in the Company. The ESOT adopts a prudent approach to purchasing shares, using funds provided by the Group, based on expectations of future requirements.
| 73 |
| IHG Annual Report and Form 20-F 2014 |
Directors’Reportcontinued
Director and Executive Committee shareholdings
As at 16 February 2015, Directors and Executive Committee members had the same number of beneficial interests in shares as at 31 December 2014, as set out in the table below. These shareholdings include all Directors’ beneficial interests and those held by their spouses and other connected persons. As at 16 February 2015, no Director or Executive Committee member held more than 0.2% of the total issued share capital.
None of the Directors have a beneficial interest in the shares of any subsidiary. The shareholdings set out below do not include Executive Directors’ or Executive Committee members’ share awards under IHG’s share plans. These are set out separately in the Directors’ Remuneration Report on page 88 for the Executive Directors and on page 166 for Executive Committee members.
| Directors | As at 31 December 2014 ordinary shares | As at 31 December 2013 ordinary shares | ||||||
| Patrick Cescau (Chairman) | – | – | ||||||
| Richard Solomons (Chief Executive Officer) | 382,533 | 371,198 | ||||||
Senior Independent Non-Executive Director |
| |||||||
| David Kappler1 | n/a | 1,308 | ||||||
| Dale Morrison | 3,907 | 2 | 4,233 | 2 | ||||
Executive Directors |
| |||||||
| Paul Edgecliffe-Johnson3 | 10,583 | n/a | ||||||
| Kirk Kinsell4 | 117,640 | 5 | 127,444 | 6 | ||||
| Tracy Robbins | 51,418 | 85,703 | ||||||
| Tom Singer3 | n/a | 54,386 | ||||||
Non-Executive Directors |
| |||||||
| Ian Dyson | – | – | ||||||
| Jo Harlow7 | – | n/a | ||||||
| Jennifer Laing | 2,905 | 3,148 | ||||||
| Jonathan Linen8 | 6,325 | 2 | 6,853 | 2 | ||||
| Luke Mayhew | 1,722 | 1,866 | ||||||
| Jill McDonald | – | – | ||||||
| Ying Yeh | – | – | ||||||
Executive Committee |
| |||||||
| Keith Barr | 22,522 | 24,399 | ||||||
| Angela Brav | 32,724 | 19,286 | ||||||
| Elie Maalouf9 | – | n/a | ||||||
| Kenneth Macpherson | 7,472 | 1,797 | ||||||
| Eric Pearson | 1,998 | 65,293 | ||||||
| Jan Smits | 30,476 | 106,350 | ||||||
| George Turner | – | 3,277 | ||||||
| 1 | David Kappler retired as a Non-Executive Director effective as of 31 May 2014. |
| 2 | Shares held in the form of American Depositary Receipts. |
| 3 | Paul Edgecliffe-Johnson was appointed as Chief Financial Officer effective as of 1 January 2014 following the resignation of Tom Singer effective as of the same date. |
| 4 | Kirk Kinsell resigned as Executive Director effective as of 13 February 2015. |
| 5 | 117,092 ordinary shares and 548 American Depositary Receipts. |
| 6 | 126,850 ordinary shares and 594 American Depositary Receipts. |
| 7 | Jo Harlow was appointed as a Non-Executive Director effective as of 1 September 2014. |
| 8 | Jonathan Linen retired as a Non-Executive Director effective as of 31 December 2014. |
| 9 | Elie Maalouf was appointed to the Executive Committee effective as of 13 February 2015. |
Future business developments of the Group
Further details on these are set out in the Strategic Report on pages 102 to 53.51.
Employees and Code of Conduct
Details of the average number of people IHG employed as at 31 December 20132014 and the number of people working across the whole estate are set out on page 21.23.
We continue to focus on providing an inclusive environment, in which employees are valued for who they are and what they bring to the Group, and in which talented individuals are retained through all levels of the organisation – see page 62 for our Global Diversity and Inclusion Policy.
We also look to appoint the most appropriate person for the job and are committed to providing equality of opportunity to all employees without discrimination. Every effort is made to ensure that applications for employment from disabled employees are fully and fairly considered and that disabled employees have equal opportunities in training, career development and promotion.
The Code of Conduct applies to all Directors, officers and employees and complies with the NYSE rules as set out in section 406 of the US Sarbanes-Oxley Act 2002. Further details can be found on page 32.174.
For more information on the Group’s employment policies, including equal opportunities, employee communications and development, see pages 2123 to 23.25.
Greenhouse gas emissions
The disclosures concerning greenhouse gas emissions required by law are included in the Strategic Report on page 33.25.
Finance
Political donations
The Group made no political donations under the Companies Act during the year and proposes to maintain this policy.
Financial risk management
The Group’s financial risk management objectives and policies, including its use of financial instruments, are set out in note 2120 to the Group Financial Statements on pages 135 to 137.
Significant agreements and change of control provisions
The Group is a party to the following arrangements which could be terminated upon a change of control of the Company and which are considered significant in terms of their potential impact on the business of the Group as a whole:
| 74 |
Further details on these are set out on pages 170 to 172.169 and 170.
Business relationships
During 2012, the Group entered into a five-year technology outsourcing agreement with International Business Machines Corporation (IBM), pursuant to which IBM operates and maintains the infrastructure of the Group’s reservations system. Otherwise, there are no specific individual contracts or arrangements considered to be essential to the business of the Group as a whole.
Existence of qualifying indemnity provisions
For further details, see DirectorsDirectors’ and officers liability insuranceOfficers’ Liability Insurance Policy on page 63.72.
Disclosure of information to the Auditor
For further details, see page 100.94.
Events after the reporting period
In February 2014,On 13 January 2015, the Group signed an agreementraised a $400m bilateral term loan to sellhelp finance the InterContinental Mark Hopkins San Franciscoacquisition of Kimpton Hotel & Restaurant Group, LLC; the term loan expires in July 2016.
On 16 January 2015, the Group completed the acquisition of Kimpton Hotel & Restaurant Group, LLC for $120m$430m in cash and enter into a long-term management contract on the hotel. The hotel had a net book value of $90m at 31 December 2013.(see page 153).
Listing Rules – compliance with LR 9.8.4C
| Section | Applicable sub-paragraph within LR 9.8.4C | Location | ||||
| 1 | Interest capitalised | Financial Statements, note 6, page 122 | ||||
| 2 | Publication of unaudited financial information | n/a | ||||
| 4 | Details of long-term incentive schemes | Directors’ Remuneration Report, pages 79, 80 and 84 to 86 | ||||
| 5 | Waiver of emoluments by a Director | n/a | ||||
| 6 | Waiver of future emoluments by a Director | Directors’ Remuneration Report, page 91 | ||||
| 7 | Non pre-emptive issues of equity for cash | n/a | ||||
| 8 | Item (7) in relation to major subsidiary undertakings | n/a | ||||
| 9 | Parent participation in placing by a listed subsidiary | n/a | ||||
| 10 | Contracts of significance | n/a | ||||
| 11 | Provision of services by a controlling shareholder | n/a | ||||
| 12 | Shareholder waivers of dividends | n/a | ||||
| 13 | Shareholder waivers of future dividends | n/a | ||||
| 14 | Agreements with controlling shareholders | n/a | ||||
Going concern
An overview of the business activities of IHG, including a review of the key business risks that the Group faces, is given in the Strategic Report on pages 102 to 5351 and in the Group Information on pages 164162 to 167.170. Information on the Group’s treasury management policies can be found in note 2120 to the Group Financial Statements on pages 135 to 137. The Group refinanced its bank debt in November 2011 and put in place a five-year $1.07bn facility. In NovemberDecember 2009, the Group issued a seven-year £250m sterling bond and, in November 2012, a 10-year £400m sterling bond. Subsequent to the year end the Group raised a $400m term loan to help finance the acquisition of Kimpton Hotel & Restaurant Group, LLC; the term loan expires in July 2016.
At the end of 20132014, the Group was trading significantly within its banking covenants and debt facilities.
The Group’s fee-based model and wide geographic spread means that it is well placed to manage through uncertain times and our forecasts and sensitivity projections, based on a range of reasonably possible changes in trading performance, show that the Group should be able to operate 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 Financial Statements.
By order of the Board
George Turner, Company Secretary
InterContinental Hotels Group PLC
Registered in England and Wales,
Company number 5134420
1716 February 20142015
|
| IHG Annual Report and Form 20-F 2014 |
Remuneration Committee Chairman’s statementStatement
 |  | |
“Our Directors’ Remuneration Policy rewards the successful execution of the business strategy, as demonstrated by this year’s outcomes. So that it remains effective for the future, we will review it in 2015 and seek shareholders’ approval again in 2016.”
Committee membership
Luke Mayhew Chairman
Members
Ian Dyson, David Kappler, Jonathan Linen, Ying Yeh
For full biographies, please see pages 57 to 59.
Dear Shareholder
20132014 corporate performance and incentive outcomes
IHG continued to deliver sustainable and attractive returns for shareholders in 2013, as shown by the financial corporate performance indicators in the table below.
This is the firstExecutive Director remuneration has reflected another year in which theof strong performance. Annual Performance Plan (APP) has included measuresawards are comparable to last year, reflecting continued good growth of Earnings Before Interest and Tax (EBIT) as well as encouraging progress on guest satisfaction (Guest HeartBeat) and employee engagement; overall there were encouraging performance improvements at both global and regional levels.
UnderEmployee Engagement survey scores. Another three years of high Total Shareholder Return (TSR) was the main driver for the vesting under the 2012/14 Long Term Incentive Plan (LTIP) 2011/13 cycle, strong three-year Total Shareholder Return (TSR) resulted in maximum vesting of this element (50% of total award). However, there was only partial vesting for the Revenue per available room (RevPAR) growth element (25%), and no vesting against the net rooms growth target (25%). This LTIP cycle was the first with relative RevPAR and rooms growth targets.
Executive Director remuneration has reflected this overall performance with APP awards slightly above target and comparable towhich is marginally below last year, and 59% vesting under the 2011/13 LTIP cycle, down on last year’s full vesting.year.
Corporate performance indicators | 2013 | 2012 | 2011 | 2014 | 2013 | 2012 | ||||||||||||||||||
| Operating profit before exceptional items |
| +10.4% $668m | 1 |
| +10.4% $605m | 2* |
| +25.9% $548m | 3* |
| -2.5% $651m1 |
|
| +10.4% $668m | 2 |
| +10.4% $605m | 3,4 | ||||||
| Full-year dividend per share (excluding any special dividends and capital returns) |
| 70¢ 43.2p |
|
| 64¢ 41.2p |
|
| 55¢ 34.5p |
|
| 77.0¢ 48.6p |
|
| 70.0¢ 43.2p |
|
| 64.0¢ 41.2p |
| ||||||
| Three-year total TSR (annualised) | +18.4% | +28.2% | +29.8% | +31.7% | +18.4% | +28.2% | ||||||||||||||||||
| 1 | Includes two liquidated damages receipts in 2014: $7m, both in The Americas. |
| 2 | Includes three liquidated damages receipts in 2013: $31m in The Americas, $9m in Europe and $6m in AMEA. |
| Includes one significant liquidated damages receipt in 2012 of $3m in The Americas. |
| With effect from 1 January 2013, the Group |
Directors’ Remuneration Policy
At the 2014 AGM, shareholders approved our Directors’ Remuneration Policy (DR Policy), as set out in our 2013 Annual Report, with 90.94 per cent support. I mentioned in the 2013 Directors’ Remuneration Report the issues we had discussed at some depth with shareholders prior to the vote at the AGM. The two we know prompted some shareholders to vote against the
DR Policy were the use of relative TSR as a measure in the LTIP, and the fact that the DR Policy did not require Executive Directors to hold shares beyond the three-year vesting date.
I explained then that the outcome of the 2011/13 LTIP cycle was in line with performance and reflected shareholder value creation. I also pointed out that our Executive Directors had very substantial shareholdings and formally requiring further holding periods seemed unnecessary. Shareholders voted 94.01 per cent in favour of the 2013 Directors’ Remuneration Report.
We are not making any changes to the DR Policy itself for 2015. There is, however, one substantive change to how we will implement the DR Policy. We have introduced a three-year clawback clause post-vesting or payment of awards, applying to awards made relating to 2015 and future financial years. This will apply in addition to the existing malus provision in the DR Policy, which allows for awards to be reduced prior to vesting. The details are set out on pages 81 and 91 of the Annual Report.
Remuneration and business strategy
We feel strongly that we should make changes to the DR Policy in a coherent way if it is to retain credibility with management and serve its purpose of motivating and rewarding outstanding performance. Reward arrangements for senior executives of a global business are inevitably quite complicated and need to be communicated as an intrinsic part of the business strategy. We are keen to avoid, if possible, the introduction of ad-hoc changes, especially where there is no link to the business strategy.
The current executive reward structure was introduced five years ago. It includes the key performance measures at the heart of the current business strategy; an annual plan to incentivise and reward the delivery of good financial results, as well as from 2013, improvements in guest satisfaction and employee engagement; and a long-term plan to reward the delivery of strong shareholder returns and better-than-market number of rooms and RevPAR growth. All these measures remain relevant to future business strategy. However, after five years, it is right to revisit whether other measures and remuneration approaches could even better support the strategic priorities for the coming five years, as well as consider further questions shareholders have raised. Therefore, during 2015, the Remuneration Committee will revisit all aspects of the APP and LTIP to ensure they remain fit for purpose. This will include consideration of the following:
We will consult major shareholders and shareholder organisations during 2015 and put the new DR Policy to all shareholders at our 2016 AGM for approval.
| 76 |
FormatPension arrangements
For a number of years, we have been working to de-risk the potential liabilities of the Group’s legacy UK pension arrangements. The defined benefit pension closed to new members in 2002 and to future accrual in 2013, after which benefits were secured with an insurer.
One of the last elements of de-risking we announced was our intention to change the long-established enhanced early retirement arrangements. These terms were inappropriate in the current wider pensions context. The conditions were changed during the year and this will be phased out over the coming years, as explained on pages 85 and 87.
The main exceptional payment in this Directors’ Remuneration Report relates to the decision announced last year to seek to cash out the closed senior executive pension scheme – InterContinental Hotels Executive Top-Up Scheme (ICETUS). This was the final stage of the de-risking plan. I am pleased that we had a positive response from those members of the scheme with the most potential value. Richard Solomons was one of those who agreed to cash out this part of the pension. The value of the pension was substantial, reflecting his 22 years with the business. As a result, there is a one-off additional element in his overall remuneration for 2014 only. This is explained in the single remuneration figure section on page 82.
No other changes are proposed and the Board believes that any remaining UK pensions risk is not significant.
Board change
Kirk Kinsell left the Board and his role as President, The Americas on 13 February 2015, aged 60, after a total of 19 years’ service with the business.
Mr Kinsell was succeeded by Elie Maalouf who was appointed to the role of Chief Executive Officer, The Americas, effective as of 13 February 2015 and who also became a member of IHG’s Executive Committee.
The remuneration consequences of Mr Kinsell’s departure were determined in line with the DR Policy and the rules of the relevant incentive plans. Details of Mr Kinsell’s remuneration arrangements on departure are included in the Directors’ Remuneration Report and have been disclosed on the Company’s website at www.ihgplc.com/investors
About this report
This year seesstatement aims to set out the introductionmore significant parts of a binding shareholder vote on the Directors’ Remuneration Policy (see pages 78report for those who want to 86)know the headlines, main issues considered in addition to2014 and the advisory vote on thepriorities for 2015. The Annual Report on Directors’ Remuneration (see pages 87contains more detailed disclosures, many of which are prescribed by legislation or regulation, but we have tried to 96). The new regulations and guidelines have helped clarifymake it easier to follow by also taking into account current thinking on best practice in sharing informationremuneration reporting. We have included a summary of our approved DR Policy (see pages 80 and 81) for ease of reference only, as it provides investors with shareholders. Consistent with our historic approach of transparency with shareholders, our 2012 Directors’ Remuneration Report reflected as much as possiblean understanding of the direction and spiritdetail of the then draft new rules. remuneration outcomes that follow. The full DR Policy is available at www.ihgplc.com/investors. We have also looked to simplify the graphs and tables wherever possible and ensure that the link between our strategy and remuneration is clear.
The 2012 Directors’ Remuneration Report won the PwC Building‘Building Public Trust AwardAward’ for Executive Remuneration Reporting in the FTSE 100.
Board changes
Paul Edgecliffe-Johnson was appointed to the Board as Chief Financial Officer on 1 January 2014 following the resignation of Tom Singer with effect from that date. Paul Edgecliffe-Johnson was previously Chief Financial Officer of IHG’s Europe and Asia, Middle East and Africa regions. Paul Edgecliffe-Johnson’s annual salary on appointment was £420,000, with the first review date being 1 April 2015. The usual annual and long-term incentive award levels will apply.
Directors’ Remuneration Policy at IHG
Our Remuneration Policy remains largely unchanged from last year. In presenting the policy we have looked to explain how the elements relate to the business strategy and also clearly identify where the Committee has reserved the ability to use its discretion to ensure that actual remuneration reflects underlying business performance and shareholder return.
We believe that the current policy as a whole is well-aligned to the business strategy and growing long-term shareholder value. We are comfortable that the outcomes have reflected business performance. During 2013, the Committee discussed a number of issues that were raised by shareholders in the context of the public debate about executive remuneration. These included Executive Director shareholdings, the use of the TSR as an LTIP measure and pension arrangements.
Executive Director shareholdings
We encourage senior executives to hold shares. The Chief Executive Officer has a minimum requirement to hold 300% of salary in shares; other Executive Directors 200%. At the end of 2013, the Chief Executive Officer held 1,011% of salary in shares owned outright and a further 974% of salary in unvested share awards. Given this level of shareholding, we do not consider it necessary at this time to change our policy or require a post-vesting holding period.
Use of TSR as an LTIP measure
We believe that the combination of TSR, relative growth in net rooms and RevPAR, provides the right balance and focus for driving and rewarding long-term success at IHG. However, we do understand that achievement of these measures has to be underpinned by improvements across a whole range of financial performance metrics. To support this, during 2013, the Committee decided to reserve the discretion to review the vesting outcomes under all of the LTIP measures at the end of each three-year cycle against an assessment of the Group’s earnings100 and the quality of financial performance over the period, including sustainable growth and the efficient use of cash and capital.
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Pension arrangements
We are continuing to make progress in reducing the risks and potential liabilities from our legacy UK defined benefit pension scheme. This was closed to new members in 2002 and closed to future accruals in June 2013, following which the plan liabilities of the defined benefit section of the InterContinental Hotels UK Pension Plan were also secured with an insurer. We continue to work to remove defined benefit liabilities and risks from the Company’s balance sheet. The focus in 2014 is on the historic Enhanced Early Retirement Facility (EERF) pension arrangements, the InterContinental Executive Top-Up Scheme (ICETUS) and the Six Continents Executive Top-Up Scheme (SCETUS).
Following these changes, we will have largely completed the process of redrawing IHG’s UK pension arrangements and minimising the risks to the Company going forward from the historic defined benefit arrangements; these changes should significantly reduce IHG’s pension liability risks.
New incentive plan rules
The rules of our annual and long-term incentive plans are due to expire in 2015, and, in line with good practice, we will present updated rules for these plans to shareholders at the 2014 AGM at the same time as the Directors’ Remuneration Policy and Annual Report on Directors’ Remuneration and Implementation of Remuneration Policy in 2014. These rules reflect the policy set out in this Directors’ Remuneration Report.received ‘Highly Commended’.
Conclusion
The Board recommends thisThis Directors’ Remuneration Policy to shareholders. It will provide the framework to allow us to recruit, motivate and retain the talent IHG needs and to ensure the alignment of executive remuneration with the creation of value for shareholders.
This Director’s Remuneration Report was approved by the Board on 1716 February 2014.
Luke Mayhew, Chairman of the Remuneration Committee
17 February 2014
Content of the 2013 Directors’
Remuneration Report
At the Company’s forthcoming AGM on 2 May 2014, the2015. The Board recommends this Directors’ Remuneration Policy will be subjectReport to a binding vote by shareholders, and theshareholders.
The Annual Report on Directors’ Remuneration and Implementation of Remuneration Policy in 2014 togetherthe Chairman’s Statement are subject to an advisory vote by shareholders.at the 2015 AGM.
Luke Mayhew, Remuneration Committee Chairman
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Remuneration CommitteeRoles and consideration of matters relating to Directors’ remunerationresponsibilities
The Committee comprises the following members, all of whom were independent Non-Executive Directors:
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Patrick Cescau (Chairman of the Board) attended all but the September meeting.Richard Solomons (Chief Executive Officer) andTracy Robbins (Executive Vice President, Human Resources and Group Operations Support) attended all meetings.
Jennifer Laing attended the February and May meetings andDale Morrison attended the May meeting. They are both members of the Audit, Nomination and Corporate Responsibility Committees.
Jean-Pierre Noël (Senior Vice President, Global Reward) attended all meetings and provided advice to the Committee on remuneration proposals as required.
No individual was present when their own remuneration was being considered.
Governance
The Committee’s remit is set out in its terms of reference, which are reviewed annually and were updated by the Board in December 2013. They are available on the Company’s website at www.ihgplc.com/investors under corporate governance/committees, or from the Company Secretary’s office on request.
Responsibilities
TheRemuneration Committee agrees, on behalf of the Board, all aspects of the remuneration of the Executive Directors and the Executive Committee, and agrees the strategy, direction and policy for the remuneration of other senior executives who have a significant influence over the Company’s ability to meet its strategic objectives.
The Committee’s role and responsibilities are set out in the Terms of Reference (ToR) which are available on the Company’s website at www.ihgplc.com/investors under corporate governance/ committees or from the Company Secretary’s office on request. The ToR are reviewed annually and there were no changes to them during 2014.
Governance
All members are independent Non-Executive Directors, as required under the ToR. During 2014, Jo Harlow joined the Committee and both David Kappler and Jonathan Linen retired. All members have the necessary experience and expertise to meet the Committee’s responsibilities.
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| IHG Annual Report and Form 20-F 2014 |
Directors’RemunerationReportcontinued
Governancecontinued
Committee approach to managing risk
TheOur approach to remuneration is to directly link it to IHG’s strategy. Risk management is a key part of IHG’s responsible business practices and the Committee considers risk mitigation as central to the way that incentive arrangements are structured, for example:
Key issues discussed in 2013 meetingsRemuneration Committee
In 2013, the
Committee met six times at which the following matters were discussed:membership and attendance
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Details
| 1 | For full biographies of current members see pages 57 to 59. |
| 2 | Jo Harlow joined the Remuneration Committee as a Non-Executive Director on 1 September 2014. |
| 3 | David Kappler retired as a Non-Executive Director on 31 May 2014. |
| 4 | Jonathan Linen retired as a Non-Executive Director on 31 December 2014. |
The Chairman of remuneration advisersthe Board, and Tracy Robbins (Executive Vice President, Human Resources and Group Operations Support) attended all meetings. The Chief Executive Officer attended four meetings.
Jean-Pierre Noël (Senior Vice President, Global Reward & HR Capability) provided advice to the Committee can be found on page 95.remuneration issues as required.
What did the Committee consider in 2014
The Committee discussed the following key matters:
Remuneration advisers
The Committee continued to retain PricewaterhouseCoopers LLP (PwC) throughout 2014 as independent advisers. Fees of £60,300 were paid to PwC in respect of advice provided to the Committee on executive remuneration matters in 2014. This was in the form of an agreed fee for support in preparation of papers and attendance at meetings, with work on additional items charged at hourly rates. PwC also provided tax and other consulting services to the Group during the year.
The terms of engagement for PwC are available from the Company Secretary’s office on request.
PwC was appointed following a competitive tender process. The Committee is satisfied that the advice received from PwC was objective and independent as PwC is a member of the Remuneration Consultants Group. Members of this group adhere to a voluntary code of conduct that sets out the role of executive remuneration consultants in the UK and the professional standards they have committed to adhere to when advising remuneration committees.
Voting at IHG AGMs
At the 2014 AGM, under the new reporting regulations, the new binding vote in respect of the Directors’ Remuneration Policy was as follows:
| AGM | Votes for | Votes against | Abstentions | |||||||||
| 2014 |
| 155,440,907 (90.94%) |
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| 15,483,775 (9.06%) |
| 906,025 | |||||
| At IHG’s most recent AGMs, the annual advisory vote in respect of the Directors’ Remuneration Report was as follows: | ||||||||||||
| AGM | Votes for | Votes against | Abstentions | |||||||||
| 2014 |
| 158,131,479 (94.01%) |
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| 10,076,027 (5.99%) |
| 3,623,200 | |||||
| 2013 |
| 160,795,577 (85.73%) |
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| 26,762,429 (14.27%) |
| 1,226,617 | |||||
| 2012 |
| 203,110,989 (95.46%) |
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| 9,651,718 (4.54%) |
| 1,750,533 | |||||
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Key remuneration principles
IHG’s executive remuneration principles are designed to drive the delivery of its strategic objectives by:objectives. To do this, we need to:
IHG’s remuneration structure for senior executives places a strong emphasis on performance-related reward. The Committee believes that it is important to reward senior management, including the Executive Directors, for targets achieved, provided those targets are stretching.stretching and drive results.
Link withto strategy
Our strategy for delivering high-quality growth (detailed on pages 1814 to 25) and 19), is the driver of our reward structure.
The Key Performance Indicatorsperformance indicators (KPIs) (set out on pages 3830 to 33) through which we monitor and 39), monitormeasure our success in achieving our strategy and measureare the progress of our Group to deliver high-quality growth. They are organised aroundkey drivers for the performance-related elements of our strategy: Winning Model, Targeted Portfolioreward structure, the APP and Disciplined Execution and are reflected in IHG’s annual and long-term incentive plans as shown below:LTIP (see below):
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Directors’RemunerationReportcontinued
Summary of our Directors’ Remuneration Policy (DR Policy)
The policy for Executive Directors, set out below, will apply from the date of the 2014 AGM (subject to approval), and is available to view at www.ihgplc.com/investors.
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 2014 AGM; if any amendments need to be made to the policy within that timeframe, it will first be presented to be voted upon by shareholders.
Future policy table
How to use this report | ||||
| The 2014 Directors’ Remuneration Report uses colour coding throughout to denote different elements of remuneration, as follows: |
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This is a brief summary of the DR Policy, which was approved at our 2014 AGM. The full DR Policy can be found at www.ihgplc.com/investors under corporate governance.
DR Policy table summary
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 Salary |  Salary |
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Newly
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 Benefits | Benefits are restricted to the typical level in the relevant market for an Executive Director. They may include the cost of independent financial advice, car allowance/company car, private healthcare/medical assessments and relocation and expatriate or international assignment costs where appropriate. | ||||||||||
| Variable |
(50% cash and 50% IHG shares deferred for three years) | ||||||||||
Maximum annual award is 200% of
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This is reviewed annually with targets set in line with key strategic priorities: • 70% EBIT • 30% non-financial measures They include regional or global measures or a combination of both. The Committee may vary the relative weighting of EBIT and other metrics from year to year. | |||||||||||
Personal performance may also be taken into account in determining awards under the APP.
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• 25% relative net rooms growth • 25% relative RevPAR
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Directors’ Remuneration Policycontinued
Future policy tablecontinued
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Plan: employee contributions with matching Company contributions. A cash allowance in lieu of pension contributions is offered.
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• executive defined contribution section of the IC Plan and ICETUS: 7.5% employee contribution with 30% matching Company contribution;
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• US 401(k) Plan: 2%-75% employee contribution with 4% matching Company contribution; and
• US Deferred Compensation Plan: up to 75% employee contribution with 2% matching Company contribution and 8%-20% additional Company contribution if certain conditions are met.
These may be increased by the Committee in exceptional circumstances where market conditions so warrant.
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| Fixed | Fees and benefits (cash) | Maximum increase in annual fee in line with median FTSE 100 increases. Set by the Chairman of the Board and Executive Directors. The Chairman’s fees are set by the Committee. They are fixed for 12 months from 1 January. Non-Executive Directors are not eligible to participate in any performance-related incentive plans. IHG pays the cost of providing |
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Illustrative scenarios
Below is an illustration of the value that could be received by each Executive Director under the Directors’ RemunerationNotes on DR Policy in respect of 2014, showing:
The salaries included are those that will apply from 1 April 2014. 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.
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Directors’ Remuneration PolicycontinuedUse of discretion
NotesThe Committee reserves certain discretions under the Company’s incentive plans. These operate in two main respects:
The Committee will also use its judgement as to what is appropriate within the terms of the DR Policy tableto make decisions that do not involve the exercise of discretion.
UseIn all cases, the discretions are reserved as part of the DR Policy in order to allow the Committee flexibility to ensure that remuneration outcomes for Executive Directors are consistent with business performance, at the same time as providing a high degree of clarity for shareholders as to remuneration structure and potential quantum. Any exercises of discretion by the Committee will be fully disclosed and explained in the relevant year’s Implementation of Remuneration CommitteePolicy Report.
1. Malus in incentive plansIn relation to the LTIP, the Committee will review the vesting outcomes under all of the LTIP measures at the end of each three- year cycle against an assessment of Group earnings and the quality of financial performance over the period, including sustainable growth and the efficient use of cash and capital. If the Committee determines that the vesting outcomes do not appropriately reflect the financial performance of the Group, it may reduce the number of shares that vest.
ForIn relation to malus, for awards made from January 2012, the APP and LTIP rules allow the Committee discretion to reduce the level of unvested share awards if circumstances occur which,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:
This may include, where appropriate, negligence on the part of Executive Directors.
This feature helpsThese features help ensure alignment between executive reward and shareholder returns.
2. Other uses of discretion
The Committee reserves certain discretions in relation to the outcomes for Executive Directors under the Company’s incentive plans. These operate in two main respects:
The Committee will also use its judgement as to what is appropriate within the terms of the Directors’ Remuneration Policy to make decisions that do not involve the exercise of discretion.
The discretions that can be applied in the case of leavers under the APP and LTIP are set out in the section on ‘Policy on payment for loss of office’ on page 84. In all cases, the discretions are reserved as part of the Directors’ Remuneration Policy in order to allow the Committee flexibility to ensure that remuneration outcomes for Executive Directors are consistent with business performance, at the same time as providing a high degree of clarity for shareholders as to remuneration structure and potential quantum. Any exercises of discretion by the Committee will be fully disclosed and explained in the relevant year’s Implementation of Remuneration Policy report.
The following key discretions apply under the incentive plans:
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Pensions
Enhanced Early Retirement Facility (EERF)
Under the EERF, executive participants of the defined benefit section of the IC Plan have an option, with the Company’s agreement, to retire without reduction to their pension if they are within five years of their normal retirement date. Approximately 42 executives are eligible to participate in this facility.
As set out in the Remuneration Committee Chairman’s statement, this facility will be phased out commencing in 2014, with the effect that any participant currently aged 50 or below would only take an unreduced pension from age 60, the contractual retirement age.
For those currently over 50, an unreduced pension will be available at a point between age 55 and age 60, depending on how close the participant is to age 55 at the time the phasing out commences in 2014. As a result of the phasing out of the EERF, Richard Solomons could retire, with no reduction in his pension, from approximately age 58 and no earlier.
This provision only applies on the consent of the Company.
InterContinental Executive Top-Up Scheme (ICETUS)
In 2014, the Company is looking to reduce the risks and volatility from the remaining unfunded ICETUS pension arrangements by offering members an opportunity to cash-out the ICETUS element of their pension on a basis that is fair and reasonable, both to them and to shareholders. Currently, 11 employed UK executives participate in the ICETUS arrangement.
This is part of the process of redrawing IHG’s pension arrangements and minimising the future risks to the Company.
Approach to recruitment remuneration
The remuneration of any new Executive Director will be determined in accordance with the Directors’ Remuneration Policy on pages 78 to 86 and the elements that would be considered by the Company for inclusion are:
In addition, the Committee may, in its discretion, compensate a newly recruited Executive Director for incentives forgone from a previous employment as a result of their resignation. The Committee would seek validation of the value of any potential incentives forgone.
Awards made by way of compensation for incentives forgone would be made on a comparable basis, taking account of performance achieved (or likely to be achieved), the proportion of the performance period remaining and the form of the award. Compensation would, as far as possible, be in the form of IHG LTIP or deferred share awards, in order to immediately align a new Executive Director with IHG 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:
This excludes any remuneration that constitutes compensation for incentives forgone and any relocation and expatriate or international assignment costs.
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Directors’ Remuneration Policycontinued
Policy on payment for loss of office
Contractual notice period and pay in lieu
All current Executive Directors have a rolling service contract with a notice period from the companyCompany of 12 months. As an alternative, the Company may, at its discretion, pay in lieu of that notice. Neither notice nor a payment in lieu of notice will be given in the event of gross misconduct.
Payment in lieu of notice could potentially include up to 12 months’ salary and the cash equivalent of 12 months’ pension contributions, and other contractual benefits. Where possible, the Company will seek to ensure that, where a leaver mitigates their losses by, for example, finding new employment, there will accordingly be a corresponding reduction in compensation payable for loss of office.
An Executive Director may have an entitlement to compensation in respect of their statutory rights under employment protection legislation inFurther details on the UK or other relevant jurisdiction.
There were no contractual provisions agreed prior to 27 June 2012 that could affect the quantum of loss of office payments to Executive Directors.
Policypolicy for determination of termination payments
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Exercise of discretion
The Committee would only exercise the discretions available in the APP and LTIP plan rules relating to:
in exceptional circumstances, for example permanent disablement.
Notice periods would not usually be included in the pro-ration of APP and LTIP awards for a leaver. The Committee would only exercise its discretion to include some or all of the notice period in such pro-ration in exceptional circumstances, such as ill health, and would not do so in circumstances of poor performance.
LTIP
Subject to the circumstances surrounding the termination, the Committee, in its discretion, may treat an individual as a Good Leaver for the purposes of the LTIP. The Committee 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 with the Company. If an individual is not a Good Leaver then they will be treated as an Other Leaver, as set out above.
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Consideration of shareholder views
The Committee actively engages with shareholders on remuneration matters. Following face-to-face discussions with a number of shareholders in the autumn of 2012, major shareholders were approached prior to the 2013 AGM and offered the opportunity to discuss any aspect of our approach to remuneration. A programme of interactions with shareholders will continue in 2014.
Consideration of employment conditions elsewhere in the Group
The Committee takes into consideration the pay and conditions of employees throughout the Group when determining remuneration for its Executive Directors. The Committee would increase an Executive Director’s salary in line with the general UK and US workforce other than when there is a change in role or responsibility, or a significant variance to the market arises, warranting a larger increase.
Newly promoted or recruited Executive Directors to the Board may, on occasion, have their salaries set below the benchmark policy level while they become established in role. In such cases, salary increases may be higher than the general UK and US workforce until the target positioning is achieved.
Group employees’ salaries are compared to cross-industry standards to ensure fair pay for that job. The Company does not directly consult with employees as part of the process of determining Directors’ remuneration. However, questions on the performance of Executive Committee members, including the Executive Directors, are included in the Company’s annual Employee Engagement surveys. While formal comparison measurements were not used in determiningDR Policy.
Approach to recruitment remuneration
The remuneration of any new Executive Director remuneration, the Committee made decisions in the knowledge of incentive arrangements of the rest of the Group, upon which the Committee is briefed regularly.
Remuneration policy for other employees
The Company’s policy on the remuneration of Executive Directors is consistent with that of other senior employees. This group of approximately 48 people also participates and receives deferred share awards under the APP. Eligibility to participate in the LTIP extends to a wider set of around 258 employees in total.
Outside the senior employees’ group, the composition of remuneration differs and annual incentives relate to measures relevant to the individual’s role. Plans for corporate employees are typically based on a combination of individual performance and the Group’s earnings before interest and tax (EBIT). Market-competitive 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.
Service contracts and notice periods for Executive Directors
The Committee’s policy is for all Executive Directors to have rolling service contracts with a notice period of 12 months. All new appointments will have 12-month notice periods, unless, on an exceptional basis to complete an external recruitment successfully, a longer initial notice period reducing to 12 months is used. This isbe determined in accordance with the UK Corporate Governance Code.
AllDR Policy. In addition, the Committee may, at its discretion, compensate a newly recruited Executive Directors’ appointmentsDirector for incentives from a previous employment foregone as a result of their resignation. The Committee would seek validation of the value of any potential incentives foregone. Awards made by way of compensation for incentives foregone would be made on a comparable basis, taking account of performance achieved, or likely to be achieved, the proportion of the performance period remaining and subsequent re-appointments are subject to election and annual re-election by shareholders at the AGM.
Detailsform of current Executive Directors’ contracts
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Non-executive directorships of other companies
The Company recognises that its Executive Directors maythe award. Compensation would, as far as possible, be invited to become Non-Executive Directors of other companies and that such duties can broaden experience and knowledge, and benefit the Company.
Therefore, Executive Directors are permitted 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, as long as this is not, in the reasonable opinionform of the Board, likelyIHG LTIP or deferred share awards, in order to lead toimmediately align a conflict of interest.new Executive Directors would generally be authorised to retain the associated fees received.Director with IHG’s performance.
Current Executive Directors do not hold any non-executive directorships of any other company.
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Directors’ Remuneration Policy continued
Remuneration Policy for Non-Executive Directors
The policy for Non-Executive Directors, set out below, will apply for three years from the date of the 2014 AGM, and is available to view at www.ihgplc.com/investors. If any changes are made to the Policy within that timeframe, it will be presented to be voted upon by shareholders. Non-Executive Directors are not eligible to participate in the APP, LTIP nor any IHG pension plan.
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Details of letters of appointment and notice periods for Non-Executive Directors
Non-Executive Directors have letters of appointment, which are available upon request from the Company Secretary’s office.
Patrick Cescau, appointed Non-Executive Chairman, on 1 January 2013, is subject to 12 months’ notice. OtherAll other Non-Executive Directors are not subject to notice periods.
All Non-Executive Directors’ appointments and subsequent re-appointments are subject to election and annual re-election by shareholders at the AGM.2015 AGM (see page 71).
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| IHG Annual Report and Form 20-F |
Directors’ RemunerationReportcontinued
Annual Report on Directors’ Remuneration
TheThis Annual Report on Directors’ Remuneration explains how the Directors’ Remuneration Policy for 2013(DR Policy) was implemented in 2014 and the resulting payments each of the Directors received. The notes to the single figure table provide further detail, including measures and outcomes for 20132014 where relevant, for each of the elements that make up the total single figure of remuneration in respect of each of the Executive Directors. This report is subject to an advisory vote by shareholders at the 20142015 AGM.
Single total figure of remuneration –
Executive Directors (audited information)
 Salary |  Benefits |  APP |  LTIP |  Pension benefit | Total | |||||||||||||||||||||||||||||||||||||||||||
Executive Directors | 2013 £000 | 2012 £000 | 2013 £000 | 2012 £000 | 2013 £000 | 2012 £000 | 2011/13 cycle (value of shares) £0003 | 2010/12 cycle (value of shares) £0004 | 2013 £000 | 2012 £000 | 2013 £000 | 2012 £000 | ||||||||||||||||||||||||||||||||||||
| Richard Solomons | 735 | 716 | 34 | 48 | 1,098 | 988 | 1,036 | 1,989 | 246 | 1,140 | 5 | 3,149 | 4,881 | |||||||||||||||||||||||||||||||||||
| Kirk Kinsell1 | 492 | 474 | 85 | 663 | 532 | 612 | 865 | 1,473 | 114 | 110 | 2,088 | 3,332 | ||||||||||||||||||||||||||||||||||||
| Tracy Robbins | 421 | 409 | 21 | 23 | 631 | 600 | 656 | 1,091 | 126 | 123 | 1,855 | 2,246 | ||||||||||||||||||||||||||||||||||||
| Tom Singer2 | 548 | 540 | 29 | 19 | 409 | 1,172 | 935 | 1,366 | 164 | 162 | 2,085 | 3,259 | ||||||||||||||||||||||||||||||||||||
| Fixed pay | Variable pay | Pension | ||||||||||||||||||||||||||||||||||||||||||||||
| Benefits |   APP |  LTIP |  Pension benefit |  Total | |||||||||||||||||||||||||||||||||||||||||||
| Executive Directors | 2014 £000 | 2013 £000 | 2014 £000 | 2013 £000 | 2014 £000 | 2013 £000 | 2012/14 cycle (value of shares) £0001 | 2011/13 cycle (value of shares) £0002 | 2014 £000 | 2013 £000 | 2014 £000 | 2013 £000 | ||||||||||||||||||||||||||||||||||||
Richard Solomons3
| 759 | 735 | 30 | 34 | 1,128 | 1,098 | 1,425 | 1,018 |
| 228 +2,958 3,186 | 3
| 246 |
| 3,570 +2,958 6,528 | 3
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Paul Edgecliffe- Johnson4 | 420 | n/a | 28 | n/a | 619 | n/a | 403 | n/a | 126 | n/a | 1,596 | n/a | ||||||||||||||||||||||||||||||||||||
| Kirk Kinsell5 | 479 | 492 | 27 | 85 | 365 | 532 | 941 | 850 | 111 | 114 | 1,923 | 2,073 | ||||||||||||||||||||||||||||||||||||
| Tracy Robbins | 434 | 421 | 20 | 21 | 644 | 631 | 814 | 644 | 130 | 126 | 2,042 | 1,843 | ||||||||||||||||||||||||||||||||||||
| Tom Singer6 | 2 | 548 | 0 | 29 | n/a | 409 | 712 | 918 | n/a | 164 | 714 | 2,068 | ||||||||||||||||||||||||||||||||||||
| 1 |
| 2 |
| 3 | Richard Solomons received a one-off cash payment in 2014 in lieu of any future entitlement to ICETUS benefits. The amount shown (£2.958m) is the gross cash payment (£9.405m) less amounts previously disclosed (£6.447m). It is included here but is not shown in the illustrative bar chart above as it was a one-off payment and was in respect of benefits already accrued. |
| 4 | Paul Edgecliffe-Johnson was appointed to the Board as Chief Financial Officer effective as of 1 January 2014. |
| 5 | Kirk Kinsell was paid in US dollars and the sterling equivalents were calculated using an exchange rate of $1 = £0.61. In accordance with the APP rules, Mr Kinsell will receive only the 50% cash portion of his 2014 APP award, |
| 6 | As a result of Tom Singer’s resignation from IHG with effect from 1 January 2014, |
|
Annual Report on Directors’ Remuneration continued
Notes to Singlesingle total figure of remuneration – Executive Directors (audited information)
Kirk Kinsell left the Board and his role as President, The Americas effective as of 13 February 2015. The Remuneration Committee determined that Mr Kinsell would be treated as a Good Leaver for the purposes of the LTIP awards, in line with the DR Policy on termination of employment. He therefore retained all outstanding LTIP awards which will vest on the normal vesting dates, subject to the satisfaction of performance conditions, with the awards pro-rated to his leaving date. Mr Kinsell also received the cash portion of his 2014 APP award and the deferred share portion of his 2011 APP on the normal vesting date. Outstanding deferred awards under the 2012 and 2013 APPs lapsed, and no APP award will be made in respect of 2015. The Remuneration Committee has reserved the right to determine that, prior to the vesting of shares under each outstanding LTIP cycle, Mr Kinsell’s entitlement to shares under the LTIP will be forfeited in full if Mr Kinsell commits a breach of his continuing post-termination contractual obligations. The relevant figures will be included in next year’s report.
Fixed pay
Salary: salary paid for the year; foryear (for Kirk Kinsell, who was paid in US dollars, this shows actual salary paid converted into sterling.sterling).
Benefits: principalthis includes taxable benefits arising fromsuch as company car, healthcare, life cover and other taxable benefits. Provision during 2014 was in line with previous years and the individuals’ employment in 2013 are set out in the table below:approved DR Policy, and no exceptional benefits were paid.
Variable Pay
| Director | Company car £ | Healthcare £ | Financial £ | Life cover £ | Taxable expenses4 £ | Expatriate-related £ | ||||||||||||||||||
| Richard Solomons | 20,220 | 1 | 2,139 | nil | nil | 3 | 11,661 | nil | ||||||||||||||||
| Kirk Kinsell | nil | 5,247 | 3,195 | 2,747 | 13,395 | 60,554 | 5 | |||||||||||||||||
| Tracy Robbins | 15,468 | 2 | 1,328 | nil | nil | 3 | 4,504 | nil | ||||||||||||||||
| Tom Singer | 19,290 | 2 | nil | nil | nil | 3 | 9,537 | nil | ||||||||||||||||
2013 2014 APP
The weighting, measures and targets relating to the APP are determined by the Committee, on an annual basis, in line with our strategic objectives. A combination of global and regional targets were used in 2014. Executive Directors with only global roles were subject to global measures. Kirk Kinsell was subject to partly regional measures, reflecting his regional role as President, The Americas.
The measures for 2013 were:2014 were determined in accordance with the DR Policy and were as follows:
A combination of global and regional targets were used. Executive Directors with only global roles were subject to global measures. Kirk Kinsell was subject to partly regional measures, reflecting his regional role as President, The Americas.
In common with shareholders, Executive Directors were eligible to receive dividends or dividend equivalents on the deferred share awards from the date of grant.
Why do we use these measures?
| Guest HeartBeat score | Employee Engagement survey score | EBIT vs target | ||
• Guest HeartBeat is part of the guest satisfaction survey. • It is an overall guest satisfaction score relating to hotel visits. • It is a robust measure of the strength of our brands. • Inclusion in the APP provides executive focus on this key performance metric at global and regional level. | • We measure employee engagement because our brands are, effectively, a promise • Engaged employees are key to our business. • Our Employee Engagement survey is a long-established tool in our business. | • EBIT is a key measure of business performance for our shareholders. • It is a function of other critical measures: net rooms growth, RevPAR, operating profit | ||
|
Award levels relate to achievement against target under each of the measures. The link between our strategy and the performance measures asof the APP is explained in more detail on page 79.
Threshold, target and maximum opportunity are shown below:on the graph on page 84, along with actual achievement on a global basis and further detail.
Guest HeartBeat 20% of award | Employee Engagement 10% of award | EBIT 70% of award | Total award % of salary | |||||
Threshold Achievement vs target | 50% | 50% | 90% | |||||
Award level | 50% of target payment 11.5% of salary | 50% of target payment 5.75% of salary | 50% of target payment 40.25% of salary | 57.5% | ||||
Target Achievement vs target | 100% | 100% | 100% | |||||
Award level | 100% of target payment 23% of salary | 100% of target payment 11.5% of salary | 100% of target payment 80.5% of salary | 115% | ||||
Maximum Achievement vs target | 200% | 200% | 110% | |||||
Award level | Maximum payment 40% of salary | Maximum payment 20% of salary | Maximum payment 140% of salary | 200% |
The actual award level was determined on a straight-line basis between threshold and target, and target and maximum, and relates to achievement vs target under each measure:
Threshold award was subject to a global EBIT affordability gate such that:
The Guest HeartBeat target for 2013 was based on scores compiled directly from guest feedback. Guest HeartBeat measures overall guest satisfaction with a hotel visit, based on a 10-point scale. It takes a common and consistent approach for all brands in all regions. The targets were set taking into account corporate strategic objectives at global and regional levels with a focus on year-on-year improvement in guest service scores and the quality of IHG branded hotels.
Our Employee Engagement survey scores are already high against benchmarks both globally and in our priority markets, such as Greater China; IHG has seen an 18 percentage point increase across the Group in the last five years. According to our third-party survey administrator, TNS, who provides similar services to many other companies, Employee Engagement survey scores for high-performing companies (the top 7% of companies) have remained flat since 2010, and service companies have reduced by an average of 1.5% year-on-year. In this context, the Committee considered setting a target based on further year-on-year improvement to be stretching. The Employee Engagement survey covers all employees and those working in our owned and managed hotels (excluding our joint venture partners).
| 83 |
| IHG Annual Report and Form 20-F 2014 |
Directors’ RemunerationReportcontinued
Annual Report on Directors’ Remunerationcontinued
| 1 | The EBIT element of Kirk Kinsell’s award was based 50/50 on Group/The Americas results; the EBIT achievement for the Americas was 99.0% against target. The Guest HeartBeat element of Mr Kinsell’s award was based wholly on The Americas results; achievement was 29.4% of target. The total award as a % of salary for Mr Kinsell was 151.4% and in accordance with the APP Plan rules he will only receive the 50% cash portion. |
| 2 | Maximum achievement under all three measures would result in an award of 230% of total salary. However, under the DR Policy, awards are capped at 200% of salary. |
Outcome for 20132014 (audited information)
Group EBIT achieved for 2013 was 102.5% of target. For The Americas, EBIT achievement was 101.2% of target. The EBIT element of Kirk Kinsell’s award was based 50/50 on Group/The Americas results and for the other Executive Directors, it is based wholly on global results. Based on performance, the following table shows the level of 2013 awards. Under the terms of the APP, participants are subject to an automatic adjustment to their award if they do not fully exceed targets on a range of regional and organisational objectives.2014 awards for which 50% will be paid in cash and 50% in deferred IHG shares thatshares. These will vest after three years in February 2017.2018. The deferred share awards are made in the form of forfeitable shares that receive dividends during the three-year vesting period and include the right to vote at shareholder meetings, apart from Kirk Kinsell, whose deferred share award is in the form of a conditional share award with dividend equivalents.meetings.
| Guest HeartBeat | Employee Engagement | EBIT | Total | |||||||||||||||||||||||||||||||||||
| Director | Achievement vs target (%) | Award as % of salary | Achievement vs target (%) | Award as % of salary | Achievement vs target (%) | Award as % of salary | Award as % of salary | |||||||||||||||||||||||||||||||
Executive Director
| Award as % of salary | Total value of award £0001 | ||||||||||||||||||||||||||||||||||||
Richard Solomons | 100.1 | 25.0 | 200.0 | 23.0 | 102.5 | 100.6 | 148.6 | 147.4 | 1,128 | |||||||||||||||||||||||||||||
| Paul Edgecliffe-Johnson | 147.4 | 619 | ||||||||||||||||||||||||||||||||||||
Kirk Kinsell | 100.1 | 24.8 | 200.0 | 23.0 | 101.8 | 95.4 | 107.4 | 75.7 | 365 | 2 | ||||||||||||||||||||||||||||
Tracy Robbins | 100.1 | 25.0 | 200.0 | 23.0 | 102.5 | 100.6 | 148.6 | 147.4 | 644 | |||||||||||||||||||||||||||||
Tom Singer | 100.1 | 25.0 | 200.0 | 23.0 | 102.5 | 100.6 | 74.3 | 1 | ||||||||||||||||||||||||||||||
| 1 | As |
| 2 | In accordance with |
2013 Group EBIT includes certain liquidated damages payments (LDs), and in determining the outcome underIn relation to the APP the Committee has applied a discount to these payments to reflect the resulting loss of future income to the Group. In addition, the Committee has exercised discretion to adjust regional EBIT2014 measures, we have disclosed percentage achievement levels. The percentage by which global EBIT is reduced by way of discount to the LDs received, has also been applied to reduce each region’s EBITagainst target for the purposes of determining APP awards.
Actual 2013 targets under each measure in the graph at the top of this page. We have also shown outcome vs opportunity. For the Guest HeartBeat and Employee Engagement survey measures, the 2014 outcome scores are detailed on pages 31 and 32 of the Annual Report. Detail on the financial targets set is not disclosed at this stage as they are,it is, in the opinion of the Directors, commercially sensitive. Disclosure would providerisk providing IHG’s major competitors with an unfair commercial advantage as these companies are either unlisted or listed on a stock exchange other than the London Stock Exchange and, therefore, not subject to the same regulations. During 2015, we will consider what further transparency we can provide to shareholders without disadvantaging the business.
|
Annual Report on Directors’ Remuneration continued
2011/13 2012/14 LTIP
The performance measures for each three-year LTIP cycle are set by the Committee. Awards are made annually and eligible executives will receive shares at the end of that cycle, subject to achievement of the performance measures. The performance measures for the 2011/132012/14 cycle were:were as follows and in line with the DR Policy:
Growth in net rooms and RevPAR is measured on a relative basis against the comparator group, comprising the following major, globally branded competitors: Accor, Choice Hotels, Hilton Worldwide, Hyatt, Marriott International Inc., Starwood Hotels and Wyndham.Wyndham Worldwide.
These performance measures are also used for the 2012/14 and 2013/15 LTIP cycles, granted in 2012 and 2013 respectively.
Why do we use these measures?
| Net rooms growth | RevPAR growth | Relative TSR | ||
This measures the net growth in the total number of IHG hotel rooms over the duration of the cycle relative to our major global competitors. Together with the RevPAR measure, it provides focus on ensuring a balance between the quality of IHG hotels and the speed at which IHG grows. | This measures success in growing our | This measures the return to shareholders by investing in IHG relative to our competitors in the appropriate comparator group |
In order to generate higher returns for our shareholders, we need to increase revenue share, improve operating efficiency and grow margins through increasing the number of rooms we have available to sell, as well as generating moreincreasing RevPAR for those rooms.
| 84 |
By focusing on both net rooms growth and RevPAR growth, we are rewarding the balanced approach to growth that will support the long-term increase in shareholder value.
These performance measures are also used for the 2013/15 and 2014/16 LTIP cycles, granted in 2013 and 2014 respectively. Threshold, target and maximum opportunity for the 2012/14 cycle is shown in the graph below, along with actual achievement for 2014.
Performance was below the average of the comparator group on the relative net rooms growth measure and therefore this element will not vest.
Outcome for 2011/132012/14 cycle (audited information)
This cycle vestedwill vest on 1918 February 20142015, as follows:
Performance measure | Threshold performance | Maximum performance | Threshold/ maximum vesting | Weighting | Maximum award (% of salary at date of award) | Actual performance vs comparator group | Outcome (% of maximum award vesting) | |||||||
Net rooms growth | Average of the comparator group | 1stin the comparator group | 20% / 100% | 25% | 51.25% | Below average | 0% | |||||||
RevPAR growth | Average of the comparator group | 1stin the comparator group | 20% / 100% | 25% | 51.25% | Slightly above average | 9% | |||||||
TSR | Growth equal to the DJGH index | Growth exceeds the index by 8% per year or more | 20% / 100% | 50% | 102.5% | Growth exceeded index by 10.4% | 50% | |||||||
Total vesting outcome | 59% |
| Executive Director | Maximum opportunity at grant (number of shares) | % of maximum opportunity vested | Outcome (number of shares awarded at vest) | Total value of award1 £000 | ||||||||||||
| Richard Solomons | 103,722 | 56.1 | 58,188 | 1,425 | ||||||||||||
| Paul Edgecliffe-Johnson | 29,322 | 56.1 | 16,449 | 403 | ||||||||||||
| Kirk Kinsell2 | 68,463 | 56.1 | 38,407 | 941 | ||||||||||||
| Tracy Robbins | 59,270 | 56.1 | 33,250 | 814 | ||||||||||||
| Tom Singer3 | 77,684 | 56.1 | 29,053 | 712 | ||||||||||||
| 1 | As shown in the single figure of remuneration. Share price used of 2,449p is the average over the final quarter of 2014. |
| 2 | In line with the DR Policy, the Remuneration Committee determined that Kirk Kinsell would retain his 2012/14 LTIP award in accordance with and subject to the terms of the LTIP Plan rules, as the performance period for this award was completed when Kirk Kinsell resigned effective as of 13 February 2015. |
| 3 | The Remuneration Committee determined that the 2012/14 LTIP award would vest in line with the terms of the LTIP Plan rules on a pro-rated basis for the proportion of the performance period in which Tom Singer remained in employment. This award will be released on the normal vesting date and only to the extent the performance conditions were fulfilled. |
Net rooms and RevPAR growth were measured by reference to the three years ending 30 September 2013;2014; TSR was measured by reference to the three years ending 31 December 2013.2014.
Pensions
Pension benefit:the value of Company contributions to pension plans and any cash allowances paid in lieu of pension contributions.
As published in the 2013 Annual Report, the Group commenced the phasing out of potential enhanced early retirement terms related to those defined benefit pensions in 2014 (see page 87 for further details). In addition, the planned cash out offer was made to the participants of the unfunded, unregistered, defined benefit top-up arrangement, ICETUS, which had previously provided the balance of any benefit accrual that was restricted in the tax-registered plan due to the annual or lifetime allowances. Payments associated with the cash out were made in the financial year and are therefore disclosed appropriately in this year’s Annual Report.
For 2012,2014, the figurepension benefits for Richard Solomons showsinclude the increasepayment of a cash out value in respect of his accrued, unfunded ICETUS benefit. Richard Solomons received a one-off gross cash payment of £9,405,362 in lieu of any future entitlement to ICETUS benefits. An amount of £6,447,000 in respect of his ICETUS benefit was included as part of the disclosure of his total accrued benefits in the 2013 Directors’ Remuneration Report based on the HM Revenue & Customs methodology of valuing pensions at 20 times their annual amounts, hence only the balance in excess of this (i.e. £2.958m) is shown in the single figure table. The actual payment was greater than 20 times the annual pension because the ICETUS benefit was valued using a more accurate actuarial calculation method, in line with that used for valuing the total ICETUS liabilities for accounting purposes. Following the cash out, Richard Solomons has no future entitlement to any benefit from ICETUS.
| 85 |
| IHG Annual Report and Form 20-F 2014 |
Directors’Remuneration Reportcontinued
Annual Report on Directors’ Remunerationcontinued
Scheme interests awarded during 2014 (audited information)
During 2014, awards relating to shares were granted under the 2014/16 LTIP. Awards were made to each Executive Director over shares with a value of 205% of salary using the closing mid-market share price on 7 April 2014. These are in the form of conditional awards over IHG shares and do not carry the right to dividends or dividend equivalents during the vesting period.
These awards will vest, and the shares will be transferred to the award holder, in February 2017 to the extent performance targets are met. See pages 84 and 85 for an explanation of the performance measures.
| Executive Director | Award date | Maximum shares awarded | Market price per £ | Face value of award at grant £000 | Number of shares received if minimum performance achieved2 | |||||||||||||||
2014/16 cycle | ||||||||||||||||||||
Richard Solomons | 8 April 2014 | 82,193 | 19.08 | 1,568 | 16,439 | |||||||||||||||
Paul Edgecliffe-Johnson | 8 April 2014 | 45,125 | 19.08 | 861 | 9,025 | |||||||||||||||
Kirk Kinsell3 | 8 April 2014 | 18,570 | 19.08 | 981 | 3,714 | |||||||||||||||
| Tracy Robbins | 8 April 2014 | 46,952 | 19.08 | 896 | 9,390 | |||||||||||||||
| 1 | Share price was the closing mid-market share price on 7 April 2014. |
| 2 | Minimum performance is equal to 20% of maximum award. |
| 3 | Following Kirk Kinsell’s resignation with effect from 13 February 2015, his award will vest in line with the LTIP Plan rules. His initial maximum shares awarded of 51,426 have been reduced accordingly on a pro-rated basis for the proportion of the performance period in which he remained in employment, as determined by the Committee. The pro-rated award is shown in the table above. Vesting will not be accelerated. |
The vesting date for these awards is the day after the announcement of our Annual 2016 Preliminary Results in February 2017. Net rooms growth and RevPAR growth will be measured by reference to the three years ending 30 September 2016; TSR will be measured by reference to the three years ending 31 December 2016.
Other outstanding awards
During 2013, awards relating to shares were granted under the 2013/15 LTIP (shown below) on the same basis as the 2014/16 LTIP cycle (shown above). These awards will vest in February 2016 to the extent performance targets are met. See pages 84 and 85 for an explanation of the performance measures.
| Executive Director | Award date | Maximum shares awarded | Market price per £ | Face value of award at grant £000 | Number of shares received if minimum performance achieved2 | |||||||||||||||
| 2013/15 cycle | ||||||||||||||||||||
Richard Solomons | 5 April 2013 | 76,319 | 19.85 | 1,515 | 15,263 | |||||||||||||||
Paul Edgecliffe- Johnson3 | 24 February 2014 | 9,454 | 19.25 | 182 | 1,891 | |||||||||||||||
Kirk Kinsell4 | 5 April 2013 | 36,839 | 19.85 | 1,053 | 7,367 | |||||||||||||||
Tracy Robbins | 5 April 2013 | 43,819 | 19.85 | 870 | 8,763 | |||||||||||||||
| Tom Singer5 | 5 April 2013 | 56,883 | 19.85 | 1,129 | 0 | |||||||||||||||
| 1 | Share price was the closing mid-market share price on 4 April 2013. For Paul Edgecliffe-Johnson, this was the closing mid-market share price on 21 February 2014. |
| 2 | Minimum performance is equal to 20% of maximum award. |
| 3 | Paul Edgecliffe-Johnson received an increased award, pro-rated from 1 January 2014, for the 2013/15 LTIP in accordance with the DR Policy as a result of his appointment to the Board. He was awarded 18,322 shares on 5 April 2013 with a market price per share at grant of £19.85 prior to his appointment to the Board. |
| 4 | Following Kirk Kinsell’s resignation with effect from 13 February 2015, his award will vest in line with the LTIP Plan rules. His initial maximum shares awarded of 53,049 have been reduced accordingly on a pro-rated basis for the proportion of the performance period in which he remained in employment, as determined by the Committee. The pro-rated award is shown in the table above. Vesting will not be accelerated. |
| 5 | Tom Singer’s award lapsed as a result of his resignation with effect from 1 January 2014. |
The vesting date for these awards is the day after the announcement of our Annual 2015 Preliminary Results in February 2016. Net rooms growth and RevPAR growth will be measured by reference to the three years ending 30 September 2015; TSR will be measured by reference to the three years ending 31 December 2015.
Current position on outstanding awards
Details of the performance measures and potential vesting outcomes for outstanding awards as at 31 December 2014 are as follows:
| Performance measure | Threshold performance | Maximum performance | Threshold/ maximum vesting | Weighting | Maximum award (% of salary) | Potential vesting outcome | ||||||||||||||||||||||
| 2014/16 cycle | 2013/15 cycle | |||||||||||||||||||||||||||
Net rooms growth | | Average of the comparator group | | | 1st in the comparator group | | 20%/100% | 25% | 51.25% | | Below threshold | | | Below threshold | | |||||||||||||
RevPAR growth | | Average of the comparator group | | | 1st in the comparator group | | 20%/100% | 25% | 51.25% | | Above average | | | Above average | | |||||||||||||
Relative TSR | | Growth equal to the global hotels index | | | Growth exceeds the index by 8% per year or more | | 20%/100% | 50% | 102.5% | | Maximum performance | | | Maximum performance | | |||||||||||||
| 86 |
Total pension entitlements (audited information)
The InterContinental Hotels UK Pension Plan (IC Plan) is a funded final salary occupational pension scheme with an additional defined contribution section.
Richard Solomons’ defined benefit pension accrual in both ICETUS and the IC Plan ceased on 30 June 2013 and the Trustee of the IC Plan subsequently entered into an insurance contract in August 2013 under which all defined benefit liabilities of the plan, plus the provision of increases to pensions which were previously only provided at the discretion of the Company, were fully insured (known as a member‘buy-in’). During 2014, arrangements were made to fully transfer the responsibility for the provision of benefits from the Trustee of the IC Plan to the insurance company, Rothesay Life. This process (known as a ’buy-out’) was completed on 31 October 2014.
Following the buy-out, Richard Solomons has no future benefit entitlement from the IC Plan and it is not considered necessary to make these disclosures in the future. In last year’s Annual Report, we published the Board’s plans to phase out the Company’s Enhanced Early Retirement Facility (EERF). However, during the period over which it is phased out, Richard Solomons remains eligible to benefit from the EERF, albeit at a reduced level. Under the EERF, executive participants of the defined benefit section of the IC Plan which arose principally from his salary review when appointed Chief Executive Officer in July 2011. The defined benefit section of the IC Plan closed to future accruals for existing members on 30 June 2013 and therefore the 2013 pension figure for Richard Solomons also includes a cash allowance in lieu of pensions contributions for the period from 1 July 2013.
|
Total pension entitlements (audited information)
From 2014, two changes to pension arrangements are being made in linehad an option, with the objective of significantly reducing the defined benefit liability and risks in the Company’s balance sheet.
Richard Solomons is eligible for the Enhanced Early Retirement Facility (EERF), which is availableagreement, to all members of the plan. Richard Solomons’ facility is being phased out in line with all other plan members meaning that he could retire without reduction to their pension if they are within five years of their normal retirement date and to retire on improved early retirement terms before this. As set out in the Remuneration Committee Chairman’s 2013 Statement, the phasing out of this facility commenced on 1 March 2014. As a result of the phasing out of the EERF, Mr Solomons could retire, with no reduction in his pension, from approximately age 58 and no earlier. This provision only applies on consent of the Company. Prior to the phasing out, Richard Solomons was eligible to retire without reduction from age 55.
Although The terms of the EERF is non-contractual, as part of the consultation with employees and the plan trustees with regards to the changes in the defined benefit section of the IC Plan in June 2013, it was agreed at that time that the EERF would be retained. However, the decision has now been made to phase out this facility as part of the process of redrawing the Company’s pension arrangements. The EERF terms require an executive to obtain Company consent.
Richard Solomons participated inconsent and would also require the executive definedpayment by the Group of an additional insurance premium to secure the benefit section of the IC Plan and the unfunded InterContinental Executive Top-Up Scheme (ICETUS) until June 2013, when they both closed to future accruals.
As set out in the Remuneration Committee Chairman’s statement, in 2014 the Company is looking to reduce the risks and volatility from the remaining unfunded ICETUS pension arrangements by offering members an opportunity to cash out the ICETUS element of their pension on a basisentitlement for that is fair and reasonable, both to them and to shareholders. Currently, approximately 11 UK employed executives participate in the ICETUS arrangement.
This is part of the process of redrawing IHG’s pension arrangements and minimising the future risks to the company. In the event the cash-out offer is accepted by an Executive Director, details will be disclosed in the relevant Annual Report on Directors’ Remuneration. This is in relation to previously disclosed benefits.
The main features of the executive defined benefit section of the IC Plan, which is a funded, final salary, occupational scheme are:executive.
Following the closure of these arrangements to future accrual from July 2013, Richard Solomons receives a cash sum in lieu of pension contributions.
Richard Solomons’ 2013IC Plan pension, benefits arewhich formed part of the buy-out, was as follows:
| £pa | ||
| ||
| Accrued |
| |
| ||
| ||
| ||
For 2014,Richard Solomons received a cash allowance in lieu of pension contributions. The breakdown of the pension element of the single figure for 20122013 and 20132014 for RichardMr Solomons is as follows:
2013 £000 | 2012 £000 | 2014 £000 | 2013 £000 | |||||||||||||
| Pension benefit under defined benefit section of IC Plan | 135 | 1,140 | – | 135 | ||||||||||||
| ICETUS cash-out | 2,9581 | – | ||||||||||||||
| Cash allowance in lieu of pension contribution | 111 | – | 228 | 111 | ||||||||||||
| Total | 246 | 1,140 | 3,186 | 246 | ||||||||||||
| 1 | Richard Solomons received a one-off cash payment in 2014 in lieu of any future entitlement to ICETUS benefits. See page 85. |
|
Annual Report on Directors’ Remuneration continued
Paul Edgecliffe-Johnsonparticipated in the defined contribution section of the IC Plan until March 2014, during which time he paid contributions of £7,875 and received Company contributions of £4,625 and a cash allowance in lieu of pension contributions of £26,875. For the period from April 2014, he did not participate in any IHG pension plan and instead received a cash allowance of £94,500.
Tracy Robbinsdid not participate in any IHG pension plan in 2013. As a result of the reduction in the Lifetime Allowance in 2012, contributions ceased and instead Tracy Robbins receives a cash allowance in lieu of pension contributions. For 2013, the cash allowance received was £126,400.
Tom Singer did not participate in any IHG pension plan and for 2013,2014. Instead she received a cash allowance of £164,400.£130,148.
Life assurance cover of four times pensionable salary was also provided for both Tracy Robbins and Tom Singer.
Paul Edgecliffe-Johnson and, in accordance with the terms of the closure of the IC Plan to future defined benefit accrual, life assurance cover of six times salary was provided forRichard Solomons.
Kirk Kinsell participatesparticipated in the US 401(k) Plan and the US Deferred Compensation Plan. The US 401(k) Plan is a tax qualified plan providing benefits on a defined contribution basis, with the member and relevant company both contributing. The US Deferred Compensation Plan is a non-tax qualified plan, providing benefits on a defined contribution basis, with the member and the relevant company both contributing.
Contributions made by, and in respect of, Kirk Kinsell in these plans for the year ended 31 December 20132014 were:
| £1 | ||||
| Director’s contributions to US Deferred | ||||
| Compensation Plan | ||||
| Director’s contributions to US 401(k) Plan | ||||
| Company contributions to US Deferred | ||||
| Compensation Plan | ||||
| Company contributions to US 401(k) Plan | ||||
| Age at 31 December | ||||
| 1 | Sterling values have been calculated using an exchange rate of $1=£ |
Scheme interests awarded during 2013 (audited information)
During 2013, awards relating to shares were granted under the 2013/15 LTIP. Awards were made to each Executive Director over shares with a value of 205% of salary using an average share price over the three business days immediately prior to grant. These are in the form of conditional awards over IHG shares and do not carry the right to dividends or dividend equivalents during the vesting period. These awards will vest, and the shares will be transferred to the award holder in February 2016 to the extent performance targets are met (see page 90 for an explanation of the performance measures).
| Executive Director | Award date | Maximum shares awarded | Market price per £ | Face value of award at grant £000 | Number of shares received if minimum performance achieved2 | |||||||||||||||
| 2013/15 cycle | ||||||||||||||||||||
| Richard Solomons | 5 April 2013 | 76,319 | 19.85 | 1,515 | 15,263 | |||||||||||||||
| Kirk Kinsell | 5 April 2013 | 53,049 | 19.85 | 1,053 | 10,609 | |||||||||||||||
| Tracy Robbins | 5 April 2013 | 43,819 | 19.85 | 870 | 8,763 | |||||||||||||||
| Tom Singer3 | 5 April 2013 | 56,883 | 19.85 | 1,129 | 11,376 | |||||||||||||||
The vesting date for these awards is the day after the announcement of our annual results in 2016. Net rooms growth and RevPAR growth will be measured by reference to the three years ending 30 September 2015; TSR will be measured by reference to the three years ending 31 December 2015.
Other outstanding awards
During 2012, awards relating to shares were granted under the 2012/14 LTIP, as shown below on the same basis as the 2013/15 LTIP cycle (shown above). These awards will vest in February 2015 to the extent performance targets are met (see page 90 for an explanation of the performance measures).
| Executive Director | Award date | Maximum shares awarded | Market price per share at grant1 £ | Face value of award at grant £000 | Number of shares received if minimum performance achieved2 | |||||||||||||||
2012/14 cycle | ||||||||||||||||||||
| Richard Solomons | 5 April 2012 | 103,722 | 14.25 | 1,478 | 20,744 | |||||||||||||||
| Kirk Kinsell | 5 April 2012 | 68,463 | 14.25 | 976 | 13,692 | |||||||||||||||
| Tracy Robbins | 5 April 2012 | 59,270 | 14.25 | 845 | 11,854 | |||||||||||||||
Tom Singer3 | 5 April 2012 | 51,789 | 14.25 | 738 | 10,358 | |||||||||||||||
The vesting date for these awards is the day after the announcement of our annual results in 2015. Net rooms growth and RevPAR growth will be measured by reference to the three years ending 30 September 2014; TSR will be measured by reference to the three years ending 31 December 2014.
|
| IHG Annual Report and Form 20-F |
Current position on outstanding awards
Details of the performance measures and potential vesting outcomes for outstanding awards as at 31 December 2013 are as follows:
| Performance measure | Threshold performance | Maximum performance | Threshold/ maximum vesting | Weighting | Maximum award (% of salary) | Potential vesting outcome | ||||||
2013/15 cycle | ||||||||||||
| Net rooms growth | Average of the comparator group | 1st in the comparator group | 20% / 100% | 25% | 51.25% | Improved performance needed to achieve threshold vesting | ||||||
| RevPAR growth | Average of the comparator group | 1st in the comparator group | 20%/100% | 25% | 51.25% | Improved performance needed to achieve threshold vesting | ||||||
| TSR | Growth equal to the DJGH index | Growth exceeds the index by 8% per year or more | 20%/100% | 50% | 102.5% | Improved performance needed to achieve threshold vesting | ||||||
2012/14 cycle | ||||||||||||
| Net rooms growth | Average of the comparator group | 1st in the comparator group | 20%/100% | 25% | 51.25% | Improved performance needed to achieve threshold vesting | ||||||
| RevPAR growth | Average of the comparator group | 1st in the comparator group | 20%/100% | 25% | 51.25% | Improved performance needed to achieve threshold vesting | ||||||
TSR | Growth equal to the DJGH index | Growth exceeds the index by 8% per year or more | 20%/100% | 50% | 102.5% | Maximum vesting if current performance maintained | ||||||
Share options
Between 2003 and 2005, grants of options were made under the IHG Executive Share Option Plan. No price was paid for the grant of these options. The performance conditions that applied to these options were satisfied when they became exercisable. No executive share options have been granted since 2005.
Option prices during the year ranged from 438.00p to 619.83p per IHG share. The closing market value share price on 31 December 2013 was 2,013p and the range during the year was from 1,737p to 2,039p per share. Share price range data was provided by Bank of America Merril Lynch.
The gain, before tax, made by Richard Solomons on the exercise of options during the year 2013 was £4,663,884. London and New York Stock Exchange announcements concerning this option exercise were made on 22 May 2013.
No options were exercised by any other Director during the year.
|
Annual Report on Directors’ Remunerationcontinued
Statement of Directors’ shareholdings and share interests (audited information)
The Committee believes that share ownership by Executive Directors and senior executives strengthens the link between the individuals’individual’s personal interests and those of shareholders.
Guideline Executive Director shareholding requirement
Executive Directors are expected to hold all shares earned (net of any share sales required to meet personal tax liabilities), until the guideline shareholding requirement is achieved. As can be seen from the graph below, with the exception of Paul Edgecliffe-Johnson, the shareholdings for the other Executive Directors are substantial and the guideline requirement exceeded. Percentages are based on shareholding and a share price of 2,595p per share as at 31 December 2014.
Shares and awards held by Executive Directors as at 31 December 2013:2014: % of salary
| Director |  Guideline shareholding |  Shares held outright |  Total shares & awards held | |||||||||
| Richard Solomons | 300 | 1,011 | 1,985 | |||||||||
| Kirk Kinsell | 200 | 519 | 1,580 | |||||||||
| Tracy Robbins | 200 | 407 | 1,423 | |||||||||
| Tom Singer | 200 | 199 | 1,044 | |||||||||
Percentages are based on shareholding and a share price of 2,013p per share as at 31 December 2013. 
Shares held by Executive Directors as at 31 December 2013:2014: number of shares (audited information)
| Director | Number of shares held outright | APP deferred share awards2 | LTIP share awards (unvested)3 | Total number of shares & awards held | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Executive Director | Number of shares held outright1 | APP deferred share awards2 | LTIP share awards (unvested)3 | Total number of shares and awards held | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Richard Solomons | 371,198 | 322,379 | 90,068 | 64,524 | 267,275 | 292,774 | 728,541 | 679,677 | 382,533 | 371,198 | 81,240 | 90,068 | 262,234 | 267,275 | 726,007 | 728,541 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Paul Edgecliffe-Johnson4 | 10,583 | n/a | 12,860 | n/a | 102,223 | n/a | 125,666 | n/a | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Kirk Kinsell | 127,444 | 1 | 155,628 | 1 | 66,502 | 50,152 | 194,384 | 216,746 | 388,330 | 422,526 | 117,640 | 5 | 127,444 | 6 | 49,580 | 66,502 | 172,938 | 194,384 | 340,158 | 388,330 | ||||||||||||||||||||||||||||||||||||||||||||
| Tracy Robbins | 85,703 | 85,703 | 55,905 | 40,381 | 158,337 | 170,391 | 299,945 | 296,475 | 51,418 | 85,703 | 48,932 | 55,905 | 150,041 | 158,337 | 250,391 | 299,945 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Tom Singer | 54,386 | 20,846 | 17,930 | n/a | 213,263 | 226,332 | 285,579 | 247,178 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 1 |
| 2 | Awards not subject to performance conditions. |
| 3 | Awards still subject to performance conditions as set out on |
| 4 | Paul Edgecliffe-Johnson was appointed to the Board on 1 January 2014. |
| 5 | Comprised 117,092 ordinary shares and 548 American Depositary Receipts. |
| 6 | Comprised 126,850 ordinary shares and 594 American Depositary Receipts. |
Percentage change in remuneration of Chief Executive Officer
The table below shows the percentage change in the remuneration of the Chief Executive Officer compared towith UK employees between 20122013 and 2013:2014:
| Chief Executive Officer | UK employees | |||||||
| Salary | + | + | 1 | |||||
| Taxable benefits2 | ||||||||
| Annual incentive | + | + | ||||||
| 1 | The percentage change for UK employees shown is the budget for the |
| 2 | Based on P11D taxable benefits for tax year ending 5 April in relevant year. |
We believe that an appropriate comparator group for salary and taxable benefits comparison is UK-based employees because:
For the annual incentive, the comparator group used is the grade of executives at and immediately below Executive Committee level, who are subject to the same performance measures as the Chief Executive Officer.Officer, and with a “very good” individual performance rating.
|
Relative performance graph and table
Throughout 2013,2014, IHG was a member of the FTSE 100 share index and for remunerationLTIP purposes used a TSR comparator group of a global hotels index. This consists of the DJGH index.companies that made up the Dow Jones Global Hotels index (DJGH). It continues to comprise the same companies, following the cessation of the former Dow Jones Index in 2014, and is sourced directly from Thomson Datastream for IHG. Accordingly, the Committee has determined that these are the most appropriate market indices against which to test the Group’s performance. The graph below shows theIHG’s TSR performance of IHG from 31 December 2008 to 31 December 2013,2014, assuming dividends are reinvested, compared with the TSR performance achieved by the FTSE 100 index and the DJGH index.global hotels indices. All indices are shown in sterling.
TSR: InterContinental Hotels Group PLC vs FTSE 100 and Dow Jones Global Hotels indicesglobal hotels index
Chief Executive Officer’s remuneration
The table below shows the single figure of total remuneration for the incumbent Chief Executive Officer for the fivesix years to 31 December 2013:2014:
Financial year ended 31 December | Chief Executive Officer | 2009 | 2010 | 20111 | 2012 | 2013 | ||||||||||||||||||||||||||||||||||||||||||
| Financial year ended 31 December | ||||||||||||||||||||||||||||||||||||||||||||||||
| Chief Executive Officer | 2009 | 2010 | 20111 | 2012 | 2013 | 2014 | ||||||||||||||||||||||||||||||||||||||||||
Single figure £000 | Richard Solomons | n/a | n/a | 4,724 | 4,881 | 3,149 | Richard Solomons | n/a | n/a | 4,724 | 4,881 | 3,149 | 6,528 | 2 | ||||||||||||||||||||||||||||||||||
| Andrew Cosslett | 1,953 | 5,430 | 3,770 | n/a | n/a | Andrew Cosslett | 1,953 | 5,430 | 3,770 | n/a | n/a | n/a | ||||||||||||||||||||||||||||||||||||
(% of maximum) | Richard Solomons | n/a | n/a | 83.0 | 68.0 | 74.0 | Richard Solomons | n/a | n/a | 83.0 | 68.0 | 74.0 | 74.0 | |||||||||||||||||||||||||||||||||||
| Andrew Cosslett | nil | 2 | 100.0 | 43.0 | 3 | n/a | n/a | Andrew Cosslett | nil | 3 | 100.0 | 43.0 | 4 | n/a | n/a | n/a | ||||||||||||||||||||||||||||||||
(% of maximum) | Richard Solomons | n/a | n/a | 73.9 | 100.0 | 59.0 | Richard Solomons | n/a | n/a | 73.9 | 100.0 | 59.0 | 56.1 | |||||||||||||||||||||||||||||||||||
| Andrew Cosslett | 46.0 | 73.8 | 61.6 | n/a | n/a | Andrew Cosslett | 46.0 | 73.8 | 61.6 | n/a | n/a | n/a | ||||||||||||||||||||||||||||||||||||
| 1 | Andrew Cosslett retired on 30 June 2011 and Richard Solomons was appointed Chief Executive Officer |
| 2 | Includes a one-off cash payment in lieu of any future entitlement to ICETUS benefits. The amount included in respect of this (£2.958m) is the gross cash payment (£9.405m) less amounts previously disclosed (£6.447m). |
| 3 | There was no annual incentive award paid in respect of financial year ended 31 December 2009. |
| No deferred shares were awarded in respect of the 2011 |
Relative importance of spend on pay
The table below sets out the actual expenditure of the Group in 2011, 2012, 2013 and 20132014 on corporate employee remuneration and distributions to shareholders and shows the difference in spend between those years:
| Item | 2013 $m | % change | 2012 $m | % change | 2011 $m | 2014 $m | % change | 2013 $m | % change | 2012 $m | ||||||||||||||||||||||||||||||
| Remuneration paid to all employees | 656 | 5 | 626 | 1 | (1 | ) | 634 | 1 | ||||||||||||||||||||||||||||||||
| Remuneration paid to all corporate employees | 657 | 0.2 | 656 | 5.0 | 626 | 1 | ||||||||||||||||||||||||||||||||||
| Distributions: | ||||||||||||||||||||||||||||||||||||||||
| Final dividend (previous year) | 115 | 113 | 102 | 122 | 115 | 113 | ||||||||||||||||||||||||||||||||||
| Ordinary (interim) dividend | 63 | 61 | 46 | 57 | 63 | 61 | ||||||||||||||||||||||||||||||||||
| Special dividend | 355 | 2 | 505 | 3 | 0 | 763 | 2 | 355 | 3 | 505 | 4 | |||||||||||||||||||||||||||||
| Repurchase of own shares | 283 | 4 | 107 | 5 | 0 | 110 | 5 | 283 | 6 | 107 | 7 | |||||||||||||||||||||||||||||
| Total distributions | 816 | 3.8 | 786 | 431 | 148 | 1,052 | 28.9 | 816 | 3.8 | 786 | ||||||||||||||||||||||||||||||
| 1 | Restated for the adoption of IAS 19R |
| 2 | A special dividend of $2.93 per share was paid to shareholders on 14 July 2014. |
| 3 | A special dividend of $1.33 per share was paid to shareholders on 4 October 2013. |
| A special dividend of $1.72 per share was paid to shareholders on 22 October 2012. |
| Under the authority granted by shareholders at the AGMs held on 24 May 2013 and 8 May 2014, 3,421,973 shares were purchased in the period 1 January 2014 to 29 May 2014 (the date on which the share buyback programme was completed) for a total consideration of $110m. |
| 6 | Under the authority granted by shareholders at the General Meeting held on 8 October 2012 and the AGM held on 24 May 2013, 9,773,912 shares were purchased in the period |
| Under the authority granted by shareholders at the General Meeting held on 8 October 2012, 4,143,960 shares were purchased in the period 12 November 2012 (the date on which the share buyback programme commenced) to 31 December 2012 for a total consideration of $107m. |
Remuneration advisers
The Committee continued to retain PricewaterhouseCoopers LLP (PwC) throughout 2013 as independent advisers. Fees of £132,050 were paid to PwC in respect of advice provided to the Committee on executive remuneration matters in 2013. 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 Company during the year.
The terms of engagement for PwC are available from the Company Secretary’s office on request.
PwC was appointed following a competitive tender process. The Committee is satisfied that the advice received from PwC was objective and independent as PwC is a member of the Remuneration Consultants Group. Members of this group adhere to a voluntary Code of Conduct that sets out the role of executive remuneration consultants in the UK and the professional standards they have committed to adhere to when advising remuneration committees.
|
| IHG Annual Report and Form 20-F 2014 |
Directors’Remuneration Reportcontinued
Annual Report on Directors’ Remunerationcontinued
Payments to past Directors (audited information)
In February 2013, Andrew Cosslett received 80,403 shares when the 2010/12 LTIP vested. These relate to awards made while Andrew Cosslett was Chief Executive Officer. The share price at vesting on 20 February 2013 was 1,953p.
Sir Ian Prosser, who retired as a Director on 31 December 2003, had an ongoing healthcare benefit of £1,379 during the year.
Payments for loss of office (audited information)
There were no payments made for loss of office in 2013.
Voting at IHG Annual General Meetings
At IHG’s most recent AGMs, the annual advisory vote in respect of the Directors’ Remuneration Report was as follows:
| AGM | Votes for | Votes against | Abstentions | |||||||||
| 2013 |
| 160,795,577 (85.73%) |
|
| 26,762,429 (14.27%) |
| 1,226,617 | |||||
| 2012 |
| 203,110,989 (95.46%) |
|
| 9,651,718 (4.54%) |
| 1,750,533 | |||||
| 2011 |
| 180,843,226 (96.24%) |
|
| 7,062,882 (3.76%) |
| 9,927,433 | |||||
The vote at the 2011 AGM related to the 2010 Remuneration Report, which contained details of the introduction of new LTIP measures for the 2011/13 cycle (relative net rooms and RevPAR growth).
Special dividendsDividends paid to Executive Directors
The CompanyAn interim dividend of 14.8p per ordinary share (25¢ per ADR) was paid special dividendson 26 September 2014 to its shareholders on the Register of members at the close of business on 22 October 2012 and 4 October 2013.August 2014.
A special interim dividend of 174.9p per ordinary share (293¢ per ADR) was paid on 14 July 2014 to shareholders on the Register of members at the close of business on 30 June 2014.
The 20122014 special dividend was accompanied by a share consolidation in order to maintain comparability (as far as possible) of the share price before and after the payment of the special dividend. Neither LTIP award holders nor IHG Executive Share Option Plan holders were entitled to receive the special dividend. Executive Directors holding forfeitable shares under the ABP (the predecessor plan to the APP)previous years’ annual incentive awards received the special dividend, and their share awards were subject to the share consolidation.
The 2013 special dividend was not accompanied by a share consolidation. Neither LTIP award holders nor IHG Executive Share Option Plan holders were entitled to receive the special dividend. Executive Directors holding forfeitableKirk Kinsell’s deferred shares under the ABP received the special dividend.
Kirk Kinsell holds some of his ABP deferred sharesare held in the form of conditional awards, which were not eligible to receive the special dividend, rather than forfeitable shares. To ensure equity of treatment with other Executive Committee members, a dividend equivalent was paid in respect of these awards to Kirk Kinsell.Mr Kinsell, and his awards were subject to the share consolidation.
Payments for loss of office (audited information)
Tom Singer stepped down from the Board and his role as Group Chief Financial Officer on 1 January 2014. In line with his contractual agreement and the Remuneration Committee’s policy on termination of employment, Mr Singer was not paid any salary or benefits (or compensation in lieu) in respect of the period after 1 January 2014, and did not receive any compensation for loss of office.
The footnotes to the single total figure table on page 82 set out the impact of Mr Singer’s resignation on his APP and LTIP awards.
Payments to past directors – benefits (audited information)
Sir Ian Prosser, who retired as a Director on 31 December 2003, had an ongoing healthcare benefit of £1,379 during the year.
Payments to past directors – ICETUS cash out (audited information)
In 2014, the Company looked to reduce the risks and volatility from the remaining unfunded ICETUS pension arrangement by offering members an opportunity to cash out the ICETUS element of their pension on a basis that is fair and reasonable, both to them and to shareholders. This is part of the process of redrawing IHG’s pension arrangements and minimising the future risks to the Company.
A number of past directors received one-off payments, following which they will have no future entitlement to any benefit from ICETUS:
| Former Director | Value in 2014 £ | |||
| Andrew Cosslett1 | No value to disclose | |||
| Richard Hartman2 | 74,968 | |||
| Richard North3 | 3,386,296 | |||
| Sir Ian Prosser | 8,597 | |||
| 1 | A gross cash payment of £5,114,920 was made in lieu of any future entitlement to ICETUS benefits, in respect of which £5,266,788 had been disclosed in the 2011 Annual Report on Directors’ Remuneration based on the Cash Equivalent Transfer Value methodology of valuing pensions applicable at the time. |
| 2 | A gross cash payment of £497,987 in lieu of any future entitlement to ICETUS benefits, in respect of which £423,019 had been disclosed in the 2007 Annual Report on Directors’ Remuneration based on the Cash Equivalent Transfer Value methodology of valuing pensions applicable at the time. |
| 3 | A gross cash payment of £6,444,041 was made in lieu of any future entitlement to ICETUS benefits, in respect of which £3,057,744 had been disclosed in the 2004 Annual Report on Directors’ Remuneration based on the Cash Equivalent Transfer Value methodology of valuing pensions applicable at the time. |
Share options
In 2013, the gain before tax, made by Richard Solomons on the exercise of options was £4,663,884.
Single total figure of remuneration: Non-Executive Directors (audited information)
| Fees (£000) | Benefits6(£000) | Total (£000) | ||||||||||||||||||||||
| Non-Executive Director | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | ||||||||||||||||||
| Patrick Cescau1 | 400 | nil | 14 | nil | 414 | nil | ||||||||||||||||||
| David Webster2 | nil | 406 | nil | 12 | nil | 418 | ||||||||||||||||||
| Ian Dyson3 | 23 | nil | 1 | nil | 24 | nil | ||||||||||||||||||
| David Kappler | 109 | 105 | 2 | 2 | 111 | 107 | ||||||||||||||||||
| Jennifer Laing | 80 | 78 | 2 | 3 | 82 | 81 | ||||||||||||||||||
| Jonathan Linen | 69 | 66 | 90 | 64 | 159 | 130 | ||||||||||||||||||
| Jill McDonald4 | 40 | nil | 3 | nil | 43 | nil | ||||||||||||||||||
| Luke Mayhew | 91 | 88 | 2 | 2 | 93 | 90 | ||||||||||||||||||
| Dale Morrison | 69 | 66 | 22 | 16 | 91 | 82 | ||||||||||||||||||
| Ying Yeh | 69 | 66 | 72 | 11 | 141 | 77 | ||||||||||||||||||
| Graham Allan5 | nil | 31 | nil | nil | nil | 31 | ||||||||||||||||||
| Fees (£000) | Taxable benefits2 (£000) | Total (£000) | ||||||||||||||||||||||||||||
| Non-Executive Director | Committee appointments1 | Date of original appointment | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | ||||||||||||||||||||||
| Patrick Cescau |  | 1 January 2013 | 412 | 400 | 15 | 14 | 427 | 414 | ||||||||||||||||||||||
| Ian Dyson3 |    | 1 September 2013 | 88 | 23 | 2 | 1 | 90 | 24 | ||||||||||||||||||||||
| Jo Harlow4 |  | 1 September 2014 | 23 | n/a | 0 | n/a | 23 | n/a | ||||||||||||||||||||||
| David Kappler5 | | 21 June 2004 | 47 | 109 | 1 | 2 | 48 | 111 | ||||||||||||||||||||||
| Jennifer Laing |  | 25 August 2005 | 83 | 80 | 3 | 2 | 86 | 82 | ||||||||||||||||||||||
| Jonathan Linen6 | | 1 December 2005 | 71 | 69 | 81 | 90 | 152 | 159 | ||||||||||||||||||||||
| Jill McDonald7 | | 1 June 2013 | 71 | 40 | 2 | 3 | 73 | 43 | ||||||||||||||||||||||
| Luke Mayhew |   | 1 July 2011 | 94 | 91 | 3 | 2 | 97 | 93 | ||||||||||||||||||||||
| Dale Morrison8 | | 1 June 2011 | 84 | 69 | 22 | 22 | 106 | 91 | ||||||||||||||||||||||
| Ying Yeh | | 1 December 2007 | 71 | 69 | 72 | 72 | 143 | 141 | ||||||||||||||||||||||
| 1 |
| 2 |
| Benefits include taxable travel and accommodation expenses to attend Board meetings away from home location; under concessionary HM Revenue & Customs rules, non-UK based Non-Executive Directors |
Non-Executive Directors are paid a fee which is agreed by the Executive Directors and the Chairman of the Board, taking into account fees paid in other companies of similar complexity. These fees also reflect the time commitment and responsibilities of the roles. Accordingly, higher fees are payable to the Senior Independent Non-Executive Director and Chairman of the Audit Committee (David Kappler) and the Chairmen of the Remuneration (Luke Mayhew) and Corporate Responsibility Committees (Jennifer Laing). The Chairman’s fees are agreed by the Committee.
Non-Executive Directors’ fee levels are reviewed annually.
| 3 | Ian Dyson was appointed as a Non-Executive Director on 1 September 2013 and became Chairman of the Audit Committee on 1 April 2014. His fee increased accordingly from that date. |
| 4 | Jo Harlow was appointed as a Non-Executive Director on 1 September 2014. Her fee was pro-rated accordingly from her start date. |
| 5 | David Kappler retired as a Non-Executive Director on 31 May 2014. |
| 6 | Jonathan Linen retired as a Non-Executive Director on 31 December 2014. |
| 7 | Jill McDonald was appointed as a Non-Executive Director on 1 June 2013. Her fee was pro-rated accordingly from her start date. |
| 8 | Dale Morrison became Senior Independent Non-Executive Director with effect from 31 May 2014 and his fee increased accordingly from that date. |
|
Implementation of Remuneration Policy in 2014
We set out below a statement of the implementation of the Directors’ Remuneration Policy in 2014.2015
This section explains how the DR Policy will be applied in 2015. It is subject to an advisory vote by shareholders at the 2015 AGM.
Directors’ salaries are agreed annually in line with the DR Policy. The following salaries will apply from 1 April 2015:
| Executive Director | 2014 £ | 2014 $ | 2013 £ | 2013 $ | % increase | 2015 £ | 2015 $ | 2014 £ | 2014 $ | |||||||||||||||||||||||||||
| Richard Solomons | 765,000 | 739,000 | 3.5 | 792,000 | 765,000 | |||||||||||||||||||||||||||||||
| PaulEdgecliffe- Johnson | 420,000 | – | ||||||||||||||||||||||||||||||||||
| Kirk Kinsell1 | 793,500 | 774,000 | ||||||||||||||||||||||||||||||||||
| Paul Edgecliffe-Johnson1 | 9.5 | 460,000 | 420,000 | |||||||||||||||||||||||||||||||||
| Kirk Kinsell2 | n/a | n/a | 793,500 | |||||||||||||||||||||||||||||||||
| Tracy Robbins | 437,000 | 424,300 | 2.5 | 448,000 | 437,000 | |||||||||||||||||||||||||||||||
| 1 | Paul Edgecliffe-Johnson was appointed to the Board and the role of Group Chief Financial Officer effective as of 1 January 2014. In line with the DR Policy for newly appointed or promoted Executive Directors, he was appointed on a salary set below benchmark policy level and, following strong performance in his first year in role, an increase higher than that of the corporate UK and US employee population has been agreed by the Remuneration Committee for 2015. |
| 2 | Kirk Kinsell |
The overall budget for salary increases for IHG corporate employees in the2015 for UK and US corporate employees is 3.0% and the overall increase in the Executive Directors’ salaries for 2014 is as follows:3.5% respectively.
| UK corporate employees | US corporate employees | Executive Directors | ||||||
| 3.0% | 3.0% | 3.0% | ||||||
PerformanceAPP and LTIP performance measures and targets
The performance measures and targets for the 20142015 APP and the 2014/162015/17 LTIP cycle are the same as for the 20132014 APP and the 2013/152014/16 LTIP cycle respectively.
2014 APP
For 2014, the Committee has approved a maximum opportunity of 200% of salary (50% cash and 50% IHG shares deferred for three years).
Awards will be based on individual and Group achievement using performance measures relating to:
For Guest HeartBeat and Employee Engagement, the 2014 targets are set as an improvement over 2013 scores. The 2014 EBIT element relates to the 2014 EBIT target figure.
The actual targets under the performance measures for the APP for 20142015 are not and will not be disclosed at this stage, as they are, in the opinion of the Directors, commercially sensitive. Disclosure would providerisk providing IHG’s major competitors with an unfair commercial advantage as these companies are either unlisted or listed on a stock exchange other than the London Stock Exchange and therefore not subject to the same obligation to disclose incentive plan targets. We will consider during 2015 what further transparency we can provide shareholders without disadvantaging the business.
2014/16
ForThese new provisions apply in addition to the 2014/16existing malus provisions on the LTIP the Committee has approvedand APP deferred awards that provide for unvested awards to Executive Directors over shares with a maximum valuebe reduced at the discretion of 205% of salary. Share awards will vest after three years if the following performance conditions are met:Remuneration Committee in circumstances including:
For net rooms and RevPAR growth, threshold performance (20% vesting) is equal to the averagereasonable opinion of the comparator group; and maximum performance (100% vesting) is achieved when IHG is first in the comparator group.
For TSR, threshold performance (20% vesting) is achieved when growth is equal to the DJGH index and maximum performance (100% vesting) is achieved when growth exceeds the index by 8% per year or more.
Fees: Non-Executive Directors
Non-Executive Directors’ fees are reviewed and agreed annually in line with the DR Policy.
Patrick Cescau waived any fee increase for 2015. The following annual fee levels will apply from 1 January 2014:2015:
Non-Executive Director | Role | 2014 £ | 2013 £ | Role | 2015 £ | 2014 £ | ||||||||||||||
| Patrick Cescau | Chairman of the Board | 412,000 | 400,000 | Chairman of the Board | 412,000 | 412,000 | ||||||||||||||
| David Kappler | Senior Independent Director and Chairman of Audit Committee | 111,750 | 108,500 | |||||||||||||||||
| Ian Dyson1 | Chairman of Audit Committee | 96,550 | 93,750 | |||||||||||||||||
| Jo Harlow2 | Non-Executive Director | 72,600 | 68,500 | |||||||||||||||||
| David Kappler1 | Senior Independent Non-Executive Director and Chairman of Audit Committee | n/a | 111,750 | |||||||||||||||||
| Jennifer Laing | Chairman of Corporate Responsibility Committee | 85,000 | 82,500 | |||||||||||||||||
| Jonathan Linen3 | Non-Executive Director | n/a | 70,500 | |||||||||||||||||
| Jill McDonald | Non-Executive Director | 72,600 | 70,500 | |||||||||||||||||
| Luke Mayhew | Chairman of Remuneration Committee | 93,750 | 91,000 | Chairman of Remuneration Committee | 96,550 | 93,750 | ||||||||||||||
| Jennifer Laing | Chairman of Corporate Responsibility Committee | 82,500 | 80,000 | |||||||||||||||||
| Others | Non-Executive Director | 70,500 | 68,500 | |||||||||||||||||
| Dale Morrison1 | Senior Independent Non-Executive Director | 96,550 | 93,750 | |||||||||||||||||
| Ying Yeh | Non-Executive Director | 72,600 | 70,500 | |||||||||||||||||
David Kappler will step down as Chairman of the Audit Committee on 1 April 2014 and retire as a Non-Executive Director on 31 May 2014.
With effect from 1 April 2014, Ian Dyson will become Chairman of the Audit Committee and his annual fee will increase to £93,750.
With effect from 31 May 2014, Dale Morrison will become Senior Independent Non-Executive Director and his annual fee will increase to £93,750.
| 1 | David Kappler stepped down as Chairman of the Audit Committee on 1 April 2014, succeeded by Ian Dyson, and retired as Senior Independent Non-Executive Director on 31 May 2014, succeeded by Dale Morrisson. |
| 2 | Jo Harlow was appointed as Non-Executive Director effective as of 1 September 2014. Her % salary increase for 2015 brings her remuneration in line with the other Non-Executive Directors with similar roles. |
| 3 | Jonathan Linen retired as a Non-Executive Director on 31 December 2014. |
Luke Mayhew, Chairman of the Remuneration Committee Chairman
1716 February 20142015
|
|
|
| IHG Annual Report and Form 20-F |
| 94 |
Group Financial
Statements
|
| Statement of Directors’ Responsibilities | ||
| Independent Auditor’s US Report | ||
| Group Financial Statements | ||
| 100 | ||
| Accounting policies | ||
| Notes to the Group Financial Statements |
Book
‘Guest Journey’ – Step three
|
| 93 |
| IHG Annual Report and Form 20-F 2014 |
Statement ofDirectors’Responsibilities
Financial Statements and accounting records
The laws of England and Wales require the Directors are required to prepare financial statements whichfor the Company and the Group at the end of each financial year in accordance with all applicable laws and regulations. Under company law the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the assets, liabilities and financial positionstate of the Company andaffairs of the Group at the end of the financial year together withand the profit or loss of the Group for that period. In preparing these Financial Statements, the Directors are required to:
The Directors have responsibility for ensuring that the Group keeps proper accounting records which disclose with reasonable accuracy the financial position of the Group and the Company to enable them to ensure that the Financial Statements comply with the Companies Act 2006 and, as regards the Consolidated Financial Statements, Article 4 of the EU IAS Regulation. The Directors are also responsible for the system of internal control, for safeguarding the assets of the Company and the Group, and taking reasonable steps to prevent and detect fraud and other irregularities.
Disclosure and Transparency Rules
The Board confirms that to the best of its knowledge:
Directors’ statement under the UK Corporate Governance Code
Having taken advice from the Audit Committee, the Board considers that thethis 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 sectionSection 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 20132014 based on criteria established in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992(2013 Framework) (the COSO criteria). Based on this assessment, management has concluded that as at 31 December 20132014 the Group’s internal control over financial reporting was effective.
During the period covered by this document therethe Group transitioned from the 1992 to the 2013 Internal Control-Integrated Framework criteria issued by COSO. There were no other changes in the Group’s internal control over financial reporting that have materially affected or are reasonably likely to materially affect the effectiveness of the internal controls over financial reporting.
The Group’s internal financial control over financial reporting at 31 December 2013,2014, 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 103.99.
OnFor and on behalf of the Board
  |   | |
| Richard Solomons | Paul Edgecliffe-Johnson | |
| Chief Executive Officer | Chief Financial Officer | |
|
[THIS PAGE IS INTENTIONALLY LEFT BLANK]
|
| IHG Annual Report and Form 20-F 2014 |
[THIS PAGE IS INTENTIONALLY LEFT BLANK]
[THIS PAGE IS INTENTIONALLY LEFT BLANK]
| 97 |
| IHG Annual Report and Form 20-F |
[THIS PAGE IS INTENTIONALLY LEFT BLANK]
Report of independent registered public accounting firm on internal control over financial reporting
To the Board of Directors and Shareholders of InterContinental Hotels Group PLC.
We have audited InterContinental Hotels Group PLC’s internal control over financial reporting as of 31 December 2013,2014, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992(2013 Framework) (the COSO criteria). InterContinental Hotels Group PLC’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the Annual Report and Form 20-F.20-F 2014. Our responsibility is to express an opinion on the Group’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A group’scompany’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 group’scompany’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 group;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 groupcompany are being made only in accordance with authorisations of management and directors of the group;company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use, or disposition of the group’scompany’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, InterContinental Hotels Group PLC maintained, in all material respects, effective internal control over financial reporting as of 31 December 2013,2014, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the accompanying Group statement of financial position of InterContinental Hotels Group PLC as of 31 December 20132014 and 2012,2013, and the related Group income statement, Group statement of comprehensive income, Group statement of changes in equity and Group statement of cash flows for each of the three years in
the period ended 31 December 2013,2014, and our report dated 1716 February 20142015 expressed an unqualified opinion thereon.
ERNST & YOUNG LLP
London, England 17
16 February 20142015
InterContinental Hotels Group PLC reportReport of independent registered public accounting firm
To the Board of Directors and Shareholders of InterContinental Hotels Group PLC.
We have audited the accompanying Group statement of financial position of InterContinental Hotels Group PLC as of 31 December 20132014 and 2012,2013, and the related Group income statement, Group statement of comprehensive income, Group statement of changes in equity and Group statement of cash flows for each of the three years in the period ended 31 December 2013.2014. These financial statementsFinancial Statements are the responsibility of the Group’s management. Our responsibility is to express an opinion on these Financial Statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Financial Statementsfinancial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Financial Statements.financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the Financial Statements referred to above present fairly, in all material respects, the consolidated financial position of InterContinental Hotels Group PLC at 31 December 20132014 and 2012,2013, and the consolidated results of its operations and its consolidated cash flows for each of the three years in the period ended 31 December 2013,2014, in conformity with International Financial Reporting Standards as adopted by the European Union and International Financial Reporting Standards as issued by the International Accounting Standards Board.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), InterContinental Hotels Group PLC’s internal control over financial reporting as of 31 December 2013,2014, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992(2013 Framework), and our report dated 1716 February 20142015 expressed an unqualified opinion thereon.
ERNST & YOUNG LLP
London, England 17
16 February 20142015
Notes:
| 1. | The maintenance and integrity of the InterContinental Hotels Group PLC website is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the Financial Statements since they were initially presented on the website. |
| 2. | Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. |
|
| 2013 | 2012 (restated1) | 20112 (restated1) | ||||||||||||||||||||||||||||||||||||||
| For the year ended 31 December 2013 | Note | Before exceptional items $m | Exceptional items (note 5) $m | Total $m | Before exceptional items $m | Exceptional items (note 5) $m | Total $m | Before exceptional items $m | Exceptional items (note 5) $m | Total $m | ||||||||||||||||||||||||||||||
Revenue | 2 | 1,903 | – | 1,903 | 1,835 | – | 1,835 | 1,768 | – | 1,768 | ||||||||||||||||||||||||||||||
| Cost of sales | (784 | ) | – | (784 | ) | (772 | ) | – | (772 | ) | (771 | ) | – | (771 | ) | |||||||||||||||||||||||||
| Administrative expenses | (374 | ) | (167 | ) | (541 | ) | (372 | ) | (16 | ) | (388 | ) | (361 | ) | (9 | ) | (370 | ) | ||||||||||||||||||||||
| Share of profits of associates and joint ventures | 2 | 6 | 8 | 3 | – | 3 | 1 | – | 1 | |||||||||||||||||||||||||||||||
| Other operating income and expenses | 6 | 166 | 172 | 5 | (11 | ) | (6 | ) | 10 | 46 | 56 | |||||||||||||||||||||||||||||
| 753 | 5 | 758 | 699 | (27 | ) | 672 | 647 | 37 | 684 | |||||||||||||||||||||||||||||||
| Depreciation and amortisation | 2 | (85 | ) | – | (85 | ) | (94 | ) | – | (94 | ) | (99 | ) | – | (99 | ) | ||||||||||||||||||||||||
| Impairment | 2 | – | – | – | – | 23 | 23 | – | 20 | 20 | ||||||||||||||||||||||||||||||
Operating profit | 2 | 668 | 5 | 673 | 605 | (4 | ) | 601 | 548 | 57 | 605 | |||||||||||||||||||||||||||||
| Financial income | 6 | 5 | – | 5 | 3 | – | 3 | 2 | – | 2 | ||||||||||||||||||||||||||||||
| Financial expenses | 6 | (78 | ) | – | (78 | ) | (57 | ) | – | (57 | ) | (64 | ) | – | (64 | ) | ||||||||||||||||||||||||
Profit before tax | 595 | 5 | 600 | 551 | (4 | ) | 547 | 486 | 57 | 543 | ||||||||||||||||||||||||||||||
| Tax | 7 | (175 | ) | (51 | ) | (226 | ) | (151 | ) | 142 | (9 | ) | (117 | ) | 39 | (78 | ) | |||||||||||||||||||||||
| Profit for the year from continuing operations | 420 | (46 | ) | 374 | 400 | 138 | 538 | 369 | 96 | 465 | ||||||||||||||||||||||||||||||
| Attributable to: | ||||||||||||||||||||||||||||||||||||||||
| Equity holders of the parent | 418 | (46 | ) | 372 | 399 | 138 | 537 | 369 | 96 | 465 | ||||||||||||||||||||||||||||||
| Non-controlling interest | 2 | – | 2 | 1 | – | 1 | – | – | – | |||||||||||||||||||||||||||||||
| 420 | (46 | ) | 374 | 400 | 138 | 538 | 369 | 96 | 465 | |||||||||||||||||||||||||||||||
| Earnings per ordinary share | 9 | |||||||||||||||||||||||||||||||||||||||
| Continuing and total operations: | ||||||||||||||||||||||||||||||||||||||||
| Basic | 140.9¢ | 187.1¢ | 160.9¢ | |||||||||||||||||||||||||||||||||||||
| Diluted | 139.3¢ | 183.9¢ | 157.1¢ | |||||||||||||||||||||||||||||||||||||
For the year ended 31 December 2014 | 2014 | 2013 | 2012 | |||||||||||||||||||||||||||||||||||||||||
Before | Exceptional | Before | Exceptional | Before | Exceptional | |||||||||||||||||||||||||||||||||||||||
| exceptional | items | exceptional | items | exceptional | items | |||||||||||||||||||||||||||||||||||||||
| items | (note 5) | Total | items | �� | (note 5) | Total | items | (note 5) | Total | |||||||||||||||||||||||||||||||||||
| Note | $m | $m | $m | $m | $m | $m | $m | $m | $m | |||||||||||||||||||||||||||||||||||
| Revenue | 2 | 1,858 | – | 1,858 | 1,903 | – | 1,903 | 1,835 | – | 1,835 | ||||||||||||||||||||||||||||||||||
| Cost of sales | (741 | ) | – | (741 | ) | (784 | ) | – | (784 | ) | (772 | ) | – | (772 | ) | |||||||||||||||||||||||||||||
| Administrative expenses | (382 | ) | (101 | ) | (483 | ) | (374 | ) | (167 | ) | (541 | ) | (372 | ) | (16 | ) | (388 | ) | ||||||||||||||||||||||||||
| Share of (losses)/profits of associates and joint ventures | 2 | (4 | ) | – | (4 | ) | 2 | 6 | 8 | 3 | – | 3 | ||||||||||||||||||||||||||||||||
| Other operating income and expenses | 16 | 130 | 146 | 6 | 166 | 172 | 5 | (11 | ) | (6 | ) | |||||||||||||||||||||||||||||||||
| 747 | 29 | 776 | 753 | 5 | 758 | 699 | (27 | ) | 672 | |||||||||||||||||||||||||||||||||||
| Depreciation and amortisation | 2 | (96 | ) | – | (96 | ) | (85 | ) | – | (85 | ) | (94 | ) | – | (94 | ) | ||||||||||||||||||||||||||||
| Impairment reversal | 2 | – | – | – | – | – | – | – | 23 | 23 | ||||||||||||||||||||||||||||||||||
| Operating profit | 2 | 651 | 29 | 680 | 668 | 5 | 673 | 605 | (4 | ) | 601 | |||||||||||||||||||||||||||||||||
| Financial income | 6 | 3 | – | 3 | 5 | – | 5 | 3 | – | 3 | ||||||||||||||||||||||||||||||||||
| Financial expenses | 6 | (83 | ) | – | (83 | ) | (78 | ) | – | (78 | ) | (57 | ) | – | (57 | ) | ||||||||||||||||||||||||||||
| Profit before tax | 571 | 29 | 600 | 595 | 5 | 600 | 551 | (4 | ) | 547 | ||||||||||||||||||||||||||||||||||
| Tax | 7 | (179 | ) | (29 | ) | (208 | ) | (175 | ) | (51 | ) | (226 | ) | (151 | ) | 142 | (9 | ) | ||||||||||||||||||||||||||
| Profit for the year from continuing operations | 392 | – | 392 | 420 | (46 | ) | 374 | 400 | 138 | 538 | ||||||||||||||||||||||||||||||||||
| Attributable to: | ||||||||||||||||||||||||||||||||||||||||||||
| Equity holders of the parent | 391 | – | 391 | 418 | (46 | ) | 372 | 399 | 138 | 537 | ||||||||||||||||||||||||||||||||||
| Non-controlling interest | 1 | – | 1 | 2 | – | 2 | 1 | – | 1 | |||||||||||||||||||||||||||||||||||
| 392 | – | 392 | 420 | (46 | ) | 374 | 400 | 138 | 538 | |||||||||||||||||||||||||||||||||||
| Earnings per ordinary share | 9 | |||||||||||||||||||||||||||||||||||||||||||
| Continuing and total operations: | ||||||||||||||||||||||||||||||||||||||||||||
| Basic | 158.3¢ | 140.9¢ | 187.1¢ | |||||||||||||||||||||||||||||||||||||||||
| Diluted | 156.4¢ | 139.3¢ | �� | 183.9¢ | ||||||||||||||||||||||||||||||||||||||||
Notes on pages 111107 to 153 form an integral part of these Financial Statements.
|
Group statement of comprehensive income
| For the year ended 31 December 2013 | 2013 $m | 2012 (restated1) $m | 20112 (restated1) $m | |||||||||
Profit for the year | 374 | 538 | 465 | |||||||||
Other comprehensive income | ||||||||||||
| Items that may be subsequently reclassified to profit or loss: | ||||||||||||
Gains on valuation of available-for-sale financial assets | 28 | 1 | 15 | |||||||||
Losses reclassified to income on impairment of available-for-sale financial assets | – | – | 3 | |||||||||
Losses relating to cash flow hedges reclassified to financial expenses | – | 1 | 4 | |||||||||
Exchange (losses)/gains on retranslation of foreign operations, net of related tax credit of $2m (2012 credit of $3m, 2011 charge of $3m) | (35 | ) | 24 | (21 | ) | |||||||
Exchange losses reclassified to profit on hotel disposal | 46 | – | – | |||||||||
| 39 | 26 | 1 | ||||||||||
| Items that will not be reclassified to profit or loss: | ||||||||||||
Re-measurement gains/(losses) on defined benefit plans, net of related tax charge of $20m (2012 credit of $5m, 2011 credit of $19m) | 20 | (10 | ) | (13 | ) | |||||||
Tax related to pension contributions | – | 18 | – | |||||||||
| 20 | 8 | (13 | ) | |||||||||
Total other comprehensive income/(loss) for the year | 59 | 34 | (12 | ) | ||||||||
| Total comprehensive income for the year | 433 | 572 | 453 | |||||||||
| Attributable to: | ||||||||||||
| Equity holders of the parent | 433 | 571 | 452 | |||||||||
Non-controlling interest | – | 1 | 1 | |||||||||
| 433 | 572 | 453 | ||||||||||
| For the year ended 31 December 2014 | 2014 $m | 2013 $m | 2012 $m | |||||||||
| Profit for the year | 392 | 374 | 538 | |||||||||
| Other comprehensive income | ||||||||||||
| Items that may be subsequently reclassified to profit or loss: | ||||||||||||
Gains on valuation of available-for-sale financial assets, net of related tax charge of $1m (2013 $nil, 2012 $nil) | 11 | 28 | 1 | |||||||||
Losses relating to cash flow hedges reclassified to financial expenses | – | – | 1 | |||||||||
Exchange gains/(losses) on retranslation of foreign operations, net of related tax credit of $1m (2013 $2m, 2012 $3m) | 42 | (35 | ) | 24 | ||||||||
Exchange losses reclassified to profit on hotel disposal | – | 46 | – | |||||||||
| 53 | 39 | 26 | ||||||||||
| Items that will not be reclassified to profit or loss: | ||||||||||||
Re-measurement (losses)/gains on defined benefit plans, net of related tax credit of $7m (2013 charge of $20m, 2012 credit of $5m) | (18 | ) | 20 | (10 | ) | |||||||
Tax related to pension contributions | 2 | – | 18 | |||||||||
| (16 | ) | 20 | 8 | |||||||||
| Total other comprehensive income for the year | 37 | 59 | 34 | |||||||||
| Total comprehensive income for the year | 429 | 433 | 572 | |||||||||
| Attributable to: | ||||||||||||
| Equity holders of the parent | 428 | 433 | 571 | |||||||||
| Non-controlling interest | 1 | – | 1 | |||||||||
| 429 | 433 | 572 | ||||||||||
Notes on pages 111107 to 153 form an integral part of these Financial Statements.
|
| IHG Annual Report and Form 20-F 2014 |
GroupFinancial Statementscontinued
Group statement of changes in equity
| Equity share capital $m | Capital $m | Shares $m | Other reserves $m | Unrealised gains and losses reserve $m | Currency translation reserve | Retained $m | IHG holders’ equity $m | Non- controlling interest $m | Total equity $m | |||||||||||||||||||||||||||||||
| At 1 January 2014 | 189 | 12 | (38 | ) | (2,906 | ) | 100 | �� | 227 | 2,334 | (82 | ) | 8 | (74 | ) | |||||||||||||||||||||||||
| Profit for the year | – | – | – | – | – | – | 391 | 391 | 1 | 392 | ||||||||||||||||||||||||||||||
| Other comprehensive income: | ||||||||||||||||||||||||||||||||||||||||
| Items that may be subsequently reclassified to profit or loss: | ||||||||||||||||||||||||||||||||||||||||
Gains on valuation of available-for-sale financial assets | – | – | – | – | 11 | – | – | 11 | – | 11 | ||||||||||||||||||||||||||||||
Exchange differences on retranslation of foreign operations | – | – | – | – | – | 42 | – | 42 | – | 42 | ||||||||||||||||||||||||||||||
| – | – | – | – | 11 | 42 | – | 53 | – | 53 | |||||||||||||||||||||||||||||||
| Items that will not be reclassified to profit or loss: | ||||||||||||||||||||||||||||||||||||||||
Re-measurement losses on defined benefit plans | – | – | – | – | – | – | (18 | ) | (18 | ) | – | (18 | ) | |||||||||||||||||||||||||||
Tax related to pension contributions | – | – | – | – | – | – | 2 | 2 | – | 2 | ||||||||||||||||||||||||||||||
| – | – | – | – | – | – | (16 | ) | (16 | ) | – | (16 | ) | ||||||||||||||||||||||||||||
| Total other comprehensive income | – | – | – | – | 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 | ) | ||||||||||||||||||||||||||
All items above are shown net of tax.
Notes on pages 107 to 153 form an integral part of these Financial Statements.
| 102 |
Group statement of changes in equitycontinued
| Equity share capital $m | Capital $m | Shares $m | Other reserves $m | Unrealised gains and losses reserve $m | Currency translation reserve | Retained $m | IHG share- holders’ equity $m | Non- controlling interest $m | Total equity $m | |||||||||||||||||||||||||||||||
| At 1 January 2013 | 179 | 11 | (48 | ) | (2,901 | ) | 72 | 214 | 2,781 | 308 | 9 | 317 | ||||||||||||||||||||||||||||
| Profit for the year | – | – | – | – | – | – | 372 | 372 | 2 | 374 | ||||||||||||||||||||||||||||||
| Other comprehensive income: | ||||||||||||||||||||||||||||||||||||||||
| Items that may be subsequently reclassified to profit or loss: | ||||||||||||||||||||||||||||||||||||||||
Gains on valuation of available-for-sale financial assets | �� | – | – | – | – | 28 | – | – | 28 | – | 28 | |||||||||||||||||||||||||||||
Exchange differences on retranslation of foreign operations | – | – | – | – | – | (33 | ) | – | (33 | ) | (2 | ) | (35 | ) | ||||||||||||||||||||||||||
Exchange losses reclassified to profit on hotel disposal | – | – | – | – | – | 46 | – | 46 | – | 46 | ||||||||||||||||||||||||||||||
| – | – | – | – | 28 | 13 | – | 41 | (2 | ) | 39 | ||||||||||||||||||||||||||||||
| Items that will not be reclassified to profit or loss: | ||||||||||||||||||||||||||||||||||||||||
Re-measurement gains on defined benefit plans | – | – | – | – | – | – | 20 | 20 | – | 20 | ||||||||||||||||||||||||||||||
| – | – | – | – | – | – | 20 | 20 | – | 20 | |||||||||||||||||||||||||||||||
| Total other comprehensive income | – | – | – | – | 28 | 13 | 20 | 61 | (2 | ) | 59 | |||||||||||||||||||||||||||||
| Total comprehensive income for the year | – | – | – | – | 28 | 13 | 392 | 433 | – | 433 | ||||||||||||||||||||||||||||||
| Issue of ordinary shares | 5 | – | – | – | – | – | – | 5 | – | 5 | ||||||||||||||||||||||||||||||
| Repurchase of shares | – | – | – | – | – | – | (283 | ) | (283 | ) | – | (283 | ) | |||||||||||||||||||||||||||
| Purchase of own shares by employee share trusts | – | – | (53 | ) | – | – | – | – | (53 | ) | – | (53 | ) | |||||||||||||||||||||||||||
| Release of own shares by employee share trusts | – | – | 64 | – | – | – | (61 | ) | 3 | – | 3 | |||||||||||||||||||||||||||||
| Equity-settled share-based cost | – | – | – | – | – | – | 27 | 27 | – | 27 | ||||||||||||||||||||||||||||||
| Tax related to share schemes | – | – | – | – | – | – | 11 | 11 | – | 11 | ||||||||||||||||||||||||||||||
| Equity dividends paid | – | – | – | – | – | – | (533 | ) | (533 | ) | (1 | ) | (534 | ) | ||||||||||||||||||||||||||
| Exchange adjustments | 5 | 1 | (1 | ) | (5 | ) | – | – | – | – | – | – | ||||||||||||||||||||||||||||
| At 31 December 2013 | 189 | 12 | (38 | ) | (2,906 | ) | 100 | 227 | 2,334 | (82 | ) | 8 | (74 | ) | ||||||||||||||||||||||||||
All items above are shown net of tax.
Notes on pages 111107 to 153 form an integral part of these Financial Statements.
|
| IHG Annual Report and Form 20-F |
Group statement of changes in equitycontinued
Equity share capital $m | Capital redemption reserve $m | Shares held by employee share trusts $m | Other reserves $m | Unrealised gains and losses reserve $m | Currency translation reserve $m | Retained earnings (restated1) $m | IHG share- holders’ equity (restated1) $m | Non- controlling interest $m | Total equity (restated1) $m | |||||||||||||||||||||||||||||||
At 1 January 2012 | 162 | 10 | (27 | ) | (2,893 | ) | 71 | 189 | 3,035 | 547 | 8 | 555 | ||||||||||||||||||||||||||||
Profit for the year | – | – | – | – | – | – | 537 | 537 | 1 | 538 | ||||||||||||||||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||||||||||||||||||
| Items that may be subsequently reclassified to profit or loss: | ||||||||||||||||||||||||||||||||||||||||
Gains on valuation of available-for-sale financial assets | – | – | – | – | 1 | – | – | 1 | – | 1 | ||||||||||||||||||||||||||||||
Losses reclassified to financial expenses on cash flow hedges | – | – | – | – | 1 | – | – | 1 | – | 1 | ||||||||||||||||||||||||||||||
Exchange differences on retranslation of foreign operations | – | – | – | – | (1 | ) | 25 | – | 24 | – | 24 | |||||||||||||||||||||||||||||
| – | – | – | – | 1 | 25 | – | 26 | – | 26 | |||||||||||||||||||||||||||||||
| Items that will not be reclassified to profit or loss: | ||||||||||||||||||||||||||||||||||||||||
| Re-measurement losses on defined benefit plans | – | – | – | – | – | – | (10 | ) | (10 | ) | – | (10 | ) | |||||||||||||||||||||||||||
Tax related to pension contributions | – | – | – | – | – | – | 18 | 18 | – | 18 | ||||||||||||||||||||||||||||||
| – | – | – | – | – | – | 8 | 8 | – | 8 | |||||||||||||||||||||||||||||||
Total other comprehensive income | – | – | – | – | 1 | 25 | 8 | 34 | – | 34 | ||||||||||||||||||||||||||||||
Total comprehensive income for the year | – | – | – | – | 1 | 25 | 545 | 571 | 1 | 572 | ||||||||||||||||||||||||||||||
| Issue of ordinary shares | 10 | – | – | – | – | – | – | 10 | – | 10 | ||||||||||||||||||||||||||||||
| Repurchase of shares | (1 | ) | – | – | – | – | – | (106 | ) | (107 | ) | – | (107 | ) | ||||||||||||||||||||||||||
| Transfer to capital redemption reserve | – | 1 | – | – | – | – | (1 | ) | – | – | – | |||||||||||||||||||||||||||||
| Transaction costs relating to shareholder returns | – | – | – | – | – | – | (2 | ) | (2 | ) | – | (2 | ) | |||||||||||||||||||||||||||
| Purchase of own shares by employee share trusts | – | – | (84 | ) | – | – | – | – | (84 | ) | – | (84 | ) | |||||||||||||||||||||||||||
| Release of own shares by employee share trusts | – | – | 63 | – | – | – | (63 | ) | – | – | – | |||||||||||||||||||||||||||||
| Equity-settled share-based cost | – | – | – | – | – | – | 27 | 27 | – | 27 | ||||||||||||||||||||||||||||||
| Tax related to share schemes | – | – | – | – | – | – | 20 | 20 | – | 20 | ||||||||||||||||||||||||||||||
| Equity dividends paid | – | – | – | – | – | – | (679 | ) | (679 | ) | – | (679 | ) | |||||||||||||||||||||||||||
| Share of reserve in equity accounted investment | – | – | – | – | – | – | 5 | 5 | – | 5 | ||||||||||||||||||||||||||||||
| Exchange adjustments | 8 | – | – | (8 | ) | – | – | – | – | – | – | |||||||||||||||||||||||||||||
| At 31 December 2012 | 179 | 11 | (48 | ) | (2,901 | ) | 72 | 214 | 2,781 | 308 | 9 | 317 | ||||||||||||||||||||||||||||
| Equity share capital $m | Capital $m | Shares $m | Other reserves $m | Unrealised gains and losses reserve $m | Currency translation reserve | Retained $m | IHG share- holders’ equity $m | Non- controlling interest $m | Total equity $m | |||||||||||||||||||||||||||||||
| At 1 January 2012 | 162 | 10 | (27 | ) | (2,893 | ) | 71 | 189 | 3,035 | 547 | 8 | 555 | ||||||||||||||||||||||||||||
| Profit for the year | – | – | – | – | – | – | 537 | 537 | 1 | 538 | ||||||||||||||||||||||||||||||
| Other comprehensive income: | ||||||||||||||||||||||||||||||||||||||||
| Items that may be subsequently reclassified to profit or loss: | ||||||||||||||||||||||||||||||||||||||||
Gains on valuation of available-for-sale financial assets | – | – | – | – | 1 | – | – | 1 | – | 1 | ||||||||||||||||||||||||||||||
Losses reclassified to financial expenses on cash flow hedges | – | – | – | – | 1 | – | – | 1 | – | 1 | ||||||||||||||||||||||||||||||
Exchange differences on retranslation of foreign operations | – | – | – | – | (1 | ) | 25 | – | 24 | – | 24 | |||||||||||||||||||||||||||||
| – | – | – | – | 1 | 25 | – | 26 | – | 26 | |||||||||||||||||||||||||||||||
| Items that will not be reclassified to profit or loss: | ||||||||||||||||||||||||||||||||||||||||
Re-measurement losses on defined benefit plans | – | – | – | – | – | – | (10 | ) | (10 | ) | – | (10 | ) | |||||||||||||||||||||||||||
Tax related to pension contributions | – | – | – | – | – | – | 18 | 18 | – | 18 | ||||||||||||||||||||||||||||||
| – | – | – | – | – | – | 8 | 8 | – | 8 | |||||||||||||||||||||||||||||||
| Total other comprehensive income | – | – | – | – | 1 | 25 | 8 | 34 | – | 34 | ||||||||||||||||||||||||||||||
| Total comprehensive income for the year | – | – | – | – | 1 | 25 | 545 | 571 | 1 | 572 | ||||||||||||||||||||||||||||||
| Issue of ordinary shares | 10 | – | – | – | – | – | – | 10 | – | 10 | ||||||||||||||||||||||||||||||
| Repurchase of shares | (1 | ) | – | – | – | – | – | (106 | ) | (107 | ) | – | (107 | ) | ||||||||||||||||||||||||||
| Transfer to capital redemption reserve | – | 1 | – | – | – | – | (1 | ) | – | – | – | |||||||||||||||||||||||||||||
| Transaction costs relating to shareholder returns | – | – | – | – | – | – | (2 | ) | (2 | ) | – | (2 | ) | |||||||||||||||||||||||||||
| Purchase of own shares by employee share trusts | – | – | (84 | ) | – | – | – | – | (84 | ) | – | (84 | ) | |||||||||||||||||||||||||||
| Release of own shares by employee share trusts | – | – | 63 | – | – | – | (63 | ) | – | – | – | |||||||||||||||||||||||||||||
| Equity-settled share-based cost | – | – | – | – | – | – | 27 | 27 | – | 27 | ||||||||||||||||||||||||||||||
| Tax related to share schemes | – | – | – | – | – | – | 20 | 20 | – | 20 | ||||||||||||||||||||||||||||||
| Equity dividends paid | – | – | – | – | – | – | (679 | ) | (679 | ) | – | (679 | ) | |||||||||||||||||||||||||||
| Share of reserve in equity accounted investment | – | – | – | – | – | – | 5 | 5 | – | 5 | ||||||||||||||||||||||||||||||
| Exchange adjustments | 8 | – | – | (8 | ) | – | – | – | – | – | – | |||||||||||||||||||||||||||||
| At 31 December 2012 | 179 | 11 | (48 | ) | (2,901 | ) | 72 | 214 | 2,781 | 308 | 9 | 317 | ||||||||||||||||||||||||||||
All items above are shown net of tax.
Notes on pages 111107 to 153 form an integral part of these Financial Statements.
|
Group statement of changes in equityfinancial positioncontinued
Equity share capital $m | Capital redemption reserve $m | Shares held by employee share trusts $m | Other reserves $m | Unrealised gains and losses reserve $m | Currency translation reserve $m | Retained earnings (restated2) $m | IHG share- holders’ equity (restated2) $m | Non- controlling interest $m | Total equity (restated2) $m | |||||||||||||||||||||||||||||||
At 1 January 20111 | 155 | 10 | (35 | ) | (2,894 | ) | 49 | 211 | 2,775 | 271 | 7 | 278 | ||||||||||||||||||||||||||||
Profit for the year1 | – | – | – | – | – | – | 465 | 465 | – | 465 | ||||||||||||||||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||||||||||||||||||
| Items that may be subsequently reclassified to profit or loss: | ||||||||||||||||||||||||||||||||||||||||
Gains on valuation of available-for-sale financial assets | – | – | – | – | 15 | – | – | 15 | – | 15 | ||||||||||||||||||||||||||||||
Losses reclassified to income on impairment of available-for-sale financial assets | – | – | – | – | 3 | – | – | 3 | – | 3 | ||||||||||||||||||||||||||||||
Losses reclassified to financial expenses on cash flow hedges | – | – | – | – | 4 | – | – | 4 | – | 4 | ||||||||||||||||||||||||||||||
Exchange differences on retranslation of foreign operations | – | – | – | – | – | (22 | ) | – | (22 | ) | 1 | (21 | ) | |||||||||||||||||||||||||||
| – | – | – | – | 22 | (22 | ) | – | – | 1 | 1 | ||||||||||||||||||||||||||||||
| Items that will not be reclassified to profit or loss: | ||||||||||||||||||||||||||||||||||||||||
Re-measurement losses on defined benefit plans | – | – | – | – | – | – | (13 | ) | (13 | ) | – | (13 | ) | |||||||||||||||||||||||||||
| – | – | – | – | – | – | (13 | ) | (13 | ) | – | (13 | ) | ||||||||||||||||||||||||||||
Total other comprehensive loss | – | – | – | – | 22 | (22 | ) | (13 | ) | (13 | ) | 1 | (12 | ) | ||||||||||||||||||||||||||
Total comprehensive income for the year | – | – | – | – | 22 | (22 | ) | 452 | 452 | 1 | 453 | |||||||||||||||||||||||||||||
| Issue of ordinary shares | 8 | – | – | – | – | – | – | 8 | – | 8 | ||||||||||||||||||||||||||||||
| Purchase of own shares by employee share trusts | – | – | (75 | ) | – | – | – | – | (75 | ) | – | (75 | ) | |||||||||||||||||||||||||||
| Release of own shares by employee share trusts | – | – | 83 | – | – | – | (80 | ) | 3 | – | 3 | |||||||||||||||||||||||||||||
| Equity-settled share-based cost | – | – | – | – | – | – | 29 | 29 | – | 29 | ||||||||||||||||||||||||||||||
| Tax related to share schemes | – | – | – | – | – | – | 7 | 7 | – | 7 | ||||||||||||||||||||||||||||||
| Equity dividends paid | – | – | – | – | – | – | (148 | ) | (148 | ) | – | (148 | ) | |||||||||||||||||||||||||||
| Exchange adjustments | (1 | ) | – | – | 1 | – | – | – | – | – | – | |||||||||||||||||||||||||||||
| At 31 December 2011 | 162 | 10 | (27 | ) | (2,893 | ) | 71 | 189 | 3,035 | 547 | 8 | 555 | ||||||||||||||||||||||||||||
| 31 December 2014 | Note | 2014 $m | 2013 (restated1) $m | 2012 (restated1) $m | ||||||||||||
| ASSETS | ||||||||||||||||
| Property, plant and equipment | 10 | 741 | 1,169 | 1,056 | ||||||||||||
| Goodwill | 12 | 74 | 80 | 93 | ||||||||||||
| Intangible assets | 13 | 569 | 438 | 354 | ||||||||||||
| Investment in associates and joint ventures | 14 | 116 | 85 | 84 | ||||||||||||
| Trade and other receivables | 16 | 3 | – | – | ||||||||||||
| Retirement benefit assets | 25 | 8 | 7 | 99 | ||||||||||||
| Other financial assets | 15 | 252 | 236 | 155 | ||||||||||||
| Non-current tax receivable | 34 | 16 | 24 | |||||||||||||
| Deferred tax assets | 7 | 87 | 108 | 204 | ||||||||||||
| Total non-current assets | 1,884 | 2,139 | 2,069 | |||||||||||||
| Inventories | 3 | 4 | 4 | |||||||||||||
| Trade and other receivables | 16 | 448 | 423 | 422 | ||||||||||||
| Current tax receivable | 4 | 12 | 31 | |||||||||||||
| Derivative financial instruments | 22 | 2 | 1 | 2 | ||||||||||||
| Other financial assets | 15 | 5 | 12 | 6 | ||||||||||||
| Cash and cash equivalents | 17 | 162 | 248 | 387 | ||||||||||||
| Total current assets | 624 | 700 | 852 | |||||||||||||
| Assets classified as held for sale | 11 | 310 | 228 | 534 | ||||||||||||
| Total assets | 2 | 2,818 | 3,067 | 3,455 | ||||||||||||
| LIABILITIES | ||||||||||||||||
| Loans and other borrowings | 21 | (126 | ) | (130 | ) | (208 | ) | |||||||||
| Trade and other payables | 18 | (769 | ) | (748 | ) | (709 | ) | |||||||||
| Provisions | 19 | (1 | ) | (3 | ) | (1 | ) | |||||||||
| Current tax payable | (47 | ) | (47 | ) | (54 | ) | ||||||||||
| Total current liabilities | (943 | ) | (928 | ) | (972 | ) | ||||||||||
| Loans and other borrowings | 21 | (1,569 | ) | (1,269 | ) | (1,242 | ) | |||||||||
| Derivative financial instruments | 22 | – | (11 | ) | (19 | ) | ||||||||||
| Retirement benefit obligations | 25 | (146 | ) | (184 | ) | (187 | ) | |||||||||
| Trade and other payables | 18 | (627 | ) | (574 | ) | (563 | ) | |||||||||
| Provisions | 19 | (9 | ) | – | (1 | ) | ||||||||||
| Deferred tax liabilities | 7 | (147 | ) | (175 | ) | (93 | ) | |||||||||
| Total non-current liabilities | (2,498 | ) | (2,213 | ) | (2,105 | ) | ||||||||||
| Liabilities classified as held for sale | 11 | (94 | ) | – | (61 | ) | ||||||||||
| Total liabilities | 2 | (3,535 | ) | (3,141 | ) | (3,138 | ) | |||||||||
| Net (liabilities)/assets | (717 | ) | (74 | ) | 317 | |||||||||||
| EQUITY | ||||||||||||||||
| Equity share capital | 27 | 178 | 189 | 179 | ||||||||||||
| Capital redemption reserve | 27 | 12 | 12 | 11 | ||||||||||||
| Shares held by employee share trusts | 27 | (35 | ) | (38 | ) | (48 | ) | |||||||||
| Other reserves | 27 | (2,896 | ) | (2,906 | ) | (2,901 | ) | |||||||||
| Unrealised gains and losses reserve | 27 | 111 | 100 | 72 | ||||||||||||
| Currency translation reserve | 27 | 269 | 227 | 214 | ||||||||||||
| Retained earnings | 1,636 | 2,334 | 2,781 | |||||||||||||
| IHG shareholders’ equity | (725 | ) | (82 | ) | 308 | |||||||||||
| Non-controlling interest | 27 | 8 | 8 | 9 | ||||||||||||
| Total equity | (717 | ) | (74 | ) | 317 | |||||||||||
| 1 |
| Restated for the adoption of ‘Offsetting Financial Assets and Financial Liabilities’ (Amendments to IAS |
All items above are shown netSigned on behalf of tax.the Board
Paul Edgecliffe-Johnson
16 February 2015
Notes on pages 111107 to 153 form an integral part of these Financial Statements.
|
| IHG Annual Report and Form 20-F |
Group statement of financial positioncash flows
| 31 December 2013 | Note | 2013 $m | 2012 $m | |||||||||
| ASSETS | ||||||||||||
| Property, plant and equipment | 10 | 1,169 | 1,056 | |||||||||
| Goodwill | 12 | 80 | 93 | |||||||||
| Intangible assets | 13 | 438 | 354 | |||||||||
| Investment in associates and joint ventures | 14 | 85 | 84 | |||||||||
| Retirement benefit assets | 26 | 7 | 99 | |||||||||
| Other financial assets | 15 | 236 | 155 | |||||||||
| Non-current tax receivable | 16 | 24 | ||||||||||
| Deferred tax assets | 27 | 108 | 204 | |||||||||
Total non-current assets | 2,139 | 2,069 | ||||||||||
| Inventories | 16 | 4 | 4 | |||||||||
| Trade and other receivables | 17 | 423 | 422 | |||||||||
| Current tax receivable | 12 | 31 | ||||||||||
| Derivative financial instruments | 23 | 1 | 2 | |||||||||
| Other financial assets | 15 | 12 | 6 | |||||||||
| Cash and cash equivalents | 18 | 134 | 195 | |||||||||
Total current assets | 586 | 660 | ||||||||||
| Non-current assets classified as held for sale | 11 | 228 | 534 | |||||||||
| Total assets | 2 | 2,953 | 3,263 | |||||||||
| LIABILITIES | ||||||||||||
| Loans and other borrowings | 22 | (16 | ) | (16 | ) | |||||||
| Trade and other payables | 19 | (748 | ) | (709 | ) | |||||||
| Provisions | 20 | (3 | ) | (1 | ) | |||||||
| Current tax payable | (47 | ) | (54 | ) | ||||||||
Total current liabilities | (814 | ) | (780 | ) | ||||||||
| Loans and other borrowings | 22 | (1,269 | ) | (1,242 | ) | |||||||
| Derivative financial instruments | 23 | (11 | ) | (19 | ) | |||||||
| Retirement benefit obligations | 26 | (184 | ) | (187 | ) | |||||||
| Trade and other payables | 19 | (574 | ) | (563 | ) | |||||||
| Provisions | 20 | – | (1 | ) | ||||||||
| Deferred tax liabilities | 27 | (175 | ) | (93 | ) | |||||||
Total non-current liabilities | (2,213 | ) | (2,105 | ) | ||||||||
| Liabilities classified as held for sale | 11 | – | (61 | ) | ||||||||
Total liabilities | 2 | (3,027 | ) | (2,946 | ) | |||||||
| Net (liabilities)/assets | (74 | ) | 317 | |||||||||
| EQUITY | ||||||||||||
| Equity share capital | 29 | 189 | 179 | |||||||||
| Capital redemption reserve | 29 | 12 | 11 | |||||||||
| Shares held by employee share trusts | 29 | (38 | ) | (48 | ) | |||||||
| Other reserves | 29 | (2,906 | ) | (2,901 | ) | |||||||
| Unrealised gains and losses reserve | 29 | 100 | 72 | |||||||||
| Currency translation reserve | 29 | 227 | 214 | |||||||||
| Retained earnings | 2,334 | 2,781 | ||||||||||
| IHG shareholders’ equity | (82 | ) | 308 | |||||||||
| Non-controlling interest | 29 | 8 | 9 | |||||||||
| Total equity | (74 | ) | 317 | |||||||||
Signed on behalf of the Board
Paul Edgecliffe-Johnson
17 February 2014
| For the year ended 31 December 2014 | Note | 2014 $m | 2013 $m | 2012 $m | ||||||||||||
| Profit for the year | 392 | 374 | 538 | |||||||||||||
| Adjustments for: | ||||||||||||||||
Net financial expenses | 80 | 73 | 54 | |||||||||||||
Income tax charge | 7 | 208 | 226 | 9 | ||||||||||||
Depreciation and amortisation | 96 | 85 | 94 | |||||||||||||
Impairment reversal | 5 | – | – | (23 | ) | |||||||||||
Other exceptional operating items | (29 | ) | (5 | ) | 27 | |||||||||||
Equity-settled share-based cost | 26 | 21 | 22 | 22 | ||||||||||||
Dividends from associates and joint ventures | 14 | 2 | 5 | 1 | ||||||||||||
Other items | 4 | 2 | (3 | ) | ||||||||||||
| Operating cash flow before movements in working capital | 774 | 782 | 719 | |||||||||||||
| Increase in trade and other receivables | (18 | ) | (9 | ) | (50 | ) | ||||||||||
| Net change in loyalty programme liability and System Fund surplus | 32 | 58 | 61 | 57 | ||||||||||||
| Increase in other trade and other payables | 61 | 8 | 26 | |||||||||||||
| Utilisation of provisions | 19 | (2 | ) | (3 | ) | (12 | ) | |||||||||
| Retirement benefit contributions, net of costs | (6 | ) | (18 | ) | (95 | ) | ||||||||||
| Cash flows relating to exceptional operating items | (114 | ) | (33 | ) | (6 | ) | ||||||||||
| Cash flow from operations | 753 | 788 | 639 | |||||||||||||
| Interest paid | (76 | ) | (74 | ) | (50 | ) | ||||||||||
| Interest received | 2 | 2 | 2 | |||||||||||||
| Tax paid on operating activities | 7 | (136 | ) | (92 | ) | (119 | ) | |||||||||
| Net cash from operating activities | 543 | 624 | 472 | |||||||||||||
| Cash flow from investing activities | ||||||||||||||||
| Purchase of property, plant and equipment | (84 | ) | (159 | ) | (44 | ) | ||||||||||
| Purchase of intangible assets | (162 | ) | (86 | ) | (84 | ) | ||||||||||
| Investment in other financial assets | (5 | ) | (154 | ) | (2 | ) | ||||||||||
| Investment in associates and joint ventures | (15 | ) | (10 | ) | (3 | ) | ||||||||||
| Loan advances to associates and joint ventures | (3 | ) | – | – | ||||||||||||
| Capitalised interest paid | (2 | ) | – | – | ||||||||||||
| Disposal of hotel assets, net of costs | 11 | 345 | 460 | 4 | ||||||||||||
| Proceeds from other financial assets | 49 | 109 | 4 | |||||||||||||
| Distribution from associate on sale of hotel | – | 17 | – | |||||||||||||
| Proceeds from other associates and joint ventures | – | 3 | – | |||||||||||||
| Tax paid on disposals | 7 | – | (5 | ) | (3 | ) | ||||||||||
| Net cash from investing activities | 123 | 175 | (128 | ) | ||||||||||||
| Cash flow from financing activities | ||||||||||||||||
| Proceeds from the issue of share capital | – | 5 | 10 | |||||||||||||
| Purchase of own shares | (110 | ) | (283 | ) | (107 | ) | ||||||||||
| Purchase of own shares by employee share trusts | (68 | ) | (44 | ) | (84 | ) | ||||||||||
| Dividends paid to shareholders | 8 | (942 | ) | (533 | ) | (679 | ) | |||||||||
| Dividend paid to non-controlling interests | (1 | ) | (1 | ) | – | |||||||||||
| Transaction costs relating to shareholder returns | (1 | ) | – | (2 | ) | |||||||||||
| Issue of long-term bonds | – | – | 632 | |||||||||||||
| Increase/(decrease) in other borrowings | 382 | (1 | ) | (99 | ) | |||||||||||
| Close-out of currency swaps | 4 | – | – | |||||||||||||
| Net cash from financing activities | (736 | ) | (857 | ) | (329 | ) | ||||||||||
| Net movement in cash and cash equivalents in the year | (70 | ) | (58 | ) | 15 | |||||||||||
| Cash and cash equivalents at beginning of the year | 17 | 134 | 195 | 182 | ||||||||||||
| Exchange rate effects | (9 | ) | (3 | ) | (2 | ) | ||||||||||
| Cash and cash equivalents at end of the year | 17 | 55 | 134 | 195 | ||||||||||||
Notes on pages 111107 to 153 form an integral part of these Financial Statements.
|
| For the year ended 31 December 2013 | 2013 $m | 2012 (restated1) $m | 20112 (restated1) $m | |||||||||
Profit for the year | 374 | 538 | 465 | |||||||||
| Adjustments for: | ||||||||||||
Net financial expenses | 73 | 54 | 62 | |||||||||
Income tax charge | 226 | 9 | 78 | |||||||||
Depreciation and amortisation | 85 | 94 | 99 | |||||||||
Impairment | – | (23 | ) | (20 | ) | |||||||
Other exceptional operating items | (5 | ) | 27 | (37 | ) | |||||||
Equity-settled share-based cost | 22 | 22 | 25 | |||||||||
Dividends from associates and joint ventures | 5 | 1 | 1 | |||||||||
Other items | 2 | (3 | ) | (1 | ) | |||||||
| Operating cash flow before movements in working capital | 782 | 719 | 672 | |||||||||
| Increase in trade and other receivables | (9 | ) | (50 | ) | (11 | ) | ||||||
| Net change in loyalty programme liability and System Fund surplus | 61 | 57 | 66 | |||||||||
| Increase/(decrease) in other trade and other payables | 8 | 26 | (20 | ) | ||||||||
| Utilisation of provisions | (3 | ) | (12 | ) | (19 | ) | ||||||
| Retirement benefit contributions, net of cost | (18 | ) | (95 | ) | (33 | ) | ||||||
| Cash flows relating to exceptional operating items | (33 | ) | (6 | ) | (32 | ) | ||||||
Cash flow from operations | 788 | 639 | 623 | |||||||||
| Interest paid | (74 | ) | (50 | ) | (56 | ) | ||||||
| Interest received | 2 | 2 | 1 | |||||||||
| Tax paid on operating activities | (92 | ) | (119 | ) | (89 | ) | ||||||
Net cash from operating activities | 624 | 472 | 479 | |||||||||
Cash flow from investing activities | ||||||||||||
| Purchase of property, plant and equipment | (159 | ) | (44 | ) | (55 | ) | ||||||
| Purchase of intangible assets | (86 | ) | (84 | ) | (48 | ) | ||||||
| Investment in other financial assets | (154 | ) | (2 | ) | (50 | ) | ||||||
| Investment in associates and joint ventures | (10 | ) | (3 | ) | (41 | ) | ||||||
| Disposal of hotel assets, net of costs | 460 | 4 | 142 | |||||||||
| Proceeds from other financial assets | 109 | 4 | 15 | |||||||||
| Distribution from associate on sale of hotel | 17 | – | – | |||||||||
| Proceeds from other associates and joint ventures | 3 | – | – | |||||||||
| Tax paid on disposals | (5 | ) | (3 | ) | (1 | ) | ||||||
Net cash from investing activities | 175 | (128 | ) | (38 | ) | |||||||
Cash flow from financing activities | ||||||||||||
| Proceeds from the issue of share capital | 5 | 10 | 8 | |||||||||
| Purchase of own shares | (283 | ) | (107 | ) | – | |||||||
| Purchase of own shares by employee share trusts | (44 | ) | (84 | ) | (75 | ) | ||||||
| Dividends paid to shareholders | (533 | ) | (679 | ) | (148 | ) | ||||||
| Dividend paid to non-controlling interests | (1 | ) | – | – | ||||||||
| Transaction costs relating to shareholder returns | – | (2 | ) | – | ||||||||
| Issue of long-term bonds | – | 632 | – | |||||||||
| Decrease in other borrowings | (1 | ) | (99 | ) | (119 | ) | ||||||
Net cash from financing activities | (857 | ) | (329 | ) | (334 | ) | ||||||
Net movement in cash and cash equivalents in the year | (58 | ) | 15 | 107 | ||||||||
| Cash and cash equivalents at beginning of the year | 195 | 182 | 78 | |||||||||
| Exchange rate effects | (3 | ) | (2 | ) | (3 | ) | ||||||
Cash and cash equivalents at end of the year | 134 | 195 | 182 | |||||||||
Notes on pages 111 to 153 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. In previous yearsPrior to 2013 the Group issued separate documents.
The Consolidated Financial Statements of InterContinental Hotels Group PLC (the Group or IHG) for the year ended 31 December 20132014 were authorised for issue in accordance with a resolution of the Directors on 1716 February 2014.2015. InterContinental Hotels Group PLC (the Company) is incorporated and domiciled in Great Britain and registered in England and Wales.
Comparatives for 2011
The comparative information presented for the year ended 31 December 2011 is that previously issued on Form 20-F for that year which differs from the Consolidated Financial Statements issued to the UK listing authorities for 2011. The difference arose in respect of a litigation provision of $22m ($13m net of tax) which was recorded on Form 20-F in the year ended 31 December 2010 but not in the UK Consolidated Financial Statements until the following year. An unfavourable court judgement on 23 February 2011, between the authorisation of the respective documents (UK Consolidated Financial Statements on 14 February 2011 and Form 20-F on 11 April 2011), resulted in the litigation provision being recorded as an adjusting post balance sheet event in the Financial Statements for the year ended 31 December 2010 issued on Form 20-F.
The respective numbers reported were as follows:
| 2011 Financial Statements2 | ||||||||
| Form 20-F1 | UK filing | |||||||
| Profit before tax ($m) | 554 | 532 | ||||||
| Profit for the year ($m) | 473 | 460 | ||||||
| Net assets ($m) | 555 | 555 | ||||||
| Basic earnings per ordinary share (cents) | 163.7 | 159.2 | ||||||
| Diluted earnings per ordinary share (cents) | 159.8 | 155.4 | ||||||
Changes in accounting policies
With effect from 1 January 2013,2014, the Group has adopted ‘Offsetting Financial Assets and Financial Liabilities’ (Amendments to IAS 19 (Revised) ‘Employee Benefits’ which introduces a number32). The amendments clarify that to offset financial assets and financial liabilities, the Group’s right of changes to accounting for defined benefit plans. The key change that impactsoffset must be legally enforceable in the normal course of business, in the event of default, and in the event of insolvency or bankruptcy of the Group and all of the counterparties. Following a detailed review of the Group’s cash pooling arrangements which have previously been presented net within cash and cash equivalents (see note 17), management have determined that the right of offset is not enforceable in all of the removalabove circumstances. As a result, the overdrafts within the cash pools are now presented as current loans and other borrowings. The amendments to IAS 32 are applicable retrospectively, requiring the restatement of expected returns on plan assets fromprior year comparatives and the incomepresentation of a third statement of financial position as at 31 December 2012 as required by IAS 1 ‘Presentation of Financial Statements’. The adoption of the amendments to IAS 32 increases cash and its replacement with a requirement to recognise interestcash equivalents and current loans and other borrowings by $107m in 2014 (2013 $114m, 2012 $192m) but has no impact on the net defined benefit asset/ liability (after any asset restrictions), calculated usingfinancial position of the discount rate used to measureGroup nor the defined benefit obligation.
The impactreporting of this change in accounting policy on the currentnet debt. Cash and prior year Financial Statements, which have been restated, is as follows:
| Group income statement | 2013 $m | 2012 $m | 2011 $m | |||||||||
| Administrative expenses | (6 | ) | (9 | ) | (11 | ) | ||||||
| Operating profit and profit before tax | (6 | ) | (9 | ) | (11 | ) | ||||||
| Tax | 2 | 2 | 3 | |||||||||
| Profit for the year | (4 | ) | (7 | ) | (8 | ) | ||||||
| Group statement of comprehensive income | 2013 $ m | 2012 $m | 2011 $m | |||||||||
| Profit for the year | (4 | ) | (7 | ) | (8 | ) | ||||||
| Re-measurement gains, net of related tax charge of $2m (2012 $1m, 2011 $1m) | 4 | 8 | 10 | |||||||||
| Tax related to pension contributions | – | (1 | ) | (2 | ) | |||||||
| Total comprehensive income for the year | – | – | – | |||||||||
| Earnings per share | 2013 cents | 2012 cents | 2011 cents | |||||||||
| Basic | (1.5 | ) | (2.4 | ) | (2.8 | ) | ||||||
| Diluted | (1.5 | ) | (2.4 | ) | (2.7 | ) | ||||||
There has been no change to previously reported retained earnings, balance sheet amounts or cash flows, other than consequential adjustments to the analysis of operating cash flows.
The Group has also adopted IAS 1 (Amendment) ‘Presentation of Items of Other Comprehensive Income’, which changes the grouping of itemsequivalents presented in the Group statement of comprehensive income so that items which maycash flows continue to be reclassified to profit or loss in the future are presented separately from items that will never be reclassified. The amendment affects presentation only and has had no impact on the Group’s financial position or performance.net of overdrafts as permitted by IAS 7 ‘Statement of Cash Flows’.
In addition, with effect from 1 January 2013,2014, the Group has implementedadopted Amendment to IAS 28 (Amendment) ‘Investments in Associates36 ‘Impairment of Assets – Recoverable Amount Disclosures for Non-Financial Assets’, Amendment to IAS 39 ‘Novation of Derivatives and Joint Ventures’, IFRS 10 ‘Consolidated Financial Statements’, IFRS 11 ‘Joint Arrangements’, IFRS 12 ‘DisclosureContinuation of Interests in Other Entities’Hedge Accounting’ and IFRS 13 ‘Fair Value Measurement’IFRIC 21 ‘Levies’. The adoption of these amendments to standards and interpretations has had no material impact on the Group’s financial performance or position and there has been no requirement to restate prior year comparatives. IFRS 13 has resulted in new disclosures which are provided in note 24.
In accordance with IFRS 7 ‘Financial Instruments: Disclosures – Offsetting Financial Assets and Financial Liabilities’ (Amendments to IFRS 7) additional disclosures have been made in note 18 regarding the Group’s cash pooling arrangements.
Summary of significant accounting policies
Basis of preparation
The Consolidated Financial Statements of IHG have been prepared on a going concern basis and under the historical cost convention, except for available-for-sale equity securities and derivatives which are measured at fair value. The Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as issued by the IASB and in accordance with IFRS as adopted by the European Union (EU) and as applied in accordance with the provisions of the Companies Act 2006. IFRS as adopted by the EU differs in certain respects from IFRS as issued by the IASB. However, the differences have no impact on the Group’s Consolidated Financial Statements for the years presented.
Presentational currency
The Consolidated Financial Statements are presented in millions of US dollars following a management decision to change the reporting currency from sterling during 2008. The change was made to reflect the profile of the Group’s revenue and operating profit which are primarily generated in US dollars or US dollar-linked currencies.
The currency translation reserve was set to nil at 1 January 2004 on transition to IFRS and this reserve is presented on the basis that the Group has reported in US dollars since this date. 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.
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The functional currency of the parent company remains sterling since this is a non-trading holding company located in the United Kingdom that has sterling denominated share capital and whose primary activity is the payment and receipt of sterling dividends and of interest on sterling denominated external borrowings and inter-company balances.
Basis of consolidation
The Consolidated Financial Statements comprise the Financial Statements of the parent company and entities controlled by the Group. Control exists when the Group has:
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 2013,2014, the trust had assets with a fair value of $135m (2012 $113m)$148m (2013 $135m).
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| IHG Annual Report and Form 20-F 2014 |
Accounting policiescontinued
Foreign currencies
Transactions in foreign currencies are translated to functional currency at the exchange rates ruling on the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated to the functional currency at the relevant rates of exchange ruling on the last day of the period. Foreign exchange differences arising on translation are recognised in the income statement except on foreign currency borrowings that provide a hedge against a net investment in a foreign operation. These are taken directly to the currency translation reserve until the disposal of the net investment, at which time they are recycled against the gain or loss on disposal.
The assets and liabilities of foreign operations, including goodwill, are translated into US dollars at the relevant rates of exchange ruling on the last day of the period. The revenues and expenses of foreign operations are translated into US dollars at average rates of exchange for the period. The exchange differences arising on the retranslation are taken directly to the currency translation reserve. On disposal of a foreign operation, the cumulative amount recognised in the currency translation reserve relating to that particular foreign operation is recycled against the gain or loss on disposal.
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 to sellof 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’.
Goodwill
Goodwill arises on consolidation and is recorded at cost, being the excess of the cost of acquisition over the fair value at the date of acquisition of the Group’s share of identifiable assets, liabilities and contingent liabilities. With effect from 1 January 2010, transactionTransaction costs are expensed and thereforeare not included in the cost of acquisition. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses.
Goodwill is tested for impairment at least annually by comparing carrying values of cash-generating units with their recoverable amounts. Impairment losses cannot be subsequently reversed.
Intangible assets
Software
Acquired and internally developed software are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. Costs are amortised over estimated useful lives of three to five years on a straight-line basis.
Internally generated development costs are expensed unless forecast revenues exceed attributable forecast development costs, in which case they are capitalised and amortised over the estimated useful life of the asset.
Management contracts
When assets are sold and a purchaser enters into a franchise or management contract with the Group, the Group capitalises as part of the gain or loss on disposal an estimate of the fair value of the contract entered into. The value of management contracts is amortised on a straight-line basis over the life of the contract which ranges from sixincluding any extension periods at IHG’s option up to a maximum of 50 years on a straight-line basis.years.
Other intangible assets
Amounts paid to hotel owners to secure management contracts and franchise agreements are capitalised and normally amortised on a straight-line basis over their estimated useful lives up to a maximum of 50 years. In prior years this has been determined to be the shorter of the contracted period and 10 yearsyears. Following a detailed review in early 2014 and based on a straight-line basis.the Group’s experience of the actual contractual periods secured by these payments, the estimate of useful life has been re-assessed to comprise the full contract term, which is also consistent with the stated policy of other companies in the hotel industry. This revision to the estimate of expected useful lives has been applied prospectively in accordance with IAS 38 and results in the following (decrease)/ increase in the original amortisation profile of assets capitalised at 1 January 2014: 2014 $(5)m, 2015 $(5)m, 2016 $(4)m, 2017 $(3)m, 2018 and after $17m in total.
Intangible assets are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable.
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Borrowing costs
Borrowing costs attributable to the acquisition or construction of property, plant and equipment or in respect of software projects that necessarily take a substantial period of time to prepare for their intended use, or sale, are capitalised as part of the asset cost. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. All borrowing costs relating to projects commencing before 1 January 2009 were expensed.
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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 doesis not have 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.
Financial assets
The Group classifies its financial assets into one of the two following categories: loans and receivables or available-for-sale financial assets. Management determines the classification of financial assets on initial recognition and they are subsequently held at amortised cost (loans and receivables) or fair value (available-for-sale financial assets). Interest on loans and receivables is calculated using the effective interest rate method and is recognised in the income statement as interest income. Changes in fair values of available-for-sale financial assets are recorded directly in equity within the unrealised gains and losses reserve. On disposal, the accumulated fair value adjustments recognised in equity are recycled to the income statement. Dividends from available-for-sale financial assets are recognised in the income statement as other operating income and expenses.
Financial assets are assessed for impairment at each period-end date. In the case of an equity investment classified as available-for-sale, a significant or prolonged decline in fair value below cost is evidence that the asset is impaired. If an available-for-sale financial asset is impaired, the difference between original cost and fair value is transferred from equity to the income statement to the extent of any cumulative loss recorded in equity, with any excess charged directly to the income statement. Subsequent impairment reversals relating to previously impaired equity instruments are recorded in equity.
Inventories
Inventories are stated at the lower of cost and net realisable value.
Trade receivables
Trade receivables are recorded at their original amount less provision for impairment. It is the Group’s policy to provide for 100% of the previous month’s aged receivables balances which are more than 180 days past due. Adjustments to the policy may be made due to specific or exceptional circumstances when collection is no longer considered probable.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
Non-current assetsAssets and associated liabilities are classified as held for sale when their carrying amount will be recovered principally through a sale transaction rather than continuing use and a sale is highly probable and expected to complete within one year. For a sale to be highly probable, management need to be committed to a plan to sell the asset and the asset must be actively marketed for sale at a price that is reasonable in relation to its current fair value.
Assets designated as held for sale are held at the lower of carrying amount at designation and fair value less costs to sell.
Depreciation is not charged against property, plant and equipment classified as held for sale.
Financial liabilities
Financial liabilities are measured at amortised cost using the effective interest rate method. A financial liability is derecognised when the obligation under the liability expires, is discharged or is cancelled.
Offsetting of financial assets and financial liabilities
Financial assets and financial liabilities are offset and the net amount is reported in the Group statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis or to realise the assets and settle the liabilities simultaneously. To meet this 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.
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| IHG Annual Report and Form 20-F 2014 |
Accounting policiescontinued
Trade payables
Trade payables are non-interest-bearing and are stated at their nominal value.
Bank and other borrowings
Bank and other borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs. They are subsequently measured at amortised cost. Finance charges, including the transaction costs and any discount or premium on issue, are recognised in the income statement using the effective interest rate method.
Borrowings are classified as non-current when the repayment date is more than 12 months from the period-end date or where they are drawn on a facility with more than 12 months to expiry.
Derivative financial instruments and hedging
Derivatives are initially recognised and subsequently re-measured at fair value. The method of recognising the re-measurement depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged.
Changes in the fair value of derivatives designated as cash flow hedges are recorded in other comprehensive income and the unrealised gains and losses reserve to the extent that the hedges are effective. When the hedged item is recognised, the cumulative gains and losses on the related hedging instrument are reclassified to the income statement.
Changes in the fair value of derivatives designated as net investment hedges are recorded in other comprehensive income and the currency translation reserve to the extent that the hedges are effective. The cumulative gains and losses remain in equity until a foreign operation is sold, at which point they are reclassified to the income statement.
Changes in the fair value of derivatives which have either not been designated as hedging instruments or relate to the ineffective portion of hedges are recognised immediately in the income statement.
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Documentation outlining the measurement and effectiveness of any hedging arrangements is maintained throughout the life of the hedge relationship.
Interest arising from currency derivatives and interest rate swaps is recorded in either financial income or expenses over the term of the agreement, unless the accounting treatment for the hedging relationship requires the interest to be taken to reserves.
Self insurance
Liabilities in respect of self insured risks include projected settlements for known and incurred but not reported claims. Projected settlements are estimated based on historical trends and actuarial data.
Provisions
Provisions are recognised when the Group has a present obligation as a result of a past event, it is probable that a payment will be made and a reliable estimate of the amount payable can be made. If the effect of the time value of money is material, the provision is discounted.discounted using a current pre-tax discount rate that reflects the risks specific to the liability.
An onerous contract provision is recognised when the unavoidable costs of meeting the obligations under a contract exceed the economic benefits expected to be received under it.
In respect of litigation, provision is made when management consider it probable that payment may occur even though the defence of the related claim may still be ongoing through the court process.
Taxes
Current tax
Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the tax authorities including interest. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the end of the reporting period.
Deferred tax
Deferred tax assets and liabilities are recognised in respect of temporary differences between the tax base and carrying value of assets and liabilities including accelerated capital allowances, unrelieved tax losses, unremitted profits from subsidiaries, gains rolled over into replacement assets, gains on previously revalued properties and other short-term temporary differences.
Deferred tax assets are recognised to the extent that it is regarded as probable that the deductible temporary differences can be realised. The recoverability of all deferred tax assets is re-assessed at the end of each reporting period.
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.
Retirement benefits
Defined contribution plans
Payments to defined contribution schemes are charged to the income statement as they fall due.
Defined benefit plans
Plan assets, including qualifying insurance policies, are measured at fair value and plan liabilities are measured on an actuarial basis, using the projected unit credit method and discounting at an interest rate equivalent to the current rate of return on a high-quality corporate bond of equivalent currency and term to the plan liabilities. The difference between the value of plan assets and liabilities at 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. If a refund would be subject to a tax other than income tax, as is the case in the UK, the asset is recorded at the amount net of the tax. A liability is also recorded for any such tax that would be payable in respect of funding commitments based on the accounting assumption that the related payments increase the asset.
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The service cost of providing pension benefits to employees, together with the net interest expense or income for the year, is charged to the income statement within ‘administration 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 normally carried out every three years and are updated for material transactions and other material changes in circumstances (including changes in market prices and interest rates) up to the end of the reporting period.
Revenue recognition
Revenue arises from the sale of goods and provision of services where these activities give rise to economic benefits received and receivable by the Group on its own account and result in increases in equity.
Revenue is derived from the following sources: franchise fees; management fees; owned and leased properties and other revenues which are ancillary to the Group’s operations, including technology fee income.
Generally, revenue represents salesRevenue is recorded (excluding VAT and similar taxes) of goods and services, net of discounts, provided in the normal course of business and recognised when services have been rendered.discounts. The following is a description of the composition of revenues of the Group.Group:
Franchise fees – received in connection with the licenselicence of the Group’s brand names, usually under long-term contracts with the hotel owner. The Group charges franchise royalty fees as a percentage of rooms revenue. Revenue is recognised when the fee is earned and recognised on a monthly basis.in accordance with the terms of the contract.
Management fees – earned from hotels managed by the Group, usually under long-term contracts with the hotel owner. Management fees include a base fee, generally a percentage of hotel revenue, which is recognised when earned and recognised on a monthly basisin accordance with the terms of the contract and an incentive fee, generally based on the hotel’s profitability or cash flows and recognised when the related performance criteria are met under the terms of the contract.
Owned and leased– primarily derived from hotel operations, including the rental of rooms and food and beverage sales from owned and leased hotels operated under the Group’s brand names. Revenue is recognised when rooms are occupied and food and beverages are sold.
Franchise fees and management fees include liquidated damages received from the early termination of contracts.
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Government grants
Government grants are recognised in the period to which they relate when there is reasonable assurance that the grant will be received and that the Group will comply with the attached conditions. Government grants are recognised within other operating income and expenses in the Group income statement.
Share-based payments
The cost of equity-settled transactions with employees is measured by reference to fair value at the date at which the right to the shares is granted. Fair value is determined by an external valuer using option pricing models.
The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which any performance or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (vesting date).
The income statement charge for a period represents the movement in cumulative expense recognised at the beginning and end of that period. No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market 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.
The Group has taken advantage of the transitional provisions of IFRS 2 ‘Share-based Payment’ in respect of equity-settled awards and has applied IFRS 2 only to equity-settled awards granted after 7 November 2002 that had not vested before 1 January 2005.
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:
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| IHG Annual Report and Form 20-F 2014 |
Accounting policiescontinued
Fair value measurement
The Group measures available-for-sale equity securities and derivatives at fair value on a recurring basis and other assets when impaired by reference to fair value less costs to sell.of disposal. Additionally, the fair value of other financial assets and liabilities require disclosure.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value is measured by reference to the principal market for the asset or liability assuming that market participants act in their economic best interests.
The fair value of a non-financial asset assumes the asset is used in its highest and best use, either through continuing ownership or by selling it.
The Group uses valuation techniques that maximise the use of relevant observable inputs using the following valuation hierarchy:
| Level 1: | quoted (unadjusted) prices in active markets for identical assets or liabilities. | |
| Level 2: | other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly. | |
| Level 3: | techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data. | |
Further disclosures on the particular valuation techniques used by the Group are provided in note 24.23.
For impairment testing purposes and where significant assets (such as property) are valued by reference to fair value less costs to sell,of disposal, an external valuation will normally be obtained using professional valuers who have appropriate market knowledge, reputation and independence.
Exceptional items
The Group discloses certain financial information both including and excluding exceptional items. The presentation of information excluding exceptional items allows a better understanding of the underlying trading performance of the Group and provides consistency with the Group’s internal management reporting. Exceptional items are identified by virtue of either their size or nature so as to facilitate comparison with prior periods and to assess underlying trends in financial performance. Exceptional items can include, but are not restricted to, gains and losses on the disposal of assets, impairment charges and reversals, restructuring costs and the release of tax provisions.
Treasury shares
Own shares repurchased by the Company and not cancelled (treasury shares) are recognised at cost and deducted from retained earnings. If reissued, any excess of consideration over carrying amount is recognised in the share premium reserve.
Critical accounting policies and the use of judgements, estimates and assumptions
In determining and applying the Group’s accounting policies, management are required to make judgements, estimates and assumptions. An accounting policy is considered to be critical if its selection or application could materially affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management consider accounting for the System Fund to be a critical judgement and that critical estimates and assumptions are used in impairment testing and for measuring the loyalty programme liability, retirement and other post-employment obligations, tax assets and liabilities, and litigation provisions, as discussed in further detail below. Estimates and assumptions are evaluated by management using historical experience and other factors believed to be reasonable based on current circumstances. Actual results could differ under different policies, judgements, estimates and assumptions or due to unforeseen circumstances.
System Fund – in addition to management or franchise fees, hotels within the IHG System pay cash assessments and contributions which are collected by IHG for specific use within the System Fund (the Fund). The Fund also receives proceeds from the sale of IHG Rewards Club points. IHG exerts significant influence over the operation of the Fund, however the Fund is managed for the benefit of hotels in the System with the objective of driving revenues for the hotels. The Fund is used to pay for marketing, the IHG Rewards Club loyalty programme and the global reservation system. 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 34.32.
| 112 |
Loyalty programme – the hotel loyalty programme, IHG Rewards Club, enables members to earn points, funded through hotel assessments, during each qualifying stay at an IHG branded hotel and redeem points at a later date for free accommodation or other benefits. The future redemption liability is calculated by multiplying the number of points expected to be redeemed by the redemption cost per point. On an annual basis the Group engages an external actuary who uses statistical formulas to assist in the estimate of the number of points that will never be redeemed (‘breakage’). Actuarial gains and losses on the future redemption liability are borne by the System Fund and any resulting changes in the liability would correspondingly adjust the amount of short-term timing surpluses and deficits held in the Group statement of financial position. The future redemption liability, which is included in trade and other payables, was $649m$725m at 31 December 2013.2014. Based on the conditions existing at the balance sheet date, a 5%1% decrease in the breakage estimate would increase this liability by approximately $31m.$7m.
Impairment testing – intangible assets, property, plant and equipment are tested for impairment when events or circumstances indicate that their carrying value may not be recoverable. Goodwill is 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.
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 to sellof 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 2013,2014, the Group had intangible assets of $438m$569m and property, plant and equipment of $1,169m,$741m, none of which were subject to an impairment charge during the year. In respect of those assets requiring an impairment test and depending on how recoverable amount was assessed, neither a 10% reduction in fair value or estimated future cash flows would have resulted in an impairment loss.loss of $7m.
Information on impairment testing of goodwill, which had a net book value of $80m$74m at 31 December 2013,2014, is included in note 12.
Pensions and other post-employment benefit plans – accounting for pensions and other post-employment benefit plans requires the Group to make assumptions including, but not limited to, discount rates, rates of inflation, life expectancies and healthcare costs. The use of different assumptions could have a material effect on the accounting values of the relevant liabilities which could result in a material change to the cost of such liabilities as recognised in the income statement over time. These assumptions are subject to annual review and are determined with the assistance of an external actuary. A sensitivity analysis to changes in the key assumptions is included in note 26.
On 15 August 2013, the UK defined benefit plan completed a buy-in transaction whereby the assets of the plan were invested in a bulk insurance annuity contract that fully insures the benefits payable to the members of the plan. As the contract has been structured to enable the plan to move to full buy-out (following which the insurance company would become directly responsible for the pension payments) and the intention is to proceed on this basis, the buy-in transaction has been accounted for as a settlement with the loss arising of $147m recorded in the income statement as an exceptional item. An acceptable alternative accounting treatment would have been to record the loss as an actuarial loss in other comprehensive income.
Income taxes – deferred tax assets are recognised to the extent that it is regarded as probable that deductible temporary differences can be realised. The Group estimates deferred tax assets and liabilities based on current tax laws and rates, and in certain cases, business plans, including management’s expectations regarding the manner and timing of recovery of the related assets. Changes in these estimates may affect the amount of deferred tax liabilities or the valuation of deferred tax assets and therefore the tax charge in the income statement.
Provisions for tax liabilities require judgements on the interpretation of tax legislation, developments in case law and the potential outcomes of tax audits and appeals which may be subject to significant uncertainty. Therefore the actual results may vary from expectations resulting in adjustments to provisions, the valuation of deferred tax assets, cash tax settlements, and therefore the tax charge in the income statement.
Exceptional tax charges and credits have arisenarose in 2013 2012 and 20112012 as explained in note 7.
Litigation – from time to time, the Group is subject to legal proceedings the ultimate outcome of each being always subject to many uncertainties inherent in litigation. A provision for litigation is made when it is considered probable that a payment will be made and the amount of the loss can be reasonably estimated. Significant judgmentjudgement is made when evaluating, amongst other factors, the probability of unfavourable outcome and the ability to make a reasonable estimate of the amount of potential loss. Litigation provisions are reviewed at each accounting period and revisions made for changes in facts and circumstances.
New standards issued but not effective
IFRS 9 ‘Financial Instruments: ClassificationThe new and Measurement’ introduces new requirements for classifying and measuring financial assets and financial liabilities and, when finalised, will address hedgeamended accounting and impairment of financial assets. The Group will assess the impacts when the final standard is issued. The effective date for IFRS 9 is notstandards discussed below are those which are expected to be beforerelevant to the Group’s financial statements.
From 1 January 2017.
The2015, the Group will apply the amendments to existing accounting standards that are effectivearising from the 2010-2012 and 2011-2013 annual improvements cycles.
From 1 January 2014, ‘Offsetting Financial Assets and Financial Liabilities’ (Amendments2016, the Group will apply Amendments to IAS 32)16 and ‘Recoverable Amount DisclosuresIAS 38 ‘Clarification of Acceptable Methods of Depreciation and Amortisation’ and Amendments to IFRS 11 ‘Accounting for Non-Financial Assets’ (Amendments to IAS 36),Acquisition of Interests in Joint Operations’.
The above amendments are not expected to have a material impact on the Group’s reported incomeperformance or financial position.
IFRS 15 ‘Revenue from Contracts with Customers’ introduces a new five-step approach to measuring and recognising revenue and is effective from 1 January 2017.
IFRS 9 ‘Financial Instruments’ was issued as a final standard in July 2014 and is effective from 1 January 2018. The standard introduces new requirements for classification and measurement of financial assets and financial liabilities, impairment and hedge accounting.
The Group is currently assessing the impacts of IFRS 15 and IFRS 9 and plans to adopt both standards on the required effective dates.
| 113 |
1. Exchange rates
The results of operations have been translated into US dollars at the average rates of exchange for the year. In the case of sterling, the translation rate is $1=£0.61 (2013 $1=£0.64, (20122012 $1=£0.63, 2011 $1=£0.62)0.63). In the case of the euro, the translation rate is $1=€0.75 (2012(2013 $1=€0.78, 20110.75, 2012 $1=€0.72)0.78).
Assets and liabilities have been translated into US dollars at the rates of exchange on the last day of the year. In the case of sterling, the translation rate is $1=£0.64 (2013 $1=£0.60, (20122012 $1=£0.62, 2011 $1=£0.65)0.62). In the case of the euro, the translation rate is $1=€0.73 (20120.82 (2013 $1=€0.76, 20110.73, 2012 $1=€0.77)0.76).
2. Segmental information
The management of the Group’s operations, excluding Central functions, is organised within four geographical regions:
These, together with Central functions, comprise the Group’s five reportable segments. No operating segments have been aggregated to form these reportable segments.
Central functions include costs of global functions including technology, sales and marketing, finance, human resources and corporate services; central revenue arises principally from technology fee income. Central liabilities include the loyalty programme liability and the cumulative short-term System Fund surplus.
Each of the geographical regions derives its revenues from either franchising, managing or owning hotels and additional segmental disclosures are provided accordingly.
Management monitors the operating results of the geographical regions and Central functions separately for the purpose of making decisions about resource allocation and performance assessment. Segmental performance is evaluated based on operating profit or loss and is measured consistently with operating profit or loss in the Consolidated Financial Statements, excluding exceptional items. Group financing activities and income taxes are managed on a group basis and are not allocated to reportable segments.
| Year ended 31 December 2013 | Americas $m | Europe $m | AMEA $m | Greater China $m | Central $m | Group $m | ||||||||||||||||||||||||||||||||||||||||||
| Year ended 31 December 2014 | Americas $m | Europe $m | AMEA $m | Greater China $m | Central $m | Group $m | ||||||||||||||||||||||||||||||||||||||||||
Revenue | ||||||||||||||||||||||||||||||||||||||||||||||||
| Franchised | 576 | 104 | 16 | 3 | – | 699 | 630 | 104 | 16 | 4 | – | 754 | ||||||||||||||||||||||||||||||||||||
| Managed | 128 | 156 | 170 | 92 | – | 546 | 103 | 159 | 187 | 99 | – | 548 | ||||||||||||||||||||||||||||||||||||
| Owned and leased | 212 | 140 | 44 | 141 | – | 537 | 138 | 111 | 39 | 139 | – | 427 | ||||||||||||||||||||||||||||||||||||
| Central | – | – | – | – | 121 | 121 | – | – | – | – | 129 | 129 | ||||||||||||||||||||||||||||||||||||
| 916 | 400 | 230 | 236 | 121 | 1,903 | 871 | 374 | 242 | 242 | 129 | 1,858 | |||||||||||||||||||||||||||||||||||||
Americas $m | Europe $m | AMEA $m | Greater China $m | Central $m | Group $m | Americas $m | Europe $m | AMEA $m | Greater China $m | Central $m | Group $m | |||||||||||||||||||||||||||||||||||||
Segmental result | ||||||||||||||||||||||||||||||||||||||||||||||||
| Franchised | 499 | 79 | 12 | 5 | – | 595 | 544 | 78 | 12 | 5 | – | 639 | ||||||||||||||||||||||||||||||||||||
| Managed | 74 | 30 | 92 | 51 | – | 247 | 47 | 30 | 88 | 63 | – | 228 | ||||||||||||||||||||||||||||||||||||
| Owned and leased | 30 | 30 | 4 | 47 | – | 111 | 18 | 14 | 3 | 42 | – | 77 | ||||||||||||||||||||||||||||||||||||
| Regional and central | (53 | ) | (34 | ) | (22 | ) | (21 | ) | (155 | ) | (285 | ) | (65 | ) | (33 | ) | (19 | ) | (21 | ) | (155 | ) | (293 | ) | ||||||||||||||||||||||||
| Reportable segments’ operating profit | 550 | 105 | 86 | 82 | (155 | ) | 668 | 544 | 89 | 84 | 89 | (155 | ) | 651 | ||||||||||||||||||||||||||||||||||
| Exceptional operating items (note 5) | 6 | 19 | – | (10 | ) | (10 | ) | 5 | 110 | (56 | ) | – | – | (25 | ) | 29 | ||||||||||||||||||||||||||||||||
| Operating profit | 556 | 124 | 86 | 72 | (165 | ) | 673 | 654 | 33 | 84 | 89 | (180 | ) | 680 | ||||||||||||||||||||||||||||||||||
Group $m | Group $m | |||||||||||||||||||||||||||||||||||||||||||||||
| Reportable segments’ operating profit | 668 | 651 | ||||||||||||||||||||||||||||||||||||||||||||||
| Exceptional operating items (note 5) | 5 | 29 | ||||||||||||||||||||||||||||||||||||||||||||||
Operating profit | 673 | 680 | ||||||||||||||||||||||||||||||||||||||||||||||
| Net finance costs | (73 | ) | (80 | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Profit before tax | 600 | 600 | ||||||||||||||||||||||||||||||||||||||||||||||
| Tax | (226 | ) | (208 | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Profit for the year | 374 | 392 | ||||||||||||||||||||||||||||||||||||||||||||||
All items above relate to continuing operations.
|
| 31 December 2014 | Americas $m | Europe $m | AMEA $m | Greater China $m | Central $m | Group $m | ||||||||||||||||||
| Assets and liabilities | ||||||||||||||||||||||||
| Segment assets | 919 | 316 | 244 | 394 | 346 | 2,219 | ||||||||||||||||||
| Assets classified as held for sale | – | 310 | – | – | – | 310 | ||||||||||||||||||
| 919 | 626 | 244 | 394 | 346 | 2,529 | |||||||||||||||||||
| Unallocated assets: | ||||||||||||||||||||||||
Non-current tax receivable | 34 | |||||||||||||||||||||||
Deferred tax assets | 87 | |||||||||||||||||||||||
Current tax receivable | 4 | |||||||||||||||||||||||
Derivative financial instruments | 2 | |||||||||||||||||||||||
Cash and cash equivalents | 162 | |||||||||||||||||||||||
| Total assets | 2,818 | |||||||||||||||||||||||
| Segment liabilities | (430 | ) | (199 | ) | (61 | ) | (66 | ) | (796 | ) | (1,552 | ) | ||||||||||||
| Liabilities classified as held for sale | – | (94 | ) | – | – | – | (94 | ) | ||||||||||||||||
| (430 | ) | (293 | ) | (61 | ) | (66 | ) | (796 | ) | (1,646 | ) | |||||||||||||
| Unallocated liabilities: | ||||||||||||||||||||||||
Current tax payable | (47 | ) | ||||||||||||||||||||||
Deferred tax liabilities | (147 | ) | ||||||||||||||||||||||
Loans and other borrowings | (1,695 | ) | ||||||||||||||||||||||
| Total liabilities | (3,535 | ) | ||||||||||||||||||||||
| Year ended 31 December 2014 | Americas $m | Europe $m | AMEA $m | Greater China $m | Central $m | Group $m | ||||||||||||||||||
| Other segmental information | ||||||||||||||||||||||||
| Capital expenditure (see below) | 75 | 37 | 11 | 6 | 123 | 252 | ||||||||||||||||||
| Non-cash items: | ||||||||||||||||||||||||
Depreciation and amortisation1 | 22 | 18 | 8 | 15 | 33 | 96 | ||||||||||||||||||
Share-based payments cost | – | – | – | – | 21 | 21 | ||||||||||||||||||
Share of losses/(profits) of associates and joint ventures | 6 | – | (2 | ) | – | – | 4 | |||||||||||||||||
1 Included in the $96m of depreciation and amortisation is $41m relating to administrative expenses and $55m relating to cost of sales. |
| |||||||||||||||||||||||
| Americas $m | Europe $m | AMEA $m | Greater China $m | Central $m | Group $m | |||||||||||||||||||
| Reconciliation of capital expenditure | ||||||||||||||||||||||||
| Capital expenditure per management reporting | 75 | 37 | 11 | 6 | 123 | 252 | ||||||||||||||||||
| Management contracts acquired on disposal of hotels | 50 | – | – | – | – | 50 | ||||||||||||||||||
| Capital contributions to associates | 15 | – | – | – | – | 15 | ||||||||||||||||||
| Other financial assets relating to deferred consideration on disposals | 27 | 25 | – | – | – | 52 | ||||||||||||||||||
| Timing differences | – | – | – | (1 | ) | – | (1 | ) | ||||||||||||||||
| Additions per the Financial Statements | 167 | 62 | 11 | 5 | 123 | 368 | ||||||||||||||||||
| Comprising additions to: | ||||||||||||||||||||||||
Property, plant and equipment | 45 | 12 | 2 | 5 | 15 | 79 | ||||||||||||||||||
Assets classified as held for sale | 1 | 3 | – | – | – | 4 | ||||||||||||||||||
Intangible assets | 78 | 22 | 5 | – | 108 | 213 | ||||||||||||||||||
Investment in associates and joint ventures | 15 | – | – | – | – | 15 | ||||||||||||||||||
Other financial assets | 28 | 25 | 4 | – | – | 57 | ||||||||||||||||||
| 167 | 62 | 11 | 5 | 123 | 368 | |||||||||||||||||||
2. Segmental informationcontinued
| 31 December 2013 | Americas $m | Europe $m | AMEA $m | Greater China $m | Central $m | Group $m | ||||||||||||||||||
Assets and liabilities | ||||||||||||||||||||||||
| Segment assets | 851 | 654 | 253 | 392 | 304 | 2,454 | ||||||||||||||||||
| Non-current assets classified as held for sale | 228 | – | – | – | – | 228 | ||||||||||||||||||
| 1,079 | 654 | 253 | 392 | 304 | 2,682 | |||||||||||||||||||
| Unallocated assets: | ||||||||||||||||||||||||
Non-current tax receivable | 16 | |||||||||||||||||||||||
Deferred tax assets | 108 | |||||||||||||||||||||||
Current tax receivable | 12 | |||||||||||||||||||||||
Derivative financial instruments | 1 | |||||||||||||||||||||||
Cash and cash equivalents | 134 | |||||||||||||||||||||||
| Total assets | 2,953 | |||||||||||||||||||||||
| Segment liabilities | (364 | ) | (286 | ) | (56 | ) | (62 | ) | (741 | ) | (1,509 | ) | ||||||||||||
| Unallocated liabilities: | ||||||||||||||||||||||||
Current tax payable | (47 | ) | ||||||||||||||||||||||
Deferred tax liabilities | (175 | ) | ||||||||||||||||||||||
Loans and other borrowings | (1,285 | ) | ||||||||||||||||||||||
Derivative financial instruments | (11 | ) | ||||||||||||||||||||||
| Total liabilities | (3,027 | ) | ||||||||||||||||||||||
| Year ended 31 December 2013 | Americas $m | Europe $m | AMEA $m | Greater China $m | Central $m | Group $m | ||||||||||||||||||
Other segmental information | ||||||||||||||||||||||||
| Capital expenditure (see below) | 116 | 37 | 17 | 8 | 91 | 269 | ||||||||||||||||||
| Non-cash items: | ||||||||||||||||||||||||
Depreciation and amortisation1 | 19 | 18 | 10 | 15 | 23 | 85 | ||||||||||||||||||
Share-based payments cost | – | – | – | – | 22 | 22 | ||||||||||||||||||
Share of profit of associates and joint ventures | 5 | – | 3 | – | – | 8 | ||||||||||||||||||
| 1 Included in the $85m of depreciation and amortisation is $34m relating to administrative expenses and $51m relating to cost of sales. | ||||||||||||||||||||||||
Americas $m | Europe $m | AMEA $m | Greater China $m | Central $m | Group $m | |||||||||||||||||||
Reconciliation of capital expenditure | ||||||||||||||||||||||||
| Capital expenditure per management reporting | 116 | 37 | 17 | 8 | 91 | 269 | ||||||||||||||||||
| Management contract acquired on disposal of hotel | – | 40 | – | – | – | 40 | ||||||||||||||||||
| Other financial assets relating to pensions | – | 48 | – | – | 92 | 140 | ||||||||||||||||||
| Timing differences | 8 | – | – | (1 | ) | 8 | 15 | |||||||||||||||||
| Capital expenditure per the Financial Statements | 124 | 125 | 17 | 7 | 191 | 464 | ||||||||||||||||||
| Comprising additions to: | ||||||||||||||||||||||||
Property, plant and equipment | 93 | 22 | 8 | 7 | 20 | 150 | ||||||||||||||||||
Non-current assets classified as held for sale | 5 | 3 | – | – | – | 8 | ||||||||||||||||||
Intangible assets | 6 | 45 | 5 | – | 79 | 135 | ||||||||||||||||||
Investment in associates and joint ventures | 6 | – | 4 | – | – | 10 | ||||||||||||||||||
Other financial assets | 14 | 55 | – | – | 92 | 161 | ||||||||||||||||||
| 124 | 125 | 17 | 7 | 191 | 464 | |||||||||||||||||||
| 115 |
Notes to the Group Financial Statementscontinued 2. Segmental informationcontinued |
2. Segmental informationcontinued
| Year ended 31 December 20121 | Americas $m | Europe $m | AMEA $m | Greater China $m | Central $m | Group $m | ||||||||||||||||||
Revenue | ||||||||||||||||||||||||
| Franchised | 541 | 91 | 18 | 3 | – | 653 | ||||||||||||||||||
| Managed | 97 | 147 | 152 | 89 | – | 485 | ||||||||||||||||||
| Owned and leased | 199 | 198 | 48 | 138 | – | 583 | ||||||||||||||||||
| Central | – | – | – | – | 114 | 114 | ||||||||||||||||||
| 837 | 436 | 218 | 230 | 114 | 1,835 | |||||||||||||||||||
| Americas $m | Europe $m | AMEA $m | Greater China $m | Central $m | Group $m | |||||||||||||||||||
Segmental result | ||||||||||||||||||||||||
| Franchised | 466 | 65 | 12 | 4 | – | 547 | ||||||||||||||||||
| Managed | 48 | 32 | 90 | 51 | – | 221 | ||||||||||||||||||
| Owned and leased | 24 | 50 | 6 | 45 | – | 125 | ||||||||||||||||||
| Regional and central | (52 | ) | (35 | ) | (20 | ) | (19 | ) | (162 | ) | (288 | ) | ||||||||||||
| Reportable segments’ operating profit | 486 | 112 | 88 | 81 | (162 | ) | 605 | |||||||||||||||||
| Exceptional operating items (note 5) | 23 | (4 | ) | (5 | ) | – | (18 | ) | (4 | ) | ||||||||||||||
| Operating profit | 509 | 108 | 83 | 81 | (180 | ) | 601 | |||||||||||||||||
| ||||
| ||||
| Year ended 31 December 2013 | Americas $m | Europe $m | AMEA $m | Greater China $m | Central $m | Group $m | ||||||||||||||||||
| Revenue | ||||||||||||||||||||||||
| Franchised | 576 | 104 | 16 | 3 | – | 699 | ||||||||||||||||||
| Managed | 128 | 156 | 170 | 92 | – | 546 | ||||||||||||||||||
| Owned and leased | 212 | 140 | 44 | 141 | – | 537 | ||||||||||||||||||
| Central | – | – | – | – | 121 | 121 | ||||||||||||||||||
| 916 | 400 | 230 | 236 | 121 | 1,903 | |||||||||||||||||||
| Americas $m | Europe $m | AMEA $m | Greater China $m | Central $m | Group $m | |||||||||||||||||||
| Segmental result | ||||||||||||||||||||||||
| Franchised | 499 | 79 | 12 | 5 | – | 595 | ||||||||||||||||||
| Managed | 74 | 30 | 92 | 51 | – | 247 | ||||||||||||||||||
| Owned and leased | 30 | 30 | 4 | 47 | – | 111 | ||||||||||||||||||
| Regional and central | (53 | ) | (34 | ) | (22 | ) | (21 | ) | (155 | ) | (285 | ) | ||||||||||||
| Reportable segments’ operating profit | 550 | 105 | 86 | 82 | (155 | ) | 668 | |||||||||||||||||
| Exceptional operating items (note 5) | 6 | 19 | – | (10 | ) | (10 | ) | 5 | ||||||||||||||||
| Operating profit | 556 | 124 | 86 | 72 | (165 | ) | 673 | |||||||||||||||||
| Group $m | ||||||||||||||||||||||||
| Reportable segments’ operating profit | 668 | |||||||||||||||||||||||
| Exceptional operating items (note 5) | 5 | |||||||||||||||||||||||
| Operating profit | 673 | |||||||||||||||||||||||
| Net finance costs | (73 | ) | ||||||||||||||||||||||
| Profit before tax | 600 | |||||||||||||||||||||||
| Tax | (226 | ) | ||||||||||||||||||||||
| Profit for the year | 374 | |||||||||||||||||||||||
All items above relate to continuing operations.
|
| 31 December 2013 | Americas $m | Europe $m | AMEA $m | Greater China $m | Central $m | Group (restated1) $m | ||||||||||||||||||
| Assets and liabilities | ||||||||||||||||||||||||
| Segment assets | 851 | 654 | 253 | 392 | 304 | 2,454 | ||||||||||||||||||
| Assets classified as held for sale | 228 | – | – | – | – | 228 | ||||||||||||||||||
| 1,079 | 654 | 253 | 392 | 304 | 2,682 | |||||||||||||||||||
| Unallocated assets: | ||||||||||||||||||||||||
Non-current tax receivable | 16 | |||||||||||||||||||||||
Deferred tax assets | 108 | |||||||||||||||||||||||
Current tax receivable | 12 | |||||||||||||||||||||||
Derivative financial instruments | 1 | |||||||||||||||||||||||
Cash and cash equivalents | 248 | |||||||||||||||||||||||
| Total assets | 3,067 | |||||||||||||||||||||||
| Segment liabilities | (364 | ) | (286 | ) | (56 | ) | (62 | ) | (741 | ) | (1,509 | ) | ||||||||||||
| Unallocated liabilities: | ||||||||||||||||||||||||
Current tax payable | (47 | ) | ||||||||||||||||||||||
Deferred tax liabilities | (175 | ) | ||||||||||||||||||||||
Loans and other borrowings | (1,399 | ) | ||||||||||||||||||||||
Derivative financial instruments | (11 | ) | ||||||||||||||||||||||
| Total liabilities | (3,141 | ) | ||||||||||||||||||||||
1 Restated for the adoption of ‘Offsetting Financial Assets and Financial Liabilities’ (Amendments to IAS 32), see page 107. |
| |||||||||||||||||||||||
| Year ended 31 December 2013 | Americas $m | Europe $m | AMEA $m | Greater China $m | Central $m | Group $m | ||||||||||||||||||
| Other segmental information | ||||||||||||||||||||||||
| Capital expenditure (see below) | 116 | 37 | 17 | 8 | 91 | 269 | ||||||||||||||||||
| Non-cash items: | ||||||||||||||||||||||||
Depreciation and amortisation1 | 19 | 18 | 10 | 15 | 23 | 85 | ||||||||||||||||||
Share-based payments cost | – | – | – | – | 22 | 22 | ||||||||||||||||||
Share of profits of associates and joint ventures | 5 | – | 3 | – | – | 8 | ||||||||||||||||||
1 Included in the $85m of depreciation and amortisation is $34m relating to administrative expenses and $51m relating to cost of sales. |
| |||||||||||||||||||||||
| Americas $m | Europe $m | AMEA $m | Greater China $m | Central $m | Group $m | |||||||||||||||||||
| Reconciliation of capital expenditure | ||||||||||||||||||||||||
| Capital expenditure per management reporting | 116 | 37 | 17 | 8 | 91 | 269 | ||||||||||||||||||
| Management contract acquired on disposal of hotel | – | 40 | – | – | – | 40 | ||||||||||||||||||
| Other financial assets relating to pensions | – | 48 | – | – | 92 | 140 | ||||||||||||||||||
| Timing differences | 8 | – | – | (1 | ) | 8 | 15 | |||||||||||||||||
| Additions per the Financial Statements | 124 | 125 | 17 | 7 | 191 | 464 | ||||||||||||||||||
| Comprising additions to: | ||||||||||||||||||||||||
Property, plant and equipment | 93 | 22 | 8 | 7 | 20 | 150 | ||||||||||||||||||
Assets classified as held for sale | 5 | 3 | – | – | – | 8 | ||||||||||||||||||
Intangible assets | 6 | 45 | 5 | – | 79 | 135 | ||||||||||||||||||
Investment in associates and joint ventures | 6 | – | 4 | – | – | 10 | ||||||||||||||||||
Other financial assets | 14 | 55 | – | – | 92 | 161 | ||||||||||||||||||
| 124 | 125 | 17 | 7 | 191 | 464 | |||||||||||||||||||
2. Segmental informationcontinued
| 31 December 2012 | Americas $m | Europe $m | AMEA $m | Greater China $m | Central $m | Group $m | ||||||||||||||||||
Assets and liabilities | ||||||||||||||||||||||||
| Segment assets | 725 | 626 | 282 | 390 | 250 | 2,273 | ||||||||||||||||||
| Non-current assets classified as held for sale | 232 | 302 | – | – | – | 534 | ||||||||||||||||||
| 957 | 928 | 282 | 390 | 250 | 2,807 | |||||||||||||||||||
| Unallocated assets: | ||||||||||||||||||||||||
Non-current tax receivable | 24 | |||||||||||||||||||||||
Deferred tax assets | 204 | |||||||||||||||||||||||
Current tax receivable | 31 | |||||||||||||||||||||||
Derivative financial instruments | 2 | |||||||||||||||||||||||
Cash and cash equivalents | 195 | |||||||||||||||||||||||
| Total assets | 3,263 | |||||||||||||||||||||||
| Segment liabilities | (403 | ) | (249 | ) | (58 | ) | (61 | ) | (690 | ) | (1,461 | ) | ||||||||||||
| Liabilities classified as held for sale | (61 | ) | – | – | – | – | (61 | ) | ||||||||||||||||
| (464 | ) | (249 | ) | (58 | ) | (61 | ) | (690 | ) | (1,522 | ) | |||||||||||||
| Unallocated liabilities: | ||||||||||||||||||||||||
Current tax payable | (54 | ) | ||||||||||||||||||||||
Deferred tax liabilities | (93 | ) | ||||||||||||||||||||||
Loans and other borrowings | (1,258 | ) | ||||||||||||||||||||||
Derivative financial instruments | (19 | ) | ||||||||||||||||||||||
| Total liabilities | (2,946 | ) | ||||||||||||||||||||||
| Year ended 31 December 2012 | Americas $m | Europe $m | AMEA $m | Greater China $m | Central $m | Group $m | ||||||||||||||||||
Other segmental information | ||||||||||||||||||||||||
| Capital expenditure (see below) | 25 | 19 | 6 | 7 | 76 | 133 | ||||||||||||||||||
| Non-cash items: | ||||||||||||||||||||||||
Depreciation and amortisation1 | 20 | 23 | 14 | 15 | 22 | 94 | ||||||||||||||||||
Reversal of previously recorded impairment | (23 | ) | – | – | – | – | (23 | ) | ||||||||||||||||
Write-off of software | – | – | – | – | 18 | 18 | ||||||||||||||||||
Demerger liability released | – | – | – | – | (9 | ) | (9 | ) | ||||||||||||||||
Share-based payments cost | – | – | – | – | 22 | 22 | ||||||||||||||||||
Share of profit of associates and joint ventures | – | – | (3 | ) | – | – | (3 | ) | ||||||||||||||||
| 1 Included in the $94m of depreciation and amortisation is $31m relating to administrative expenses and $63m relating to cost of sales. | ||||||||||||||||||||||||
Americas $m | Europe $m | AMEA $m | Greater China $m | Central $m | Group $m | |||||||||||||||||||
Reconciliation of capital expenditure | ||||||||||||||||||||||||
| Capital expenditure per management reporting | 25 | 19 | 6 | 7 | 76 | 133 | ||||||||||||||||||
| Timing differences | (1 | ) | – | – | 2 | – | 1 | |||||||||||||||||
| Capital expenditure per the Financial Statements | 24 | 19 | 6 | 9 | 76 | 134 | ||||||||||||||||||
| Comprising additions to: | ||||||||||||||||||||||||
Property, plant and equipment | 15 | 9 | 2 | 9 | 6 | 41 | ||||||||||||||||||
Non-current assets classified as held for sale | 5 | – | – | – | – | 5 | ||||||||||||||||||
Intangible assets | 2 | 8 | 4 | – | 70 | 84 | ||||||||||||||||||
Investment in associates and joint ventures | 2 | – | – | – | – | 2 | ||||||||||||||||||
Other financial assets | – | 2 | – | – | – | 2 | ||||||||||||||||||
| 24 | 19 | 6 | 9 | 76 | 134 | |||||||||||||||||||
| 117 |
Notes to the Group Financial Statementscontinued 2. Segmental informationcontinued |
2. Segmental informationcontinued
| Year ended 31 December 20111 | Americas $m | Europe $m | AMEA $m | Greater China $m | Central $m | Group $m | ||||||||||||||||||
Revenue | ||||||||||||||||||||||||
| Franchised | 502 | 86 | 19 | 2 | – | 609 | ||||||||||||||||||
| Managed | 124 | 118 | 151 | 77 | – | 470 | ||||||||||||||||||
| Owned and leased | 204 | 201 | 46 | 126 | – | 577 | ||||||||||||||||||
| Central | – | – | – | – | 112 | 112 | ||||||||||||||||||
| 830 | 405 | 216 | 205 | 112 | 1,768 | |||||||||||||||||||
Americas $m | Europe $m | AMEA $m | Greater China $m | Central $m | Group $m | |||||||||||||||||||
Segmental result | ||||||||||||||||||||||||
| Franchised | 431 | 65 | 12 | 3 | – | 511 | ||||||||||||||||||
| Managed | 52 | 26 | 87 | 43 | – | 208 | ||||||||||||||||||
| Owned and leased | 17 | 49 | 5 | 37 | – | 108 | ||||||||||||||||||
| Regional and central | (49 | ) | (40 | ) | (20 | ) | (16 | ) | (154 | ) | (279 | ) | ||||||||||||
| Reportable segments’ operating profit | 451 | 100 | 84 | 67 | (154 | ) | 548 | |||||||||||||||||
| Exceptional operating items (note 5) | 35 | (39 | ) | 26 | – | 35 | 57 | |||||||||||||||||
| Operating profit | 486 | 61 | 110 | 67 | (119 | ) | 605 | |||||||||||||||||
Group $m | ||||||||||||||||||||||||
| Reportable segments’ operating profit | 548 | |||||||||||||||||||||||
| Exceptional operating items (note 5) | 57 | |||||||||||||||||||||||
Operating profit | 605 | |||||||||||||||||||||||
| Net finance costs | (62 | ) | ||||||||||||||||||||||
| Profit before tax | 543 | |||||||||||||||||||||||
| Tax | (78 | ) | ||||||||||||||||||||||
| Profit for the year | 465 | |||||||||||||||||||||||
| All items above relate to continuing operations. | ||||||||||||||||||||||||
| Year ended 31 December 2011 | Americas $m | Europe $m | AMEA $m | Greater China $m | Central $m | Group $m | ||||||||||||||||||
Other segmental information | ||||||||||||||||||||||||
| Capital expenditure | 84 | 15 | 14 | 8 | 72 | 193 | ||||||||||||||||||
| Non-cash items: | ||||||||||||||||||||||||
Depreciation and amortisation2 | 23 | 24 | 16 | 16 | 20 | 99 | ||||||||||||||||||
Impairment losses | – | 2 | 3 | – | – | 5 | ||||||||||||||||||
Reversal of previously recorded impairment | (25 | ) | – | – | – | – | (25 | ) | ||||||||||||||||
Share-based payments cost | – | – | – | – | 25 | 25 | ||||||||||||||||||
Share of profit of associates and joint ventures | – | – | (1 | ) | – | – | (1 | ) | ||||||||||||||||
| Year ended 31 December 2012 | Americas $m | Europe $m | AMEA $m | Greater China $m | Central $m | Group $m | ||||||||||||||||||
| Revenue | ||||||||||||||||||||||||
| Franchised | 541 | 91 | 18 | 3 | – | 653 | ||||||||||||||||||
| Managed | 97 | 147 | 152 | 89 | – | 485 | ||||||||||||||||||
| Owned and leased | 199 | 198 | 48 | 138 | – | 583 | ||||||||||||||||||
| Central | – | – | – | – | 114 | 114 | ||||||||||||||||||
| 837 | 436 | 218 | 230 | 114 | 1,835 | |||||||||||||||||||
| Americas $m | Europe $m | AMEA $m | Greater China $m | Central $m | Group $m | |||||||||||||||||||
| Segmental result | ||||||||||||||||||||||||
| Franchised | 466 | 65 | 12 | 4 | – | 547 | ||||||||||||||||||
| Managed | 48 | 32 | 90 | 51 | – | 221 | ||||||||||||||||||
| Owned and leased | 24 | 50 | 6 | 45 | – | 125 | ||||||||||||||||||
| Regional and central | (52 | ) | (35 | ) | (20 | ) | (19 | ) | (162 | ) | (288 | ) | ||||||||||||
| Reportable segments’ operating profit | 486 | 112 | 88 | 81 | (162 | ) | 605 | |||||||||||||||||
| Exceptional operating items (note 5) | 23 | (4 | ) | (5 | ) | – | (18 | ) | (4 | ) | ||||||||||||||
| Operating profit | 509 | 108 | 83 | 81 | (180 | ) | 601 | |||||||||||||||||
| Group $m | ||||||||||||||||||||||||
| Reportable segments’ operating profit | 605 | |||||||||||||||||||||||
| Exceptional operating items (note 5) | (4 | ) | ||||||||||||||||||||||
| Operating profit | 601 | |||||||||||||||||||||||
| Net finance costs | (54 | ) | ||||||||||||||||||||||
| Profit before tax | 547 | |||||||||||||||||||||||
| Tax | (9 | ) | ||||||||||||||||||||||
| Profit for the year | 538 | |||||||||||||||||||||||
| All items above relate to continuing operations. | ||||||||||||||||||||||||
| Year ended 31 December 2012 | Americas $m | Europe $m | AMEA $m | Greater China $m | Central $m | Group $m | ||||||||||||||||||
| Other segmental information | ||||||||||||||||||||||||
| Capital expenditure | 25 | 19 | 6 | 7 | 76 | 133 | ||||||||||||||||||
| Non-cash items: | ||||||||||||||||||||||||
Depreciation and amortisation1 | 20 | 23 | 14 | 15 | 22 | 94 | ||||||||||||||||||
Reversal of previously recorded impairment | (23 | ) | – | – | – | – | (23 | ) | ||||||||||||||||
Write-off of software | – | – | – | – | 18 | 18 | ||||||||||||||||||
Demerger liability released | – | – | – | – | (9 | ) | (9 | ) | ||||||||||||||||
Share-based payments cost | – | – | – | – | 22 | 22 | ||||||||||||||||||
Share of profits of associates and joint ventures | – | – | (3 | ) | – | – | (3 | ) | ||||||||||||||||
| 1 |
| Included in the |
|
2. Segmental informationcontinued
| Geographical information | Year ended 31 December 2013 $m | Year ended 31 December 2012 $m | Year ended 31 December 2011 $m | |||||||||
Revenue | ||||||||||||
| United Kingdom | 90 | 152 | 139 | |||||||||
| United States | 843 | 769 | 740 | |||||||||
| People’s Republic of China (including Hong Kong) | 247 | 238 | 210 | |||||||||
| Rest of World | 723 | 676 | 679 | |||||||||
| 1,903 | 1,835 | 1,768 | ||||||||||
| Geographical information | Year ended $m | Year ended $m | Year ended $m | |||||||||
| Revenue | ||||||||||||
| United Kingdom | 75 | 90 | 152 | |||||||||
| United States | 786 | 843 | 769 | |||||||||
| People’s Republic of China (including Hong Kong) | 254 | 247 | 238 | |||||||||
| Rest of World | 743 | 723 | 676 | |||||||||
| 1,858 | 1,903 | 1,835 | ||||||||||
For the purposes of the above table, hotel revenue is determined according to the location of the hotel and other revenue is attributed to the country of origin. In addition to the United Kingdom, revenue relating to an individual country is separately disclosed when it represents 10% or more of total revenue.
31 December 2013 $m | 31 December 2012 $m | 31 December 2011 $m | 31 December $m | 31 December $m | ||||||||||||||||
Non-current assets | ||||||||||||||||||||
| United Kingdom | 131 | 78 | 361 | 136 | 131 | |||||||||||||||
| United States | 705 | 590 | 559 | 811 | 705 | |||||||||||||||
| France | 342 | 329 | 328 | – | 342 | |||||||||||||||
| People’s Republic of China (including Hong Kong) | 326 | 333 | 331 | 318 | 326 | |||||||||||||||
| Rest of World | 268 | 257 | 270 | 238 | 268 | |||||||||||||||
| 1,772 | 1,587 | 1,849 | 1,503 | 1,772 | ||||||||||||||||
For the purposes of the above table, non-current assets comprise property, plant and equipment, goodwill, intangible assets, and investments in associates and joint ventures.ventures and trade and other receivables. In addition to the United Kingdom, non-current assets relating to an individual country are separately disclosed when they represent 10% or more of total non-current assets, as defined above.
| 119 |
Notes to the Group Financial Statementscontinued |
3. Staff costs and Directors’ emoluments
2013 $m | 2012 (restated2) $m | 2011 (restated2) $m | 2014 $m | 2013 $m | 2012 $m | |||||||||||||||||||
Staff | ||||||||||||||||||||||||
| Costs: | ||||||||||||||||||||||||
Wages and salaries | 580 | 547 | 550 | 577 | 580 | 547 | ||||||||||||||||||
Social security costs | 41 | 44 | 43 | 42 | 41 | 44 | ||||||||||||||||||
Pension and other post-retirement benefits: | ||||||||||||||||||||||||
Defined benefit plans1(note 26) | 10 | 13 | 19 | |||||||||||||||||||||
Defined benefit plans1(note 25) | 10 | 10 | 13 | |||||||||||||||||||||
Defined contribution plans | 25 | 22 | 22 | 28 | 25 | 22 | ||||||||||||||||||
| 656 | 626 | 634 | 657 | 656 | 626 | |||||||||||||||||||
1 Before exceptional items. 2 Restated for the adoption of IAS I9R ‘Employee Benefits’ (see page 111). | ||||||||||||||||||||||||
1 Before exceptional items.
| ||||||||||||||||||||||||
| 2013 | 2012 | 2011 | 2014 | 2013 | 2012 | |||||||||||||||||||
| Average number of employees, including part-time employees: | ||||||||||||||||||||||||
Americas | 2,548 | 2,552 | 2,895 | 2,191 | 2,548 | 2,552 | ||||||||||||||||||
Europe | 1,602 | 1,866 | 1,574 | 1,557 | 1,602 | 1,866 | ||||||||||||||||||
Asia, Middle East and Africa | 1,545 | 1,195 | 1,195 | 1,451 | 1,545 | 1,195 | ||||||||||||||||||
Greater China | 1,083 | 1,051 | 1,000 | 1,092 | 1,083 | 1,051 | ||||||||||||||||||
Central | 1,401 | 1,317 | 1,292 | 1,506 | 1,401 | 1,317 | ||||||||||||||||||
| 8,179 | 7,981 | 7,956 | 7,797 | 8,179 | 7,981 | |||||||||||||||||||
The costs of the above employees are borne by IHG. Of these, 94%92% were employed on a full-time basis and 6%8% 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 34.32. In line with IHG’s business model, IHG also employs 602 (2013 578, (2012 587, 2011 577)2012 587) General Managers who work in the managed hotels and whose total costs of $142m (2013 $135m, (2012 $132m, 2011 $125m)2012 $132m) are borne by those hotels and, in the US predominantly, there are 12,588 (2012 12,494, 2011 14,596)11,848 (2013 10,834, 2012 11,053) other hotel workers in the managed hotels who have contracts or letters of service with IHG whose total costs of $376m (2012 $430m, 2011 $448m)$449m (2013 $383m, 2012 $437m) are borne by those hotels.
2013 $m | 2012 $m | 2011 $m | 2014 $m | 2013 $m | 2012 $m | |||||||||||||||||||
Directors’ emoluments | ||||||||||||||||||||||||
| Base salaries, fees, performance payments and benefits | 8.5 | 9.7 | 8.3 | |||||||||||||||||||||
| Base salaries, fees, performance payments and benefits¹ | 9.0 | 8.5 | 9.7 | |||||||||||||||||||||
| Pension benefits under defined contribution plans | 0.4 | 0.2 | 0.2 | 0.2 | 0.4 | 0.2 | ||||||||||||||||||
¹ Excludes ICETUS cash-out payment of £9.4m (see Directors’ Remuneration Report, page 85).
More detailed information on the emoluments, pensions, option holdings and shareholdings for each Director is shown in the Directors’ Remuneration Report on pages 7476 to 97.91.
4. Auditor’s remuneration paid to Ernst & Young LLP
2013 $m | 2012 $m | 2011 $m | 2014 $m | 2013 $m | 2012 $m | |||||||||||||||||||
| Audit of the Financial Statements | 2.0 | 2.8 | 1.9 | 2.4 | 2.0 | 2.8 | ||||||||||||||||||
| Audit of subsidiaries | 1.4 | 1.5 | 1.5 | 2.0 | 1.4 | 1.5 | ||||||||||||||||||
| Audit-related assurance services | 0.5 | 1.0 | 0.8 | 0.2 | 0.5 | 1.0 | ||||||||||||||||||
| Other assurance services | 1.2 | 1.4 | 1.2 | 0.9 | 1.2 | 1.4 | ||||||||||||||||||
| Tax compliance | 0.2 | 0.3 | 0.2 | 0.2 | 0.2 | 0.3 | ||||||||||||||||||
| Tax advisory | 0.4 | 0.2 | 0.5 | 0.3 | 0.4 | 0.2 | ||||||||||||||||||
| Other non-audit services not covered by the above | 0.1 | – | 0.1 | 0.1 | 0.1 | – | ||||||||||||||||||
| 5.8 | 7.2 | 6.2 | 6.1 | 5.8 | 7.2 | |||||||||||||||||||
Audit fees in respect of the pension scheme were not material.
|
5. Exceptional items
| Note | 2013 $m | 2012 $m | 20111 $m | |||||||||||||
Exceptional operating items | ||||||||||||||||
| Administrative expenses: | ||||||||||||||||
Litigation | a | (10 | ) | – | – | |||||||||||
Loyalty programme rebranding costs | b | (10 | ) | – | – | |||||||||||
Pension settlement loss | c | (147 | ) | – | – | |||||||||||
Reorganisation costs | d | – | (16 | ) | – | |||||||||||
Resolution of commercial dispute | e | – | – | (37 | ) | |||||||||||
Pension past service gain | f | – | – | 28 | ||||||||||||
| (167 | ) | (16 | ) | (9 | ) | |||||||||||
Share of profits of associates and joint ventures: | ||||||||||||||||
Share of gain on disposal of a hotel (note 14) | 6 | – | – | |||||||||||||
| Other operating income and expenses: | ||||||||||||||||
Gain/(loss) on disposal of hotels (note 11) | 166 | (2 | ) | 37 | ||||||||||||
Write-off of software (note 13) | – | (18 | ) | – | ||||||||||||
Demerger liability released | g | – | 9 | – | ||||||||||||
VAT refund | h | – | – | 9 | ||||||||||||
| 166 | (11 | ) | 46 | |||||||||||||
| Impairment: | ||||||||||||||||
Impairment charges: | ||||||||||||||||
Property, plant and equipment | i | – | – | (2 | ) | |||||||||||
Other financial assets | j | – | – | (3 | ) | |||||||||||
Reversals of previously recorded impairment: | ||||||||||||||||
Property, plant and equipment | k | – | 23 | 23 | ||||||||||||
Associates | l | – | – | 2 | ||||||||||||
| – | 23 | 20 | ||||||||||||||
| 5 | (4 | ) | 57 | |||||||||||||
Tax | ||||||||||||||||
| Tax on exceptional operating items | (6 | ) | 1 | (4 | ) | |||||||||||
| Exceptional tax | m | (45 | ) | 141 | 43 | |||||||||||
| (51 | ) | 142 | 39 | |||||||||||||
| Note | 2014 $m | 2013 $m | 2012 $m | |||||||||||||
| Exceptional operating items | ||||||||||||||||
| Administrative expenses: | ||||||||||||||||
Venezuelan currency loss | a | (14 | ) | – | – | |||||||||||
Pension settlement cost | b | (6 | ) | (147 | ) | – | ||||||||||
Reorganisation costs | c | (29 | ) | – | (16 | ) | ||||||||||
UK portfolio restructuring | d | (45 | ) | – | – | |||||||||||
Kimpton acquisition costs | e | (7 | ) | – | – | |||||||||||
Litigation | f | – | (10 | ) | – | |||||||||||
Loyalty programme rebranding costs | g | – | (10 | ) | – | |||||||||||
| (101 | ) | (167 | ) | (16 | ) | |||||||||||
| Share of profits of associates and joint ventures: | ||||||||||||||||
Share of gain on disposal of a hotel (note 14) | – | 6 | – | |||||||||||||
| Other operating income and expenses: | ||||||||||||||||
Gain/(loss) on disposal of hotels (note 11) | 130 | 166 | (2 | ) | ||||||||||||
Write-off of software | h | – | – | (18 | ) | |||||||||||
Demerger liability released | i | – | – | 9 | ||||||||||||
| 130 | 166 | (11 | ) | |||||||||||||
| Reversals of previously recorded impairment: | ||||||||||||||||
Property, plant and equipment | j | – | – | 23 | ||||||||||||
| – | – | 23 | ||||||||||||||
| 29 | 5 | (4 | ) | |||||||||||||
| Tax | ||||||||||||||||
| Tax on exceptional operating items | k | (29 | ) | (6 | ) | 1 | ||||||||||
| Exceptional tax | l | – | (45 | ) | 141 | |||||||||||
| (29 | ) | (51 | ) | 142 | ||||||||||||
All items above relate to continuing operations.
The above items are treated as exceptional by reason of their size or nature.nature, as further described on page 112.
| a | Relates to the introduction of the SICAD II exchange rate on 24 March 2014 and its adoption by the Group. Of the three exchange rate mechanisms that currently exist in Venezuela, SICAD II is the most accessible to the Group for converting its bolivar earnings into US dollars. The exceptional loss arises from the one-off re-measurement of the Group’s bolivar assets and liabilities from the ‘official’ exchange rate ($1=6.3 VEF) to the SICAD II exchange rate (approximately $1=50 VEF). The Group has used the SICAD II exchange rate for translating the results of its Venezuelan operations since 1 April 2014. |
| b | In 2014, results from a partial cash-out of the UK unfunded pension arrangements and, in 2013, resulted from a buy-in (and subsequent buy-out in 2014) of the Group’s UK funded defined benefit obligations with the insurer, Rothesay Life. See note 25 for further details. |
| c | In 2014, relates primarily to costs incurred in introducing a new HR operating model across the business to provide enhanced management information and more efficient processes, and to implement more efficient processes and procedures in the Group’s Global Technology infrastructure to help mitigate future cost increases. In 2012, arose from a reorganisation of the Group’s support functions together with a restructuring within the AMEA region. |
| d | Relates to the costs of securing a restructuring of the UK hotel portfolio which will result in the transfer of 61 managed hotels to franchise contracts. |
| e | Relates to acquisition transaction costs incurred in the period to 31 December 2014 on the acquisition of Kimpton, which completed on 16 January 2015 (see note 33). |
| f | Related to an agreed settlement in respect of a lawsuit filed against the Group in the Greater China region. |
| Resulted from a release of a liability no longer required which arose on the demerger of the Group from Six Continents PLC. |
| j |
| In 2012, a previously recorded impairment charge relating to a North American hotel was reversed in full following a re-assessment of its recoverable amount, based on the market value of the hotel as determined by an independent professional property valuer. |
| k | In 2014, the |
| l |
| In 2013, |
| 121 |
Notes to the Group Financial Statementscontinued |
6. Finance costs
2013 $m | 2012 $m | 2011 $m | 2014 $m | 2013 $m | 2012 $m | |||||||||||||||||||
Financial income | ||||||||||||||||||||||||
| Interest income on deposits | 4 | 2 | 1 | 2 | 4 | 2 | ||||||||||||||||||
| Unwinding of discount on other financial assets | 1 | 1 | 1 | 1 | 1 | 1 | ||||||||||||||||||
| 5 | 3 | 2 | 3 | 5 | 3 | |||||||||||||||||||
Financial expenses | ||||||||||||||||||||||||
| Interest expense on borrowings | 59 | 37 | 42 | 66 | 59 | 37 | ||||||||||||||||||
| Interest rate swaps fair value transferred from equity | – | 1 | 4 | – | – | 1 | ||||||||||||||||||
| Finance charge payable under finance leases | 19 | 19 | 18 | 19 | 19 | 19 | ||||||||||||||||||
| Capitalised interest | (2 | ) | – | – | ||||||||||||||||||||
| 78 | 57 | 64 | 83 | 78 | 57 | |||||||||||||||||||
Interest income and expense relate to financial assets and liabilities held at amortised cost, calculated using the effective interest rate method.
Included within interest expense is $2m (2012(2013 $2m, 2011 $1m)2012 $2m) payable to the IHG Rewards Club loyalty programme relating to interest on the accumulated balance of cash received in advance of the redemption of points awarded.
The rate used for capitalisation of interest was 4.4%.
7. Tax
| Note | 2013 $m | 2012 (restated1) $m | 20112 (restated1) $m | |||||||||||||
Income tax | ||||||||||||||||
| UK corporation tax at 23.25% (2012 24.50%, 2011 26.50%): | ||||||||||||||||
Current period | 62 | 21 | 28 | |||||||||||||
Benefit of tax reliefs on which no deferred tax previously recognised | a | (49 | ) | – | – | |||||||||||
Adjustments in respect of prior periods | b | – | (34 | ) | (25 | ) | ||||||||||
| 13 | (13 | ) | 3 | |||||||||||||
| Foreign tax: | c | |||||||||||||||
Current period | 184 | 170 | 98 | |||||||||||||
Benefit of tax reliefs on which no deferred tax previously recognised | (42 | ) | (31 | ) | (16 | ) | ||||||||||
Adjustments in respect of prior periods | b | (17 | ) | (27 | ) | (65 | ) | |||||||||
| 125 | 112 | 17 | ||||||||||||||
Total current tax | 138 | 99 | 20 | |||||||||||||
| Deferred tax: | ||||||||||||||||
Origination and reversal of temporary differences | 122 | 7 | 81 | |||||||||||||
Changes in tax rates | (1 | ) | (2 | ) | (2 | ) | ||||||||||
Adjustments to estimated recoverable deferred tax assets | (39 | ) | (105 | ) | (12 | ) | ||||||||||
Adjustments in respect of prior periods | 6 | 10 | (9 | ) | ||||||||||||
Total deferred tax | 88 | (90 | ) | 58 | ||||||||||||
| Total income tax charge for the year | 226 | 9 | 78 | |||||||||||||
| Further analysed as tax relating to: | ||||||||||||||||
Profit before exceptional items | 175 | 151 | 117 | |||||||||||||
Exceptional items (note 5): | ||||||||||||||||
Exceptional operating items | 6 | (1 | ) | 4 | ||||||||||||
Exceptional tax | d | 45 | (141 | ) | (43 | ) | ||||||||||
| 226 | 9 | 78 | ||||||||||||||
| Tax on profit | Note | 2014 $m | 2013 $m | 2012 $m | ||||||||||||
| Income tax | ||||||||||||||||
| UK corporation tax at 21.50% (2013 23.25%, 2012 24.50%): | ||||||||||||||||
Current period | 5 | 62 | 21 | |||||||||||||
Benefit of tax reliefs on which no deferred tax previously recognised | a | – | (49 | ) | – | |||||||||||
Adjustments in respect of prior periods | b | 2 | – | (34 | ) | |||||||||||
| 7 | 13 | (13 | ) | |||||||||||||
| Foreign tax: | c | |||||||||||||||
Current period | 156 | 184 | 170 | |||||||||||||
Benefit of tax reliefs on which no deferred tax previously recognised | (2 | ) | (42 | ) | (31 | ) | ||||||||||
Adjustments in respect of prior periods | b | (26 | ) | (17 | ) | (27 | ) | |||||||||
| 128 | 125 | 112 | ||||||||||||||
| Total current tax | 135 | 138 | 99 | |||||||||||||
| Deferred tax: | ||||||||||||||||
Origination and reversal of temporary differences | 68 | 122 | 7 | |||||||||||||
Changes in tax rates | 2 | (1 | ) | (2 | ) | |||||||||||
Adjustments to estimated recoverable deferred tax assets | 1 | (39 | ) | (105 | ) | |||||||||||
Adjustments in respect of prior periods | 2 | 6 | 10 | |||||||||||||
| Total deferred tax | 73 | 88 | (90 | ) | ||||||||||||
| Total income tax charge for the year | 208 | 226 | 9 | |||||||||||||
| Further analysed as tax relating to: | ||||||||||||||||
Profit before exceptional items | 179 | 175 | 151 | |||||||||||||
Exceptional items: | ||||||||||||||||
Exceptional operating items (note 5) | 29 | 6 | (1 | ) | ||||||||||||
Exceptional tax (note 5) | – | 45 | (141 | ) | ||||||||||||
| 208 | 226 | 9 | ||||||||||||||
All items above relate to continuing operations.
| a |
| b | In 2012, included $37m |
| c | Represents corporate income taxes on profit taxable in foreign jurisdictions, a significant proportion of which relates to the Group’s US subsidiaries. |
|
| Total1 | Before exceptional items2 | |||||||||||||||||||||||
| 2014 % | 2013 % | 2012 % | 2014 % | 2013 % | 2012 % | |||||||||||||||||||
| Reconciliation of tax charge, including gain on disposal of assets | ||||||||||||||||||||||||
| UK corporation tax at standard rate | 21.5 | 23.3 | 24.5 | 21.5 | 23.3 | 24.5 | ||||||||||||||||||
| Non-deductible expenditure and non-taxable income | 4.9 | 16.6 | 2.0 | 1.0 | 1.9 | 1.0 | ||||||||||||||||||
| Non-recoverable withholding taxes | 0.4 | 1.2 | 2.0 | 0.4 | 1.2 | 2.0 | ||||||||||||||||||
| Net effect of different rates of tax in overseas businesses | 11.5 | 11.6 | 7.7 | 12.8 | 11.9 | 7.8 | ||||||||||||||||||
| Effect of changes in tax rates | 0.3 | (0.1 | ) | (0.3 | ) | 0.1 | (0.1 | ) | (0.1 | ) | ||||||||||||||
| Benefit of tax reliefs on which no deferred tax previously recognised | (0.4 | ) | (15.0 | ) | (5.6 | ) | (0.3 | ) | (1.1 | ) | (5.6 | ) | ||||||||||||
| Effect of adjustments to estimated recoverable deferred tax assets | 0.2 | (6.4 | ) | (19.4 | ) | (0.2 | ) | (4.9 | ) | (0.2 | ) | |||||||||||||
| Adjustment to tax charge in respect of prior periods | (3.7 | ) | (2.2 | ) | (9.8 | ) | (3.9 | ) | (2.1 | ) | (2.5 | ) | ||||||||||||
| Deferred tax provision on unremitted earnings | – | 10.5 | – | – | – | – | ||||||||||||||||||
| Other | – | (1.8 | ) | 0.4 | – | (0.6 | ) | 0.5 | ||||||||||||||||
| 34.7 | 37.7 | 1.5 | 31.4 | 29.5 | 27.4 | |||||||||||||||||||
| 1 | Calculated in relation to |
| total profits including exceptional items. |
7. Taxcontinued
| Total2 | Before exceptional items4 | |||||||||||||||||||||||
2013 % | 2012 (restated1) % | 20113 (restated1) % | 2013 % | 2012 (restated1) % | 2011 (restated1) % | |||||||||||||||||||
| Reconciliation of tax charge, including gain on disposal of assets | ||||||||||||||||||||||||
| UK corporation tax at standard rate | 23.3 | 24.5 | 26.5 | 23.3 | 24.5 | 26.5 | ||||||||||||||||||
| Non-deductible expenditure and non-taxable income | 16.6 | 2.0 | 1.9 | 1.9 | 1.0 | 2.7 | ||||||||||||||||||
| Non-recoverable withholding taxes | 1.2 | 2.0 | 4.5 | 1.2 | 2.0 | 5.1 | ||||||||||||||||||
| Net effect of different rates of tax in overseas businesses | 11.6 | 7.7 | 4.5 | 11.9 | 7.8 | 4.9 | ||||||||||||||||||
| Effect of changes in tax rates | (0.1 | ) | (0.3 | ) | (0.5 | ) | (0.1 | ) | (0.1 | ) | (0.4 | ) | ||||||||||||
| Benefit of tax reliefs on which no deferred tax previously recognised | (15.0 | ) | (5.6 | ) | (2.9 | ) | (1.1 | ) | (5.6 | ) | (3.3 | ) | ||||||||||||
| Effect of adjustments to estimated recoverable deferred tax assets | (6.4 | ) | (19.4 | ) | (2.2 | ) | (4.9 | ) | (0.2 | ) | (0.3 | ) | ||||||||||||
| Adjustment to tax charge in respect of prior periods | (2.2 | ) | (9.8 | ) | (18.4 | ) | (2.1 | ) | (2.5 | ) | (12.4 | ) | ||||||||||||
| Deferred tax provision on unremitted earnings | 10.5 | – | – | – | – | – | ||||||||||||||||||
| Other | (1.8 | ) | 0.4 | 0.8 | (0.6 | ) | 0.5 | 1.2 | ||||||||||||||||
| 37.7 | 1.5 | 14.2 | 29.5 | 27.4 | 24.0 | |||||||||||||||||||
| 2 | Calculated in relation to profits excluding exceptional items. |
Tax paid
Total net tax paid during the year of $136m (2013 $97m, (2012 $122m, 2011 $90m)2012 $122m) comprises $136m (2013 $92m, (2012 $119m, 2011 $89m)2012 $119m) paid in respect of operating activities and $nil (2013 $5m, (2012 $3m, 2011 $1m)2012 $3m) paid in respect of investing activities.
Tax paid represents an effective rate of 23% (2013 16% (20121 22%, 20111 16%2012 22%) on total profits and is lower than the effective income statement tax rate of 31% (2013 29% (2012 27%, 2011 24%2012 27%) primarily due to the impact of deferred taxes (including the realisation of assets such as tax losses), the receipt of refunds in respect of prior years and provisions for tax for which no payment of tax has currently been made.
Corporation tax liabilities did not arise in 20132014 in the UK and are not expected to arise for a number of years thereafter due to expenses and associated tax losses attributable principally to employment matters, in particular additional shortfall contributions made to the UK pension plan in the years 2007 to 2013.
Deferred tax
Property, plant and equipment $m | Deferred gains on loan notes $m | Deferred gains on investments $m | Losses $m | Employee benefits $m | Intangible assets $m | Undistributed earnings of subsidiaries $m | Other short-term temporary differences1 $m | Total $m | ||||||||||||||||||||||||||||
| At 1 January 2013 | 236 | 114 | – | (215 | ) | (63 | ) | 33 | – | (155 | ) | (50 | ) | |||||||||||||||||||||||
| Income statement | 1 | (8 | ) | – | 20 | 2 | 2 | 63 | 8 | 88 | ||||||||||||||||||||||||||
| Statement of comprehensive income | – | – | – | – | 24 | – | – | – | 24 | |||||||||||||||||||||||||||
| Statement of changes in equity | – | – | – | – | – | – | – | 4 | 4 | |||||||||||||||||||||||||||
| Exchange and other adjustments | 3 | 1 | – | 9 | – | (1 | ) | 3 | (14 | ) | 1 | |||||||||||||||||||||||||
| At 31 December 2013 | 240 | 107 | – | (186 | ) | (37 | ) | 34 | 66 | (157 | ) | 67 | ||||||||||||||||||||||||
| Income statement | (55 | ) | – | 108 | 17 | 3 | 22 | (19 | ) | (3 | ) | 73 | ||||||||||||||||||||||||
| Statement of comprehensive income | – | – | – | – | (8 | ) | – | – | 1 | (7 | ) | |||||||||||||||||||||||||
| Statement of changes in equity | – | – | – | – | – | – | – | (3 | ) | (3 | ) | |||||||||||||||||||||||||
| Exchange and other adjustments | (11 | ) | (2 | ) | – | 15 | 1 | (4 | ) | (3 | ) | – | (4 | ) | ||||||||||||||||||||||
| At 31 December 2014 | 174 | 105 | 108 | (154 | ) | (41 | ) | 52 | 44 | (162 | ) | 126 | ||||||||||||||||||||||||
1 Primarily relates to provisions, accruals, amortisation and share-based payments. |
| |||||||||||||||||||||||||||||||||||
2014 $m | 2013 $m | |||||||||||||||||||||||||||||||||||
| Analysed as: | ||||||||||||||||||||||||||||||||||||
Deferred tax assets | (87 | ) | (108 | ) | ||||||||||||||||||||||||||||||||
Deferred tax liabilities | 147 | 175 | ||||||||||||||||||||||||||||||||||
Liabilities held for sale | 66 | – | ||||||||||||||||||||||||||||||||||
| 126 | 67 | |||||||||||||||||||||||||||||||||||
Deferred gains on loan notes includes $55m (2013 $55m) which is expected to fall due for payment in 2016.
The deferred tax asset recognised in respect of losses of $154m (2013 $186m) includes $50m (2013 $53m) in respect of capital losses available to be utilised against the realisation of capital gains which are recognised as a deferred tax liability and $104m (2013 $133m) in respect of revenue tax losses. Deferred tax assets of $20m (2013 $17m) are recognised in relation to legal entities which suffered a tax loss in the current or preceding period. These assets are recognised based upon future taxable profit forecasts for the entities concerned. Deferred gains on investments represent taxable gains which would crystallise upon a sale of a related joint venture, associate or other equity investment. The balance relates to the Barclay associate described in note 14.
| 123 |
IHG Annual Report and Form 20-F 2014 Notes to the Group Financial Statementscontinued 7. Taxcontinued |
The Group has unrecognised deferred tax assets as follows:
| 2014 $m | 2013 $m | |||||||
| Revenue losses | 126 | 127 | ||||||
| Capital losses | 130 | 85 | ||||||
| Total losses1 | 256 | 212 | ||||||
| Employee benefits | 5 | 16 | ||||||
| Other2 | 58 | 55 | ||||||
| Total | 319 | 283 | ||||||
| 1 | These may be carried forward indefinitely other than $11m which expires after two years, $1m which expires after six years, $8m which expires after seven years, $1m which expires after eight years and $2m which expires after nine years (2013 $12m which expires after three years and $1m which expires after seven years, $1m which expires after eight years and $9m which expires after nine years). |
| 2 | Primarily relates to provisions, accruals, amortisation and share-based payments. |
These assets have not been recognised as the Group does not currently anticipate being able to offset these against future profits or gains in order to realise any economic benefit in the foreseeable future. However, future benefits may arise as a result of resolving tax uncertainties, or as a consequence of case law and legislative developments which make the value of the assets more certain.
The Group has provided deferred tax in relation to temporary differences associated with post-acquisition undistributed earnings of subsidiaries only 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. The remaining unprovided liability that would arise on the reversal of these temporary differences is not expected to exceed $10m (2013 $10m).
Tax risks, policies and governance
Information concerning the Group’s tax governance can be found in the Taxation section of the Strategic Report on page 51.49.
8. Dividends and shareholder returns
2013 cents per share | 2012 cents per share | 2011 cents per share | 2013 $m | 2012 $m | 2011 $m | 2014 cents per share | 2013 cents per share | 2012 cents per share | 2014 $m | 2013 $m | 2012 $m | |||||||||||||||||||||||||||||||||||||
| Paid during the year: | ||||||||||||||||||||||||||||||||||||||||||||||||
Final (declared for previous year) | 43.0 | 39.0 | 35.2 | 115 | 113 | 102 | 47.0 | 43.0 | 39.0 | 122 | 115 | 113 | ||||||||||||||||||||||||||||||||||||
Interim | 23.0 | 21.0 | 16.0 | 63 | 61 | 46 | 25.0 | 23.0 | 21.0 | 57 | 63 | 61 | ||||||||||||||||||||||||||||||||||||
Special (note 29) | 133.0 | 172.0 | – | 355 | 505 | – | ||||||||||||||||||||||||||||||||||||||||||
Special (note 27) | 293.0 | 133.0 | 172.0 | 763 | 355 | 505 | ||||||||||||||||||||||||||||||||||||||||||
| 199.0 | 232.0 | 51.2 | 533 | 679 | 148 | 365.0 | 199.0 | 232.0 | 942 | 533 | 679 | |||||||||||||||||||||||||||||||||||||
| Proposed (not recognised as a liability at 31 December): | ||||||||||||||||||||||||||||||||||||||||||||||||
Final | 47.0 | 43.0 | 39.0 | 121 | 115 | 113 | 52.0 | 47.0 | 43.0 | 122 | 121 | 115 | ||||||||||||||||||||||||||||||||||||
The final dividend of 28.1p (47.0¢33.8p (52.0¢ converted at the closing exchange rate on 1413 February 2014)2015) is proposed for approval at the Annual General Meeting (AGM) on 28 May 20142015 and is payable on the shares in issue at 21 March 2014.7 April 2015.
Under the $500m share repurchase programme announced 7 August 2012, 9,773,912 shares were repurchased in the year to 31 December 20132014, 3.4m (2013 9.8m, 2012 4.1m) shares were repurchased for a consideration of $110m (2013 $283m, 2012 $107m), increasing the total amount repurchased to $390m. All of$500m. Of the 3.4m (2013 9.8m, 2012 4.1m) shares repurchased in 2013 were2014, 2.7m (2013 9.8m, 2012 nil) are held as treasury shares at 31 December 2013, theand 0.7m (2013 nil, 2012 4.1m) were cancelled. The cost of whichtreasury shares has been deducted from retained earnings. There were no treasury
On 2 May 2014, the Company announced a $750m return to shareholders by way of a special dividend and share consolidation. On 30 June 2014, shareholders approved the share consolidation at a General Meeting of the Company on the basis of 12 new ordinary shares held at 31 December 2012 or earlier.of 15 265⁄329p per share for every 13 existing ordinary shares of 14 194⁄329p each, which became effective on 1 July 2014. The special dividend of 293.0¢ per share was paid to shareholders on 14 July 2014.
|
9. Earnings per ordinary share
Basic earnings per ordinary share is calculated by dividing the profit for the year available for IHG equity holders by the weighted average number of ordinary shares, excluding investment in own shares, in issue during the year.
Diluted earnings per ordinary share is calculated by adjusting basic earnings per ordinary share to reflect the notional exercise of the weighted average number of dilutive ordinary share optionsawards outstanding during the year.
Adjusted earnings per ordinary share is disclosed in order to show performance undistorted by exceptional items, to give a more meaningful comparison of the Group’s performance.
| Continuing and total operations | 2013 | 2012 (restated1) | 20112 (restated1) | 2014 | 2013 | 2012 | ||||||||||||||||||
Basic earnings per ordinary share | ||||||||||||||||||||||||
| Profit available for equity holders ($m) | 372 | 537 | 465 | 391 | 372 | 537 | ||||||||||||||||||
| Basic weighted average number of ordinary shares (millions) | 264 | 287 | 289 | 247 | 264 | 287 | ||||||||||||||||||
| Basic earnings per ordinary share (cents) | 140.9 | 187.1 | 160.9 | 158.3 | 140.9 | 187.1 | ||||||||||||||||||
Diluted earnings per ordinary share | ||||||||||||||||||||||||
| Profit available for equity holders ($m) | 372 | 537 | 465 | 391 | 372 | 537 | ||||||||||||||||||
| Diluted weighted average number of ordinary shares (millions) | 267 | 292 | 296 | 250 | 267 | 292 | ||||||||||||||||||
| Diluted earnings per ordinary share (cents) | 139.3 | 183.9 | 157.1 | 156.4 | 139.3 | 183.9 | ||||||||||||||||||
Adjusted earnings per ordinary share | ||||||||||||||||||||||||
| Profit available for equity holders ($m) | 372 | 537 | 465 | 391 | 372 | 537 | ||||||||||||||||||
| Adjusting items (note 5): | ||||||||||||||||||||||||
Exceptional operating items ($m) | (5 | ) | 4 | (57 | ) | (29 | ) | (5 | ) | 4 | ||||||||||||||
Tax on exceptional operating items ($m) | 6 | (1 | ) | 4 | 29 | 6 | (1 | ) | ||||||||||||||||
Exceptional tax ($m) | 45 | (141 | ) | (43 | ) | – | �� | 45 | (141 | ) | ||||||||||||||
| Adjusted earnings ($m) | 418 | 399 | 369 | 391 | 418 | 399 | ||||||||||||||||||
| Basic weighted average number of ordinary shares (millions) | 264 | 287 | 289 | 247 | 264 | 287 | ||||||||||||||||||
| Adjusted earnings per ordinary share (cents) | 158.3 | 139.0 | 127.7 | 158.3 | 158.3 | 139.0 | ||||||||||||||||||
Adjusted diluted earnings per ordinary share | ||||||||||||||||||||||||
| Adjusted earnings ($m) | 418 | 399 | 369 | 391 | 418 | 399 | ||||||||||||||||||
| Diluted weighted average number of ordinary shares (millions) | 267 | 292 | 296 | 250 | 267 | 292 | ||||||||||||||||||
| Adjusted diluted earnings per ordinary share (cents) | 156.6 | 136.6 | 124.7 | 156.4 | 156.6 | 136.6 | ||||||||||||||||||
1Restated for the adoption of IAS I9R ‘Employee Benefits’ (see page 111). 2See note on ‘Comparatives for 2011’ on page 111. | ||||||||||||||||||||||||
| 2013 millions | 2012 millions | 2011 millions | 2014 millions | 2013 millions | 2012 millions | |||||||||||||||||||
| Diluted weighted average number of ordinary shares is calculated as: | ||||||||||||||||||||||||
Basic weighted average number of ordinary shares | 264 | 287 | 289 | 247 | 264 | 287 | ||||||||||||||||||
Dilutive potential ordinary shares – employee share options | 3 | 5 | 7 | |||||||||||||||||||||
Dilutive potential ordinary shares | 3 | 3 | 5 | |||||||||||||||||||||
| 267 | 292 | 296 | 250 | 267 | 292 | |||||||||||||||||||
|
IHG Annual Report and Form 20-F 2014
|
10. Property, plant and equipment
Land and buildings $m | Fixtures, fittings and equipment $m | Total $m | Land and buildings $m | Fixtures, fittings and equipment $m | Total $m | |||||||||||||||||||
Cost | ||||||||||||||||||||||||
| At 1 January 2012 | 1,237 | 917 | 2,154 | |||||||||||||||||||||
| Additions | 8 | 33 | 41 | |||||||||||||||||||||
| Net transfers to non-current assets classified as held for sale | (265 | ) | (99 | ) | (364 | ) | ||||||||||||||||||
| Reclassification to intangible assets | – | (25 | ) | (25 | ) | |||||||||||||||||||
| Disposals | – | (12 | ) | (12 | ) | |||||||||||||||||||
| Exchange and other adjustments | 15 | 10 | 25 | |||||||||||||||||||||
| At 31 December 2012 | 995 | 824 | 1,819 | |||||||||||||||||||||
| At 1 January 2013 | 995 | 824 | 1,819 | |||||||||||||||||||||
| Additions | 96 | 54 | 150 | 96 | 54 | 150 | ||||||||||||||||||
| Disposals | (2 | ) | (8 | ) | (10 | ) | (2 | ) | (8 | ) | (10 | ) | ||||||||||||
| Exchange and other adjustments | 12 | 1 | 13 | 12 | 1 | 13 | ||||||||||||||||||
At 31 December 2013 | 1,101 | 871 | 1,972 | 1,101 | 871 | 1,972 | ||||||||||||||||||
Depreciation and impairment | ||||||||||||||||||||||||
| At 1 January 2012 | (174 | ) | (618 | ) | (792 | ) | ||||||||||||||||||
| Provided | (11 | ) | (46 | ) | (57 | ) | ||||||||||||||||||
| System Fund expense | – | (3 | ) | (3 | ) | |||||||||||||||||||
| Net transfers to non-current assets classified as held for sale | 16 | 42 | 58 | |||||||||||||||||||||
| Reclassification to intangible assets | – | 2 | 2 | |||||||||||||||||||||
| Impairment reversals (note 5) | 23 | – | 23 | |||||||||||||||||||||
| Additions | 27 | 52 | 79 | |||||||||||||||||||||
| Transfers to non-current assets classified as held for sale | (276 | ) | (171 | ) | (447 | ) | ||||||||||||||||||
| Disposals | – | 11 | 11 | (144 | ) | (61 | ) | (205 | ) | |||||||||||||||
| Exchange and other adjustments | – | (5 | ) | (5 | ) | (8 | ) | (20 | ) | (28 | ) | |||||||||||||
| At 31 December 2012 | (146 | ) | (617 | ) | (763 | ) | ||||||||||||||||||
| At 31 December 2014 | 700 | 671 | 1,371 | |||||||||||||||||||||
| Depreciation and impairment | ||||||||||||||||||||||||
| At 1 January 2013 | (146 | ) | (617 | ) | (763 | ) | ||||||||||||||||||
| Provided | (11 | ) | (35 | ) | (46 | ) | (11 | ) | (35 | ) | (46 | ) | ||||||||||||
| System Fund expense | – | (4 | ) | (4 | ) | – | (4 | ) | (4 | ) | ||||||||||||||
| Disposals | 2 | 8 | 10 | 2 | 8 | 10 | ||||||||||||||||||
| Exchange and other adjustments | (1 | ) | 1 | – | (1 | ) | 1 | – | ||||||||||||||||
| At 31 December 2013 | (156 | ) | (647 | ) | (803 | ) | (156 | ) | (647 | ) | (803 | ) | ||||||||||||
| Provided | (11 | ) | (32 | ) | (43 | ) | ||||||||||||||||||
| System Fund expense | – | (4 | ) | (4 | ) | |||||||||||||||||||
| Transfers to non-current assets classified as held for sale | 8 | 107 | 115 | |||||||||||||||||||||
| Disposals | 37 | 58 | 95 | |||||||||||||||||||||
| Exchange and other adjustments | – | 10 | 10 | |||||||||||||||||||||
| At 31 December 2014 | (122 | ) | (508 | ) | (630 | ) | ||||||||||||||||||
Net book value | ||||||||||||||||||||||||
| At 31 December 2014 | 578 | 163 | 741 | |||||||||||||||||||||
| At 31 December 2013 | 945 | 224 | 1,169 | 945 | 224 | 1,169 | ||||||||||||||||||
| At 31 December 2012 | 849 | 207 | 1,056 | |||||||||||||||||||||
| At 1 January 2012 | 1,063 | 299 | 1,362 | |||||||||||||||||||||
| At 1 January 2013 | 849 | 207 | 1,056 | |||||||||||||||||||||
The Group’s property, plant and equipment mainly comprises hotels, but also offices, throughout the world. In addition to the hotels included above, there was one hotel (2012 two hotels)(2013 one hotel) classified as held for sale at 31 December 20132014 (see note 11). Including the hotels classified as held for sale, 75% (2013 81% (2012 90%) of the net book value relates to the four (2012 five)three (2013 four) largest owned and leased hotels (in terms of net book value) of a total of 1210 hotels (2012 10(2013 12 hotels), nine of which are open (2012 10(2013 nine open). There wereAt 31 December 2014, there was one hotel (2013 three hotels acquired during the year for $70mhotels) with a net book value of $36m (2013 $70m) which areis under conversion,construction, not yet in use and therefore not being depreciated.
The carrying value of property, plant and equipment held under finance leases at 31 December 20132014 was $187m (2012$186m (2013 $187m).
Including assets classified as held for sale, 40% (2013 55% (2012 43%) of hotel properties by net book value were directly owned, with 22% (2013 39% (2012 54%) held under leases having a term of 50 years or longer.
All impairment charges and reversals are included within impairment on the face of the Group income statement.
No borrowing costs were capitalised during the current or prior year.
Following the sale of the InterContinental London Park Lane hotel thereThere are no longer charges (2012 $89m) over the Group’s property, plant and equipment.
The table below analyses the net book value of the Group’s property, plant and equipment by operating segment at 31 December 2013:2014:
Americas $m | Europe $m | AMEA $m | Greater China $m | Central $m | Total $m | Americas $m | Europe $m | AMEA $m | Greater China $m | Central $m | Total $m | |||||||||||||||||||||||||||||||||||||
| Land and buildings | 367 | 290 | 8 | 259 | 21 | 945 | 302 | – | 7 | 254 | 15 | 578 | ||||||||||||||||||||||||||||||||||||
| Fixtures, fittings and equipment | 33 | 63 | 12 | 48 | 68 | 224 | 40 | – | 11 | 44 | 68 | 163 | ||||||||||||||||||||||||||||||||||||
| 400 | 353 | 20 | 307 | 89 | 1,169 | 342 | – | 18 | 298 | 83 | 741 | |||||||||||||||||||||||||||||||||||||
|
| 11. Assets sold and held for sale |
11. Assets sold and held for sale
Assets sold
Principal disposals during the year ended 31 December 2014 were the sale of the InterContinental Mark Hopkins San Francisco on 27 March 2014 and the disposal of an 80.1% interest in the InterContinental New York Barclay on 31 March 2014. The Group’s 19.9% retained interest is accounted for as an associate as described in note 14. Both transactions took place in the Americas region.
During the year ended 31 December 2013, the Group sold one hotel in the Europe region, the InterContinental London Park Lane.
During the year ended 31 December 2012, the Group sold an interest in a hotel in the Europe region.
During the year ended 31 December 2011, the Group sold four hotels, three in the Americas region and one in the AMEA region. The gain on disposal mainly related to the sale of the Holiday Inn Burswood in Australia. The other significant disposal was the Hotel Indigo San Diego which resulted in an impairment reversal (see note 5) in March 2011 on classification as held for sale.
| 2014 $m | 2013 $m | 2012 $m | ||||||||||
| Consideration | ||||||||||||
| Current year disposals: | ||||||||||||
Cash consideration, net of costs paid | 345 | 460 | 4 | |||||||||
Other financial assets¹ | 52 | – | – | |||||||||
Intangible assets – management contracts | 50 | 40 | – | |||||||||
Investment in associate | 22 | – | – | |||||||||
| 469 | 500 | 4 | ||||||||||
| Net assets disposed: | ||||||||||||
Property, plant and equipment | (110 | ) | – | (6 | ) | |||||||
Non-current assets held for sale | (228 | ) | (294 | ) | – | |||||||
Other financial asset | (5 | ) | – | – | ||||||||
Net current liabilities | 4 | 6 | – | |||||||||
| (339 | ) | (288 | ) | (6 | ) | |||||||
| Exchange losses recycled from currency translation reserve | – | (46 | ) | – | ||||||||
| Gain/(loss) on disposal of hotels from continuing operations | 130 | 166 | (2 | ) | ||||||||
| Net cash inflow | ||||||||||||
| Current year disposals: | ||||||||||||
Cash consideration, net of costs paid | 345 | 460 | 4 | |||||||||
Distribution from associate on sale of hotel | – | 17 | – | |||||||||
Tax | – | (5 | ) | – | ||||||||
| Prior year disposals: | ||||||||||||
Tax | – | – | (3 | ) | ||||||||
| 345 | 472 | 1 | ||||||||||
2013 $m | 2012 $m | 2011 $m | ||||||||||
Consideration | ||||||||||||
| Current year disposals: | ||||||||||||
Cash consideration, net of costs paid | 460 | 4 | 142 | |||||||||
Management contract value | 40 | – | 2 | |||||||||
| 500 | 4 | 144 | ||||||||||
| Net assets disposed of | (288 | ) | (6 | ) | (107 | ) | ||||||
| Exchanges losses recycled from currency translation reserve | (46 | ) | – | – | ||||||||
| Gain/(loss) on disposal of assets from continuing operations | 166 | (2 | ) | 37 | ||||||||
| Net cash inflow | ||||||||||||
| Current year disposals: | ||||||||||||
Cash consideration, net of costs paid | 460 | 4 | 142 | |||||||||
Distribution from associate on sale of hotel | 17 | – | – | |||||||||
Tax | (5 | ) | – | (1 | ) | |||||||
| Prior year disposals: | ||||||||||||
Tax | – | (3 | ) | – | ||||||||
| 472 | 1 | 141 | ||||||||||
| 1 | Includes $27m deferred consideration subsequently received and included within Proceeds from other financial assets in the Group statement of cash flows. |
Assets held for sale
One hotel, the InterContinental New York Barclay,Paris – Le Grand, met the held for sale criteria of IFRS 5 at 31 December 2013. Two hotels,2014. More information can be found in the performance section of the Strategic Report on page 34. One hotel, the InterContinental New York Barclay, and the InterContinental London Park Lane, and one associate investment werewas held for sale at 31 December 2012.2013.
2013 $m | 2012 $m | |||||||
Assets and liabilities held for sale | ||||||||
| Non-current assets classified as held for sale: | ||||||||
Property, plant and equipment | 228 | 524 | ||||||
Associates | – | 10 | ||||||
| 228 | 534 | |||||||
| Liabilities classified as held for sale: | ||||||||
Deferred tax (note 27) | – | 61 | ||||||
On 19 December 2013, the Group signed an agreement to dispose of an 80% interest in the InterContinental New York Barclay hotel for gross proceeds of $240m. The transaction is expected to complete in the first quarter of 2014.
Deferred tax in relation to the InterContinental New York Barclay hotel is no longer classified as held for sale at 31 December 2013 as no such liabilities are expected to leave the Group upon disposal of the asset as a result of the agreement signed during the year.
| 2014 $m | 2013 $m | |||||||
| Assets and liabilities held for sale | ||||||||
| Assets classified as held for sale: | ||||||||
Property, plant and equipment | 306 | 228 | ||||||
Other assets | 4 | – | ||||||
| 310 | 228 | |||||||
| Liabilities classified as held for sale: | ||||||||
Deferred tax (note 7) | (66 | ) | – | |||||
Other liabilities | (28 | ) | – | |||||
| (94 | ) | – | ||||||
|
| IHG Annual Report and Form 20-F 2014 |
Notes to the Group Financial Statementscontinued
12. Goodwill
2013 $m | 2012 $m | 2014 $m | 2013 $m | |||||||||||||
Cost | ||||||||||||||||
| At 1 January | 234 | 233 | 221 | 234 | ||||||||||||
| Exchange adjustments | (13 | ) | 1 | (6 | ) | (13 | ) | |||||||||
At 31 December | 221 | 234 | 215 | 221 | ||||||||||||
Impairment | ||||||||||||||||
At 1 January and 31 December | (141 | ) | (141 | ) | (141 | ) | (141 | ) | ||||||||
Net book value | ||||||||||||||||
At 31 December | 80 | 93 | 74 | 80 | ||||||||||||
| At 1 January | 93 | 92 | 80 | 93 | ||||||||||||
Goodwill arising on business combinations that occurred before 1 January 2005 was not restated on adoption of IFRS as permitted by IFRS 1.
Impairment charges are included within impairment on the face of the Group income statement and allAll cumulative impairment losses relate to the Americas managed cash-generating unit (CGU) (see below).
Goodwill has been allocated to CGUs for impairment testing as follows:
Cost | Net book value | Cost | Net book value | |||||||||||||||||||||||||||||||
| 2013 $m | 2012 $m | 2013 $m | 2012 $m | 2014 $m | 2013 $m | 2014 $m | 2013 $m | |||||||||||||||||||||||||||
| AMEA franchised and managed operations | 80 | 93 | 80 | 93 | 74 | 80 | 74 | 80 | ||||||||||||||||||||||||||
| Americas managed operations | 141 | 141 | – | – | 141 | 141 | – | – | ||||||||||||||||||||||||||
| 221 | 234 | 80 | 93 | 215 | 221 | 74 | 80 | |||||||||||||||||||||||||||
Asia, Middle East and Africa (AMEA) goodwill
The Group tests goodwill for impairment annually, or more frequently if there are any indications that an impairment may have arisen. The recoverable amounts of the CGUs are determined from value in use calculations. These calculations use pre-tax cash flow forecasts derived from the most recent financial budgets and strategic plans approved by management covering a five-year period or, in the absence of up-to-date strategic plans, the financial budget for the next year with an extrapolation of the cash flows for the following four years, using growth rates based on management’s past experience and industry growth forecasts. After
At 31 December 2014, the five-year planning period,recoverable amount of the terminal value of future cash flows is calculatedCGU has been assessed based on the approved budget for 2015 and strategic plans covering a five-year period, a perpetual growth rate of 3.5% (2013 3.5%) and a discount rate of 13.7% (2013 15.5%). The perpetual growth rates that do not exceed the average long-term growth rates for the relevant markets. Pre-tax discount rates are used to discount the cash flows based on the Group’s weighted average cost of capital adjusted to reflect the risks specific to the business model and territory of the CGU being tested.
Asia, Middle East and Africa (AMEA) goodwill
At 31 December 2013, the recoverable amount of the CGU has been assessed based on the approved budget for 2014 and strategic plans covering a five-year period, a perpetual growth rate of 3.5% (2012 3.5%) and a discount rate of 15.5% (2012 14.3%). In previous years, the goodwill was allocated to Asia Australasia franchised and managed operations but, due to a change in management structure, this CGU no longer exists as the business is now managed at the AMEA level.
Impairment was not required at either 31 December 20132014 or 31 December 20122013 and management believehave determined that the carrying value of the CGU would only exceed its recoverable amount in the event of highly unlikely changes in the key assumptions.
Americas goodwill
Goodwill relating to the Americas managed operations was impaired in full in 2009. As goodwill impairment cannot be reversed, there is no sensitivity around any assumptions that could lead to further impairment adjustments.
|
| 13. Intangible assets |
13. Intangible assets
Software $m | Management contracts $m | Other intangibles $m | Total $m | |||||||||||||
Cost | ||||||||||||||||
| At 1 January 2012 | 252 | 231 | 138 | 621 | ||||||||||||
| Additions | 70 | – | 14 | 84 | ||||||||||||
| Reclassification from property, plant and equipment | 25 | – | – | 25 | ||||||||||||
| Disposals | (21 | ) | – | (3 | ) | (24 | ) | |||||||||
| Exchange and other adjustments | (1 | ) | 4 | 2 | 5 | |||||||||||
| At 31 December 2012 | 325 | 235 | 151 | 711 | ||||||||||||
| Additions | 79 | 40 | 16 | 135 | ||||||||||||
| Disposals | (8 | ) | – | (7 | ) | (15 | ) | |||||||||
| Exchange and other adjustments | (1 | ) | 2 | (1 | ) | – | ||||||||||
At 31 December 2013 | 395 | 277 | 159 | 831 | ||||||||||||
Amortisation and impairment | ||||||||||||||||
| At 1 January 2012 | (138 | ) | (116 | ) | (59 | ) | (313 | ) | ||||||||
| Provided | (17 | ) | �� | (10 | ) | (10 | ) | (37 | ) | |||||||
| System Fund expense | (9 | ) | – | – | (9 | ) | ||||||||||
| Reclassification from property, plant and equipment | (2 | ) | – | – | (2 | ) | ||||||||||
| Disposals | 2 | – | 3 | 5 | ||||||||||||
| Exchange and other adjustments | 1 | – | (2 | ) | (1 | ) | ||||||||||
| At 31 December 2012 | (163 | ) | (126 | ) | (68 | ) | (357 | ) | ||||||||
| Provided | (21 | ) | (7 | ) | (11 | ) | (39 | ) | ||||||||
| System Fund expense | (12 | ) | – | – | (12 | ) | ||||||||||
| Disposals | 8 | – | 7 | 15 | ||||||||||||
| Exchange and other adjustments | (1 | ) | 2 | (1 | ) | – | ||||||||||
At 31 December 2013 | (189 | ) | (131 | ) | (73 | ) | (393 | ) | ||||||||
Net book value | ||||||||||||||||
At 31 December 2013 | 206 | 146 | 86 | 438 | ||||||||||||
| At 31 December 2012 | 162 | 109 | 83 | 354 | ||||||||||||
| At 1 January 2012 | 114 | 115 | 79 | 308 | ||||||||||||
Software disposals in 2012 included an exceptional write-off of $18m resulting from a re-assessment of the ongoing value of elements of the technology infrastructure.
| Software $m | Management contracts $m | Other intangibles $m | Total $m | |||||||||||||
| Cost | ||||||||||||||||
| At 1 January 2013 | 325 | 235 | 151 | 711 | ||||||||||||
| Additions | 79 | 40 | 16 | 135 | ||||||||||||
| Disposals | (8 | ) | – | (7 | ) | (15 | ) | |||||||||
| Exchange and other adjustments | (1 | ) | 2 | (1 | ) | – | ||||||||||
| At 31 December 2013 | 395 | 277 | 159 | 831 | ||||||||||||
| Additions | 108 | 50 | 55 | 213 | ||||||||||||
| Disposals | (31 | ) | – | (5 | ) | (36 | ) | |||||||||
| Exchange and other adjustments | (1 | ) | (17 | ) | (2 | ) | (20 | ) | ||||||||
| At 31 December 2014 | 471 | 310 | 207 | 988 | ||||||||||||
| Amortisation and impairment | ||||||||||||||||
| At 1 January 2013 | (163 | ) | (126 | ) | (68 | ) | (357 | ) | ||||||||
| Provided | (21 | ) | (7 | ) | (11 | ) | (39 | ) | ||||||||
| System Fund expense | (12 | ) | – | – | (12 | ) | ||||||||||
| Disposals | 8 | – | 7 | 15 | ||||||||||||
| Exchange and other adjustments | (1 | ) | 2 | (1 | ) | – | ||||||||||
| At 31 December 2013 | (189 | ) | (131 | ) | (73 | ) | (393 | ) | ||||||||
| Provided | (33 | ) | (9 | ) | (11 | ) | (53 | ) | ||||||||
| System Fund expense | (15 | ) | – | – | (15 | ) | ||||||||||
| Disposals | 31 | – | 4 | 35 | ||||||||||||
| Exchange and other adjustments | (1 | ) | 6 | 2 | 7 | |||||||||||
| At 31 December 2014 | (207 | ) | (134 | ) | (78 | ) | (419 | ) | ||||||||
| Net book value | ||||||||||||||||
| At 31 December 2014 | 264 | 176 | 129 | 569 | ||||||||||||
| At 31 December 2013 | 206 | 146 | 86 | 438 | ||||||||||||
| At 1 January 2013 | 162 | 109 | 83 | 354 | ||||||||||||
Substantially all of software additions are internally developed.
Borrowing costsAdditions to management contracts relate to contract values recognised as part of $0.2m (2012 $0.3m) were capitalised during the year in respect of software projects.proceeds for hotels sold (see note 11).
The weighted average remaining amortisation period for management contracts is 2430 years (2012 19(2013 24 years).
|
| IHG Annual Report and Form 20-F 2014 |
Notes to the Group Financial Statementscontinued
14. Investment in associates and joint ventures
| Associates $m | Joint ventures $m | Total $m | ||||||||||
| Cost | ||||||||||||
| At 1 January 2013 | 59 | 28 | 87 | |||||||||
| Additions | 8 | 2 | 10 | |||||||||
| Capital returns | – | (3 | ) | (3 | ) | |||||||
| Share of profits | 2 | – | 2 | |||||||||
| Dividends | (5 | ) | – | (5 | ) | |||||||
| Exchange and other adjustments | (3 | ) | – | (3 | ) | |||||||
| At 31 December 2013 | 61 | 27 | 88 | |||||||||
| Initial retained interest in Barclay associate (note 11) | 22 | – | 22 | |||||||||
| Additions | 15 | – | 15 | |||||||||
| Share of (losses)/profits | (4 | ) | – | (4 | ) | |||||||
| Dividends | (2 | ) | – | (2 | ) | |||||||
| At 31 December 2014 | 92 | 27 | 119 | |||||||||
| Impairment | ||||||||||||
| At 1 January 2013, 31 December 2013 and 31 December 2014 | (3 | ) | – | (3 | ) | |||||||
| Net book value | ||||||||||||
| At 31 December 2014 | 89 | 27 | 116 | |||||||||
| At 31 December 2013 | 58 | 27 | 85 | |||||||||
| At 1 January 2013 | 56 | 28 | 84 | |||||||||
Barclay associate
The Group held one material associate investment at 31 December 2014, a 19.9% interest in 111 East 48th Street Holdings, LLC (‘the Barclay associate’) which owns the InterContinental New York Barclay, a hotel managed by the Group. The investment is classified as an associate and equity accounted as the Group has the ability to exercise significant influence through its involvement in the redevelopment of the hotel and certain decision rights.
Summarised financial information in respect of the Barclay associate is set out below:
Associates $m | Joint ventures $m | Total $m | ||||||||||
Cost | ||||||||||||
| At 1 January 2012 | 60 | 30 | 90 | |||||||||
| Reclassification | 4 | (4 | ) | – | ||||||||
| Additions | – | 2 | 2 | |||||||||
| Transfer to non-current assets classified as held for sale | (10 | ) | – | (10 | ) | |||||||
| Share of profit | 3 | – | 3 | |||||||||
| Dividends | (3 | ) | – | (3 | ) | |||||||
| Share of reserve movement | 5 | – | 5 | |||||||||
| At 31 December 2012 | 59 | 28 | 87 | |||||||||
| Additions | 8 | 2 | 10 | |||||||||
| Capital returns | – | (3 | ) | (3 | ) | |||||||
| Share of profit | 2 | – | 2 | |||||||||
| Dividends | (5 | ) | – | (5 | ) | |||||||
| Exchange and other adjustments | (3 | ) | – | (3 | ) | |||||||
At 31 December 2013 | 61 | 27 | 88 | |||||||||
Impairment | ||||||||||||
At 1 January 2012, 31 December 2012 and 31 December 2013 | (3 | ) | – | (3 | ) | |||||||
| Net book value | ||||||||||||
| At 31 December 2013 | 58 | 27 | 85 | |||||||||
| At 31 December 2012 | 56 | 28 | 84 | |||||||||
| At 1 January 2012 | 57 | 30 | 87 | |||||||||
31 December 2014 $m | ||||
| Non-current assets | 339 | |||
| Net current assets | 2 | |||
| Non-current liabilities | (182 | ) | ||
| Equity | 159 | |||
| Group carrying amount (19.9%) | 32 | |||
9 months to 31 December 2014 $m | ||||
| Revenue | 24 | |||
| Loss for the period | (26 | ) | ||
| Group’s share of loss for the period (19.9%) | (5 | ) | ||
The Barclay associate classification was effective 31 March 2014.
Other associates and joint ventures
The summarised aggregated financial information for individually immaterial associates and joint ventures is set out below. These are mainly investments in entities that own hotels which the Group manages.
| Associates | Joint ventures | Total | Associates | Joint ventures | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2013 $m | 2012 $m | 2011 $m | 2013 $m | 2012 $m | 2011 $m | 2013 $m | 2012 $m | 2011 $m | 2014 $m | 2013 $m | 2012 $m | 2014 $m | 2013 $m | 2012 $m | 2014 $m | 2013 $m | 2012 $m | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share of profit/(loss) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating profit/(loss) before exceptional items | 2 | 3 | 2 | – | – | (1 | ) | 2 | 3 | 1 | 1 | 2 | 3 | – | – | �� | – | 1 | 2 | 3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exceptional items | 6 | – | – | – | – | – | 6 | – | – | – | 6 | – | – | – | – | – | 6 | – | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 8 | 3 | 2 | – | – | (1 | ) | 8 | 3 | 1 | 1 | 8 | 3 | – | – | – | 1 | 8 | 3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
The exceptional profit in 2013 arose on the sale of a hotel owned by an associate investment that was classified as held for sale at 31 December 2012. Following completion of the sale, the Group received a $17m cash distribution from the associate, being the Group’s share of the net disposal proceeds.
| Associates | Joint ventures | Total | ||||||||||||||||||||||||||||||||||
2013 $m | 2012 $m | 2011 $m | 2013 $m | 2012 $m | 2011 $m | 2013 $m | 2012 $m | 2011 $m | ||||||||||||||||||||||||||||
Related party transactions | ||||||||||||||||||||||||||||||||||||
| Revenue from associates and joint ventures | 4 | 5 | 5 | – | – | – | 4 | 5 | 5 | |||||||||||||||||||||||||||
| Amounts owed by associates and joint ventures | 2 | 2 | 1 | – | – | – | 2 | 2 | 1 | |||||||||||||||||||||||||||
| Loans from associates and joint ventures | – | – | (2 | ) | – | – | – | – | – | (2 | ) | |||||||||||||||||||||||||
None of the Group’s investments in associates and joint ventures are individually material.
15. Other financial assets
2013 $m | 2012 $m | |||||||
Equity securities available-for-sale: | ||||||||
Quoted equity shares | 9 | 18 | ||||||
Unquoted equity shares | 127 | 94 | ||||||
| 136 | 112 | |||||||
Loans and receivables: | ||||||||
Trade deposits and loans | 20 | 20 | ||||||
Restricted funds | 40 | 29 | ||||||
Bank accounts pledged as security | 52 | – | ||||||
| 112 | 49 | |||||||
| Total other financial assets | 248 | 161 | ||||||
|
| 15. Other financial assets |
15. Other financial assetscontinued
2013 $m | 2012 $m | |||||||
| Analysed as: | ||||||||
Current | 12 | 6 | ||||||
Non-current | 236 | 155 | ||||||
| 248 | 161 | |||||||
| 2014 $m | 2013 $m | |||||||
| Equity securities available-for-sale: | ||||||||
Quoted equity shares | 16 | 9 | ||||||
Unquoted equity shares | 128 | 127 | ||||||
| 144 | 136 | |||||||
| Loans and receivables: | ||||||||
Trade deposits and loans | 43 | 20 | ||||||
Restricted funds | 21 | 40 | ||||||
Bank accounts pledged as security | 49 | 52 | ||||||
| 113 | 112 | |||||||
| Total other financial assets | 257 | 248 | ||||||
| Analysed as: | ||||||||
Current | 5 | 12 | ||||||
Non-current | 252 | 236 | ||||||
| 257 | 248 | |||||||
Equity securities available-for-sale are measured at fair value (see note 24)23) and loans and receivables are held at amortised cost.
Equity securities available-for-sale were denominated in the following currencies: US dollars $84m (2012 $59m)$94m (2013 $84m), Hong Kong dollars $27m (2012 $24m)$34m (2013 $27m) and other currencies $25m (2012 $29m)$16m (2013 $25m). Unlisted equity shares are mainly investments in entities that own hotels which the Group manages. Dividend income from available for-saleavailable-for-sale equity securities of $6m (2012 $5m)$10m (2013 $6m) is reported as other operating income and expenses in the Group income statement.
Trade deposits and loans include a deposit of $37m made in 2011 to a hotel owner in connection with the renegotiation of a management contract. The deposit is non-interest-bearing and repayable at the end of the management contract, and is therefore held at its discounted value of $12m (2012 $11m)$13m (2013 $12m); the discount unwinds to the income statement within financial income over the period to repayment.
Restricted funds include cash held in bank accounts which is pledged as collateral to insurance companies for risks retained by the Group cash held in the IHG Funding Trust (see note 26) and other amounts held in escrow.
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 26)25).
The movement in the provision for impairment of other financial assets during the year is as follows:
2013 $m | 2012 $m | 2014 $m | 2013 $m | |||||||||||||
| At 1 January | (26 | ) | (25 | ) | (25 | ) | (26 | ) | ||||||||
| Reclassification | – | (1 | ) | |||||||||||||
| Amounts written off | 1 | – | – | 1 | ||||||||||||
| Exchange and other adjustments | (3 | ) | – | |||||||||||||
| At 31 December | (25 | ) | (26 | ) | (28 | ) | (25 | ) | ||||||||
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.
16. Inventories
| 2013 $m | 2012 $m | |||||||
| Finished goods | 2 | 2 | ||||||
| Consumable stores | 2 | 2 | ||||||
| 4 | 4 | |||||||
| 131 |
IHG Annual Report and Form 20-F 2014 Notes to the Group Financial Statementscontinued |
17.16. Trade and other receivables
| 2013 $m | 2012 $m | 2014 $m | 2013 $m | |||||||||||||
| Current | ||||||||||||||||
| Trade receivables | 338 | 344 | 327 | 336 | ||||||||||||
| Other receivables | 20 | 18 | 47 | 20 | ||||||||||||
| Prepayments | 65 | 60 | 63 | 65 | ||||||||||||
| Receivables from associates | 11 | 2 | ||||||||||||||
| 423 | 422 | 448 | 423 | |||||||||||||
| Non-current | ||||||||||||||||
| Loans to associates | 3 | – | ||||||||||||||
Trade and other receivables are designated as loans and receivables and are held at amortised cost.
Trade receivables are non-interest-bearing and are generally on payment terms of up to 30 days. The fair value of trade and other receivables approximates their carrying value.
|
17. Trade and other receivablescontinued
The maximum exposure to credit risk for trade and other receivables, excluding prepayments, at the end of the reporting period by geographic region is:
2013 $m | 2012 $m | 2014 $m | 2013 $m | |||||||||||||
| Americas | 193 | 186 | 221 | 193 | ||||||||||||
| Europe | 78 | 83 | 76 | 78 | ||||||||||||
| Asia, Middle East and Africa | 53 | 64 | 53 | 53 | ||||||||||||
| Greater China | 34 | 29 | 38 | 34 | ||||||||||||
| 358 | 362 | 388 | 358 | |||||||||||||
The ageing of trade and other receivables, excluding prepayments, at the end of the reporting period is:
| 2013 | 2012 | 2014 |
| 2013 | ||||||||||||||||||||||||||||||||||||||||||||||
| Gross $m | Provision $m | Net $m | Gross $m | Provision $m | Net $m | Gross $m | Provision $m | Net $m | Gross $m | Provision $m | Net $m | |||||||||||||||||||||||||||||||||||||||
| Not past due | 236 | – | 236 | 223 | – | 223 | 275 | – | 275 | 236 | – | 236 | ||||||||||||||||||||||||||||||||||||||
| Past due 1 to 30 days | 66 | (4 | ) | 62 | 74 | (3 | ) | 71 | 57 | (3 | ) | 54 | 66 | (4 | ) | 62 | ||||||||||||||||||||||||||||||||||
| Past due 31 to 180 days | 57 | (3 | ) | 54 | 69 | (3 | ) | 66 | 57 | (3 | ) | 54 | 57 | (3 | ) | 54 | ||||||||||||||||||||||||||||||||||
| Past due more than 180 days | 42 | (36 | ) | 6 | 43 | (41 | ) | 2 | 46 | (41 | ) | 5 | 42 | (36 | ) | 6 | ||||||||||||||||||||||||||||||||||
| 401 | (43 | ) | 358 | 409 | (47 | ) | 362 | 435 | (47 | ) | 388 | 401 | (43 | ) | 358 | |||||||||||||||||||||||||||||||||||
The credit risk relating to balances not past due is not deemed to be significant.
The movement in the provision for impairment of trade and other receivables during the year is as follows:
| 2013 $m | 2012 $m | 2011 $m | 2014 $m | 2013 $m | 2012 $m | |||||||||||||||||||
| At 1 January | (47 | ) | (46 | ) | (58 | ) | (43 | ) | (47 | ) | (46 | ) | ||||||||||||
| Provided | (18 | ) | (18 | ) | (15 | ) | (22 | ) | (18 | ) | (18 | ) | ||||||||||||
| Amounts written back | 14 | 10 | 7 | 9 | 14 | 10 | ||||||||||||||||||
| Amounts written off | 8 | 7 | 20 | 9 | 8 | 7 | ||||||||||||||||||
| At 31 December | (43 | ) | (47 | ) | (46 | ) | (47 | ) | (43 | ) | (47 | ) | ||||||||||||
| 132 |
18.17. Cash and cash equivalents
2014 $m | 2013 (restated1) $m | 2012 (restated1) $m | ||||||||||
| Cash at bank and in hand | 157 | 177 | 249 | |||||||||
| Short-term deposits | 5 | 71 | 138 | |||||||||
| 162 | 248 | 387 | ||||||||||
| 2013 $m | 2012 $m | |||||||
| Cash at bank and in hand | 63 | 57 | ||||||
| Short-term deposits | 71 | 138 | ||||||
| 134 | 195 | |||||||
| 1 | Restated for the adoption of ‘Offsetting Financial Assets and Financial Liabilities’ (Amendments to IAS 32), see page 107. |
Cash at bank and in hand includes bank balances of $108m (2013 $114m, 2012 $194m) which are matched by bank overdrafts of $107m (2013 $114m, 2012 $192m) under the Group’s cash pooling arrangements. Under these arrangements, each pool contains a number of bank accounts with the same financial institution and the Group pays interest on net overdraft balances within each pool. The cash pools are used for day-to-day cash management purposes and are managed as closely as possible to a zero balance on a net basis for each pool. Overseas subsidiaries are typically in a cash positive position with the matching overdrafts held by the Group’s central treasury company in the UK.
For the purposes of the Group statement of cash flows, cash and cash equivalents comprise the following:
| 2014 $m | 2013 (restated1) $m | 2012 (restated1) $m | ||||||||||
| Cash at bank and in hand | 157 | 177 | 249 | |||||||||
| Short-term deposits | 5 | 71 | 138 | |||||||||
| 162 | 248 | 387 | ||||||||||
| Bank overdrafts (note 21) | (107 | ) | (114 | ) | (192 | ) | ||||||
| 55 | 134 | 195 | ||||||||||
| 1 | Restated for the adoption of ‘Offsetting Financial Assets and Financial Liabilities’ (Amendments to IAS 32), see page 107. |
Short-term deposits are highly liquid investments with an original maturity of three months or less, in various currencies.
Cash at bank includes gross cash assets of $114m (2012 $194m) and gross overdrafts of $114m (2012 $192m) which are offset under cash pooling arrangements.less.
Cash and cash equivalents includes $4m (2013 $12m, (20122012 $7m) that is not available for use by the Group due to local exchange controls.controls in Venezuela and Argentina.
| 133 |
IHG Annual Report and Form 20-F 2014 Notes to the Group Financial Statementscontinued |
19.18. Trade and other payables
2013 $m | 2012 $m | 2014 $m | 2013 $m | |||||||||||||
Current | ||||||||||||||||
| Trade payables | 97 | 117 | 88 | 97 | ||||||||||||
| Other tax and social security payable | 32 | 35 | 49 | 32 | ||||||||||||
| Other payables | 335 | 268 | 317 | 335 | ||||||||||||
| Accruals | 284 | 289 | 315 | 284 | ||||||||||||
| 748 | 709 | 769 | 748 | |||||||||||||
Non-current | ||||||||||||||||
| Other payables | 574 | 563 | 627 | 574 | ||||||||||||
Trade payables are non-interest-bearing and are normally settled within an average of 45 days.
Other payables include $649m (2012 $623m)$725m (2013 $649m) relating to the future redemption liability of the Group’s loyalty programme, of which $120m (2012 $108m)$132m (2013 $120m) is classified as current and $529m (2012 $515m)$593m (2013 $529m) as non-current.
|
20.19. Provisions
Onerous management contracts $m | Litigation $m | Total $m | Onerous $m | Litigation $m | Total $m | |||||||||||||||||||
| At 1 January 2012 | 3 | 11 | 14 | |||||||||||||||||||||
| Utilised | (1 | ) | (11 | ) | (12 | ) | ||||||||||||||||||
| At 31 December 2012 | 2 | – | 2 | |||||||||||||||||||||
| At 1 January 2013 | 2 | – | 2 | |||||||||||||||||||||
| Provided | – | 4 | 4 | – | 4 | 4 | ||||||||||||||||||
| Utilised | (1 | ) | (2 | ) | (3 | ) | (1 | ) | (2 | ) | (3 | ) | ||||||||||||
| At 31 December 2013 | 1 | 2 | 3 | 1 | 2 | 3 | ||||||||||||||||||
| Provided | – | 9 | 9 | |||||||||||||||||||||
| Utilised | (1 | ) | (1 | ) | (2 | ) | ||||||||||||||||||
| At 31 December 2014 | – | 10 | 10 | |||||||||||||||||||||
2013 $m | 2012 $m | 2014 $m | 2013 $m | |||||||||||||||||||||
| Analysed as: | ||||||||||||||||||||||||
Current | 3 | 1 | 1 | 3 | ||||||||||||||||||||
Non-current | – | 1 | 9 | – | ||||||||||||||||||||
| 3 | 2 | 10 | 3 | |||||||||||||||||||||
The onerous management contracts provision relates to the unavoidable net cash outflows that are expected to be incurred under performance guarantees associated with certain management contracts. The non-current portion of the provision is expected to be utilised over the period to 2020.
Litigation during 2013 largely2014 relates to actions brought against the Group in the Americas region relating to System Fund activity and, during 2013, largely relates to the Greater China region and during 2012 in the Americas region.
21. Financial risk management
| 134 |
| 20. Financial risk management |
Overview
The Group’s treasury policy is to manage financial risks that arise in relation to underlying business needs. The activities of the treasury function are carried out in accordance with Board approved policies and are subject to regular audit. The treasury function does not operate as a profit centre.
The treasury function seeks to reduce the financial risks faced by the Group and manages liquidity to meet all foreseeable cash needs. Treasury activities may include money market investments, spot and forward foreign exchange instruments, currency swaps, interest rate swaps and forward rate agreements. One of the primary objectives of the Group’s treasury risk management policy is to mitigate the adverse impact of movements in interest rates and foreign exchange rates.
Market risk exposure
The US dollar is the predominant currency of the Group’s revenue and cash flows. Movements in foreign exchange rates can affect the Group’s reported profit, net assets and interest cover. To hedge translation exposure, 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.
From time to time, foreign exchange transaction exposure is managed by the forward purchase or sale of foreign currencies. Most significant exposures of the Group are in currencies that are freely convertible.
A general strengthening of the US dollar (specifically a five cent fall in the sterling:US dollar rate) would increase the Group’s profit before tax by an estimated $4.5m (2013 $4.1m, (2012 $2.8m, 2011 $3.3m)2012 $2.8m) and increase net assets by an estimated $29.1m (2013 $16.0m, (2012 increase of $1.8m, 2011 decrease of $10.4m)2012 $1.8m). Similarly, a five cent fall in the euro:US dollar rate would reduce the Group’s profit before tax by an estimated $2.2m (2013 $2.6m, (2012 $2.3m, 2011 $1.9m)2012 $2.3m) and decrease net assets by an estimated $10.9m (2013 $14.8m, (2012 $16.1m, 2011 $10.3m)2012 $16.1m).
Interest rate exposure is managed, using interest rate swaps if appropriate, within set parameters depending on the term of the debt, with a minimum fixed proportion of 25% of borrowings for each major currency. DueNo interest rate swaps were used during 2013 or 2014. Based on the year-end net debt position plus the $400m bilateral term loan drawn in 2015 to relatively lowfinance the Kimpton acquisition (see note 21), a one percentage point rise in US dollar interest rates would increase the annual net interest charge by $6.7m. A similar rise in euro interest rates would increase the annual net interest charge by approximately $0.9m, and a similar rise in sterling interest rates would reduce the level of the Group’s debt,annual net interest charge by approximately $0.7m. 100% of borrowings in major currencies were fixed rate debt at 31 December 2013.
Based on the year-end net debt position and given the underlying maturity profile of investments, borrowings and hedging instruments at that date, neither a one percentage point rise in US dollar, euro nor sterling interest rates would have a material impact on the annual net interest charge in the current or prior two years.
|
21. Financial risk managementcontinued
Liquidity risk exposure
The treasury function ensures that the Group has access to sufficient funds to allow the implementation of the strategy set by the Board. Medium and long-term borrowing requirements are met through the $1.07bn Syndicated Facility which expires in November 2016, through the £250m 6% bonds that are repayable on 9 December 2016 and through the £400m 3.875% bonds repayable on 28 November 2022. The bonds were issued under the Group’s £750m Medium Term Notes programme. Short-term borrowing requirements are met from drawings under bilateral bank facilities. The $1.07bn Syndicated Facility was undrawn at the year end.
The Syndicated Facility contains two financial covenants: interest cover and net debt divided by earnings before interest, tax, depreciation and amortisation (EBITDA). The Group ishas been in compliance with all of the financial covenants in its loan documents throughout the year, none of which is expected to present a material restriction on funding in the near future.
At the year end, the Group had cash of $134m$162m which is predominantly held in short-term deposits and cash funds which allow daily withdrawals of cash. The Group also had overdrafts of $107m as part of cash pooling arrangements (see note 17). Most of the Group’s funds are held in the UK or US, although $12m (2012 $7m)$4m (2013 $12m) is held in countries where repatriation is restricted as a result of foreign exchange regulations.
The Group had net liabilities of $74m$717m at 31 December 20132014 reflecting that its brands, in accordance with accounting standards, are not recorded on the balance sheet.
| 135 |
IHG Annual Report and Form 20-F 2014 Notes to the Group Financial Statementscontinued 20. Financial risk managementcontinued |
Credit risk exposure
Credit risk on treasury transactions is minimised by operating a policy on the investment of surplus cash that generally restricts counterparties to those with an A credit rating or better or those providing adequate security.
Notwithstanding that counterparties must have an A In order to manage the Group’s credit rating or better, during periods of significant financial market turmoil,risk exposure, the treasury function sets counterparty exposure limits are significantly reduced and counterpartyusing metrics including credit exposure reviews are broadened to includeratings, the relative placing of credit default swap pricings.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.
Capital risk management
The Group manages its capital to ensure that it will be able to continue as a going concern. The capital structure consists of net debt, issued share capital and reserves totalling $1,071m$808m at 31 December 2013 (2012 $1,382m)2014 (2013 $1,071m). The structure is managed to maintain an investment grade credit rating, to provide ongoing returns to shareholders and to service debt obligations, whilst maintaining maximum operational flexibility. A key characteristic of IHG’s managed and franchised business model is that it is highly cash generative, with a high return on capital employed. Surplus cash is either reinvested in the business, used to repay debt or returned to shareholders. The Group’s debt is monitored on the basis of a cash flow leverage ratio, being net debt divided by EBITDA, with the objective of maintaining an investment grade credit rating.
Hedging
Interest rate risk
The Group hedges its interest rate risk by ensuring that interest flows are fixed on at least 25% of its borrowings in major currencies. If required, the Group uses interest rate swaps to manage the exposure although none were held at either 31 Decemberduring 2013 or 31 December 2012.2014. The Group designates interest rate swaps as cash flow hedges. At both 31 December 2013 and 31 December 2012, the Group’s interest flows were 100% fixed due to the low interest environment and profile of the Group’s debt.
Foreign currency risk
The Group is exposed to foreign currency risk on income streams denominated in foreign currencies. From time to time, the Group hedges a portion of forecast foreign currency income by taking out forward exchange contracts. The designated risk is the spot foreign exchange risk. There were no such contracts in place at either 31 December 20132014 or 31 December 2012.2013.
Hedge of net investment in foreign operations
The Group designates its foreign currency bank borrowings and currency derivatives as net investment hedges of foreign operations. The designated risk is the spot foreign exchange risk for loans and short dated derivatives and the forward risk for the seven-year currency swaps.derivatives. The interest on these financial instruments is taken through financial income or expense except for the seven-year currency swaps where interest is taken to the currency translation reserve.expense.
At 31 December 2013,2014, the Group held no currency swaps with a principal of $415m (2012(2013 $415m) and short dated foreign exchange swaps with principals of€75m (2012220m (2013€75m) and $100m (2012 $170m)$31m (2013 $100m) (see note 2322 for further details). The maximum amount of foreign exchange derivatives held during the year as net investment hedges and measured at calendar quarter ends were currency swaps with a principal of $415m (2012(2013 $415m) and short dated foreign exchange swaps with principals of€75m (2012220m (2013€75m) and $310m (2012 $350m)$165m (2013 $310m).
Hedge effectiveness is measured at calendar quarter ends. No ineffectiveness arose in respect of either the Group’s cash flow or net investment hedges during the current or prior year.
136 |
| 20. Financial risk managementcontinued |
21. Financial risk managementcontinued
Liquidity risk
The following are the undiscounted contractual cash flows of financial liabilities, including interest payments:
Less than 1 year $m | Between 1 and 2 years $m | Between 2 and 5 years $m | More than 5 years $m | Total $m | Less than $m | Between 1 and $m | Between 2 and $m | More than $m | Total $m | |||||||||||||||||||||||||||||||||||
31 December 2013 | ||||||||||||||||||||||||||||||||||||||||||||
31 December 2014 | �� | |||||||||||||||||||||||||||||||||||||||||||
| Non-derivative financial liabilities: | ||||||||||||||||||||||||||||||||||||||||||||
Bank overdrafts | 107 | – | – | – | 107 | |||||||||||||||||||||||||||||||||||||||
Unsecured bank loans | 361 | – | – | – | 361 | |||||||||||||||||||||||||||||||||||||||
Secured bank loans | 3 | – | – | – | 3 | |||||||||||||||||||||||||||||||||||||||
£250m 6% bonds 2016 | 23 | 414 | – | – | 437 | |||||||||||||||||||||||||||||||||||||||
£400m 3.875% bonds 2022 | 24 | 24 | 73 | 697 | 818 | |||||||||||||||||||||||||||||||||||||||
Finance lease obligations | 16 | 16 | 48 | 3,284 | 3,364 | |||||||||||||||||||||||||||||||||||||||
Trade and other payables | 769 | 174 | 194 | 345 | 1,482 | |||||||||||||||||||||||||||||||||||||||
Provisions | 1 | 9 | – | – | 10 | |||||||||||||||||||||||||||||||||||||||
| Derivative financial liabilities: | ||||||||||||||||||||||||||||||||||||||||||||
Forward foreign exchange contracts | (2 | ) | – | – | – | (2 | ) | |||||||||||||||||||||||||||||||||||||
Less than $m | Between 1 and $m | Between 2 and $m | More than $m | Total $m | ||||||||||||||||||||||||||||||||||||||||
| 31 December 2013 (restated1) | ||||||||||||||||||||||||||||||||||||||||||||
| Non-derivative financial liabilities: | ||||||||||||||||||||||||||||||||||||||||||||
Bank overdrafts | 114 | – | – | – | 114 | |||||||||||||||||||||||||||||||||||||||
Secured bank loans | – | 4 | – | – | 4 | – | 4 | – | – | 4 | ||||||||||||||||||||||||||||||||||
£250m 6% bonds 2016 | 25 | 25 | 438 | – | 488 | 25 | 25 | 438 | – | 488 | ||||||||||||||||||||||||||||||||||
£400m 3.875% bonds 2022 | 26 | 26 | 77 | 764 | 893 | 26 | 26 | 77 | 764 | 893 | ||||||||||||||||||||||||||||||||||
Finance lease obligations | 16 | 16 | 48 | 3,300 | 3,380 | 16 | 16 | 48 | 3,300 | 3,380 | ||||||||||||||||||||||||||||||||||
Trade and other payables | 748 | 162 | 193 | 289 | 1,392 | 748 | 162 | 193 | 289 | 1,392 | ||||||||||||||||||||||||||||||||||
Provisions | 3 | – | – | – | 3 | 3 | – | – | – | 3 | ||||||||||||||||||||||||||||||||||
| Derivative financial liabilities: | ||||||||||||||||||||||||||||||||||||||||||||
Forward foreign exchange contracts | (1 | ) | – | – | – | (1 | ) | (1 | ) | – | – | – | (1 | ) | ||||||||||||||||||||||||||||||
Currency swaps – outflows | 26 | 26 | 441 | – | 493 | 26 | 26 | 441 | – | 493 | ||||||||||||||||||||||||||||||||||
– inflows | (25 | ) | (25 | ) | (438 | ) | – | (488 | ) | (25 | ) | (25 | ) | (438 | ) | – | (488 | ) | ||||||||||||||||||||||||||
Less than 1 year $m | Between 1 and 2 years $m | Between 2 and 5 years $m | More than 5 years $m | Total $m | ||||||||||||||||||||||||||||||||||||||||
| 31 December 2012 | ||||||||||||||||||||||||||||||||||||||||||||
| Non-derivative financial liabilities: | ||||||||||||||||||||||||||||||||||||||||||||
Secured bank loans | – | – | 5 | – | 5 | |||||||||||||||||||||||||||||||||||||||
£250m 6% bonds 2016 | 24 | 24 | 453 | – | 501 | |||||||||||||||||||||||||||||||||||||||
£400m 3.875% bonds 2022 | 25 | 25 | 75 | 772 | 897 | |||||||||||||||||||||||||||||||||||||||
Finance lease obligations | 16 | 16 | 48 | 3,316 | 3,396 | |||||||||||||||||||||||||||||||||||||||
Trade and other payables | 709 | 154 | 191 | 285 | 1,339 | |||||||||||||||||||||||||||||||||||||||
Provisions | 1 | 1 | – | – | 2 | |||||||||||||||||||||||||||||||||||||||
| Derivative financial liabilities: | ||||||||||||||||||||||||||||||||||||||||||||
Forward foreign exchange contracts | (2 | ) | – | – | – | (2 | ) | |||||||||||||||||||||||||||||||||||||
Currency swaps – outflows | 26 | 26 | 467 | – | 519 | |||||||||||||||||||||||||||||||||||||||
– inflows | (24 | ) | (24 | ) | (453 | ) | – | (501 | ) | |||||||||||||||||||||||||||||||||||
Credit risk The carrying amount of financial assets represents the maximum exposure to credit risk. |
| |||||||||||||||||||||||||||||||||||||||||||
2013 $m | 2012 $m | |||||||||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents | 134 | 195 | ||||||||||||||||||||||||||||||||||||||||||
| Equity securities available-for-sale | 136 | 112 | ||||||||||||||||||||||||||||||||||||||||||
| Derivative financial instruments | 1 | 2 | ||||||||||||||||||||||||||||||||||||||||||
| Loans and receivables: | ||||||||||||||||||||||||||||||||||||||||||||
Other financial assets | 112 | 49 | ||||||||||||||||||||||||||||||||||||||||||
Trade and other receivables, excluding prepayments | 358 | 362 | ||||||||||||||||||||||||||||||||||||||||||
| 741 | 720 | |||||||||||||||||||||||||||||||||||||||||||
1 Restated for the adoption of ‘Offsetting Financial Assets and Financial Liabilities’ (Amendments to IAS 32), see page 107.
Trade and other payables includes the cash flows relating to the future redemption liability of the Group’s loyalty programme. The repayment profile has been determined by actuaries based on expected redemption profiles and could in reality be different from expectations.
Credit risk
The carrying amount of financial assets represents the maximum exposure to credit risk.
2014 $m | 2013 (restated1) $m | |||||||
| Cash and cash equivalents | 162 | 248 | ||||||
| Equity securities available-for-sale | 144 | 136 | ||||||
| Derivative financial instruments | 2 | 1 | ||||||
| Loans and receivables: | ||||||||
Other financial assets | 113 | 112 | ||||||
Trade and other receivables, excluding prepayments | 388 | 358 | ||||||
| 809 | 855 | |||||||
1 Restated for the adoption of ‘Offsetting Financial Assets and Financial Liabilities’ (Amendments to IAS 32), see page 107.
|
IHG Annual Report and Form 20-F 2014
|
22.21. Loans and other borrowings
2014 | 2013 (restated1) | |||||||||||||||||||||||||
Current $m | Non-current $m | Total $m | Current $m | Non-current $m | Total $m | |||||||||||||||||||||
| Bank overdrafts | 107 | – | 107 | 114 | – | 114 | ||||||||||||||||||||
| Unsecured bank loans | – | 359 | 359 | – | – | – | ||||||||||||||||||||
| Secured bank loan | 3 | – | 3 | – | 4 | 4 | ||||||||||||||||||||
| Finance lease obligations | 16 | 202 | 218 | 16 | 199 | 215 | ||||||||||||||||||||
| £250m 6% bonds 2016 | – | 390 | 390 | – | 412 | 412 | ||||||||||||||||||||
| £400m 3.875% bonds 2022 | – | 618 | 618 | – | 654 | 654 | ||||||||||||||||||||
| Total borrowings | 126 | 1,569 | 1,695 | 130 | 1,269 | 1,399 | ||||||||||||||||||||
| Denominated in the following currencies: | ||||||||||||||||||||||||||
| Sterling | 20 | 1,008 | 1,028 | 17 | 1,066 | 1,083 | ||||||||||||||||||||
| US dollars | 87 | 470 | 557 | 96 | 199 | 295 | ||||||||||||||||||||
| Euros | 12 | 91 | 103 | 11 | – | 11 | ||||||||||||||||||||
| Other | 7 | – | 7 | 6 | 4 | 10 | ||||||||||||||||||||
| 126 | 1,569 | 1,695 | 130 | 1,269 | 1,399 | |||||||||||||||||||||
1 Restated for the adoption of ‘Offsetting Financial Assets and Financial Liabilities’ (Amendments to IAS 32), see page 107.
| 2013 | 2012 | |||||||||||||||||||||||
Current $m | Non-current $m | Total $m | Current $m | Non-current $m | Total $m | |||||||||||||||||||
| Secured bank loans | – | 4 | 4 | – | 5 | 5 | ||||||||||||||||||
| Finance lease obligations | 16 | 199 | 215 | 16 | 196 | 212 | ||||||||||||||||||
| £250m 6% bonds 2016 | – | 412 | 412 | – | 403 | 403 | ||||||||||||||||||
| £400m 3.875% bonds 2022 | – | 654 | 654 | – | 638 | 638 | ||||||||||||||||||
| Total borrowings | 16 | 1,269 | 1,285 | 16 | 1,242 | 1,258 | ||||||||||||||||||
| Denominated in the following currencies: | ||||||||||||||||||||||||
| Sterling | – | 1,066 | 1,066 | – | 1,041 | 1,041 | ||||||||||||||||||
| US dollars | 16 | 199 | 215 | 16 | 196 | 212 | ||||||||||||||||||
| Other | – | 4 | 4 | – | 5 | 5 | ||||||||||||||||||
| 16 | 1,269 | 1,285 | 16 | 1,242 | 1,258 | |||||||||||||||||||
Bank overdrafts
Bank overdrafts are matched by equivalent amounts of cash and cash equivalents under the Group’s cash pooling arrangements (see note 17 for further details).
Unsecured bank loans
Unsecured bank loans are borrowings under the Group’s Syndicated Facility. Amounts are classified as non-current when the facilities have more than 12 months to expiry. A variable rate of interest is payable on amounts drawn under the facility, which was 1.2% at 31 December 2014.
Secured bank loansloan
The secured bank loan relates to a New Zealand dollar mortgage which is secured on the related hotel property to which it relates. Non-current amounts include $4m (2012 $5m)property. $3m is repayable by instalments.instalments (2013 $4m).
Finance lease obligations
Finance lease obligations, which relate to the 99-year lease (of which 9291 years remain) on the InterContinental Boston, are payable as follows:
| 2013 | 2012 | 2014 | 2013 | |||||||||||||||||||||||||||||||
Minimum lease payments $m | Present value of payments $m | Minimum lease payments $m | Present value of payments $m | Minimum lease payments $m | Present value of payments $m | Minimum lease payments $m | Present value of payments $m | |||||||||||||||||||||||||||
| Less than one year | 16 | 16 | 16 | 16 | 16 | 16 | 16 | 16 | ||||||||||||||||||||||||||
| Between one and five years | 64 | 48 | 64 | 48 | 64 | 48 | 64 | 48 | ||||||||||||||||||||||||||
| More than five years | 3,300 | 151 | 3,316 | 148 | 3,284 | 154 | 3,300 | 151 | ||||||||||||||||||||||||||
| 3,380 | 215 | 3,396 | 212 | 3,364 | 218 | 3,380 | 215 | |||||||||||||||||||||||||||
| Less: amount representing finance charges | (3,165 | ) | – | (3,184 | ) | – | (3,146 | ) | – | (3,165 | ) | – | ||||||||||||||||||||||
| 215 | 215 | 212 | 212 | 218 | 218 | 215 | 215 | |||||||||||||||||||||||||||
The Group has the option to extend the term of the lease for two additional 20-year terms. Payments under the lease step up at regular intervals over the lease term. Interest is payable on the obligation at a fixed rate of 9.7%.
£250m 6% bonds 2016
The 6% fixed interest sterling bonds were issued on 9 December 2009 and are repayable in full on 9 December 2016. Interest is payable annually on 9 December in each year commencing 9 December 2010 to the maturity date. The bonds were initially priced at 99.465% of face value and are unsecured. Currency swaps were transacted at the same time the bonds were issued in order to swap the proceeds and interest flows into US dollars and were subsequently closed out during 2014 (see note 2322 for further details).
£400m 3.875% bonds 2022
The 3.875% fixed interest sterling bonds were issued on 28 November 2012 and are repayable on 28 November 2022. Interest is payable annually on 28 November in each year commencing 28 November 2013 to the maturity date. The bonds were initially priced at 98.787% of face value and are unsecured.
138 |
| 21. Loans and other borrowingscontinued |
22. Loans and other borrowingscontinued
Facilities provided by banks
| 2013 | 2012 | 2014 | 2013 | |||||||||||||||||||||||||||||||||||||||||||||||
Utilised $m | Unutilised $m | Total $m | Utilised $m | Unutilised $m | Total $m | Utilised $m | Unutilised $m | Total $m | Utilised $m | Unutilised $m | Total $m | |||||||||||||||||||||||||||||||||||||||
| Committed | 4 | 1,070 | 1,074 | 5 | 1,070 | 1,075 | 364 | 709 | 1,073 | 4 | 1,070 | 1,074 | ||||||||||||||||||||||||||||||||||||||
| Uncommitted | – | 80 | 80 | – | 96 | 96 | 4 | 62 | 66 | – | 80 | 80 | ||||||||||||||||||||||||||||||||||||||
| 4 | 1,150 | 1,154 | 5 | 1,166 | 1,171 | 368 | 771 | 1,139 | 4 | 1,150 | 1,154 | |||||||||||||||||||||||||||||||||||||||
2013 $m | 2012 $m | 2014 $m | 2013 $m | |||||||||||||||||||||||||||||||||||||||||||||||
| Unutilised facilities expire: | ||||||||||||||||||||||||||||||||||||||||||||||||||
Within one year | 80 | 96 | 62 | 80 | ||||||||||||||||||||||||||||||||||||||||||||||
After two but before five years | 1,070 | 1,070 | 709 | 1,070 | ||||||||||||||||||||||||||||||||||||||||||||||
| 1,150 | 1,166 | 771 | 1,150 | |||||||||||||||||||||||||||||||||||||||||||||||
Utilised facilities are calculated based on actual drawings and may not agree to the carrying value of loans held at amortised cost.
23.Kimpton acquisition
Subsequent to the year end, a $400m bilateral term loan was drawn down to finance the acquisition of Kimpton (see note 33). The loan has a term of six months plus two six-month extension periods. A variable rate of interest is payable on the loan which has identical covenants to the Syndicated Facility.
22. Derivative financial instruments
| 2013 $m | 2012 $m | 2014 $m | 2013 $m | |||||||||||||
| Currency swaps | 11 | 19 | – | 11 | ||||||||||||
| Forward foreign exchange contracts | (1 | ) | (2 | ) | (2 | ) | (1 | ) | ||||||||
| 10 | 17 | (2 | ) | 10 | ||||||||||||
| Analysed as: | ||||||||||||||||
Current assets | (1 | ) | (2 | ) | (2 | ) | (1 | ) | ||||||||
Non-current liabilities | 11 | 19 | – | 11 | ||||||||||||
| 10 | 17 | (2 | ) | 10 | ||||||||||||
Derivatives are recorded at their fair values as set out in note 24.23.
Currency swaps
At 31 December 2013,2014, the Group held no currency swaps. The currency swaps withheld at 31 December 2013 (with a principal of $415m (2012 $415m). These swaps were transacted at the same time as the £250m 6% bonds were issued in December 2009 in order to swap the bonds’ proceeds and interest flows into US dollars. Under the terms of the swaps, $415m was borrowed and £250m deposited for seven years at a fixed exchange rate of £1 = $1.66.£1=$1.66. The currency swaps were closed out in full during 2014 due to a reduction in the value of assets available for net investment hedging with $4m received as consideration on close of out the swaps. The interest expense and principal on the £250m 6% bonds are now subject to currency fluctuations. At 31 December 2013, the fair value of the currency swap comprisescomprised two components: $2m (2012 $11m) relating to the repayment of the underlying principal and $9m (2012 $8m) relating to interest payments. The element relating to the underlying principal iswas disclosed as a component of net debt in 2013 (see note 25)24). The currency swaps arewere designated as net investment hedges.
Forward foreign exchange contracts
At 31 December 2013,2014, the Group held short dated foreign exchange swaps with principalstotal principal values of€75m (2012220m (2013€75m) and $100m (2012 $170m)$31m (2013 $100m). The swaps are used to manage sterling surplus cash and reduce euro and US dollar borrowings whilst maintaining operational flexibility. The foreign exchange swaps have been designated as net investment hedges.
|
IHG Annual Report and Form 20-F 2014
|
24.23. Fair value measurement
Fair values
The following table compares carrying amounts and fair values of the Group’s financial assets and liabilities:
| 2013 | 2012 | 2014 | 2013 (restated¹) | |||||||||||||||||||||||||||||||||||||||
| Note | Carrying value $m | Fair value $m | Carrying value $m | Fair value $m | Note | Carrying $m | Fair $m | Carrying $m | Fair $m | |||||||||||||||||||||||||||||||||
Financial assets | ||||||||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents | 18 | 134 | 134 | 195 | 195 | 17 | 162 | 162 | 248 | 248 | ||||||||||||||||||||||||||||||||
| Equity securities available-for-sale1 | 15 | 136 | 136 | 112 | 112 | |||||||||||||||||||||||||||||||||||||
| Equity securities available-for-sale2 | 15 | 144 | 144 | 136 | 136 | |||||||||||||||||||||||||||||||||||||
| Loans and receivables: | ||||||||||||||||||||||||||||||||||||||||||
Other financial assets | 15 | 112 | 112 | 49 | 49 | 15 | 113 | 113 | 112 | 112 | ||||||||||||||||||||||||||||||||
Trade and other financial receivables, excluding prepayments | 17 | 358 | 358 | 362 | 362 | 16 | 388 | 388 | 358 | 358 | ||||||||||||||||||||||||||||||||
| Derivatives1 | 23 | 1 | 1 | 2 | 2 | |||||||||||||||||||||||||||||||||||||
| Derivatives2 | 22 | 2 | 2 | 1 | 1 | |||||||||||||||||||||||||||||||||||||
| 741 | 741 | 720 | 720 | 809 | 809 | 855 | 855 | |||||||||||||||||||||||||||||||||||
Financial liabilities | ||||||||||||||||||||||||||||||||||||||||||
| £250m 6% bonds 2016 | 22 | (412 | ) | (461 | ) | (403 | ) | (456 | ) | 21 | (390 | ) | (423 | ) | (412 | ) | (461 | ) | ||||||||||||||||||||||||
| £400m 3.875% bonds 2022 | 22 | (654 | ) | (650 | ) | (638 | ) | (652 | ) | 21 | (618 | ) | (659 | ) | (654 | ) | (650 | ) | ||||||||||||||||||||||||
| Finance lease obligations | 22 | (215 | ) | (233 | ) | (212 | ) | (268 | ) | 21 | (218 | ) | (277 | ) | (215 | ) | (233 | ) | ||||||||||||||||||||||||
| Other borrowings | 22 | (4 | ) | (4 | ) | (5 | ) | (5 | ) | |||||||||||||||||||||||||||||||||
| Unsecured bank loans | 21 | (359 | ) | (359 | ) | – | – | |||||||||||||||||||||||||||||||||||
| Secured bank loan | 21 | (3 | ) | (3 | ) | (4 | ) | (4 | ) | |||||||||||||||||||||||||||||||||
| Bank overdrafts | 21 | (107 | ) | (107 | ) | (114 | ) | (114 | ) | |||||||||||||||||||||||||||||||||
| Trade and other payables | 19 | (1,322 | ) | (1,322 | ) | (1,272 | ) | (1,272 | ) | 18 | (1,396 | ) | (1,396 | ) | (1,322 | ) | (1,322 | ) | ||||||||||||||||||||||||
| Derivatives1 | 23 | (11 | ) | (11 | ) | (19 | ) | (19 | ) | |||||||||||||||||||||||||||||||||
| Derivatives2 | 22 | – | – | (11 | ) | (11 | ) | |||||||||||||||||||||||||||||||||||
| Provisions | 20 | (3 | ) | (3 | ) | (2 | ) | (2 | ) | 19 | (10 | ) | (10 | ) | (3 | ) | (3 | ) | ||||||||||||||||||||||||
| (2,621 | ) | (2,684 | ) | (2,551 | ) | (2,674 | ) | (3,101 | ) | (3,234 | ) | (2,735 | ) | (2,798 | ) | |||||||||||||||||||||||||||
1 Restated for the adoption of ‘Offsetting Financial Assets and Financial Liabilities’ (Amendments to IAS 32), see page 107.
2 Financial assets and liabilities which are measured at fair value.
There are no other assets or liabilities measured at fair value on a recurring or non-recurring basis, or for which fair value is disclosed.
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 other borrowingsthe secured and unsecured bank loans approximates book value as interest rates reset to market rates on a frequent basis. The fair value of trade and other receivables, trade and other payables and current provisions approximates to their carrying value, including the future redemption liability of the Group’s loyalty programme.
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. |
| 2013 | 2012 | 2014 | 2013 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Level 1 $m | Level 2 $m | Level 3 $m | Total $m | Level 1 $m | Level 2 $m | Level 3 $m | Total $m | Level 1 $m | Level 2 $m | Level 3 $m | Total $m | Level 1 $m | Level 2 $m | Level 3 $m | Total $m | |||||||||||||||||||||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity securities available-for-sale: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Quoted equity shares | 9 | – | – | 9 | 18 | – | – | 18 | 16 | – | – | 16 | 9 | – | – | 9 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Unquoted equity shares | – | – | 127 | 127 | – | – | 94 | 94 | – | – | 128 | 128 | – | – | 127 | 127 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivatives | – | 1 | – | 1 | – | 2 | – | 2 | – | 2 | – | 2 | – | 1 | – | 1 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| £250m 6% bonds 2016 | (461 | ) | – | – | (461 | ) | (456 | ) | – | – | (456 | ) | (423 | ) | – | – | (423 | ) | (461 | ) | – | – | (461 | ) | ||||||||||||||||||||||||||||||||||||||||||
| £400m 3.875% bonds 2022 | (650 | ) | – | – | (650 | ) | (652 | ) | – | – | (652 | ) | (659 | ) | – | – | (659 | ) | (650 | ) | – | – | (650 | ) | ||||||||||||||||||||||||||||||||||||||||||
| Finance lease obligations | – | (233 | ) | – | (233 | ) | – | (268 | ) | – | (268 | ) | – | (277 | ) | – | (277 | ) | – | (233 | ) | – | (233 | ) | ||||||||||||||||||||||||||||||||||||||||||
| Derivatives | – | (11 | ) | – | (11 | ) | – | (19 | ) | – | (19 | ) | – | – | – | – | – | (11 | ) | – | (11 | ) | ||||||||||||||||||||||||||||||||||||||||||||
There were no transfers between Level 1 and Level 2 fair value measurements during the year and no transfers into and out of Level 3.
140 |
| 23. Fair value measurementcontinued |
24. Fair value measurementcontinued
The fair value of quoted equity shares and the bonds is based on their quoted market price.
Derivatives are fair valued using discounted future cash flows, taking into consideration exchange rates prevailing on the last day of the reporting period and interest rates from observable swap curves. As the Group’s derivatives are not cash collaterised, a valuation adjustment is made for credit risk, being counterparty risks in respect of derivative assets and own credit risks in respect of derivative liabilities. At 31 December 2013, the interest rates used to fair value the derivative liabilitiescurrency swaps ranged from 1.4% to 2.5%, depending on the currency and the term of the derivative contract.
Finance lease obligations relate to the lease of the InterContinental Boston and are fair valued by discounting the future cash flows payable under the loan, which are fixed, at a risk adjusted long termlong-term interest rate. The interest rate used to discount the cash flows at 31 December 20132014 was 7.4% (2013 8.4% (2012 7.4%).
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.loss-making or a recent property valuation is available. The average P/E ratio for the year was 23.924.0 and a non-marketability factor of 30% is applied. A 10% increase in the average P/E ratio would result in a $5m$3m increase (2012(2013 $5m) in the fair value of the investments and a 10% decrease in the average P/E ratio would result in a $5m$3m decrease (2012(2013 $5m) in the fair value of the investments. A 10% increase in net assets would result in a $5m$7m increase (2012 $2m)(2013 $5m) in the fair value of the investments and a 10% decrease in net assets would result in a $5m$7m decrease (2012 $2m)(2013 $5m) in the fair value of the investments.
The following table reconciles the movements in the fair values of investments classified as Level 3 during the year:
2013 $m | 2012 $m | 2014 $m | 2013 $m | |||||||||||||
| At 1 January | 94 | 97 | 127 | 94 | ||||||||||||
| Additions | 8 | – | 5 | 8 | ||||||||||||
| Repaid | – | (1 | ) | (8 | ) | – | ||||||||||
| Valuation gains/(losses) recognised in other comprehensive income | 25 | (2 | ) | |||||||||||||
| Valuation gains recognised in other comprehensive income | 7 | 25 | ||||||||||||||
| Exchange and other adjustments | (3 | ) | – | |||||||||||||
| At 31 December | 127 | 94 | 128 | 127 | ||||||||||||
| 24. Net debt | ||||||||||||||||
2014 $m | 2013 (restated1) $m | |||||||||||||||
| Cash and cash equivalents | 162 | 248 | ||||||||||||||
| Loans and other borrowings – current | (126 | ) | (130 | ) | ||||||||||||
– non-current | (1,569 | ) | (1,269 | ) | ||||||||||||
| Derivatives hedging debt values (note 22) | – | (2 | ) | |||||||||||||
| Net debt | (1,533 | ) | (1,153 | ) | ||||||||||||
| Movement in net debt | ||||||||||||||||
| Net decrease in cash and cash equivalents, net of overdrafts | (70 | ) | (58 | ) | ||||||||||||
| Add back cash flows in respect of other components of net debt: | ||||||||||||||||
(Increase)/decrease in other borrowings | (382 | ) | 1 | |||||||||||||
Close-out of currency swaps | (4 | ) | – | |||||||||||||
| Increase in net debt arising from cash flows | (456 | ) | (57 | ) | ||||||||||||
| Non-cash movements: | ||||||||||||||||
Finance lease obligations | (3 | ) | (3 | ) | ||||||||||||
Exchange and other adjustments | 79 | (19 | ) | |||||||||||||
| Increase in net debt | (380 | ) | (79 | ) | ||||||||||||
| Net debt at beginning of the year | (1,153 | ) | (1,074 | ) | ||||||||||||
| Net debt at end of the year | (1,533 | ) | (1,153 | ) | ||||||||||||
25. Net debt1 Restated for the adoption of ‘Offsetting Financial Assets and Financial Liabilities’ (Amendments to IAS 32), see page 107.
| 2013 $m | 2012 $m | |||||||
| Cash and cash equivalents | 134 | 195 | ||||||
| Loans and other borrowings – current | (16 | ) | (16 | ) | ||||
– non-current | (1,269 | ) | (1,242 | ) | ||||
| Derivatives hedging debt values (note 23) | (2 | ) | (11 | ) | ||||
| Net debt | (1,153 | ) | (1,074 | ) | ||||
| Movement in net debt | ||||||||
| Net (decrease)/increase in cash and cash equivalents | (58 | ) | 15 | |||||
| Add back cash flows in respect of other components of net debt: | ||||||||
Issue of long-term bonds | – | (632 | ) | |||||
Decrease in other borrowings | 1 | 99 | ||||||
| Increase in net debt arising from cash flows | (57 | ) | (518 | ) | ||||
| Non-cash movements: | ||||||||
Finance lease obligations | (3 | ) | (3 | ) | ||||
Exchange and other adjustments | (19 | ) | (15 | ) | ||||
| Increase in net debt | (79 | ) | (536 | ) | ||||
| Net debt at beginning of the year | (1,074 | ) | (538 | ) | ||||
| Net debt at end of the year | (1,153 | ) | (1,074 | ) | ||||
NetIn 2013, net debt includesincluded the exchange element of the fair value of currency swaps that fixfixed the value of the Group’s £250m 6% bonds at $415m. An equal and opposite exchange adjustment on the retranslation of the £250m 6% bonds iswas included in non-current loans and other borrowings. The currency swaps were closed out in 2014 (see note 22).
|
IHG Annual Report and Form 20-F 2014
|
26.25. Retirement benefits
UK
Historically UK retirement and death in service benefits arehave been provided for eligible Group employees in the UK principally by the InterContinental Hotels UK Pension Plan, which is HM Revenue & Customs registered.has both defined benefit and defined contribution sections. The defined benefit section of the plan, which provides benefits based on final salary and is funded, closed to new entrants in 2002 and closed to future accrual for current members with effect from 1 July 2013. New members, including those who have been auto-enrolled since 1 September 2013, are provided with defined contribution arrangements as are members of the defined benefit section since 1 July 2013. The assets of the plan are held in a self-administered trust fund which is governed by a Trustee Board who are responsible for the administration and investment strategy of the plan. The Trustee Board comprises a combination of independent, company nominated and member nominated trustees, and is assisted by professional advisers as and when required. As required by the Pensions Act 2004, the plan is required to meet a Statutory Funding Objective in respect of its defined benefit obligations and a formal recovery plan is required to meet a funding shortfall. The overall operation of the plan iswas subject to the oversight of The Pensions Regulator.
Ona buy-in transaction on 15 August 2013 the Trustee Board completed a buy-in transaction whereby the assets of the plan were invested in a bulk purchase annuity policy with the insurer Rothesay Life under which the benefits payable to defined benefit members are nowbecame fully insured. The insurance policy was purchased using the existing assets ofOn 31 October 2014, the plan and a final company contribution of £5m. It iscompleted the intention of the Trustee Board that the plan will move to a full buy-out as soon as practical,of the defined benefit section, following which the insurance company willRothesay Life has become fully and directly responsible for the pension payments. Under the most recent recovery plan, the company agreed to make additional contributions of £130m by 31 July 2014; in addition to the £5m referred to above, £55m was paid in 2012 and a further amount of £60m was paid into a funding trust (the IHG Funding Trust) during the year. £30mobligations. On completion of the funding trust payments occurred on the sale of the InterContinental London Park Lane in May 2013, over which there was previously a charge for the same amount in favour of the pension plan. As the buy-in transaction has resulted inbuy-out, the defined benefit obligations being fully insured,assets (comprising the company has no further contributions to makeRothesay Life insurance policy) and £57m has been returnedmatching defined benefit liabilities were derecognised from the Group statement of financial position. The buy-out transaction also triggered the return to the company fromCompany of the funding trust. It is expected£3m that the remaining £3m heldremained in the funding trust will be returnedIHG Funding Trust.
On 6 August 2014, members of the defined contribution section of the plan were transferred to a new mirror plan, the IHG UK Defined Contribution Pension Plan. Existing and new employees who are eligible for pension benefits in the UK, including those who have been auto-enrolled since 1 September 2013, are provided with defined contribution arrangements under this plan; benefits are based on each individual member’s personal account.
Both plans are HM Revenue & Customs registered and governed by a Trustee Board which comprises a combination of independent and company nominated trustees, assisted by professional advisers as and when required. The overall operation of the plans is subject to the company on completionoversight of The Pensions Regulator. The Trustee Board is currently in the planned buy-out.process of winding-up the InterContinental Hotels UK Pension Plan.
In addition to the above, additional benefits are provided to certain members of the defined benefit section of the planan unfunded pension arrangement who arewere affected by lifetime or annual allowances throughunder the former defined benefit arrangements. Accrual under this arrangement ceased with effect from 1 July 2013. In March 2014, the Company made an offer to each member to cash-out their pension entitlement by means of a one-off lump sum cash payment. Members had until 30 June 2014 to accept the offer with the Company reserving the right to revoke any acceptances up to the date of payment. In the event, cash payments totalling £27m were made to the accepting members on 28 July 2014 (with an additional £7m deferred for payment until 2015), thereby extinguishing approximately 70% of the unfunded pension arrangement. The unfunded pension arrangement also held a charge over the InterContinental London Park Lane which, on sale of the hotel, was replaced with aobligations. A charge over certain ring-fenced bank accounts totalling £31m at 31 December 2014 (see note 15). is currently held as security on behalf of the remaining members of the unfunded arrangement.
US and other
The Group also maintains the following US-based defined benefit plans; the funded Inter-Continental Hotels Pension Plan, unfunded Inter-Continental Hotels Non-qualified Pension Plans and unfunded Inter-Continental Hotels Corporation Postretirement Medical, Dental, Vision and Death Benefit Plan. All plans are closed to new members. In respect of the funded plan, an Investment Committee has responsibility for the oversight and management of the Plan’splan’s assets, which are held in a separate trust. The Committee comprises senior company employees and is assisted by professional advisers as and when required. The company currently makes contributions that equal or exceed the minimum funding amounts required by the Employee Retirement Income and Security Act of 1974 (‘ERISA’). The investment objective is to achieve full funding over time by following a specified ‘glide path approach’ which results in a progressive switching from return seeking assets to liability-matching assets as the funded status of the plan increases. During the year, the funded status reached 80%85% which triggered a further de-risking of the investment portfolio.
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.
In respect of the defined benefit plans, the amounts recognised in the Group income statement, in administrative expenses, are:
| Pension plans | Pension plans | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| UK | US and other | Post-employment benefits | Total | UK | US and other | Post-employment benefits | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2013 $m | 2012 (restated1) $m | 2011 (restated1) $m | 2013 $m | 2012 (restated1) $m | 2011 (restated1) $m | 2013 $m | 2012 $m | 2011 $m | 2013 $m | 2012 (restated1) $m | 2011 (restated1) $m | 2014 $m | 2013 $m | 2012 $m | 2014 $m | 2013 $m | 2012 $m | 2014 $m | 2013 $m | 2012 $m | 2014 $m | 2013 $m | 2012 $m | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Current service cost | 2 | 5 | 6 | 1 | 1 | 1 | – | – | – | 3 | 6 | 7 | – | 2 | 5 | 1 | 1 | 1 | – | – | – | 1 | 3 | 6 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Past service cost | – | – | – | 1 | – | – | – | – | – | 1 | – | – | – | – | – | – | 1 | – | – | – | – | – | 1 | – | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net interest expense | – | 1 | 6 | 3 | 3 | 3 | 1 | 1 | 1 | 4 | 5 | 10 | 2 | – | 1 | 3 | 3 | 3 | 1 | 1 | 1 | 6 | 4 | 5 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Administration costs | 1 | 1 | 1 | 1 | 1 | 1 | – | – | – | 2 | 2 | 2 | 3 | 1 | 1 | – | 1 | 1 | – | – | – | 3 | 2 | 2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating profit before exceptional items | 3 | 7 | 13 | 6 | 5 | 5 | 1 | 1 | 1 | 10 | 13 | 19 | 5 | 3 | 7 | 4 | 6 | 5 | 1 | 1 | 1 | 10 | 10 | 13 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exceptional items: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Settlement loss | 147 | – | – | – | – | – | – | – | – | 147 | – | – | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Past service gain | – | – | (28 | ) | – | – | – | – | – | – | – | – | (28 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Settlement cost | 6 | 147 | – | – | – | – | – | – | – | 6 | 147 | – | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 150 | 7 | (15 | ) | 6 | 5 | 5 | 1 | 1 | 1 | 157 | 13 | (9 | ) | 11 | 150 | 7 | 4 | 6 | 5 | 1 | 1 | 1 | 16 | 157 | 13 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 25. Retirement benefitscontinued |
The settlement losscost in 2014 results from the partial cash-out of the UK unfunded pension arrangements and comprises 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 operating items in the Group statement of cash flows.
The settlement cost in 2013 resulted from the buy-in transaction described aboveon the previous page and comprisescomprised a past service cost of $5m relating to additional benefits secured by the transaction, the $137m difference between the cost of the insurance policy and the accounting value of the liabilities secured of $137m and transaction costs of $5m. As the policy has beenwas structured to enable the plan to move to a buy-out and the intention iswas to proceed on thisthat basis, the buy-in transaction has beenwas accounted for as a settlement with the loss arising recorded in the income statement.
The past service gain in 2011 arose in respect of the UK pension plan and from the decision to close the defined benefit section to future accrual with effect from 1 July 2013. The plan rules were formally amended to reflect this change in September 2011.
|
26. Retirement benefitscontinued
full buy-out was completed on 31 October 2014.
Re-measurement gains and losses recognised in the Group statement of comprehensive income are:
| 2013 | 20121 | 20111 | ||||||||||||||||||||||||||||||||||
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) | 2 | – | 2 | 22 | – | 22 | 27 | – | 27 | |||||||||||||||||||||||||||
| Actuarial gains and losses arising from changes in: | ||||||||||||||||||||||||||||||||||||
Demographic assumptions | – | 12 | 12 | – | (6 | ) | (6 | ) | – | (1 | ) | (1 | ) | |||||||||||||||||||||||
Financial assumptions | – | (57 | ) | (57 | ) | – | (25 | ) | (25 | ) | – | (52 | ) | (52 | ) | |||||||||||||||||||||
Experience adjustments | – | (6 | ) | (6 | ) | – | 17 | 17 | – | 2 | 2 | |||||||||||||||||||||||||
| Change in asset restriction (excluding amounts included in interest) | 89 | – | 89 | (23 | ) | – | (23 | ) | (8 | ) | – | (8 | ) | |||||||||||||||||||||||
| Other comprehensive income | 91 | (51 | ) | 40 | (1 | ) | (14 | ) | (15 | ) | 19 | (51 | ) | (32 | ) | |||||||||||||||||||||
The assets and liabilities of the schemes and the amounts recognised in the Group statement of financial position are:
| 2014 | 2013 | 2012 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Plan assets $m | Plan obligations $m | Total $m | Plan assets $m | Plan obligations $m | Total $m | Plan assets $m | Plan obligations $m | Total $m | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Return on plan assets (excluding amounts included in interest) | 88 | – | 88 | 2 | – | 2 | 22 | – | 22 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Actuarial gains and losses arising from changes in: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Demographic assumptions | – | (3 | ) | (3 | ) | – | 12 | 12 | – | (6 | ) | (6 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial assumptions | – | (113 | ) | (113 | ) | – | (57 | ) | (57 | ) | – | (25 | ) | (25 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Experience adjustments | – | 4 | 4 | – | (6 | ) | (6 | ) | – | 17 | 17 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Change in asset restriction (excluding amounts included in interest) | (1 | ) | – | (1 | ) | 89 | – | 89 | (23 | ) | – | (23 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | 87 | (112 | ) | (25 | ) | 91 | (51 | ) | 40 | (1 | ) | (14 | ) | (15 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| The assets and liabilities of the schemes and the amounts recognised in the Group statement of financial position are: | The assets and liabilities of the schemes and the amounts recognised in the Group statement of financial position are: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pension plans | Pension plans | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| UK | US and other | Post- employment benefits | Total | UK | US and other | Post-employment benefits | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2013 $m | 2012 $m | 2013 $m | 2012 $m | 2013 $m | 2012 $m | 2013 $m | 2012 $m | 2014 $m | 2013 $m | 2014 $m | 2013 $m | 2014 $m | 2013 $m | 2014 $m | 2013 $m | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Retirement benefit assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair value of plan assets | 582 | 695 | 17 | 17 | – | – | 599 | 712 | 8 | 582 | 16 | 17 | – | – | 24 | 599 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Present value of benefit obligations | (577 | ) | (507 | ) | (13 | ) | (15 | ) | – | – | (590 | ) | (522 | ) | – | (577 | ) | (13 | ) | (13 | ) | – | – | (13 | ) | (590 | ) | |||||||||||||||||||||||||||||||||||||||||
| Surplus in schemes | 5 | 188 | 4 | 2 | – | – | 9 | 190 | 8 | 5 | 3 | 4 | – | – | 11 | 9 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Asset restriction | (2 | ) | (91 | ) | – | – | – | – | (2 | ) | (91 | ) | (3 | ) | (2 | ) | – | – | – | – | (3 | ) | (2 | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Total retirement benefit assets | 3 | 97 | 4 | 2 | – | – | 7 | 99 | 5 | 3 | 3 | 4 | – | – | 8 | 7 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Retirement benefit obligations | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair value of plan assets | – | – | 142 | 132 | – | – | 142 | 132 | – | – | 151 | 142 | – | – | 151 | 142 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Present value of benefit obligations | (82 | ) | (62 | ) | (220 | ) | (232 | ) | (24 | ) | (25 | ) | (326 | ) | (319 | ) | (31 | ) | (82 | ) | (242 | ) | (220 | ) | (24 | ) | (24 | ) | (297 | ) | (326 | ) | ||||||||||||||||||||||||||||||||||||
| Total retirement benefit obligations | (82 | ) | (62 | ) | (78 | ) | (100 | ) | (24 | ) | (25 | ) | (184 | ) | (187 | ) | (31 | ) | (82 | ) | (91 | ) | (78 | ) | (24 | ) | (24 | ) | (146 | ) | (184 | ) | ||||||||||||||||||||||||||||||||||||
| Total fair value of plan assets | 582 | 695 | 159 | 149 | – | – | 741 | 844 | 8 | 582 | 167 | 159 | – | – | 175 | 741 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total present value of benefit obligations | (659 | ) | (569 | ) | (233 | ) | (247 | ) | (24 | ) | (25 | ) | (916 | ) | (841 | ) | (31 | ) | (659 | ) | (255 | ) | (233 | ) | (24 | ) | (24 | ) | (310 | ) | (916 | ) | ||||||||||||||||||||||||||||||||||||
The ‘US and other’ surplus of $4m (2012 $2m)$3m (2013 $4m) relates to a defined benefit pension scheme in Hong Kong. Included within the ‘US and other’ deficit is $2m (2012$1m (2013 $2m) relating to a defined benefit pension plan in the Netherlands.
| 143 |
IHG Annual Report and Form 20-F 2014 Notes to the Group Financial Statementscontinued 25. Retirement benefitscontinued |
Assumptions
The principal financial assumptions used by the actuaries to determine the benefit obligations are:
| Pension plans | Pension plans | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| UK | US | Post-employment benefits | UK | US | Post-employment benefits | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2013 % | 2012 % | 2011 % | 2013 % | 2012 % | 2011 % | �� | 2013 % | 2012 % | 2011 % | 2014 % | 2013 % | 2012 % | 2014 % | 2013 % | 2012 % | 2014 % | 2013 % | 2012 % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Wages and salaries increases | – | 4.5 | 4.6 | – | – | – | – | 4.0 | 4.0 | – | – | 4.5 | – | – | – | – | – | 4.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pensions increases | 3.6 | 3.0 | 3.1 | – | – | – | – | – | – | 3.3 | 3.6 | 3.0 | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Discount rate | 4.6 | 4.5 | 4.7 | 4.5 | 3.5 | 4.1 | 4.6 | 3.5 | 4.1 | 3.7 | 4.6 | 4.5 | 3.6 | 4.5 | 3.5 | 3.7 | 4.6 | 3.5 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Inflation rate | 3.6 | 3.0 | 3.1 | – | – | – | – | – | – | 3.3 | 3.6 | 3.0 | – | – | – | – | – | – | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Healthcare cost trend rate assumed for next year: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pre 65 (ultimate rate reached in 2021) | 8.5 | 9.0 | 9.5 | 8.0 | 8.5 | 9.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Post 65 (ultimate rate reached in 2023) | 17.5 | 11.8 | 12.8 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Post 65 (ultimate rate reached in 2024) | 12.5 | 17.5 | 11.8 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Ultimate rate that the cost trend rate trends to | 5.2 | 5.0 | 5.0 | 5.0 | 5.2 | 5.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mortality is the most significant demographic assumption. The current assumptions for the UK plan are based on the S1NA tables with long cohort projections and a 1.25% per annum underpin to future mortality improvements with age rated down by 1.75three years for pensioners and 1.5 years for non-pensioners. In the US, the current assumptions are based on the RP2000 GenerationalRP-2014 Employee/Healthy Annuitant Generationally Projected with Scale BB 2DMP-2014 mortality tables.
|
26. Retirement benefitscontinued
Accordingly, assumedIn both territories, the assumptions have been revised during the year to reflect increased life expectancy at retirement age is as follows:
| Pension plans | Pension plans | |||||||||||||||||||||||||||||||||||||||||||||||||||
| UK | US | UK | US | |||||||||||||||||||||||||||||||||||||||||||||||||
2013 Years | 2012 Years | 2011 Years | 2013 Years | 2012 Years | 2011 Years | 2014 Years | 2013 Years | 2012 Years | 2014 Years | 2013 Years | 2012 Years | |||||||||||||||||||||||||||||||||||||||||
| Current pensioners at 651 | – male | 24 | 24 | 24 | 21 | 19 | 19 | – male | 26 | 24 | 24 | 22 | 21 | 19 | ||||||||||||||||||||||||||||||||||||||
| – female | 27 | 27 | 27 | 23 | 21 | 21 | – female | 29 | 27 | 27 | 24 | 23 | 21 | |||||||||||||||||||||||||||||||||||||||
| Future pensioners at 652 | – male | 27 | 27 | 26 | 22 | 21 | 21 | – male | 28 | 27 | 27 | 23 | 22 | 21 | ||||||||||||||||||||||||||||||||||||||
| – female | 30 | 30 | 29 | 25 | 22 | 22 | – female | 31 | 30 | 30 | 25 | 25 | 22 | |||||||||||||||||||||||||||||||||||||||
| 1 | Relates to assumptions based on longevity (in years) following retirement at the end of the reporting period. |
| 2 | Relates to assumptions based on longevity (in years) relating to an employee retiring in |
The assumptions allow for expected increases in longevity.
Sensitivities
Changes in assumptions used for determining retirement benefit costs and obligations may have a material impact on the income statement and the statement of financial position. The key assumptions are the pension increases, discount rate, the rate of inflation and the assumed mortality rate. The sensitivity analysis below is based on extrapolating reasonable changes in these assumptions, using year-end conditions and assuming no interdependency between the assumptions.
| UK | US | UK | US | |||||||||||||||||||||||||||||||||
Higher/ (lower) pension cost $m | Increase/ (decrease) in liabilities $m | Higher/ (lower) pension cost $m | Increase/ (decrease) in liabilities $m | Higher/ (lower) pension cost $m | Increase/ (decrease) in liabilities $m | Higher/ (lower) pension cost $m | Increase/ (decrease) in liabilities $m | |||||||||||||||||||||||||||||
| Pension increases | – 0.25% decrease | – | (2.3 | ) | – | – | – 0.25% decrease | – | (1.1 | ) | – | – | ||||||||||||||||||||||||
| – 0.25% increase | 0.2 | 3.0 | – | – | – 0.25% increase | – | 1.2 | – | – | |||||||||||||||||||||||||||
| Discount rate | – 0.25% decrease | – | 4.0 | 0.1 | 6.3 | – 0.25% decrease | – | 1.6 | – | 7.4 | ||||||||||||||||||||||||||
| – 0.25% increase | (0.2 | ) | (3.6 | ) | (0.1 | ) | (6.6 | ) | – 0.25% increase | – | (1.6 | ) | – | (7.0 | ) | |||||||||||||||||||||
| Inflation rate | – 0.25% increase | 0.2 | 3.6 | – | – | – 0.25% increase | – | 1.2 | – | – | ||||||||||||||||||||||||||
| – 0.25% decrease | (0.2 | ) | (3.0 | ) | – | – | – 0.25% decrease | – | (1.1 | ) | – | – | ||||||||||||||||||||||||
| Mortality rate | – one year increase | 0.2 | 1.8 | 0.3 | 8.0 | – one year increase | – | 0.6 | 0.3 | 9.4 | ||||||||||||||||||||||||||
A one percentage point increase in assumed healthcare costs trend rate would increase the accumulated post-employment benefit obligations as at 31 December 20132014 by $2.4m (2013 $2.8m, (2012 $2.6m, 2011 $2.9m)2012 $2.6m) and a one percentage point decrease would decrease the obligations by $2.2m (2013 $2.3m, (2012 $2.3m, 2011 $2.7m)2012 $2.3m).
| Pension plans | ||||||||||||||||||||||||||||||||
| UK | US and other | Post-employment benefits | Total | |||||||||||||||||||||||||||||
| Movement in benefit obligation | 2013 $m | 2012 (restated1) $m | 2013 $m | 2012 (restated1) $m | 2013 $m | 2012 $m | 2013 $m | 2012 (restated1) $m | ||||||||||||||||||||||||
| Benefit obligation at 1 January | 569 | 525 | 247 | 233 | 25 | 30 | 841 | 788 | ||||||||||||||||||||||||
| Current service cost | 2 | 5 | 1 | 1 | – | – | 3 | 6 | ||||||||||||||||||||||||
| Past service cost | 5 | – | 1 | – | – | – | 6 | – | ||||||||||||||||||||||||
| Members’ contributions | – | 1 | – | – | – | – | – | 1 | ||||||||||||||||||||||||
| Interest expense | 26 | 25 | 7 | 9 | 1 | 1 | 34 | 35 | ||||||||||||||||||||||||
| Benefits paid | (22 | ) | (14 | ) | (13 | ) | (12 | ) | (1 | ) | (1 | ) | (36 | ) | (27 | ) | ||||||||||||||||
| Re-measurement losses/(gains) | 62 | 3 | (10 | ) | 16 | (1 | ) | (5 | ) | 51 | 14 | |||||||||||||||||||||
| Exchange adjustments | 17 | 24 | – | – | – | – | 17 | 24 | ||||||||||||||||||||||||
| Benefit obligation at 31 December | 659 | 569 | 233 | 247 | 24 | 25 | 916 | 841 | ||||||||||||||||||||||||
| Comprising: | ||||||||||||||||||||||||||||||||
Funded plans | 577 | 507 | 182 | 193 | – | – | 759 | 700 | ||||||||||||||||||||||||
Unfunded plans | 82 | 62 | 51 | 54 | 24 | 25 | 157 | 141 | ||||||||||||||||||||||||
| 659 | 569 | 233 | 247 | 24 | 25 | 916 | 841 | |||||||||||||||||||||||||
144 |
2013 $m 2012 (restated1) 2013 $m 2012 (restated1) $m 2013 $m 2012 $m 2013 $m 2012 (restated1) $m 2014 $m 2014 $m 2013 $m Funded plans Unfunded plans Company contributions are expected to be The plan assets are measured at fair value and comprise the following: 2013 $m 2012 $m 2013 $m 2012 $m Investments quoted in active markets Global equities Corporate bonds Property Hedge funds Swap funds Cash funds Unquoted investments In accordance with accounting standards, the fair value of a qualifying insurance policy is deemed to be the present value of the pension obligations secured by that policy. 2013 $m 2012 (restated1) $m 2013 $m 2012 (restated1) $m 2013 $m 2012 $m 2013 $m 2012 (restated1) $m 2013 $m 2012 $m 2013 $m Deferred tax assets Deferred tax liabilities Liabilities held for sale Notes to the Group Financial Statementscontinued 25. Retirement benefitscontinued 2014 $m Annual Performance Plan The number of shares is calculated by dividing a specific percentage of the participant’s annual performance-related Long Term Incentive Plan The Long Term Incentive Plan (LTIP) allows Executive Directors and eligible employees to receive share awards, subject to the achievement of performance conditions, set by the Remuneration Committee, which are normally measured over a three-year period. More detailed information on performance measures is shown in the Directors’ Remuneration Report on pages 76 to 91. Awards are normally made annually and, except in exceptional circumstances, will not exceed three times salary for Executive Directors and four times salary in the case of other eligible employees. During the year, conditional rights over 2,171,390 (2013 2,227,293, Executive Share Option Plan The Group recognised a cost of $21m (2013 $22m, The aggregate consideration in respect of ordinary shares issued under option schemes during the year was $nil (2013 $5m, The following table sets forth awards and options granted during The Group uses separate option pricing models and assumptions depending on the plan. The following tables set out information about awards granted in 2013, 2012 and 2011: Notes to the Group Financial Statementscontinued 26. Share-based paymentscontinued Movements in the awards and options outstanding under the schemes are as follows: Fair value of awards granted during the year 2013 Weighted average remaining contract life (years) The above awards do not vest until the performance and service conditions have been met. Executive Share Option Plan Options exercisable At 31 December 2013 Fair value of awards granted during the year Weighted average remaining contract life (years) The above awards do not vest until the performance and service conditions have been met. Options exercisable The weighted average share price at the date of exercise for share options vested during the year was Executive Share Option Plan 29. Equity Nominal $m Share $m Equity share $m Allotted, called up and fully paid The Company was incorporated and registered in England and Wales with registered number 5134420 on 21 May 2004 as a limited company under the Companies Act 1985 with the name Hackremco (No. 2154) Limited. On 24 March 2005 Hackremco (No. 2154) Limited changed its name to New InterContinental Hotels Group Limited. On 27 April 2005 New InterContinental Hotels Group Limited re-registered as a public limited company and changed its name to New InterContinental Hotels Group PLC. On 27 June 2005 New InterContinental Hotels Group PLC changed its name to InterContinental Hotels Group PLC. On 7 August 2012, the Company announced a $1bn return of funds to shareholders comprising a $500m special dividend with share consolidation and a $500m share repurchase programme. The share consolidation was approved on 8 October 2012 at a General Meeting (GM) of the Company and became effective on 9 October 2012 on the basis of 14 new ordinary shares of 14 The authority given to the Company at the On 6 August 2013, the Company announced a special dividend of 133.0¢ per share amounting to $355m which was paid to shareholders on 4 October 2013. On 2 May 2014, the Company announced a $750m return to shareholders by way of a special dividend and share consolidation. On 30 June 2014, shareholders approved the share consolidation at a GM of the Company on the basis of 12 new ordinary shares of 15 265⁄329p per share for every 13 existing ordinary shares of 14 194⁄329p 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. 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 The Company no longer has an authorised share capital. Notes to the Group Financial Statementscontinued 27. Equitycontinued The nature and purpose of the other reserves shown in the Group statement of changes in equity on pages Capital redemption reserve This reserve maintains the nominal value of the equity share capital of the Company when shares are repurchased or cancelled. Shares held by employee share trusts Comprises $34.5m (2013 $37.6m, Other reserves Comprises the merger and revaluation reserves previously recognised under UK GAAP, together with the reserve arising as a consequence of the Group’s capital reorganisation in June 2005. Following the change in presentational currency to the US dollar in 2008 (see page Unrealised gains and losses reserve This reserve records movements in the fair value of available-for-sale financial assets and the effective portion of the cumulative net change in the fair value of the cash flow hedging instruments related to hedged transactions that have not yet occurred. Currency translation reserve This reserve records the movement in exchange differences arising from the translation of foreign operations and exchange differences on foreign currency borrowings and derivative instruments that provide a hedge against net investments in foreign operations. On adoption of IFRS, cumulative exchange differences were deemed to be $nil as permitted by IFRS 1. The fair value of derivative instruments designated as hedges of net investments in foreign operations outstanding at 31 December The currency translation reserve includes a cumulative loss of $3m relating to assets classified as held for sale. Treasury shares At 31 December Non-controlling interest A non-controlling interest is equity in a During the year ended 31 December Future minimum lease payments under non-cancellable operating leases are as follows: 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 Total future minimum rentals expected to be received under non-cancellable sub-leases are Property, plant and equipment Intangible assets The Group has also committed to invest At 31 December 2014, the Group had no contingent liabilities (2013 $nil). 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 loans made to facilitate third-party ownership of hotels in which the Group has an equity From time to time, the Group is subject to legal proceedings the ultimate outcome of each being always subject to many uncertainties inherent in litigation. In particular, the Group is currently subject to a claim by Pan American Life Insurance Company, a Competition and Markets Authority enquiry in the UK and a class action IHG Annual Report and Form 20-F 2014 Notes to the Group Financial Statementscontinued Total compensation of key management personnel There were no other transactions with key management personnel during the years ended 31 December 2014, 2013 Key management personnel comprises the Board and Executive Committee. In addition, loans both to and from the Barclay associate of $237m are offset in accordance with the provisions of IAS 32 and presented net in the Group statement of financial position. Interest payable and receivable under the loans is equivalent (average interest rate of 1.8% in 2014) and presented net in the Group income statement. The Group operates a System Fund (the Fund) to collect and administer assessments and contributions from hotel owners for specific use in marketing, the IHG Rewards Club loyalty programme and the global reservation system. The Fund and loyalty programme are accounted for in accordance with the accounting policies set out on The following information is relevant to the operation of the Fund: 2013 $m 2012 $m 2011 $m Assessment fees and contributions received from hotels Proceeds from sale of IHG Rewards Club points Marketing IHG Rewards Club Payroll costs The payroll costs above relate to 4,975 (2013 4,615, The following liabilities relating to the Fund are included in the Group statement of financial position: 2013 $m 2012 $m 2011 $m The net change in the loyalty programme liability and Fund surplus contributed an inflow of $58m (2013 $61m, The assets and liabilities acquired largely comprise intangible assets, being the Kimpton brand and management contracts, deferred tax assets and goodwill. Due to Acquisition transaction costs of $7m were incurred in If the acquisition had taken place on 1 January 2014, it is estimated that Group revenue and Group EBITDA for the year ended 31 December 2014 would have been $37m and $20m higher respectively. InterContinental Hotels Group PLC was the beneficial owner of all of the equity share capital, indirectly through subsidiary undertakings, of the following companies during the year: Six Continents Limited1 IHG Hotels Limited1 Six Continents Hotels, Inc.2 Inter-Continental Hotels Corporation2 InterContinental Hotels Group Resources, Inc.2 InterContinental Hong Kong Limited3 Société Nouvelle du Grand Hotel SA4 The companies listed above include those which principally affect the amount of profit and assets of the Group. Stay ‘Guest Journey’ – Step four • TheStay phase of the ‘Guest Journey’ is where we welcome guests to our hotels and deliver our brand promise through our talented people. • This step includes the arrival and departure of our guests, as well as the stay in the hotel room itself; its public areas; food and beverage; and guest services. Page 154: Crowne Plaza London – The City, UK [THIS PAGE IS INTENTIONALLY LEFT BLANK] [THIS PAGE IS INTENTIONALLY LEFT BLANK] [THIS PAGE IS INTENTIONALLY LEFT BLANK] [THIS PAGE IS INTENTIONALLY LEFT BLANK] Fixed assets Current assets Total assets less current liabilities Capital and reserves Directors’ emoluments Amounts falling due within one year Amounts falling due after more than one year Allotted, called up and fully paid Capital £m Profit and loss account Net movement in shareholders’ funds developments Summary of significant corporate governance differences from NYSE listing standards Purchases of equity securities by the Company and affiliated purchasers Share ‘Guest Journey’ – Step five TheShare phase of the ‘Guest Journey’ is when our guests share feedback about their experience, for example via social networks and directly with IHG and our hotels. Page 160: Cypress, A Kimpton Hotel, Cupertino, California, US Page 161: Hotel Indigo New Orleans Garden District, Louisiana, US 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, more recently, 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 the last several years, the Group has undergone a major transformation in its operations and organisation, as a result of the separation (as discussed below) and a number of significant disposals during this period, which has narrowed the scope of its business. On 15 April 2003, following shareholder and regulatory approval, Six Continents PLC (as it then was) separated into two new listed groups, InterContinental Hotels Group PLC (as it then was), comprising the hotels and soft drinks businesses, and Mitchells & Butlers plc, comprising 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. Following separation, the Group has undertaken an asset-disposal programme, realising, by the end of A small number of hotels have been sold since the end of 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 that the Group does not currently believe to be material could later turn out to be material. The risk factors below are listed in accordance with the strategic, tactical and operational risk framework explained on page 27. Although the Group has classified each risk under a single aspect of the framework, some risks relate to multiple aspects and accordingly should be read in the context of the whole framework. The risk factors should also be considered in connection with any financial and forward-looking information in this Annual Report and Form 20-F and the cautionary statements regarding forward-looking statements on page 186. The Group is exposed to the risks of political and economic developments The Group is exposed to political, economic and financial market developments such as recession, inflation and availability of credit and currency fluctuations that could lower revenues and reduce income. The outlook for 2015 may worsen due to uncertainty in the Eurozone, impact of declining commodity prices on economies dependent on such exports and continued unrest in Russia, Ukraine, and parts of the Middle East and Africa. The interconnected nature of economies suggests any of these or other events could trigger a recession that reduces leisure and business travel to and from affected countries and adversely affects room rates and/or occupancy levels and other income-generating activities. This may result in deterioration of results of operations and potentially reduce the value of properties in affected economies. The owners or potential owners of hotels franchised or managed by the Group face similar risks that could adversely impact their solvency and the Group’s ability to retain and secure franchise or management agreements. Specifically, the Group is most exposed to the US market and, increasingly, to Greater China. Accordingly, the Group is particularly susceptible to adverse changes in these economies as well as changes in their currencies. In addition to trading conditions, the economic outlook also affects the availability of capital to current and potential owners, which could impact existing operations and health of the pipeline. The Group is exposed to the risk of events that adversely impact domestic or international travel The room rates and occupancy levels of the Group could be adversely impacted by events that reduce domestic or international travel, such as actual or threatened acts of terrorism or war, political or civil unrest, epidemics or threats thereof, travel-related accidents, travel-related industrial action, increased transportation and fuel costs, and natural disasters, resulting in reduced worldwide travel or other local factors impacting specific countries, cities or individual hotels. A decrease in the demand for hotel rooms as a result of such events may have an adverse impact on the Group’s operations and financial results. In addition, inadequate planning, preparation, response or recovery in relation to a major incident or crisis may cause loss of life, prevent operational continuity, or result in financial loss and consequently impact the value of the brands and/or the reputation of the Group. The Group is exposed to the risks of the hotel industry supply and demand cycle The future operating results of the Group could be adversely affected by industry overcapacity (by number of rooms) and weak demand due, in part, to the cyclical nature of the hotel industry, or other differences between planning assumptions and actual operating conditions. These conditions could result in reductions in room rates and occupancy levels, which would adversely impact the financial performance of the Group. The Group is subject to a competitive and changing industry The Group operates in a competitive industry and must compete effectively against traditional competitors such as other global hotel chains, local hotel companies and independent hotels to win the loyalty of guests, employees and owners. The competitive landscape also includes other types of businesses, such as web-based booking channels (which include online travel agents and intermediaries), and alternative sources of accommodation such as short-term lets of private property. In order to grow and maintain its competitiveness, the Group may consider undertaking strategic transactions, including acquisitions. Failure to compete effectively in traditional and emerging areas of the business could impact the Group’s market share, System size, profitability and relationships with owners and guests. The Group is exposed to risks related to executing and realising benefits from strategic transactions, including acquisitions The Group announced the acquisition of Kimpton Hotels & Restaurants in December 2014 and may seek to make other strategic transactions, including acquisitions, in the future. The Group may not be able to identify opportunities or complete transactions on commercially reasonable terms or at all and may not realise the anticipated benefits from such transactions. Strategic transactions come with inherent valuation, financial and commercial risks, and regulatory and insider information risks during the execution of the transactions. In addition, the Group may face unforeseen costs and liabilities, divergence of management attention, as well as longer-term integration and operational risks, which could result in failure to realise benefits, financial losses, fall in employee morale and loss of talent. The Group is dependent upon a wide range of external stakeholders and business partners The Group is dependent upon the performance, behaviours and reputation of a wide range of business partners and external stakeholders, including, but not limited to, owners, contractors, lenders, suppliers, vendors, joint venture partners, online travel agents, third-party intermediaries and other business partners which may have different ethical values, interests and priorities. Further, the number and complexity of interdependencies with stakeholders is evolving. Breakdowns in relationships, contractual disputes, poor vendor performance, insolvency, stakeholder behaviours or adverse reputations, which may be outside of the Group’s control, could adversely impact on the Group’s performance and competitiveness, delivery of projects, guest experiences or the reputation of the Group or its brands. The Group is exposed to increasing competition from online travel agents and intermediaries A proportion of the Group’s bookings originate from large multinational, regional and local online travel agents and intermediaries with which the Group has contractual arrangements and to which it pays commissions. These websites offer a wide breadth of products, often across multiple brands, have growing booking and review capabilities, and may create the perception that they offer the lowest prices. Some of these online travel agents and intermediaries have strong marketing budgets and aim to create brand awareness and brand loyalty among consumers and may seek to commoditise hotel brands through price and attribute comparison. Further, if these companies continue to gain market share, they will impact the Group’s profitability, undermine the Group’s own booking channels and value to its hotel owners and may be able to increase commission rates and negotiate other favourable contract terms. Tactical risks The Group is exposed to a variety of risks related to identifying, securing and retaining franchise and management agreements The Group’s growth strategy depends on its success in identifying, securing and retaining franchise and management agreements. This is an inherent risk for the hotel industry and franchise business model. Competition with other hotel companies may generally reduce the number of suitable franchise, management and investment opportunities offered to the Group and increase the bargaining position of property owners seeking to become a franchisee or engage a manager. The terms of new franchise or management agreements may not be as favourable as current arrangements; the Group may not be able to renew existing arrangements on similarly favourable terms or at all. Group informationcontinued There can also be no assurance that the Group will be able to identify, retain or add franchisees to the IHG System or to secure management contracts. For example, the availability of suitable sites, market saturation, planning and other local regulations or the availability and affordability of finance may all restrict the supply of suitable hotel development opportunities under franchise or management agreements. In connection with entering into franchise or management agreements, the Group may be required to make investments in, or guarantee the obligations of, third parties or guarantee minimum income to third parties. There are also risks that significant franchisees or groups of franchisees may have interests that conflict, or are not aligned, with those of the Group including, for example, the unwillingness of franchisees to support brand improvement initiatives. This could result in franchisees prematurely terminating contracts which would adversely impact the overall IHG System size and the Group’s financial performance. The Group is exposed to inherent risks in relation to changing technology and systems As the use of internet and mobile technology grows and customer needs evolve at pace, the Group may find that its evolving technology capability is not sufficient and may have to make substantial additional investments in new technologies or systems to remain competitive. Failure to keep pace with developments in technologies or systems may put the Group at a competitive disadvantage. In addition, the technologies or systems that the Group chooses to deploy may not be commercially successful or the technology or system strategy may not be sufficiently aligned with the needs of the business. As a result, this could adversely affect guest experiences, and the Group may lose customers, fail to attract new customers, incur substantial costs or face other losses. This could further impact the Group’s reputation in regards to innovation. The Group is exposed to a variety of risks associated with its financial stability and ability to borrow and satisfy debt covenants While the strategy of the Group is to extend the hotel network through activities that do not involve significant amounts of its own capital, the Group does require capital to fund some development opportunities, strategic acquisitions and to maintain and improve owned hotels. The Group is reliant upon having financial strength and access to borrowing facilities to meet these expected capital requirements. The majority of the Group’s borrowing facilities are only available if the financial covenants in the facilities are complied with. Non-compliance with covenants could result in the Group’s lenders demanding repayment of the funds advanced. If the Group’s financial performance does not meet market expectations, it may not be able to refinance existing facilities on terms considered favourable. The Group is exposed to the risk of litigation Certain companies in the Group are the subject of various claims and proceedings. The ultimate outcome of these matters is subject to many uncertainties, including future events and uncertainties inherent in litigation. In addition, the Group could be at risk of litigation claims made by many parties, including but not limited to: guests, customers, joint-venture partners, suppliers, employees, regulatory authorities, franchisees and/or the owners of the hotels it manages. Claims filed in the US may include requests for punitive damages as well as compensatory damages. Unfavourable outcomes of claims or proceedings could have a material adverse impact on the Group’s results of operations, cash flow and/or financial position. Exposure to significant litigation or fines may also affect the reputation of the Group and its brands. Operational risks The Group is reliant on the reputation of its brands and exposed to inherent reputation risks, including those associated with intellectual property Any event that materially damages the reputation of one or more of the Group’s existing or new brands and/or fails to sustain the appeal of the Group’s existing or new brands to its customers and owners may have an adverse impact on the value of that brand and subsequent revenues from that brand or business. In particular, if the Group is unable to create consistent, valued, and quality products and guest experiences across the owned, managed and franchised estates, or if the Group, its franchisees or business partners fail to act responsibly, this could result in an adverse impact on its brand reputation. In addition, the value of the Group’s brands could be influenced by a number of external factors outside the Group’s control, such as, but not limited to, changes in sentiments against global brands, changes in applicable regulations related to the hotel industry or to franchising, successful commoditisation of hotel brands by online travel agents and intermediaries, or changes in owners’ perceptions of the value of the Group. Furthermore, given the importance of brand recognition to the Group’s business, the protection of its intellectual property poses a risk due to the variability and changes in controls, laws and effectiveness of enforcement globally. Any widespread infringement, misappropriation or weakening of the control environment could materially harm the value of the Group’s brands and its ability to develop the business. The Group is reliant upon the resilience of its reservations system and other key technology platforms and is exposed to risks that could cause the failure of these systems The value of the Group is partly derived from the ability to drive reservations through its reservations system and technology platforms which are highly integrated with internal processes and linked to multiple sales channels, including the Group’s own websites, call centres, hotels, third-party intermediaries and travel agents. Lack of resilience and operational availability of these systems provided by the Group or third-party technology providers could lead to prolonged service disruption and might result in significant business interruption, impact the guest booking experience and subsequently adversely impact Group revenues. The Group is exposed to the risks related to information security and data privacy The Group is increasingly dependent upon the availability, integrity and confidentiality of information, including, but not limited to, guest and employee credit card, financial and personal data; and business performance, financial reporting and commercial development. The information is sometimes held in different formats such as digital, paper, voice recordings and video and could be stored in many places, including facilities managed by third-party service providers. The threats towards the Group’s information are dynamic, and include cyber attacks, fraudulent use, loss or misuse by employees and breaches of our vendors’ security arrangements amongst others. The legal and regulatory environment around data privacy and requirements set out by the payment card industry surrounding information security across the many jurisdictions in which the Group operates are constantly evolving. If the Group fails to appropriately protect information and ensure relevant controls are in place to enable the appropriate use and release of information through the appropriate channels in a timely and accurate manner, IHG System performance, guest experience and the reputation of the Group may be adversely affected. This can lead to revenue losses, fines, penalties, legal fees and other additional costs. The Group is exposed to a variety of risks associated with safety, security and crisis management There is a constant need to protect the safety and security of our guests, employees and assets against natural and man-made threats. These include, but are not limited to, exceptional events such as extreme weather, civil or political unrest, violence and terrorism, serious and organised crime, fraud, employee dishonesty, cyber crime, pandemics, fire and day-to-day accidents, incidents and petty crime which impact the guest or employee experience, could cause loss of life, sickness or injury and result in compensation claims, fines from regulatory bodies, litigation and impact reputation. Serious incidents or a combination of events could escalate into a crisis which, if managed poorly, could further expose the Group and its brands to significant reputational damage. The Group requires the right people, skills and capability to manage growth and change In order to remain competitive, the Group must employ the right people. This includes hiring and retaining highly skilled employees with particular expertise or leadership capability. The implementation of the Group’s strategic business plans could be undermined by failure to build a resilient corporate culture, failure to recruit or retain key personnel, unexpected loss of key senior employees, failures in the Group’s succession planning and incentive plans, or a failure to invest in the development of key skills. Some of the markets in which the Group operates are experiencing economic growth, and the Group must compete against other companies inside and outside the hospitality industry for suitably qualified or experienced employees. Some emerging markets may not have the required local expertise to operate a hotel and may not be able to attract the right talent. Failure to attract and retain employees may threaten the success of the Group’s operations in these markets. Additionally, unless skills are supported by a sufficient infrastructure to enable knowledge and skills to be passed on, the Group risks losing accumulated knowledge if key employees leave the Group. The Group is required to comply with existing and changing regulations across numerous countries, territories and jurisdictions Government regulations affect countless aspects of the Group’s business ranging from corporate governance, health and safety, the environment, bribery and corruption, employment law and diversity, disability access, data privacy and information protection, financial, accounting and tax. Regulatory changes may require significant changes in the way the business operates and may inhibit the Group’s strategy, including the markets the Group operates in, brand protection, and use or transmittal of customer data. If the Group fails to comply with existing or changing regulations, the Group may be subject to fines, prosecution, loss of licence to operate or reputational damage. The Group is exposed to risks related to ethics and responsible business practices The reputation of the Group and the value of its brands are influenced by a wide variety of factors, including the perception of stakeholder groups such as guests, owners, suppliers and communities in which the Group operates. The social and environmental impacts of its business are under increasing scrutiny, and the Group is exposed to the risk of damage to its reputation if it fails to (or fails to influence its business partners to) undertake responsible practices and engage in ethical behaviour, or fails to comply with relevant regulatory requirements. The Group may face difficulties insuring its business Historically, the Group has maintained insurance at levels determined to be appropriate in light of the cost of cover and the risk profile of the business. However, forces beyond the Group’s control, including market forces, may limit the scope of coverage the Group can obtain and the Group’s ability to obtain coverage at reasonable rates. Other forces beyond the Group’s control, such as terrorist attacks or natural disasters, may be uninsurable or simply too expensive to insure. Inadequate or insufficient insurance could expose the Group to large claims or could result in the loss of capital invested in properties, as well as the anticipated future revenue from properties, and could leave the Group responsible for guarantees, debt or other financial obligations related to such properties. Executive Committee members’ shareholdings Shares held by Executive Committee members (excluding the Executive Directors) as at 31 December Executive Committee Member Committee member Details of the shares held by the Executive Directors can be found on page For further details on the APP deferred share award and for the LTIP share award, see pages Description of securities other than equity securities Fees and charges payable to a depositary Category (as defined by SEC) Depositary actions Associated fee (a) Depositing or substituting the underlying shares Each person to whom ADRs are issued against deposits of shares, including deposits and issuances in respect of: • share distributions, stock split, rights, merger; and • exchange of securities or any other transactions or event or other distribution affecting the ADSs or the (b) Receiving or distributing dividends Distribution of stock dividends Distribution of cash $5 for each 100 ADSs (or portion thereof) $0.02 or less per ADS (or portion thereof) (c) Selling or exercising rights Distribution or sale of securities, the fee being in an amount equal to the fee for the execution and delivery of ADSs which would have been charged as a result of the deposit of such securities $ (d) Withdrawing an underlying security Acceptance of ADRs surrendered for withdrawal of deposited securities $ (e) Transferring, splitting or grouping receipts Transfers, combining or grouping of depositary receipts $1.50 per ADS (f) General depositary services, particularly those charged on an annual basis Other services performed by the depositary in administering the ADRs $0.02 per ADS (or portion thereof)1not 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 (g) Expenses of the depositary Expenses incurred on behalf of ADR holders in connection with: • compliance with foreign exchange control regulations or any law or regulation relating to foreign investment; • the ADR Depositary’s or its custodian’s compliance with applicable law, rule or regulation; • stock transfer or other taxes and other governmental charges; • cable, telex, facsimile transmission/delivery; • transfer or registration fees in connection with the deposit and withdrawal of • expenses of the ADR Depositary in connection with the conversion of foreign currency into US dollars (which are paid out of such foreign currency); and • any other charge payable by the ADR Depositary or its Expenses payable at the sole discretion of the Depositary by billing ADR holders or by deducting charges from one or more cash dividends or other cash distributions are $20 per 1 These fees are not currently being charged by the ADR Depositary. Fees and charges payable by a depositary Direct payments JPMorgan Chase Bank N.A. (JPMorgan or the ADR Depositary) is the depositary for IHG’s Indirect payments As part of its service to the Company, the ADR Depositary has agreed to waive fees for the standard costs associated with the administration of the ADR Programme, associated operating expenses and investor relations advice. In the year ended 31 December The Company’s articles of association The Company’s shares may be held in certificated or uncertificated form. No holder of the Company’s shares will be required to make additional contributions of capital in respect of the Company’s shares in the future. In the following description, a ‘shareholder’ is the person registered in the Company’s register of members as the holder of the relevant share. Principal objects The Company is incorporated under the name InterContinental Hotels Group PLC and is registered in England and Wales with registered number 5134420. The Articles do not restrict its objects or purposes. Directors Under the Articles, a Director may have an interest in certain matters (Permitted Interest) without the prior approval of the Board provided he has declared the nature and extent of such Permitted Interest at a meeting of the Directors or in the manner set out in Section 184 or Section 185 of the Companies Act. Any matter which does not comprise a Permitted Interest must be authorised by the Board in accordance with the procedure and requirements contained in the Articles, including the requirement that a Director may not vote on a resolution to authorise a matter in which he is interested, nor may he count in the quorum of the meeting at which such business is transacted. Further, a Director may not vote in respect of any proposal in which he, or any person connected with him, has any material interest other than by virtue of his interests in securities of, or otherwise in or through, the Company, nor may he count in the quorum of the meeting at which such business is transacted. This is subject to certain exceptions, including in relation to proposals: (a) indemnifying him in respect of obligations incurred on behalf of the Company; (b) indemnifying a third party in respect of obligations of the Company for which the Director has assumed responsibility under an indemnity or guarantee; (c) relating to an offer of securities in which he will be interested as an underwriter; (d) concerning another body corporate in which the Director is beneficially interested in less than one The Directors have authority under the Articles to set their own remuneration (provided certain criteria is 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 matter may neither vote on the resolution to authorise such conflict, nor count in the quorum of the meeting at which it was passed. Furthermore, as noted above, the interested Director is not permitted to vote in respect of any proposal in which he has any material interest (except in respect of the limited exceptions outlined above) nor may he count in the quorum of the meeting at which such business is transacted. As such, a Director has no power, in the absence of an independent quorum, to vote on compensation to himself, but may vote on a resolution (and may count in the quorum of the meeting at which it was passed) to award compensation to Directors provided those arrangements do not confer a benefit on him. The Directors are empowered to exercise all the powers of the Company to borrow money, subject to the limitation that the aggregate amount of all 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. 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. Group informationcontinued Holders of the Company’s ordinary shares are entitled to receive such dividends as may be declared by the shareholders in general meeting, rateably according to the amounts paid up on such shares, provided that the dividend cannot exceed the amount recommended by the Directors. The Company’s Board of Directors may declare and pay to shareholders such interim dividends as appear to them to be justified by the Company’s financial position. If authorised by an ordinary resolution of the shareholders, the Board of Directors may also direct payment of a dividend in whole or in part by the distribution of specific assets (and in particular of paid-up shares or debentures of any other company). Any dividend unclaimed by a member (or by a person entitled by virtue of transmission on death or bankruptcy or otherwise by operation of law) after six years from the date the dividend was declared, or became due for payment, will be forfeited and will revert to the Company. Voting rights The holders of ordinary shares are entitled, in respect of their holdings of such shares, to receive notice of general meetings and to attend, speak and vote at such meetings in accordance with the Articles. Voting at any general meeting of shareholders is by a show of hands unless a poll, which is a written vote, is duly demanded. On a show of hands, every shareholder who is present in person or by proxy at a general meeting has one vote regardless of the number of shares held. On a poll, every shareholder who is present in person or by proxy has one vote for every share held by that shareholder. A poll may be demanded by any of the following: 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. Subject to law, other meetings must be convened upon advance written notice of 14 days. The days of delivery or receipt of the notice are not included. The notice must specify the nature of the business to be transacted. The Board of Directors may, if they choose, make arrangements for shareholders who are unable to attend the place of the meeting to participate at other places. The Articles specify that each Director shall retire every three years at the AGM and, unless otherwise decided by the Directors, shall be eligible for re-election. However, the Code recommends that all directors of FTSE 350 companies submit themselves for election or re-election (as appropriate) by shareholders every year. Therefore, all Directors will retire and offer themselves for election or re-election at the 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 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. At 31 December Less than five per cent 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 Disposal of 80 per cent interest in On 19 December 2013, Constellation Barclay Holding US, LLC, which is an affiliate of Constellation Hotels Holding Limited, agreed to acquire, pursuant to a contribution agreement, Constellation Barclay Holding US, LLC and Under the contribution agreement, On In connection with the sale, IHG secured a 30-year management contract on the hotel, with three 10-year extension rights at IHG’s discretion, giving an expected contract length of 60 years. Under the Acquisition of the Kimpton Hotels & Restaurants business On 15 December 2014, a share sale and purchase agreement was entered into between Kimpton Group Holding LLC and Dunwoody Operations, Inc., an affiliate of IHG. Under the agreement, Dunwoody Operations, Inc. agreed to buy a 100 per cent interest in Kimpton Hotel Under the agreement, Dunwoody Operations, Inc. gave certain customary warranties and indemnities to the £750 Million Euro Medium Term Note Programme In 2012, the Group updated its Euro Medium Term Note programme (Programme) and issued a tranche of £400 million 3.875% notes due 28 November 2022. On 9 November 2012, an amended and restated trust deed (Trust Deed) was executed by InterContinental Hotels Group PLC as issuer (Issuer), Six Continents Limited and InterContinental Hotels Limited as guarantors (Guarantors) and HSBC Corporate Trustee Company (UK) Limited as trustee (Trustee), pursuant to which the trust deed dated 29 November 2009, as supplemented by the first supplemental trust deed dated 7 July 2011 between the same parties relating to the Programme, was amended and restated. Under the Trust Deed, the Issuer may issue notes (Notes) unconditionally and irrevocably guaranteed by the Guarantors, up to a maximum nominal amount from time to time outstanding of £750 million (or its equivalent in other currencies). Notes are to be issued in series (each a Series) in bearer form. Each Series may comprise one or more tranches (each a Tranche) issued on different issue dates. Each Tranche of Notes will be issued on the terms and conditions set out in the updated base prospectus dated 9 November 2012 (Base Prospectus) as amended and/or supplemented by a document setting out the final terms (Final Terms) of such Tranche or in a separate prospectus specific to such Tranche. Under the Trust Deed, each of the Issuer and the Guarantors has given certain customary covenants in favour of the Trustee. Final Terms were issued (pursuant to the previous base prospectus dated 27 November 2009) on 9 December 2009 in respect of the issue of a Tranche of £250 million 6% Notes due 9 December 2016 (2009 Issuance). Final Terms were issued pursuant to the Base Prospectus on 26 November 2012 in respect of the issue of a Group informationcontinued Tranche of £400 million 3.875% Notes due 28 November 2022 (2012 Issuance). The Final Terms issued under each of the 2009 Issuance and the 2012 Issuance provide that the holders of the Notes have the right to repayment if the Further details of the Programme and the Notes are set out in the Base Prospectus, a copy of which is available (as is a copy of each of the Final Terms dated 7 December 2009 relating to the 2009 Issuance and the Final Terms dated 26 November 2012 relating to the 2012 Issuance) on the Company’s website at On 27 November 2009, the Issuer and the Guarantors entered into an agency agreement (Agency Agreement) with HSBC Bank plc as principal paying agent and the Trustee, pursuant to which the Issuer and the Guarantors appointed paying agents and calculation agents in connection with the Programme and the Notes. Under the Agency Agreement, each of the Issuer and the Guarantors has given a customary indemnity in favour of the paying agents and the calculation agents. There was no change to the Agency Agreement in 2011 or 2012. On 9 November 2012, the Issuer and the Guarantors entered into a dealer agreement (Dealer Agreement) with HSBC Bank plc as arranger and Citigroup Global Markets Limited, HSBC Bank plc, Lloyds TSB Bank plc, Merrill Lynch International, Mitsubishi UFJ Securities International plc and The Royal Bank of Scotland plc as dealers (Dealers), pursuant to which the Dealers were appointed in connection with the Programme and the Notes. Under the Dealer Agreement, each of the Issuer and the Guarantors has given customary warranties and indemnities in favour of the Dealers. Syndicated Facility On 7 November 2011, the Company signed a five-year $1.07 billion bank facility agreement with The Royal Bank of Scotland plc, NB International Finance B.V., Citigroup Global Markets Limited, HSBC Bank plc, Lloyds TSB Bank plc and The Bank of Tokyo-Mitsubishi UFJ, Ltd., all acting as mandated lead arrangers and Banc of America Securities Limited as facility agent (Syndicated Facility). The interest margin payable on borrowings under the Syndicated Facility is linked to IHG’s consolidated net debt to consolidated EBITDA ratio. The margin can vary between LIBOR + 0.90% and LIBOR + 1.70% depending on the level of the ratio. At 31 December 2014, tranches in the sums of US$270m and€75m had been drawn down under the Syndicated Facility. $400 Million Term Loan Facility On 13 January 2015, the Company signed a six-month $400 million term loan facility agreement with Bank of America Merrill Lynch International Limited as arranger, facility agent and lender. The Company may elect to extend the repayment date by up to two further periods of six months. The interest margin payable on borrowings is LIBOR + 0.6%, increasing to LIBOR + 0.8% and LIBOR +1.0% for the first and second six-month extension periods respectively. The facility was 16 February 2015. Group companies have extensive operations in the UK, as well as internationally, and are involved in a number of legal claims and proceedings incidental to those operations. It is the Company’s view that such proceedings, either individually or in the aggregate, have not in the recent past and are not likely to have a significant effect on the Group’s financial position or profitability. Notwithstanding the above, the Company notes the matters set out below. Litigation is inherently unpredictable and, as at A claim was filed on 9 July 2013 by On 31 July 2012, the UK’s Office of Fair Trading (OFT) issued a Statement of Objections alleging that the Company (together with Booking.com B.V. and Expedia, Inc.) had infringed competition law in relation to the online supply of room-only hotel accommodation by online travel agents. The Company has co-operated fully with the investigation. On 31 January 2014, the OFT announced its decision to accept a series of commitments and to conclude its investigation without any finding of infringement or wrongdoing, or the imposition of any fine. On 26 September 2014, the Competition Appeal Tribunal allowed an appeal brought by Skyscanner Limited and quashed the decision to accept the commitments. The Competition and Markets Authority (the OFT’s successor) has decided not to appeal the judgment of the Competition Appeal Tribunal. As at 16 February 2015, the likelihood of a favourable or unfavourable result cannot be reasonably determined and it is not possible to determine whether any loss is probable or to estimate the amount of any loss. A class-action claim was filed on 3 July 2012 by two claimants alleging that InterContinental Hotels of San Francisco, Inc. and InterContinental Hotels Group Resources, Inc. violated California Penal Code 632.7, based upon the alleged improper recording of cellular phone calls originating from California to IHG customer care and reservations centres. The claimants subsequently amended the claim to include Six Continents Hotels, Inc. Exchange controls and restrictions on payment of dividends There are no restrictions on dividend payments to US citizens. Although there are currently no UK foreign exchange control restrictions on the export or import of the capital or the payment of dividends on the ordinary shares or the ADSs, economic sanctions which may be in force in the UK from time to time Other than economic sanctions which may be in force in the 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) 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 or any political subdivision thereof; (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 ADRs are pre-released 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 ADRs are pre-released. The following discussion assumes that the Company is not, and will not become, a passive foreign investment company (PFIC), as described below. Investors should consult their own tax advisors regarding the US federal, state and local, the UK and other tax consequences of owning and disposing of ordinary shares or ADSs in their particular circumstances. 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 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 Shareholder informationcontinued 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, 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 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 (or, for departures before 6 April 2013, ceases to be resident or ordinarily resident or becomes treated as non-resident for less than five years of assessment) and who disposes of ordinary shares or ADSs during that period may, for the year of assessment when that individual becomes resident again in the UK, be liable to UK tax on capital gains (subject to any available exemption or relief), notwithstanding the fact that such US holder was not treated as resident in the UK at the time of the sale or other disposal. US federal income taxation A US holder who sells or otherwise disposes of ordinary shares or ADSs will recognise a capital gain or loss for US federal income tax purposes equal to the difference between the amount realised and its tax basis in the ordinary shares or ADSs, each determined in US dollars. Such capital gain or loss will be long-term capital gain or loss where the US holder has a holding period greater than one year. Losses may also be treated as long-term capital losses to the extent of certain “extraordinary dividends” that qualified for the preferential tax rates on qualified dividend income described above. The capital gain or loss will generally be income or loss from sources within the US for foreign tax credit limitation purposes. The deductibility of capital losses is subject to limitations. PFIC rules 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 to be treated as a PFIC in any taxable year in which a US holder held ordinary shares or ADSs, a US holder Additional tax considerations UK inheritance tax An individual who is neither domiciled nor deemed domiciled in the UK (under certain UK rules relating to previous domicile or long residence) 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 However, an individual who is domiciled in the US (for the purposes of the Estate and Gift Tax Convention (Convention) UK stamp duty and SDRT Neither stamp duty nor SDRT will generally be payable in the UK on the purchase or transfer of an ADS, provided that the ADS and any separate instrument or written agreement of transfer are executed and remain at all times outside the UK. UK legislation does however provide for stamp duty (in the case of transfers) or SDRT to be payable at the rate of 1.5 per cent on the amount or value of the consideration (or, in some cases, the value of the ordinary shares) where ordinary shares are issued or transferred to a person (or a nominee or agent of a person) whose business is or includes issuing depositary receipts or the provision of clearance services. In accordance with the terms of the deposit agreement, any tax or duty payable on deposits of ordinary shares by the depositary or by the custodian of the depositary will typically be charged to the party to whom ADSs are delivered against such deposits. Following litigation on the subject, HMRC has accepted that it will no longer seek to apply the 1.5 per cent SDRT charge when new shares are issued to a clearance service or depositary receipt system on the basis that the charge is not compatible with EU law. In HMRC’s view, the 1.5 per cent SDRT or stamp duty charge will continue to apply to transfers of shares into a clearance service or depositary receipt system unless they are an integral part of an issue of share capital. This view is currently being challenged in further litigation.Accordingly, specific professional advice should be sought before paying the 1.5 per cent SDRT or stamp duty charge in any circumstances. A transfer of the underlying ordinary shares will generally be subject to stamp duty or SDRT, normally at the rate of 0.5 per cent of the amount of value of the consideration (rounded up to the next multiple of £5 in the case of stamp duty). A transfer of ordinary shares from a nominee to its beneficial owner, including the transfer of underlying ordinary shares from the depositary to an ADS holder, under which no beneficial interest passes, will not be subject to stamp duty or SDRT. US backup withholding and information reporting Payments of dividends and other proceeds with respect to ADSs and ordinary shares may be reported to the IRS and to the US holder. Backup withholding may apply to these reportable payments if the US holder fails to provide an accurate taxpayer identification number or certification of exempt status or fails to report all interest and dividends required to be shown on its US federal income tax returns. Certain US holders (including, among others, corporations) are not subject to information reporting and backup withholding. The amount of any backup withholding from a payment to a US holder will be allowed as a credit against the holder’s US federal income tax liability and may entitle the holder to a refund, provided that the required information is timely furnished to the IRS. US holders should consult their tax advisors as to their qualification for exemption from backup withholding and the procedure for obtaining an exemption. 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 by the Financial Reporting Council in the UK 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. Shareholder informationcontinued Independent Directors The Code’s principles recommend that at least half the Board, excluding the Chairman, should consist of independent Non-Executive Directors. As at Chairman and Chief Executive Officer The Code recommends that the Chairman and Chief Executive Officer should not be the same individual to ensure that there is a clear division of responsibility for the running of the Company’s business. There is no corresponding requirement for US companies. The roles of Chairman and Chief Executive Officer were, as at 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 both 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 The Chairman of the Company is not a member of either of the Remuneration or the Audit Committees. As set out on page Non-Executive Director meetings Non-management directors of US companies must meet on a regular basis without management present, and independent directors must meet separately at least once per year. The Code requires: (i) the Board Chairman to hold meetings with the Non-Executive Directors without the Executive Directors present; and (ii) the Non-Executive Directors to meet at least annually without the Chairman present to appraise the Chairman’s performance. The Company’s Non-Executive Directors have met without Executive Directors being present, and intend to continue this practice, 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 on the next page 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 ($m, except earnings per ordinary share) Equity holders of the parent Non-controlling interest Basic Diluted Basic Diluted 1Relates to continuing operations. Group statement of financial position data ($m, except number of shares) 1Restated for the adoption of ‘Offsetting Financial Assets and Financial Liabilities’ (Amendments to IAS 32), see page 107. 2012 (restated2) 2011 (restated2) 2010 (restated2) 2009 (restated2) Equity holders of the parent Non-controlling interest Basic Diluted Basic Diluted 1 Relates to continuing operations. 2 Restated for the adoption of IAS I9R ‘Employee Benefits’ (see page 111). Group statement of financial position data Since March 2004, the Group has returned over On Purchases of equity securities by the Company and affiliated purchasers The Group’s During the financial year ended 31 December The principal trading market for the Company’s ordinary shares is the London Stock Exchange (LSE). The ordinary shares are also listed on the NYSE trading in the form of ADSs evidenced by ADRs. Each ADS represents one ordinary share. The Company has a sponsored ADR facility with JPMorgan as ADR Depositary. The following table shows, for the financial periods indicated, the reported high and low middle market quotations (which represent an average of closing bid and ask prices) for the ordinary shares on the LSE, as derived from the Official List of the UK Listing Authority, and the highest and lowest sales prices of the ADSs as reported on the NYSE composite tape. The table below sets forth the amounts of ordinary dividends on each ordinary share and special dividends, in respect of each financial year indicated. IHG Annual Report and Form 20-F 2014 Shareholder profile by type as at 31 December Category of shareholdings Percentage of issued share capital See chart® ¢ Limited and public limited companies ¢ Pension funds, insurance companies and banks Shareholder profile by size as at 31 December 2013 Shareholder profile by size as at 31 December 2014 Shareholder profile by size as at 31 December 2014 Range of shareholdings Percentage of issued share capital See chart® Shareholder profile by geographical location as at 31 December 2013 Shareholder profile by geographical location as at 31 December 2014 Shareholder profile by geographical location as at 31 December 2014 Country/ Jurisdiction Percentage of issued share capital1 See chart® As of As of Website and electronic communication As part of IHG’s commitment to reduce the cost and environmental impact of producing and distributing printed documents in large quantities, this Annual Report and Form20-F Shareholders may electronically appoint a proxy to vote on their behalf at the Shareholder 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 Secretariat department (see page IHG® Shelter in a Storm IHG Shelter in a Storm 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 0871 384 21321,2 (calls from within the UK) or +44 (0) 121 415 7034 (calls from outside the UK). Dividend services Dividend Reinvestment Plan (DRIP) The Company offers a DRIP for shareholders to purchase additional IHG shares with their cash dividends. For further information about the DRIP, please contact our Registrar helpline on 0871 384 22681,2. A DRIP application form and information booklet are available at www.shareview.co.uk/products/pages/ Bank mandate We encourage shareholders to have their dividends paid directly into their UK bank or building society account, 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 direct to their bank account in a local currency. Charges are payable for this service. Further information is available at www.shareview.co.uk/shareholders/pages/ Out-of-date/unclaimed dividends If you think that you have Individual Savings Account (ISA) Equiniti offers a Stocks and Shares ISA Share dealing services Equiniti offers the following share dealing facilities: Postal dealing For more information, call 0871 384 22481,2 Telephone dealing For more information, call 0845 603 70371,3 Internet dealing For more information, visit Changes to the base cost of IHG shares Details of all the changes to the base cost of IHG shares held ‘Gone Working with ProSearch (an asset reunification company), we continue to look for shareholders who have not kept their contact details Shareholder security Many companies have become aware that their shareholders have received unsolicited telephone calls or correspondence concerning investment matters. These are typically from ‘brokers’ who target UK shareholders, offering to sell them what often turn out to be worthless or high-risk shares in US or UK investments. These operations are commonly known as ‘boiler rooms’. More detailed information on this or similar activity can be found on the Financial Conduct Authority website at www.fca.org.uk/consumers/scams. Details of any share dealing facilities that the Company endorses will be included in Company mailings. American Depositary Receipts (ADRs) The Company’s shares are listed on the NYSE in the form of American Depositary Shares, evidenced by ADRs and traded under the symbol ‘IHG’. Each ADR represents one ordinary share. All enquiries regarding ADR holder accounts and payment of dividends should be directed to JPMorgan Chase Bank, N.A., our ADR Depositary bank (contact details shown on page Documents on display Documents referred to in this Annual Report andForm 20-F that are filed with the SEC can be found at the SEC’s public reference room located at 100 F Street, NE Washington, D.C. 20549, for further information and copy charges please call the SEC at 1-800-SEC-0330. The Company’s SEC filings since 22 May 2002 are also publicly available through the SEC’s website at www.sec.gov. Copies of the Company’s Articles can be obtained via the website at www.ihgplc.com/investors under corporate governance or from the Company’s registered IHG Annual Report and Form 20-F 2014 Usefulinformationcontinued Registered office Broadwater Park, Denham, Buckinghamshire, UB9 5HR, UK Telephone: +44 (0) 1895 512 000 Fax : +44 (0) 1895 512 101 www.ihgplc.com For general information about the Group’s business, please contact the Corporate Affairs department at the above address. For all other enquiries, please contact the Company Secretariat department at the above address. Registrar Equiniti, Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA, UK Telephone: 0871 384 21321,2 (UK calls) +44 (0) 121 415 7034 (non-UK calls) www.shareview.co.uk ADR Depositary JPMorgan Chase Bank N.A. PO Box 64504, St. Paul MN 55120-0854, USA Telephone: +1 800 990 1135 (US calls) (toll-free) +1 651 453 2128 (non-US calls) Email: jpmorgan.adr@wellsfargo.com www.adr.com 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 If you wish to enquire about, or join IHG Rewards Club, visit www.ihg.com/rewardsclub or telephone: 0871 226 11113(Europe) +1 888 211 98744 +1 800 272 92734(Mexico) +1 801 975 30635(English) +1 801 975 30135(Spanish) +971 4 429 05305 +02 9935 83625(Australia) +86 21 2033 48485 Cantonese) (China and Hong Kong) +81 3 5767 93255(Japan) +63 2 857 87785(Korea) +63 2 857 87885 Asia Pacific) The following exhibits are filed as part of this Annual Report on Form 20-F with the SEC: Form 20-F cross-reference guide 5C – Research and development; intellectual property 15B – Management’s annual report on internal control over financial reporting 15C – Attestation report 15D – Changes in internal controls over financial reporting Corporate Governance: Audit Committee Report Shareholder information: Summary of significant corporate governance differences from NYSE listing standards – Committees 65 174 16D – Exemptions from the listing standards for audit committees 16E – Purchase of equity securities by the issuer and affiliated purchasers 16F – Change in registrant’s certifying accountant Corporate Governance: Board of Directors’ and Executive Committee biographies adjusted excluding the effect of exceptional items and any relevant tax. ADR an American Depositary Receipt, being a receipt evidencing title to an ADR Depositary (JPMorgan) JPMorgan Chase Bank N.A. ADS an American Depositary Share as evidenced by an AGM Annual General Meeting. AMEA Asia, Middle East and Africa. Annual Report The Annual Report and Form 20-F in relation to the years ending 31 December 2013 or 2014, as relevant. APP Annual Performance Plan. Articles the average daily rate or average room rate rooms revenue divided by the number of room nights sold. basic earnings per ordinary share profit available for IHG equity holders divided by the weighted average number of ordinary shares in issue during the year. capital expenditure purchases of property, plant and equipment, intangible assets, associate and joint venture investments, and other financial assets. cash-generating units (CGUs) the smallest identifiable groups of assets that generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Code UK Corporate Governance Code issued in September 2012 by the Financial Reporting Council in the UK. Companies Act the Companies Act 2006, as amended from time to time. Company InterContinental Hotels Group PLC. comparable RevPAR a comparison for a grouping of hotels that have traded in all months in both financial years being compared. Principally excludes new hotels, hotels closed for major refurbishment and hotels sold in either of the two years. constant currency a current year value translated using the previous year’s exchange rates. contingencies liabilities that are contingent upon the occurrence of one or more uncertain future events. continuing operations operations not classified as discontinued. currency swap an exchange of a deposit and a borrowing, each denominated in a different currency, for an agreed period of time. derivatives a financial instrument used to reduce risk, the price of which is derived from an underlying asset, index or rate. direct channels digital and voice. discontinued operations hotels or operations sold or those classified as held for sale when the results relate to a separate line of business, geographical area of operations, or where there is a co-ordinated plan to dispose of a separate line of business or geographical area of operations. Employee Engagement survey twice a year, we ask our employees and those who work in our managed hotels (excluding our joint venture hotels) to participate in an Employee Engagement survey, to measure employee engagement. EU the European Union. euroor € the currency of the European Economic and Monetary Union. exceptional items items extended-stay hotels designed for guests staying for periods of time longer than a few nights and tending to have a higher proportion of suites than normal hotels (Staybridge Suites and Candlewood Suites). fee margin operating profit as a percentage of revenue, excluding revenue and operating profit from owned and leased hotels, managed leases and significant liquidated damages. fee revenue Group revenue excluding revenue from owned and leased hotels, managed leases and significant liquidated damages. franchisee an operator who uses a brand under licence from the brand owner, IHG. franchisor the brand owner, IHG, who licenses brands for use by operators. goodwill the difference between the consideration given for a business and the total of the fair values of the separable assets and liabilities comprising that business. Groupor IHG the Company and its subsidiaries. Guest Heartbeat IHG’s guest satisfaction measurement tool to measure brand preference and guest satisfaction. hedging the reduction of risk, normally in relation to foreign currency or interest rate movements, by making offsetting commitments. IASB International Accounting Standards Board. ICETUS InterContinental Executive IC Plan InterContinental Hotels UK Pension Plan. IFRS International Financial Reporting Standards as adopted by the EU and issued by the IASB. IHG System Hotels operating under franchise and management agreements together with IHG owned and leased hotels.26.25. Retirement benefitscontinued Pension plans UK US and other Post-employment benefits Total Movement in plan assets
$m Fair value of plan assets at 1 January 695 551 149 133 – – 844 684 Company contributions 20 97 10 10 1 1 31 108 Members’ contributions – 1 – – – – – 1 Benefits paid (22 ) (14 ) (13 ) (12 ) (1 ) (1 ) (36 ) (27 ) Interest income 29 27 4 4 – – 33 31 Settlement loss (137 ) – – – – – (137 ) – Re-measurement (losses)/gains (7 ) 7 9 15 – – 2 22 Administration costs (1 ) (1 ) (1 ) (1 ) – – (2 ) (2 ) Exchange adjustments 5 27 1 – – – 6 27 Fair value of plan assets at 31 December 582 695 159 149 – – 741 844 1Restated for the adoption of IAS 19R ‘Employee Benefits’ (see page 111). Pension plans UK US and other Post-employment
benefits Total Movement in benefit obligation 2014
$m 2013
$m 2013
$m 2014
$m 2013
$m Benefit obligation at 1 January 659 569 233 247 24 25 916 841 Current service cost – 2 1 1 – – 1 3 Past service cost – 5 – 1 – – – 6 Interest expense 24 26 10 7 1 1 35 34 Settlement gain before costs (3 ) – – – – – (3 ) – Benefits paid (18 ) (22 ) (14 ) (13 ) (1 ) (1 ) (33 ) (36 ) Committed cash-out payments (57 ) – – – – – �� (57 ) – Re-measurement losses/(gains) 86 62 26 (10 ) – (1 ) 112 51 Derecognised on buy-out (640 ) – – – – – (640 ) – Exchange adjustments (20 ) 17 (1 ) – – – (21 ) 17 Benefit obligation at 31 December 31 659 255 233 24 24 310 916 Comprising: – 577 199 182 – – 199 759 31 82 56 51 24 24 111 157 31 659 255 233 24 24 310 916 Pension plans UK US and other Post-employment
benefits Total Movement in plan assets 2014
$m 2013
$m 2014
$m 2013
$m 2014
$m 2013
$m 2014
$m 2013
$m Fair value of plan assets at 1 January 582 695 159 149 – – 741 844 Company contributions 3 20 11 10 1 1 15 31 Benefits paid (18 ) (22 ) (14 ) (13 ) (1 ) (1 ) (33 ) (36 ) Interest income 22 29 7 4 – – 29 33 Settlement loss – (137 ) – – – – – (137 ) Re-measurement gains/(losses) 83 (7 ) 5 9 – – 88 2 Administration costs (3 ) (1 ) – (1 ) – – (3 ) (2 ) Derecognised on buy-out (640 ) – – – – – (640 ) – Exchange adjustments (21 ) 5 (1 ) 1 – – (22 ) 6 Fair value of plan assets at 31 December 8 582 167 159 – – 175 741 $12m$6m in 2014.2015. UK US and other UK US and other 2014
$m 2013
$m 2014
$m 2013
$m Investment funds: – 62 33 60 – – 21 33 – 97 107 72 – – 131 107 – 17 4 6 – – 2 4 – 31 – – – 71 – – – 170 – – Government bonds – 135 – – Qualifying insurance policy 577 – 10 9 – 577 11 10 Property – 18 – – Cash and other 5 94 5 2 8 5 2 5 582 695 159 149 8 582 167 159 Pension plans UK US and other Post-employment benefits Total Movement in asset restriction Balance at 1 January 91 63 – – – – 91 63 Interest expense 3 3 – – – – 3 3 Re-measurement (losses)/gains (89 ) 23 – – – – (89 ) 23 Exchange adjustments (3 ) 2 – – – – (3 ) 2 Balance at 31 December 2 91 – – – – 2 91 1Restated for the adoption of IAS 19R ‘Employee Benefits’ (see page 111).The asset restriction relates to tax that would be deducted at source in respect of a refund of a surplus taking into account amounts payable under funding commitments. As a result of the buy-in transaction, substantially all of the asset restriction has been released through other comprehensive income during the year. Pension plans UK US and other Post-employment benefits Total Estimated future benefit payments 2013
$m 2012
$m 2013
$m 2012
$m 2012
$m Within one year 19 15 14 14 1 1 34 30 Between one and five years 84 65 57 57 5 5 146 127 After five years 123 93 76 74 7 7 206 174 226 173 147 145 13 13 386 331 Average duration of obligation (years) 21.6 21.5 11.8 12.0 11.3 11.5 Notes to the Group Financial Statements145Notes to the Group Financial Statementscontinued27. Deferred tax Property,
plant and
equipment
$m Deferred
gains on
loan notes
$m Losses
$m Employee
benefits
$m Intangible
assets
$m Undistributed
earnings of
subsidiaries
$m Other
short-term
temporary
differences2
$m Total
$m At 1 January 2012 221 137 (133 ) (59 ) 38 – (153 ) 51 Income statement (restated1) 12 (26 ) (74 ) 5 (6 ) – (1 ) (90 ) Statement of comprehensive income (restated1) – – – (5 ) – – 1 (4 ) Statement of changes in equity – – – (4 ) – – (1 ) (5 ) Exchange and other adjustments 3 3 (8 ) – 1 – (1 ) (2 ) At 31 December 2012 236 114 (215 ) (63 ) 33 – (155 ) (50 ) Income statement 1 (8 ) 20 2 2 63 8 88 Statement of comprehensive income – – – 24 – – – 24 Statement of changes in equity – – – – – – 4 4 Exchange and other adjustments 3 1 9 – (1 ) 3 (14 ) 1 At 31 December 2013 240 107 (186 ) (37 ) 34 66 (157 ) 67 1Restated for the adoption of IAS 19R ‘Employee Benefits’ (see page 111).2Primarily relates to provisions, accruals, amortisation and share-based payments. 2013
$m 2012
$m Analysed as: (108 ) (204 ) 175 93 – 61 67 (50 ) Deferred gains on loan notes includes $55m (2012 $55m) which is expected to fall due for payment in 2016.The deferred tax asset recognised in respect of losses of $186m (2012 $215m) includes $53m (2012 $78m) in respect of capital losses available to be utilised against the realisation of capital gains which are recognised as a deferred tax liability and $133m (2012 $137m) in respect of revenue tax losses. Deferred tax assets of $17m (2012 $22m) are recognised in relation to legal entities which suffered a tax loss in the current or preceding period. These assets are recognised based upon future taxable profit forecasts for the entities concerned. A deferred tax provision was made during the year in respect of current and prior year earnings which are expected to be repatriated within the foreseeable future, consequent upon the disposal of the InterContinental London Park Lane hotel as the proceeds are not expected to be reinvested by the relevant subsidiaries.The Group has unrecognised deferred tax assets as follows: 2013
$m 2012
$m Revenue losses 127 132 Capital losses 85 140 Total losses1 212 272 Employee benefits 16 32 Foreign tax credits – 34 Other2 55 53 Total 283 391 1These may be carried forward indefinitely other than $12m which expires after three years, $1m which expires after seven years, $1m which expires after eight years and $9m which expires after nine years (2012 $11m which expires after four years and $1m which expires after eight years).2Primarily relates to provisions, accruals, amortisation and share-based payments.These assets have not been recognised as the Group does not currently anticipate being able to offset these against future profits or gains in order to realise any economic benefit in the foreseeable future. However, future benefits may arise as a result of resolving tax uncertainties, or as a consequence of case law and legislative developments which make the value of the assets more certain.The Group has provided deferred tax in relation to temporary differences associated with post-acquisition undistributed earnings of subsidiaries only 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. The remaining unprovided liability that would arise on the reversal of these temporary differences is not expected to exceed $10m (2012 $20m).146 IHG Annual Report and Form 20-F 20132014 Pension plans UK US and other Post-employment
benefits Total Movement in asset restriction 2014
$m 2013
$m 2014
$m 2013
$m 2014
$m 2013
$m 2014
$m 2013
$m Balance at 1 January 2 91 – – – – 2 91 Interest expense – 3 – – – – – 3 Re-measurement gains/(losses) 1 (89 ) – – – – 1 (89 ) Exchange adjustments – (3 ) – – – – – (3 ) Balance at 31 December 3 2 – – – – 3 2 The asset restriction relates to tax that would be deducted at source in respect of a refund of a surplus taking into account amounts payable under funding commitments. As a result of the buy-in transaction, substantially all of the asset restriction was released through other comprehensive income during 2013. Pension plans UK US and other Post-employment
benefits Total Estimated future benefit payments 2014
$m 2013
$m 2013
$m 2014
$m 2013
$m 2014
$m 2013
$m Within one year – 19 15 14 1 1 16 34 Between one and five years 2 84 58 57 5 5 65 146 After five years 11 123 78 76 7 7 96 206 13 226 151 147 13 13 177 386 Average duration of obligation (years) 22.0 21.6 11.9 11.8 11.9 11.3 28.26. Share-based paymentsTheUnder the IHG Annual Performance Plan (APP), formerly the Annual Bonus Plan (ABP) enables, eligible employees (including Executive Directors) tocan receive all or part of their bonus in the form of deferred shares. The deferred shares are released on the third anniversary of the award date. Under the terms of the current plan,awards that are referred to in this note, a fixed percentage of the bonusaward is awardedmade in the form of shares with no voluntary deferral and no matching shares. The awards in all ofAwards under the plansAPP are conditional on the participants remaining in the employment of a participating company or leaving for a qualifying reason as per the plan rules. Participation inThe award of deferred shares under the APP is at the discretion of the Remuneration Committee.bonusaward 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 planAPP during the year and conditional rights over 305,345 (2013 318,911, (2012 340,924, 2011 528,213)2012 340,924) shares were awarded to participants. New plan rules for the APP were approved by shareholders at the Annual General Meeting on 2 May 2014, and will apply to awards made in respect of the 2015 subsequent and financial years. The new plan rules contain substantially the same terms as the existing plan rules.(2012 2,698,714, 2011 3,257,364)2012 2,698,714) shares were awarded to employees under the plan. The plan provides for the grant of ‘nil cost options’ to participants as an alternative to conditional share awards. New plan rules for the LTIP were approved by shareholders at the Annual General Meeting on 2 May 2014, and will apply to awards made in respect of the 2015-17 and subsequent LTIP cycles. The new plan rules contain substantially the same terms as the existing rules; one minor change is to limit the maximum award to three times salary for all employees.For options granted, the option price is not less than the market value of an ordinary share, or the nominal value if higher. The market value is the quoted price on the business day preceding the date of grant, or the average of the middle market quoted prices on the three consecutive dealing days immediately preceding the date of grant. A performance condition has to be met before options can be exercised. The performance condition is set by the Remuneration Committee. The plan was not operated during 20132014 and no options were granted in the year under the plan. The latest date thatplan, neither will any further options may be exercised is 4 April 2015.Sharesave PlanThe Sharesave Plan is a savings plan whereby employees contract to save a fixed amount each month with a savings institution for three or five years. At the end of the savings term, employees are given the option to purchase shares at a price set before savings began. The Sharesave Plan, when operational, is available to all UK employees (including Executive Directors) employed by participating Group companies provided that they have been employed for at least one year. The plan provides for the grant of options to subscribe for ordinary shares at the higher of nominal value and not less than 80% of the middle market quotations of the ordinary shares on the three dealing days immediately preceding the invitation date. The plan was not operated during 2013 and no options were granted in the year under the plan.US Employee Stock Purchase PlanThe US Employee Stock Purchase Plan will allow eligible employees resident in the US an opportunity to acquire Company American Depositary Shares (ADSs) on advantageous terms. The option to purchase ADSs may be offered only to employees of designated subsidiary companies. The option price may not be less than the lesser of either 85% of the fair market value of an ADS on the date of grant or 85% of the fair market value of an ADS on the date of exercise. Options granted under the plan must generally be exercised within 27 months from the date of grant. The plan was not operated during 2013 and at 31 December 2013 no options had been granted under the plan.Former Six Continents Share SchemesUnder the terms of the separation of Six Continents PLC in 2003, holders of All options under the Six Continents Executive Share Option Schemes were given the opportunity to exchange their Six Continents PLC options for equivalent value new options over IHG shares. As a result of this exchange, 23,195,482 shares were put under option at prices ranging from 308.5p to 593.3p. The exchanged options were immediately exercisable and are not subject to performance conditions. During 2012, 352,115 such options were exercised and 106,699 lapsed, leaving no such options outstanding at 31 December 2012.have now been exercised. Notes to the Group Financial Statements 147146Notes to the Group Financial Statements26. Share-based paymentscontinued28. Share-based paymentscontinued(2012 $22m, 2011 $25m)2012 $22m) in operating profit and $nil (2012 $1m, 2011 $nil) within exceptional administrative expenses related to equity-settled share-based payment transactions during the year, net of amounts borne by the System Fund.(2012 $10m, 2011 $8m)2012 $10m).2013. No awards were granted under the Executive Share Option Plan, Sharesave Plan or US Employee Stock Purchase Plan during the year.2014: APP LTIP APP LTIP Number of shares awarded in 2013 318,911 2,227,293 Number of shares awarded in 2014 305,345 2,171,390 The Group uses separate option pricing models and assumptions depending on the plan. The following tables set out information about awards granted in 2014, 2013 and 2012: The Group uses separate option pricing models and assumptions depending on the plan. The following tables set out information about awards granted in 2014, 2013 and 2012: APP LTIP 2014 Valuation model Binomial Monte Carlo
Simulation and
Binomial Weighted average share price 1,925.0p 1,916.0p Expected dividend yield n/a 2.55% Risk-free interest rate 1.29% Volatility1 28% Term (years) 3.0 3.0 APP LTIP APP LTIP 2013 Valuation model Binomial Monte Carlo
Simulation and
Binomial Binomial Monte Carlo
Simulation and
Binomial Weighted average share price 1,928.0p 1,913.0p 1,928.0p 1,913.0p Expected dividend yield 2.63% 2.59% 2.63% 2.59% Risk-free interest rate 0.27% 0.27% Volatility1 28% 28% Term (years) 3.0 3.0 3.0 3.0 ABP LTIP ABP LTIP 2012 Valuation model Binomial Monte Carlo
Simulation and
Binomial Binomial Monte Carlo
Simulation and
Binomial Weighted average share price 1,440.0p 1,440.0p 1,440.0p 1,440.0p Expected dividend yield 2.95% 2.99% 2.95% 2.99% Risk-free interest rate 0.59% 0.59% Volatility1 31% 31% Term (years) 3.0 3.0 3.0 3.0 ABP LTIP 2011 Valuation model Binomial Monte Carlo
Simulation and
Binomial Weighted average share price 1,415.0p 1,281.0p Expected dividend yield 2.14% 2.78% Risk-free interest rate 1.88% Volatility1 39% Term (years) 3.0 3.0 1 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. 147 148 IHG Annual Report and Form 20-F 2013201428. Share-based paymentscontinued APP
Number of
shares
thousands LTIP
Number of
shares
thousands Outstanding at 1 January 2011 1,274 11,342 Granted 528 3,257 Vested (702 ) (3,454 ) Lapsed or cancelled (150 ) (2,115 ) Outstanding at 31 December 2011 950 9,030 Granted 341 2,699 Vested (643 ) (2,621 ) Share capital consolidation (18 ) – Lapsed or cancelled (8 ) (1,948 ) Outstanding at 31 December 2012 622 7,160 Granted 319 2,227 Vested (72 ) (2,206 ) Lapsed or cancelled (29 ) (406 ) Outstanding at 31 December 2013 840 6,775 2,873.4¢ 1,127.9¢ 2012 2,199.8¢ 792.5¢ 2011 2,141.1¢ 819.7¢ At 31 December 2013 1.1 1.1 At 31 December 2012 1.6 1.2 At 31 December 2011 0.9 1.0 Number of
shares
thousands Range of
option prices
pence Weighted
average
option price
pence Outstanding at 1 January 2011 3,291 308.5-619.8 489.3 Exercised (1,075 ) 308.5-619.8 476.5 Lapsed or cancelled (46 ) 422.8 422.8 Outstanding at 31 December 2011 2,170 308.5-619.8 497.0 Exercised (1,365 ) 308.5-619.8 492.8 Lapsed or cancelled (107 ) 434.2 434.2 Outstanding at 31 December 2012 698 438.0-619.8 514.8 Exercised (638 ) 438.0-619.8 512.3 Outstanding at 31 December 2013 60 494.2-619.8 541.3 60 494.2–619.8 541.3 At 31 December 2012 698 438.0–619.8 514.8 At 31 December 2011 2,170 308.5–619.8 497.0 Included within the options outstanding under the Executive Share Option Plan are options over nil (2012 nil, 2011 458,814) shares that have not been recognised in accordance with IFRS 2 as the options were granted on or before 7 November 2002. These options, relating to former Six Continents share schemes, have not been subsequently modified and therefore do not need to be accounted for in accordance with IFRS 2. APP
Number of
shares
thousands LTIP
Number of
shares
thousands Outstanding at 1 January 2012 950 9,030 Granted 341 2,699 Vested (643 ) (2,621 ) Share capital consolidation (18 ) – Lapsed or cancelled (8 ) (1,948 ) Outstanding at 31 December 2012 622 7,160 Granted 319 2,227 Vested (72 ) (2,206 ) Lapsed or cancelled (29 ) (406 ) Outstanding at 31 December 2013 840 6,775 Granted 305 2,171 Vested (310 ) (1,447 ) Share capital consolidation (38 ) – Lapsed or cancelled (29 ) (1,379 ) Outstanding at 31 December 2014 768 6,120 2014 3,134.6¢ 1,202.1¢ 2013 2,873.4¢ 1,127.9¢ 2012 2,199.8¢ 792.5¢ At 31 December 2014 1.1 1.1 At 31 December 2013 1.1 1.1 At 31 December 2012 1.6 1.2 Number of
shares
thousands Range of
option prices
pence Weighted
average
option price
pence Executive Share Option Plan Outstanding at 1 January 2012 2,170 308.5–619.8 497.0 Exercised (1,365 ) 308.5–619.8 492.8 Lapsed or cancelled (107 ) 434.2 434.2 Outstanding at 31 December 2012 698 438.0–619.8 514.8 Exercised (638 ) 438.0–619.8 512.3 Outstanding at 31 December 2013 60 494.2–619.8 541.3 Exercised (60 ) 494.2–619.8 541.3 Outstanding at 31 December 2014 – n/a – At 31 December 2014 – n/a n/a At 31 December 2013 60 494.2–619.8 541.3 At 31 December 2012 698 438.0–619.8 514.8 1,934.9p.1,966.5p. The closing share price on 31 December 20132014 was 2,013.0p2,595.0p and the range during the year was 1,737.0p1,866.0p to 2,039.0p2,710.0p per share. Notes to the Group Financial Statements 149148Notes to the Group Financial Statementscontinued28. Share-based paymentscontinued27. EquitySummarised information about options outstanding at 31 December 2013 under the share option schemes is as follows: Options outstanding and exercisable Range of exercise prices (pence) Number
outstanding
thousands Weighted
average
remaining
contract life
years Weighted
average
option price
pence 494.2 37 0.3 494.2 619.8 23 1.3 619.8 60 0.6 541.3 Equity share capital Number of
shares
millions
value
premium
capital Number of
shares
millions Nominal
value
$m Share
premium
$m Equity
share
capital
$m At 1 January 2011 (ordinary shares of 1329/47p each) 289 61 94 155 Issued on exercise of share options 1 – 8 8 Exchange adjustments – – (1 ) (1 ) At 31 December 2011 (ordinary shares of 1329/47p each) 290 61 101 162 At 1 January 2012 (ordinary shares of 13 29⁄47p each) 290 61 101 162 Share capital consolidation (19 ) – – – (19 ) – – – Issued on exercise of share options 1 1 9 10 1 1 9 10 Repurchased and cancelled under repurchase programme (4 ) (1 ) – (1 ) (4 ) (1 ) – (1 ) Exchange adjustments – 2 6 8 – 2 6 8 At 31 December 2012 (ordinary shares of 14194/329p each) 268 63 116 179 At 31 December 2012 (ordinary shares of 14 194⁄329p each) 268 63 116 179 Issued on exercise of share options 1 – 5 5 1 – 5 5 Exchange adjustments – 2 3 5 – 2 3 5 At 31 December 2013 (ordinary shares of 14194/329p each) 269 65 124 189 At 31 December 2013 (ordinary shares of 14 194⁄329p 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 15 265⁄329p each) 248 61 117 178 1 19494/⁄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 held on 8 October 2012, the share repurchase programme commenced in November 2012 resulting in the repurchase of 4,143,960 shares in the period to 31 December 2012 for a total consideration of $107m. Under the same programme, a further 9,773,912 shares were purchased incommenced. In the year to 31 December 20132014, 3.4m (2013 9.8m, 2012 4.1m) shares were repurchased for a total consideration of $283m. Shares$110m (2013 $283m, 2012 $107m), increasing the total amount repurchased to $500m and completing the programme. Of the 3.4m (2013 9.8m, 2012 4.1m) shares repurchased in the year to 31 December 20132014, 2.7m (2013 9.8m, 2012 nil) are held as treasury shares whereas those shares repurchased in the year to 31 Decemberand 0.7m (2013 nil, 2012 4.1m) were cancelled. NoThe cost of treasury shares were repurchased in 2011.has been deducted from retained earnings.Annual General Meeting (AGM)GM held on 24 May 201330 June 2014 to purchase its own shares was still valid at 31 December 2013.2014. A resolution to renew the authority will be put to shareholders at the AGMAnnual General Meeting on 28 May 2014.2015.1415194 265/⁄329p shares. The share premium reserve represents the amount of proceeds received for shares in excess of their nominal value. 149 150 IHG Annual Report and Form 20-F 2013201429. Equitycontinued106102 to 108104 of the Financial Statements is as follows:(2012 $48.0m, 2011 $26.5m)2012 $48.0m) in respect of 0.9m (2013 1.2m, (2012 1.8m, 2011 1.5m)2012 1.8m) InterContinental Hotels Group PLC ordinary shares held by employee share trusts, with a market value at 31 December 20132014 of $38.2m (2013 $39.8m, (2012 $50m, 2011 $26m)2012 $50.1m).111 to 112)107), this reserve also includes exchange differences arising on the retranslation to period-end exchange rates of equity share capital, the capital redemption reserve and shares held by employee share trusts.20132014 was a $2m net asset (2013 $10m net liability, (20122012 $17m 2011 $36m)net liability).2013,2014, 11.5m shares (2013 9.8m, shares (2012 nil, 20112012 nil) with a nominal value of $2.8m (2013 $2.4m, (2012 $nil, 20112012 $nil) were held as treasury shares at cost and deducted from retained earnings.subsidarysubsidiary of the Group not attributable, directly or indirectly, to the Group. Non-controlling interests are not material to the Group.150 30.28. Operating leases2013,2014, $72m (2013 $67m, (2012 $64m, 20112012 $64m) was recognised as an expense in the Group income statement in respect of operating leases, net of amounts borne directly by the System Fund. The expense includes contingent rents of $27m (2013 $24m, (2012 $19m, 2011 $18m)2012 $19m). $4m (2013 $4m, 2012 $4m) was recognised as income from sub-leases. 2013
$m 2012
$m 2014
$m 2013
$m Due within one year 42 47 40 42 One to two years 33 34 34 33 Two to three years 29 25 28 29 Three to four years 23 22 27 23 Four to five years 23 22 20 23 More than five years 202 237 200 202 352 387 349 352 1817 years (2012 19(2013 18 years). No material restrictions or guarantees exist in the Group’s lease obligations.$10m (2012$8m (2013 $10m).Notes to the Group Financial Statements 151Notes to the Group Financial Statementscontinued31.29. Capital and other commitments 2013
$m 2012
$m 2014
$m 2013
$m Contracts placed for expenditure not provided for in the Group Financial Statements: 70 66 70 70 13 15 47 13 83 81 117 83 up to $61m in three investments accounted for under the equity methoda number of which $41m had been spentits associates, with an estimated outstanding commitment of $89m at 31 December 2013.2014 (2013 $20m) based on current forecasts.32.30. Contingencies and guarantees2013$m2012$mContingent liabilities not provided for in the Group Financial Statements–111On Form 20-F for the year ended 31 December 2012, this number was disclosed as $25m due to an arbitral award in Greater China on 21 March 2013.2013,2014, the amount provided in the Financial Statements was $6m (2012$2m (2013 $6m) and the maximum unprovided exposure under such guarantees was $48m (2012 $50m)$29m (2013 $48m).2013,2014, the Group had outstanding letters of credit of $41m (2012 $38m, 2011 $51m)$40m (2013 $41m) mainly relating to self insurance programmes.interest and also a management contract.interest. At 31 December 2013,2014, there were guarantees of $20m in place (2012 $nil, 2011 $nil)(2013 $20m).law suitslawsuit in the US (see ‘Legal proceedings’ on page 172)170). 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.151 33.31. Related party disclosures 2014
$m 2013
$m 2012
$m Total compensation of key management personnel¹ Short-term employment benefits 21.5 20.7 20.0 Post-employment benefits 0.7 0.8 0.8 Termination benefits – – 0.6 Equity compensation benefits 7.9 8.1 8.6 30.1 29.6 30.0 2013
$m 2012
$m 2011
$m Short-term employment benefits 20.7 20.0 18.8 Post-employment benefits 0.8 0.8 0.8 Termination benefits – 0.6 1.4 Equity compensation benefits 8.1 8.6 8.1 29.6 30.0 29.1 1 Excludes ICETUS cash-out payment of £9.4m (see Directors’ Remuneration Report, page 85). 2012 or 2011.Related party disclosures for associates and joint ventures are included in note 14.2012.152 IHG Annual Report and Form 20-F 2013
Related party disclosures for associates and joint ventures are as follows: Associates Joint ventures Total 2014
$m 2013
$m 2012
$m 2014
$m 2013
$m 2012
$m 2014
$m 2013
$m 2012
$m Revenue from associates and joint ventures 4 4 5 – – – 4 4 5 Loans to associates 3 – – – – – 3 – – Other amounts owed by associates and joint ventures 11 2 2 – – – 11 2 2 34.32. System Fundpages 115 and 116page 112 of the Financial Statements. 2014
$m 2013
$m 2012
$m Income1: 1,154 1,106 1,025 1,271 1,154 1,106 153 144 128 196 153 144 Key elements of expenditure1: 245 250 203 267 245 250 219 250 232 296 219 250 239 221 182 267 239 221 Net surplus for the year1 35 12 19 Net (deficit)/surplus for the year1 (18 ) 35 12 Interest payable to the Fund 2 2 1 2 2 2 1 Not included in the Group income statement in accordance with the Group’s accounting policies. (2012 4,431, 2011 3,885)2012 4,431) employees whose costs are borne by the Fund. 2014
$m 2013
$m 2012
$m Cumulative short-term net surplus 86 51 39 68 86 51 Loyalty programme liability 649 623 578 725 649 623 735 674 617 793 735 674 (2012 $57m, 2011 $66m)2012 $57m) to the Group’s cash flow from operations.152 35.33. Events after the reporting periodIn February 2014,On 16 January 2015, the Group signedcompleted the acquisition of Kimpton Hotel & Restaurant Group, LLC (‘Kimpton’), an agreementunlisted company based in the US, for $430m paid in cash. Kimpton is the world’s largest independent boutique hotel operator which, together with IHG’s Hotel Indigo and EVEN brands, creates a leading boutique and lifestyle hotel business.sell the InterContinental Mark Hopkins San Franciscoclose proximity of the acquisition date to the date of these financial statements, the initial accounting for $120mthe business combination is incomplete and the Group is unable to provide a quantification of the fair values of these assets. The fair value exercise is ongoing and it is expected that the Group will include an acquisition balance sheet with its interim results for 2015.cash and enter into a long term management contract on the hotel. The hotel had a net book value of $90m atyear to 31 December 2013.2014 (see note 5).36.34. Principal operating subsidiary undertakings111 East 48th Street Holdings, LLC2Thecompanies listed above include those which principally affect the amount of profit and assets of the Group.1 Incorporated in Great Britain and registered in England and Wales. 2 Incorporated in the US. 3 Incorporated in Hong Kong. 4 Incorporated in France. Notes to the Group Financial Statements153
154 IHG Annual Report and Form 20-F 2013Financial StatementsFinancial Statements
156Parent company balance sheet157Notes to the Parent Company Financial Statements161Independent Auditor’s Report
154 
Parent Company Financial Statements155 155156157 158 159 Parent Company Financial StatementsParent company balance sheet31 December 2013 Note 2013
£m 2012
£m Investments 3 2,968 2,951 Debtors 4 28 16 Creditors: amounts falling due within one year 5 (484 ) (1,440 ) Net current liabilities (456 ) (1,424 ) 2,512 1,527 Creditors: amounts falling due after one year 5 (645 ) (644 ) Net assets 1,867 883 Called up share capital 6 39 39 Share premium account 7 75 72 Capital redemption reserve 7 7 7 Share-based payment reserve 7 201 184 Profit and loss account 7 1,545 581 Equity shareholders’ funds 1,867 883 Signed on behalf of the BoardPaul Edgecliffe-Johnson17 February 2014No profit and loss account is presented for InterContinental Hotels Group PLC as permitted by Section 408 of the Companies Act 2006. Profit on ordinary activities after taxation amounts to £1,487m (2012 £610m).Notes on pages 157 to 160 form an integral part of these Financial Statements.156 IHG Annual Report and Form 20-F 2013Notes to the Parent Company Financial StatementsBasis of accountingditiThe Financial Statements are prepared under the historical cost convention and onal Information a going concern basis. They have been drawn up to comply with applicable accounting standards in the United Kingdom (UK GAAP). These accounts are for the Company and are not consolidated financial statements.Fixed asset investmentsFixed asset investments are stated at cost plus deemed capital contributions arising from share-based payment transactions less any provision for impairment. The Company records an increase in its investments in subsidiaries equal to the share-based payments charge recognised by its subsidiaries with a corresponding credit to equity. Details of the Group’s share-based payments are set out in note 28 of the Group Financial Statements on pages 147 to 150.BorrowingsBorrowings 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 charged to the profit and loss account using the effective interest rate method.Borrowings are classified as due after more than one year when the repayment date is more than 12 months from the balance sheet date.Financial risk management policiesFinancial risk management policies are set out in note 21 of the Group Financial Statements on pages 135 and 137.Capital risk managementThe Group’s capital risk management policy is set out in note 21 of the Group Financial Statements on page 136.Related party transactionsThe Company takes advantage of the exemption under FRS 8 and does not disclose transactions with wholly owned subsidiaries.Treasury sharesOwn shares repurchased by the Company and not cancelled (treasury shares) are recognised at cost and deducted from retained earnings. If reissued, any excess of consideration over carrying amount is recognised in the share premium reserve.Parent Company Financial Statements 157Notes to the Parent Company Financial Statementscontinued2. Directors 2013 2012 Number of Directors 13 11 2013
£m 2012
£m Base salaries, fees, performance payments and benefits 5.5 6.1 Pension benefits under defined contribution plan 0.2 0.1 Detailed information on the emoluments, pensions, option holdings and shareholdings for each Director is shown in the Directors’ Remuneration Report on pages 74 to 97.3. Investments162 £mGroup information At 1 January 20132,951Share-based payments capital contribution17At 31 December 20132,968The Company is the beneficial owner of all of the equity share capital of InterContinental Hotels Limited. The principal operating subsidiary undertakings of that company are listed in note 36 of the Group Financial Statements.4. Debtors 2013
£m 2012
£m Amounts due from subsidiary undertakings 14 5 Corporate taxation 14 11 28 16 5. Creditors 2013
£m 2012
£m Amounts due to subsidiary undertakings 484 1,440 £250m 6% bonds 2016 250 249 £400m 3.875% bonds 2022 395 395 645 644 The 6% fixed interest sterling bonds were issued on 9 December 2009 and are repayable in full on 9 December 2016. Interest is payable annually on 9 December in each year commencing 9 December 2010 to the maturity date. The bonds were initially priced at 99.465% of face value and are unsecured. The 3.875% fixed interest sterling bonds were issued on 28 November 2012 and are repayable on 28 November 2022. Interest is payable annually on 28 November in each year commencing 28 November 2013 to the maturity date. The bonds were initially priced at 98.787% of face value and are unsecured.158 IHG Annual Report and Form 20-F 20136. Share capital Number
of shares
millions £m At 1 January 2013 (ordinary shares of 14194/329p each) 268 39 Issued on exercise of share options 1 – At 31 December 2013 (ordinary shares of 14194/329p each) 269 39 Under the authority granted by shareholders at the General Meeting (GM) held on 8 October 2012, the share repurchase programme commenced in November 2012. 9,773,912 shares were repurchased in the year to 31 December 2013 for a total consideration of £181m.The authority given to the Company at the Annual General Meeting (AGM) held on 24 May 2013 to purchase its own shares was still valid at 31 December 2013. A resolution to renew the authority will be put to shareholders at the AGM on 2 May 2014.The Company no longer has an authorised share capital.The aggregate consideration in respect of ordinary shares issued under option schemes during the year was £3m (2012 £7m).162 ThousandsOptions to subscribe for ordinary sharesAt 1 January 2013698Exercised1(638) At 31 December 201360Option exercise price per ordinary share (pence)494.2-619.8Final exercise date4 April 20151The weighted average option price was 512.3p for shares exercised under the Executive Share Option Plan.7. Movements in reserves Share
premium
account
£m
redemption
reserve Share-based
payments
reserve £m
£m At 1 January 2013 72 7 184 581 Premium on allotment of ordinary shares 3 – – – Repurchase of shares – – – (181 ) Profit after tax – – – 1,487 Share-based payments capital contribution – – 17 – Dividends – – – (342 ) At 31 December 2013 75 7 201 1,545 At 31 December 2013, 9,773,912 shares with a nominal value of £1,425,981 were held as treasury shares at cost.Notes to the Parent Company Financial Statements 159Notes to the Parent Company Financial Statementscontinued8. Reconciliation of movements in shareholders’ funds 2013
£m 2012
£m Earnings available for shareholders 1,487 610 Dividends (342 ) (426 ) 1,145 184 Issue of ordinary shares 3 7 Repurchase of shares (181 ) (67 ) Transaction costs relating to shareholder returns – (1 ) Share-based payments capital contribution 17 17 984 140 Shareholders’ funds at 1 January 883 743 Shareholders’ funds at 31 December 1,867 883 9. Profit and dividendsProfit on ordinary activities after tax amounts to £1,487m (2012 £610m).A final dividend, declared in the previous year, of 27.7p (2012 24.7p) per share was paid during the year, amounting to £74m (2012 £72m). An interim dividend of 15.1p (2012 13.5p) per share was paid during the year, amounting to £40m (2012 £39m). A special interim dividend of 87.1p (2012 108.4p) per share was paid during the year, amounting to £228m (2012 £315m). A final dividend of 28.1p (2012 27.7p) per share, amounting to £72m (2012 £74m), is proposed for approval at the AGM. The proposed final dividend is payable on shares in issue at 21 March 2014.The audit fee of £0.02m (2012 £0.02m) was borne by a subsidiary undertaking in both years.160 IHG Annual ReportHistory and Form 20-F 2013Independent Auditor’s Report to the membersof InterContinental Hotels Group PLCWe have audited the Parent Company Financial Statements of InterContinental Hotels Group PLC for the year ended 31 December 2013 which comprise the parent company balance sheet and the related notes 1 to 9. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.Respective responsibilities of Directors and auditorAs explained more fully in the Statement of Directors’ responsibilities set out on page 100, the Directors are responsible for the preparation of the Parent Company Financial Statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the Parent Company Financial Statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.Scope of the audit of the Financial StatementsAn audit involves obtaining evidence about the amounts and disclosures in the Financial Statements sufficient to give reasonable assurance that the Financial Statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the parent company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the Financial Statements. In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited Financial Statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.Opinion on Financial StatementsIn our opinion the Parent Company Financial Statements:give a true and fair view of the state of the Company’s affairs as at 31 December 2013;have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; andhave been prepared in accordance with the requirements of the Companies Act 2006.Opinion on other matters prescribed by the Companies Act 2006In our opinion:the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; andthe information given in the Strategic Report and the Directors’ Report for the financial year for which the Financial Statements are prepared is consistent with the Parent Company Financial Statements.Matters on which we are required to report by exceptionWe have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; orthe Parent Company Financial Statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; orcertain disclosures of Directors’ remuneration specified by law are not made; orwe have not received all the information and explanations we require for our audit.Other matterWe have reported separately on the Group Financial Statements of InterContinental Hotels Group PLC for the year ended 31 December 2013.Alison Duncan (Senior statutory auditor) for and on behalf of Ernst & Young LLP, Statutory Auditor London17 February 2014Notes:1.The maintenance and integrity of the InterContinental Hotels Group PLC website is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the Financial Statements since they were initially presented on the website.2.Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.Parent Company Financial Statement 161
162 EVEN™ HotelsLaunched in February 2012, after more than 24 months of consumer insights research, EVEN Hotels offer a fresh perspective on travel to wellness-minded travellers, and stakes a claim for IHG in the wellness space. The first two EVEN hotels will open in 2014.5 hotels in the pipelineHUALUXE® Hotels & ResortsLaunched in March 2012, the brand is the world’s first international hotel brand designed specifically for the needs and preferences of Chinese guests. The hotels and resorts focus on the unique Chinese aspects of etiquette, rejuvenation in nature, status recognition, and providing spaces enabling social interactions. The first HUALUXE hotel will open in 2014.21 hotels in the pipeline162 IHG Annual Report and Form 20-F 2013AdditionalInformation
IHG® Rewards ClubOriginally launched as Priority Club® Rewards in 1983, our loyalty programme is the oldest and largest in the industry, with 77.4 million members worldwide. In July 2013, during our 10th year as a standalone hotel company, we renamed the programme to IHG® Rewards Club.166 Group information164History and developments164Risk Factors167166 168167 169169 170169 170170 172171 172Exchange controlsShareholder information171 171 173 Taxation175173 175174 176178176Dividend history178179176177 177 178 179 Share priceUseful information179 180 180 181 Investor informationExhibits182 Financial calendar182Contacts183Exhibits184Form 20-F cross-reference guide 184 Glossary 186 Glossary188Forward-looking statements 
Additional Information 163160
161 IHG Annual Report and Form 20-F 2014 athe retail and standard commercial property developments business.2013,2014, proceeds of $6 billion from the sale of 186 hotels. Of these 186 hotels, 167 remained in the IHG System through either franchise or management agreements. The asset-disposal$6.0 billion. This programme has significantly reduced the capital requirements of the Group whilst largely retaining the hotels in the IHG System.2012,2013, the most significant of which are set out below.The Group agreed to disposedisposed of the InterContinental Mark Hopkins San Francisco on 27 March 2014 for $120 million in cash in February 2014;million;the Group announcedcompleted its agreement to disposedisposal of 80 per cent of its interest in the InterContinental New York Barclay on 31 March 2014 for $240$274 million on 19 December 2013. The(the Group will continuecontinues to hold the remaining 20 per cent interest by way of a joint venture;venture);the Group disposed of agreed to sell its 100 per cent interest in InterContinental Paris – Le Grand on 7 December 2014 for€330 million;the InterContinental London Park LaneGroup agreed to acquire Kimpton Hotels & Restaurants for $430 million on 1 May 2013 for £301.5 million ($469 million);15 December 2014, and the transaction was completed on 16 January 2015; andthe Group also divested a number of investments for total proceeds of $41$16 million in 2013; andthe Group acquired three existing hotels, which are being converted to EVEN Hotels.2014.Capital expenditure in 20132014 totalled $269$271 million compared with $269 million in 2013 and $133 million in 2012 and $194 million in 2011;2012;at 31 December 20132014, capital committed, being contracts placed for expenditure on property, plant and equipment, and intangible assets not provided for in the Group Financial Statements, totalled $83$117 million; andthe Group has also committed to invest up to $61in a number of its associates, with an estimated outstanding commitment of $89 million, in three joint venture arrangements, of which $41 million had been spent at 31 December 2013.The Group is subject to a variety of inherent risks which may have an adverse impactbased on the business operations, financial condition, turnover, profits, brands and reputation. The following 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 Company and some that the Company does not currently believe to be material could later turn out to be material.The risk factors below are listed in accordance with the strategic, tactical and operational risks to ensure we’ve thought holistically about the possible risks that could impact the Group. These should 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 contained on page 188.Strategic risksThe Group is exposed to the risks of political and economic developmentsThe 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 current outlook for 2014 may worsen due to escalating impacts of the US national debt, slowing pace of growth and political stability in China, uncertainty in some eurozone countries and unrest in the Middle East. The interconnected nature of economies suggests any of these or other events could trigger a recession which reduces leisure and business travel to and from affected countries and adversely affects room rates and/or occupancy levels and other income-generating activities. This may result in deterioration of results of operations and potentially reduce the value of properties in affected economies. The owners or potential owners of hotels franchised or managed by the Group face similar risks which could adversely impact their solvency and the Group’s ability to retain and secure franchise or management agreements. Specifically, the Group is most exposed to the US market and, accordingly, is particularly susceptible to adverse changes in the US economy as well as the US dollar. In addition to trading conditions, the economic outlook also affects the availability of capital to current and potential owners, which could impact existing operations and health of the pipeline. 164 Strategic risks162 163 IHG Annual Report and Form 20-F 20132014The Group is exposed to the risk of events that adversely impact domestic or international travelThe 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, travel-related accidents, travel-related industrial action, increased transportation and fuel costs and natural disasters, resulting in reduced worldwide travel or other local factors impacting individual hotels. A decrease in the demand for hotel rooms as a result of such events may have an adverse impact on the Group’s operations and financial results. In addition, inadequate preparation, contingency planning or recovery capability in relation to a major incident or crisis may impact life safety, prevent operational continuity 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 cycleThe 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. Reductions in room rates and occupancy levels would adversely impact the results of Group operations.The Group is subject to a competitive and changing industryThe Group operates in a competitive industry and must compete effectively against traditional competitors such as other global hotel chains, local hotel companies and independent hotels to win the loyalty of guests, employees and owners. The competitive landscape also includes other types of businesses, such as web-based booking channels (which include online travel agents and intermediaries), and alternative sources of accommodation such as private property. Failure to compete effectively in traditional and emerging areas of the business could impact the Group’s market share, system size, profitability and relationships with owners and guests.The Group is dependent upon a wide range of external stakeholders and business partnersThe Group is dependent upon the performance, behaviours and reputation of a wide range of business partners and external stakeholders including, but not limited to, owners, contractors, lenders, suppliers, vendors, joint venture partners, agents, third-party intermediaries and other business partners. Further, the number and complexity of interdependencies with stakeholders is evolving. Breakdown in relationships, poor vendor performance, insolvency, stakeholder behaviours or adverse reputations could impact on the Group’s performance and competitiveness, delivery of projects, guest experiences or the reputation of the Group or its brands.Tactical risksThe Group is exposed to a variety of risks related to identifying, securing and retaining franchise and management agreementsThe Group’s growth strategy depends on its success in identifying, securing and retaining franchise and management agreements. This is an inherent risk for the hotel industry and franchise business model. Competition with other hotel companies may generally reduce the number of suitable franchise, management and investment opportunities offered to the Group and increase the bargaining position of property owners seeking to become a franchisee or engage a manager. The terms of new franchise or management agreements may not be as favourable as current arrangements; the Group may not be able to renew existing arrangements on similarly favourable terms or at all.There can also be no assurance that the Group will be able to identify, retain or add franchisees to the IHG System or to secure management contracts. For example, the availability of suitable sites, market saturation, planning and other local regulations or the availability and affordability of finance may all restrict the supply of suitable hotel development opportunities under franchise or management agreements. In connection with entering into franchise or management agreements, the Group may be required to make investments in, or guarantee the obligations of, third parties or guarantee minimum income to third parties. There are also risks that significant franchisees or groups of franchisees may have interests that conflict, or are not aligned, with those of the Group including, for example, the unwillingness of franchisees to support brand improvement initiatives. This could result in franchisees prematurely terminating contracts which would adversely impact the overall IHG System size and the Group’s financial performance.The Group is exposed to inherent risks in relation to changing technology and systemsThe Group is reliant upon certain technologies, systems and platforms for the running of its business, particularly those which are highly integrated with business operational processes. Some of these are dependent upon the products and services of third-party technology providers. The failure of any such third-party provider to provide products and/or perform services could materially adversely impact the Group’s business. The Group may also have to make substantial additional investments in new technologies or systems to remain competitive. Failing to keep pace with developments in technologies or systems may put the Group at a competitive disadvantage. The technologies or systems that the Group chooses may not be commercially successful or the technology or system strategy employed may not be sufficiently aligned with the needs of the business or responsive to changes in business strategy. As a result, the Group could adversely affect guest experiences, lose customers, fail to attract new customers, incur substantial costs or face other losses.Operational risksThe Group is reliant on the reputation of its brands and the protection of its intellectual property rightsAny event that materially damages the reputation of one or more of the Group’s existing or new brands and/or fails to sustain the appeal of the Group’s existing or new brands to its customers and owners may have an adverse impact on the value of that brand and subsequent revenues from that brand or business. In particular, where the Group is unable to enforce adherence to its safety or operating and quality standards, or the significant regulations applicable to hotel operations, pursuant to its franchise and management contracts, there may be further adverse impact upon brand reputation or customer perception and therefore the value of the Group’s brands.
Additional Information 165164Group informationcontinued In addition, the value of the Group’s brands is influenced by a number of other factors, some of which may be outside the Group’s control, including commoditisation (whereby price and/or quality becomes relatively more important than brand identifications due, in part, to the increased prevalence of travel comparison websites and online travel agents), consumer preference and perception, or other factors affecting consumers’ willingness to purchase goods and services provided by the Group. The Group companies own a substantial number of service brands upon which it is dependent and the Group believes that its significant trademarks are protected in all material respects in the markets in which its brands currently operate.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 change of 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 its proprietary reservations system and is exposed to the risk of failures in the system and increased competition in reservations infrastructureThe value of the Group’s brands is partly derived from the ability to drive reservations through its proprietary HolidexPlus reservations system, a central repository of the Group’s hotel room inventories linked electronically to multiple sales channels including the Company’s own websites, call centres and hotels, third-party intermediaries and travel agents.Lack of resilience and operational availability and/or the failure of a third-party technology provider could lead to prolonged service disruption and may result in significant business interruption, impact the guest booking experience and subsequently impact on revenues.Lack of investment in these systems may also result in reduced capability, stability and ability to compete. Additionally, failure to maintain an appropriate technology strategy and select the right technology partners could erode the Group’s long-term competitiveness.The Group is exposed to the risks related to information security and data privacyThe Group is increasingly dependent upon the availability, integrity and confidentiality of information including, but not limited to, guest and employee credit card, financial and personal data; and business performance, financial reporting and commercial development. The information is sometimes held in different formats such as digital, paper, voice recordings and video and could be stored in many places, including facilities managed by third-party service providers.The threats towards the Group’s information are dynamic, and include cyber attacks, fraudulent use, loss or misuse by employees and breaches of our vendors’ security arrangements amongst others. The legal and regulatory environment around data privacy and requirements set out by the payment card industry surrounding information security across the many jurisdictions in which the Group operates are constantly evolving. If the Group fails to appropriately protect information and ensure relevant controls are in place to enable the appropriate use and release of information through the appropriate channels in a timely and accurate manner, IHG System performance, guest experience and the reputation of the Group may be adversely affected. This can lead to revenue losses, fines, penalties and other additional costs, including legal fees.The Group is exposed to a variety of risks associated with safety, security and crisis managementThere 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, 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 changeIn 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 resilient corporate culture, failure to recruit or retain key personnel, unexpected loss of key senior employees, failures in the Group’s succession planning and incentive plans, or a failure to invest in the development of key skills.Some of the markets in which the Group operates are experiencing economic growth, and the Group must compete against other companies inside and outside the hospitality industry for suitably qualified or experienced employees. Some emerging markets may not have the required local expertise to operate a hotel and may not be able to attract the right talent. Failure to attract and retain employees may threaten the success of the Group’s operations in these markets. Additionally, unless skills are supported by a sufficient infrastructure to enable knowledge and skills to be passed on, the Group risks losing accumulated knowledge if key employees leave the Group.The Group is required to comply with existing and changing regulations across numerous countries, territories and jurisdictionsGovernmental regulations affect countless aspects of the Group’s business ranging from corporate governance, health and safety, the environment, bribery and corruption, employment law and diversity, disability access, data privacy and information protection, financial, accounting and tax. Regulatory changes may require significant changes in the way the business operates and may inhibit the Group’s strategy, including the markets the Group operates in, brand protection, and use or transmittal of customer data. If the Group fails to comply with existing or changing regulations, the Group may be subject to fines, prosecution, loss of licence to operate or reputational damage. 166 165IHG Annual Report and Form 20-F 20132014The Group is exposed to the risk of litigationGroup informationcontinuedCertain 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 from many parties, including but not limited to: guests, customers, joint-venture partners, suppliers, employees, regulatory authorities, franchisees and/or the owners of the hotels it manages. Claims filed in the US may include requests for punitive damages as well as compensatory damages. Unfavourable outcomes of claims or proceedings could have a material adverse impact on the Group’s results of operations, cash flow and/or financial position. Exposure to significant litigation or fines may also affect the reputation of the Group and its brands.The Group is exposed to risks related to corporate responsibilityThe 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 the communities in which the Group operates. The social and environmental impacts of business are under increasing scrutiny, and the Group is exposed to the risk of damage to its reputation if it fails to demonstrate sufficiently responsible practices, ethical behaviour, or fails to comply with relevant regulatory requirements.The Group is exposed to a variety of risks associated with its financial stability and ability to borrow and satisfy debt covenantsWhile the strategy of the Group is to extend the hotel network through activities that do not involve significant amounts of its own capital, the Group does require capital to fund some development opportunities 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 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 may face difficulties insuring its businessHistorically, the Group has maintained insurance at levels determined to be appropriate in light of the cost of cover and the risk profile of the business. However, forces beyond the Group’s control, including market forces, may limit the scope of coverage the Group can obtain and the Group’s ability to obtain coverage at reasonable rates. Other forces beyond the Group’s control, such as terrorist attacks or natural disasters, may be uninsurable or simply too expensive to insure. Inadequate or insufficient insurance could expose the Group to large claims or could result in the loss of capital invested in properties, as well as the anticipated future revenue from properties, and could leave the Group responsible for guarantees, debt or other financial obligations related to such properties. 2013 Number of shares held outright APP deferred share awards LTIP share awards (unvested) Total number of shares held Executive Number of shares held outright APP deferred share awards LTIP share awards (unvested) Total number of shares held 2013 2012 2013 2012 2013 2012 2013 2012 2014 2013 2014 2013 2014 2013 2014 2013 Keith Barr 24,399 24,399 27,695 18,001 111,079 116,600 163,173 159,000 22,522 24,399 29,829 27,695 106,630 111,079 158,981 163,173 Angela Brav 19,286 27,135 22,501 14,200 99,650 104,254 141,437 145,589 32,724 19,286 24,473 22,501 97,462 99,650 154,659 141,437 Kenneth
Macpherson 1,797 n/a 8,421 n/a 41,654 n/a 51,872 n/a 7,472 1,797 8,330 8,421 64,713 41,654 80,515 51,872 Eric Pearson 65,293 101,914 22,356 11,548 103,553 107,738 191,202 221,200 1,998 65,293 25,021 22,356 102,940 103,553 129,959 191,202 Jan Smits 106,350 106,350 28,738 19,581 116,234 117,826 251,322 243,757 30,476 106,350 32,037 28,738 104,445 116,234 166,958 251,322 George Turner 3,277 3,277 35,893 26,653 106,100 121,057 145,270 150,987 0 3,277 30,896 35,893 95,399 106,100 126,295 145,270 94.74. These shareholdings include all beneficial interests and those held by Executive Committee members’ spouses and other connected persons.78, 7980 and 82.82 to 85.Additional Information 167Group informationcontinued Deposited Securitiesdeposited securities $5 for each 100 ADSs (or portion thereof) 5.005 for each 100 ADSs (or portion thereof) 5.005 for each 100 ADSs (or portion thereof) distributions.distributions Deposited Securities;deposited securities;agents.agents transaction.transaction1These fees are not currently being charged by the ADR Depositary.166ADS programme.ADR Programme. The ADR Depositary’s principal executive office is at: 1 Chase ManhattanJ.P. Morgan Depositary Receipts, 4 New York Plaza, 12th Floor, 58, New York, NY 10005-1401,10004 United States of America. 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 2013,2014, the Company received $486,293.28$490,478.87 from the ADR Depositary in respect of legal, accounting and other fees incurred in connection with preparation of the Annual Report and Financial Statements and Annual Report on Form 20-F, ongoing SEC compliance and listing requirements, investor relations programmes, and advertising and public relations expenditure.2013,2014, the ADR Depositary agreed to waive fees and expenses amounting to $20,000.168 IHG Annual Report and Form 20-F 2013(Articles)(the Articles) were adopted at the AGM held on 28 May 2010.2010 and are available on the Company’s website at www.ihgplc.com/investors under corporate governance. The following summarises material rights of holders of the Company’s ordinary shares under the material provisions of the Articles and English law. This summary is qualified in its entirety by reference to the Companies Act and the Articles.percentper 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.moneysmonies 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.167 IHG Annual Report and Form 20-F 2014 Additional Information 169Group informationcontinuedthe chairman of the meeting;at least five shareholders present in person or by proxy and entitled to vote at the meeting;any shareholder or shareholders present in person or by proxy representing in the aggregate not less than one-tenth of the total voting rights of all shareholders entitled to vote at the meeting; orany 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.an ordinary resolution, which includes resolutions for the election of Directors, the approval of financial statements, the cumulative annual payment of dividends, the appointment of the auditor, the increase of authorised share capital or the grant of authority to allot shares; anda 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.20142015 AGM.three-fourthsthree-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.after the payment of all creditors including certain preferential creditors, whether statutorily preferred creditors or normal creditors; andsubject to any special rights attaching to any class of shares,168 2013,2014, the minimum wage for individuals between 18 and under the age of 21 was £5.03£5.13 per hour and £6.31£6.50 per hour for individuals age 21 and above (in each case, excluding apprentices aged under 19 years or, otherwise, in the first year of their apprenticeships). This particularly impacts businesses in the hospitality and retailing sectors. Compliance with the National Minimum Wage Act is being monitored by the Low Pay Commission, an independent statutory body established by the UK Government.government.Group either: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) whichthat contain provisions under which any Group member has any obligation or entitlement whichthat 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.170 IHG Annual Report and Form 20-F 2013 the InterContinental New York Barclay to acquire an 80 per cent interest in a joint venture with IHGIHG’s affiliates to own and refurbish the InterContinental New York Barclay hotel. The 80 per cent interest will bewas acquired for gross cash proceeds of $240$274 million. IHG willIHG’s affiliates hold the remaining 20 per cent interest. The disposal was completed on 31 March 2014.IHGIHG’s management affiliate has also secured a 30-year management contract on the hotel, commencingwhich commenced in 2014, with two 10-year extension rights at IHG’s discretion, giving an expected contract length of 50 years.IHGIHG’s affiliates have agreed to invest through the joint venture in a significant refurbishment, repositioning and extension of the hotel. This is expected to commencecommenced in 2014 and will take place over a period of approximately 18 months. The transaction is expected to complete in the first quarter of 2014, subject to the satisfaction of certain standard conditions.IHGIHG’s affiliates gave certain customary warranties and indemnities to Constellation Barclay Holding US, LLC.SaleDisposal of interest in the InterContinental London Park LaneParis – Le Grand27 March 2013, an asset7 December 2014, a share sale and purchase agreement (APA) was entered into between Hotel Inter-Continental London Limited, Six Continents LimitedBHR Holdings BV (part of IHG) and Constellation Hotel (Opco) UK S.A., which is an affiliate of Constellation Hotels Holding Limited.France Grand SA. Under the APA, Hotel Inter-Continental London Limitedagreement, BHR Holdings BV agreed to sell its leasehold100 per cent interest in Société Des Hotels InterContinental London Park LaneFrance, the owner of InterContinental Paris – Le Grand, to Constellation Hotel (Opco) UK S.A.Hotels France Grand SA. The gross sale was completed on 1 May 2013. proceeds agreed are€330 million in cash.APA,agreement, BHR Holdings BV gave certain customary warranties and indemnities to Constellation Hotels France Grand SA.Inter-Continental London Limited& Restaurant Group, LLC, the principal trading company of the Kimpton group, from Kimpton Group Holding LLC. The purchase completed on 16 January 2015.purchaser.seller.IHG’s shareThe purchase price payable by Dunwoody Operations, Inc. in respect of the sale proceeds (before transaction costs) were £301.5acquisition was $430 million paid in cash, £61 million of which was used to provide security over UK pension liabilities which were previously secured against the hotel.cash.169 IHG Annual Report and Form 20-F 2014 NotesNotes: (a) become non-investment grade within the period commencing on the date of announcement of a change of control and ending 90 days after the change of control (Change of Control Period) and are not subsequently, within the Change of Control Period, reinstated to investment grade; (b) are downgraded from a non-investment grade and are not reinstated to its earlier credit rating or better within the Change of Control Period; or (c) are not credit rated and do not become investment-grade credit rated by the end of the Change of Control Period.www.ihgplc.com.www.ihgplc.com/ investors under financial library for 2009. The Notes issued pursuant to the 2009 Issuance and the Notes issued pursuant to the 2012 Issuance are referred to as ‘£250 million 6% bonds’ and the ‘£400 million 3.875% bonds’ respectively in the Group Financial Statements.undrawnfully drawn at 31 December 2013.Additional Information 171Group informationcontinued1716 February 2014,2015, the outcome of these matters cannot be reasonably determined.Pan AmericanPan-American Life Insurance Company against Louisiana Acquisitions Corp. and Inter-ContinentalInterContinental Hotels Corporation (IHC). The claimant identified eight causes of action: breach of contract; breach of partnership, fiduciary duties and good faith obligations; fraud; civil conspiracy; conversion; unfair trade practices; unjust enrichment; and alter ego. As at 1716 February 2014,2015, the likelihood of a favourable or unfavourable result cannot be reasonably determined and it is not possible to determine whether any loss is probable or to estimate the amount of any loss.On 20 August 2012, two claimants filed a class-action claim in California against several online travel companies and hotel companies, including a Group company, InterContinental Hotels Group Resources, Inc., in connection with alleged anti-competitive practices. Several similar claims were filed across the US by other claimants alleging similar complaints. All of these cases were consolidated in a multidistrict litigation proceeding in the U.S. District Court for the Northern District of Texas for the purpose of pre-trial proceedings (with the exception of cases which were voluntarily dismissed). On 1 May 2013, claimants filed a Consolidated Amended Complaint alleging federal and state antitrust and unfair trade practices associated with online hotel-room booking. On 1 July 2013, the defendants moved to dismiss the Consolidated Amended Complaint. The motion to dismiss is fully briefed and argued, and the parties are awaiting a decision. The Court has stayed all discovery in the action pending a ruling on the motion to dismiss. It is not possible to determine whether any loss is probable or to estimate the amount of any loss. The Group intends to defend against these claims vigorously. As at 17 February 2014, the outcome of these matters could not be reasonably determined.On 10 August 2012, Shanghai Yaoda Real Estate Development Co., Ltd. (Yaoda), the owner of the InterContinental Shanghai Puxi hotel filed an arbitration petition with the Shanghai International Economic and Trade Arbitration Commission (SIETAC), which was formerly known as China International Economic and Trade Arbitration Commission Shanghai Sub Commission, containing numerous allegations relating to IHC’s alleged mismanagement of the hotel and the de-flagging of the hotel, which took place on 31 August 2012. Yaoda sought approximately $46 million relating to the alleged loss of value of the hotel, costs of compliance with the brand standards, lost revenue at the hotel, costs and general damages. Pursuant to the dispute mechanism specified under the management contract, IHC filed a counterclaim with the China International Economic and Trade Arbitration Commission in Beijing (CIETAC Beijing).On 21 March 2013, SIETAC issued an arbitral award (the Award) ordering IHC to pay Yaoda an aggregate amount of RMB 150,379,000 (approximately $25 million). On 15 May 2013, IHC filed a motion to cancel the Award with the Shanghai 2nd Intermediate People’s Court. On 27 July 2013, IHC and Yaoda settled their respective claims, pursuant to a settlement agreement, and entered into a new hotel support management contract.The Group intendsWe are currently involved in settlement discussions with respect to vigorously defend against these claims. As at 17 February 2014, the likelihood of a favourable or unfavourable result cannot be reasonably determined and it is not possible to determine whether any loss is probable or to estimate the amount of any loss.this claim.On 20 April 2012, Sanya Huayu Tourism Co., Ltd. (Sanya), the owner of the former Crowne Plaza Sanya hotel, filed an arbitration petition against Holiday Inns (China) Limited (HICL) with CIETAC Beijing seeking compensation for its alleged losses in the amount of RMB 33,867,766.63 (approximately $5.2 million). The claims related to HICL’s alleged mismanagement of the hotel. Sanya filed additional damages claims on 20 November 2012, which increased the total alleged losses to RMB 43,225,523.53 (approximately $6.9 million). On 4 June 2012, and then by further amendment on 29 September 2012, HICL filed a statement of counterclaim seeking numerous categories of counterclaims from Sanya totalling approximately $7.25 million.170 On 9 September 2013, HICL and Sanya settled their respective claims, pursuant to a settlement agreement, and on 17 September 2013, CIETAC Beijing issued a ruling approving both parties’ requests to withdraw all claims against each other.English law imposesimpose 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 (each ofcountries.foregoing, a Prohibited Person).ThereUK 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. However, under current English law, ordinary shares or ADSs may not be owned by a Prohibited Person.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 licenselicence or franchise from any US governmental agency held by Six Continents Hotels, Inc. or any subsidiary thereof.172 IHG Annual Report and Form 20-F 2013Shareholder information, known as the Medicare Contribution tax or the tax consequences to US holders subject to other special rules, such as:certain financial institutions;insurance companies;dealers and traders in securities who use a mark-to-market method of tax accounting;persons holding ordinary shares or ADSs as part of a straddle, conversion transaction, integrated transaction or wash sale, or persons entering into a constructive sale with respect to the ordinary shares or ADSs;persons whose functional currency for US federal income tax purposes is not the US dollar;partnerships or other entities classified as partnerships for US federal income tax purposes;persons liable for the alternative minimum tax;tax-exempt organisations;persons who acquired the Company’s ADSs or ordinary shares pursuant to the exercise of any employee stock option or otherwise in connection with employment; orpersons who, directly or indirectly, own 10 per cent or more of the Company’s voting stock.171 IHG Annual Report and Form 20-F 2014 the Company expectsit is expected that amounts distributed will be reported to the Internal Revenue Service (IRS) as dividends.qualified“qualified dividend income.income”. The Company expects that dividends paid by the Company with respect to the ADSs will constitute qualified dividend income. US holders should consult their own tax advisors to determine whether they are subject to any special rules that limit their ability to be taxed at these preferential rates.Additional Information 173Shareholder informationcontinued20132014 taxable year. However, this conclusion is an annual factual determination and thus may be subject to change. If the Company were to be treated as a PFIC, 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 exchange 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 each such year to which the gain was allocated, together with an interest charge in respect of the tax attributable to each such year. In addition, similar rules would apply to any “excess distribution” received on the ordinary shares or ADSs (generally, the excess of any distribution received on the ordinary shares or ADSs during the taxable year over 125 per cent of the average amount of distributions received during a specified prior period), and the preferential rates for “qualifiedqualified dividend income”income received by certain non-corporate US holders would not apply.maywill generally be required to file IRS Form 8621 with their annual reports with the IRS containing such information as the Treasury Department may require.US federal income tax returns, subject to certain exceptions.are likely tomay take the view that the ADSs, as well as the ordinary shares, are or represent UK situs assets.172 ), 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.174 IHG Annual Report and Form 20-F 2013(Code)in 2012 (the Code) is set out on page 56.pages 70 to 72.173 IHG Annual Report and Form 20-F 2014 1716 February 2014,2015, the Board consisted of the Chairman, independent at the time of his appointment, fourthree Executive Directors and eightseven 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 judgmentjudgement 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.1716 February 20142015 and throughout 2013,2014, fulfilled by separate individuals.CommitteeCommittees 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 of the Board, candidates for appointment to the Board, though it also assists in developing the role of the Senior Independent Director. The Company’s Nomination Committee consists of the Chairman of the Company and all the independent Non-Executive Directors.66,65, 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 criteria under US rules for an “audit committee financial expert”.Additional Information 175Shareholder informationcontinuedbeforeafter every Board meeting if possible.73,74, IHG’s Code of Conduct is applicable to all Directors, officers and employees, and further information on the Code of Conduct is available on the Company’s website at www.ihgplc.com/investors under corporate governance. No waivers have been granted under the Code of Conduct. 2009, 2010, 2011, 2012, 2013 and 20132014 has been prepared in accordance with IFRS as issued by the IASB and in accordance with IFRS as adopted by the EU, and is derived from the Group Financial Statements, which have been audited by its independent registered public accounting firm, Ernst & Young LLP.Group’sGroup Financial Statements for the years presented. The selected consolidated financial data set forth on the next page 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. 174 Group income statement data For the year ended 31 December 2014 2013 2012 2011 2010 Revenue1 1,858 1,903 1,835 1,768 1,628 Total operating profit before exceptional operating items 651 668 605 548 438 Exceptional operating items1 29 5 (4 ) 57 (7 ) Total operating profit1 680 673 601 605 431 Financial income 3 5 3 2 2 Financial expenses (83 ) (78 ) (57 ) (64 ) (64 ) Profit before tax 600 600 547 543 369 Tax: On profit before exceptional items (179 ) (175 ) (151 ) (117 ) (96 ) On exceptional operating items (29 ) (6 ) 1 (4 ) 1 Exceptional tax – (45 ) 141 43 – (208 ) (226 ) (9 ) (78 ) (95 ) Profit after tax: 392 374 538 465 274 Gain on disposal of discontinued operations, net of tax – – – – 2 Profit for the year 392 374 538 465 276 Attributable to: 391 372 537 465 276 1 2 1 – – Profit for the year 392 374 538 465 276 Earnings per ordinary share: Continuing operations: 158.3¢ 140.9¢ 187.1¢ 160.9¢ 95.1¢ 156.4¢ 139.3¢ 183.9¢ 157.1¢ 92.6¢ Total operations: 158.3¢ 140.9¢ 187.1¢ 160.9¢ 95.8¢ 156.4¢ 139.3¢ 183.9¢ 157.1¢ 93.2¢ 31 December 2014 2013
(restated1) 2012
(restated1) 2011
(restated1) 2010
(restated1) Goodwill and intangible assets 643 518 447 400 358 Property, plant and equipment 741 1,169 1,056 1,362 1,690 Investments and other financial assets 368 321 239 243 178 Non-current trade and other receivables 3 – – – – Retirement benefit assets 8 7 99 21 5 Non-current tax receivable 34 16 24 41 – Deferred tax assets 87 108 204 106 88 Current assets 624 700 852 784 659 Assets classified as held for sale 310 228 534 217 – Total assets 2,818 3,067 3,455 3,174 2,978 Current liabilities 943 928 972 1,066 1,136 Long-term debt 1,569 1,269 1,242 670 776 Net (liabilities) / assets (717 ) (74 ) 317 555 278 Equity share capital 178 189 179 162 155 IHG shareholders’ equity (725 ) (82 ) 308 547 271 Number of shares in issue at end of the year (millions) 248 269 268 290 289 175 176 IHG Annual Report and Form 20-F 2013Group income statement data2014For the year ended 31 December 2013 ($m, except earnings per ordinary share) Revenue1 1,903 1,835 1,768 1,628 1,538 Total operating profit before exceptional operating items 668 605 548 438 359 Exceptional operating items1 5 (4 ) 57 (7 ) (373 ) Total operating profit/(loss)1 673 601 605 431 (14 ) Financial income 5 3 2 2 3 Financial expenses (78 ) (57 ) (64 ) (64 ) (57 ) Profit/(loss) before tax 600 547 543 369 (68 ) Tax: On profit before exceptional items (175 ) (151 ) (117 ) (96 ) (14 ) On exceptional operating items (6 ) 1 (4 ) 1 112 Exceptional tax (45 ) 141 43 – 175 (226 ) (9 ) (78 ) (95 ) 273 Profit after tax: 374 538 465 274 205 Gain on disposal of discontinued operations, net of tax – – – 2 6 Profit for the year 374 538 465 276 211 Attributable to: 372 537 465 276 210 2 1 – – 1 Profit for the year 374 538 465 276 211 Earnings per ordinary share: Continuing operations: 140.9¢ 187.1¢ 160.9¢ 95.1¢ 71.6¢ 139.3¢ 183.9¢ 157.1¢ 92.6¢ 69.2¢ Total operations: 140.9¢ 187.1¢ 160.9¢ 95.8¢ 73.7¢ 139.3¢ 183.9¢ 157.1¢ 93.2¢ 71.2¢ 31 December 2013 2012 2011 2010 2009 ($m, except number of shares) Goodwill and intangible assets 518 447 400 358 356 Property, plant and equipment 1,169 1,056 1,362 1,690 1,836 Investments and other financial assets 321 239 243 178 175 Retirement benefit assets 7 99 21 5 12 Non-current tax receivable 16 24 41 – – Deferred tax assets 108 204 106 88 95 Current assets 586 660 578 466 419 Non-current assets classified as held for sale 228 534 217 – – Total assets 2,953 3,263 2,968 2,785 2,893 Current liabilities 814 780 860 943 1,040 Long-term debt 1,269 1,242 670 776 1,016 Net (liabilities) / assets (74) 317 555 278 156 Equity share capital 189 179 162 155 142 IHG shareholders’ equity (82) 308 547 271 149 Number of shares in issue at end of the year (millions) 269 268 290 289 287 Additional Information 177Shareholder informationShareholder informationcontinuedThe table below sets forth the amounts of ordinary dividends on each ordinary share and special dividends, in respect of each financial year indicated.Ordinary dividend Interim dividend Final dividend Total dividend Special dividend pence cents pence cents pence cents pence cents 2013 15 23 28.1 47 43.2 70 87.1 133 2012 13.5 21 28 43 41 64 108.42 172 2011 9.8 16 25 39 35 55 – – 2010 8 13 22 35 30 48 – – 2009 7.3 12 19 29 26 41 – – 20081 6.4 12 20 29 27 41 – – 2007 5.7 12 15 29 21 41 2002 – 2006 5.1 9.6 13 26 18 36 1182 – 2005 4.6 8.1 11 19 15 27 – – 2004 4.3 7.7 10 19 14 27 72.02 – 2003 4.05 6.8 9.5 17 14 24 – – 1IHG changed the reporting currency of its Group accounts from sterling to US dollars effective from the Half-Year Results as at 30 June 2008. Starting with the interim dividend for 2008, all dividends have first been determined in US dollars and converted into sterling immediately before announcement.2Accompanied by a share consolidation.£4.3 billion£4.8bn of funds to shareholders by way of special dividends, capital returns and share repurchase programmes by share consolidation.programmes.7 August 2012,2 May 2014, the Company announced a $1 billion return of funds to shareholders, split between a $500 million special dividend with share consolidation and a $500 million share buyback programme. The special dividend was paid on 22 October 2012 and as at 17 February 2014 $390 million (£248 million) of shares had been repurchased at an average price per share of 1,778 pence. Purchases are made under the existing authority from shareholders, which will be presented for renewal at the Company’s AGM to be held on 2 May 2014. Any shares repurchased may be cancelled or held as treasury shares.On 6 August 2013, the Company announced a $350 million$750m return of funds to shareholders via a special dividend withoutwith share consolidation. The special dividend was paid on 4 October 2013.14 July 2014.Return of funds programme Timing Total return Returned to date £ 501 million501m special dividend1 Paid in December 2004 £501m £501m First £250 million£250m share buyback Completed in 2004 £250m £250m £ 996 million996m capital return1 Paid in July 2005 £996m £996m Second £250 million£250m share buyback Completed in 2006 £250m £250m £ 497 million share buyback497m special dividend1 Paid in June 2006 £497m £497m Third £250 million£250m share buyback Completed in 2007 £250m £250m £ 709 million709m special dividend1 Paid in June 2007 £709m £709m £ 150 million150m share buyback n/a 32 £150m £120m $ 500 million500m special dividend1,21,3 Paid in October 2012 £315m4($500m) £315m ($505m) 65$ 500 million500m share buyback OngoingCompleted in 2014 £315m4($500m) £ 248m315m ($390m)500m)7,96$ 350 million350m special dividend Paid in October 2013 £229m 57($350m) £228m ($355m)8 $750m special dividend1 Paid in July 2014 £447m9($750m) £446m ($763m)10 Total £ 4,462m4,909m £ 4,319m4,877m1 Accompanied by a share consolidation. 2 This programme was superseded by the share buyback programme announced on 7 August 2012. 3 IHG changed the reporting currency of its Group accountsConsolidated Financial Statements from sterling to US dollars effective from the Half-Year Results as at 30 June 2008.3This programme was superseded by the share buyback programme announced on 7 August 2012.4 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. 5 Sterling dividend translated at $1=£0.624. 6 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). 7 The dividend was first determined in US dollars and converted to sterling immediately before announcement at the rate of $1=£ 0.655,0.65, as announced in the Half-Year Results to 30 June 2013.6Sterling divided translated at $1=£0.624.7Translated into US dollars at the average rates of exchange for the relevant years (2013 $1=£0.64; 2012 $1=£0.63).8 Sterling divideddividend translated at $1=£0.644.9 At 17 February 2014.The dividend was first determined in US dollars and converted to sterling immediately before announcement at the rate translated at $1=£0.597.10 Sterling dividend translated at $1=£0.5845. 178 IHG Annual Report and Form 20-F 2013current $500 million$500m share repurchase programme was announced on 7 August 2012. By2012 and completed on 29 May 2014. As at 31 December 2013, 11,484,3512014, 17,339,845 shares had been repurchased at an average price of 1,865.53011,811.7674 pence per share (approximately £214 million)£314m).Period of financial year (a) Total number of shares
(or units) purchased (b) Average price paid per
share (or unit) (c) Total number of shares
(or units) purchased as
part of publicly announced
plans or programmes (d) Maximum number (or
approximate dollar value) of
shares (or units) that may yet
be purchased under the plans
or programmes Month 1 (no purchases this month) nil nil nil 23,073,341 1 Month 2 1,160,688 1,948.9099 100,000 21,912,653 1 Month 3 (no purchases this month) nil nil nil 21,912,653 1 Month 4 1,369,415 1,895.7360 1,369,415 20,543,238 1 Month 5 (pre-AGM) 323,758 1,924.0195 323,758 20,219,480 1 Month 5 (post-AGM) 370,872 1,918.4721 370,872 26,464,875 2 Month 6 2,613,459 1,811.3233 2,613,459 23,851,416 2 Month 7 (no purchases this month) nil �� nil nil 23,851,416 2 Month 8 1,263,366 1,876.4824 1,263,366 22,588,050 2 Month 9 1,732,537 1,849.5455 1,732,537 20,855,513 2 Month 10 1,308,941 1,808.6041 1,308,941 19,546,572 2 Month 11 691,564 1,810.6577 691,564 18,855,008 2 Month 12 649,751 2,006.0014 nil 18,855,008 2 Period of financial year (a) Total number of shares
(or units) purchased (b) Average price paid
per share (or unit) (c) Total number of shares
(or units) purchased as
part of publicly
announced plans or
programmes (d) Maximum number
(or approximate dollar value)
of shares (or units) that may yet
be purchased under the plans
or programmes Month 1 350,249 2,007.8500 nil 18,855,0081 Month 2 1,617,551 1,950.2062 770,412 18,084,5961 Month 3 2,354,577 1,914.9212 2,354,577 15,730,0191 Month 4 (no purchases this month) nil nil nil 15,730,0191 Month 5 296,984 2,259.9608 296,984 25,620,0462 Month 6 8 2,311.0000 nil 23,611,7253 Month 7 (no purchases this month) nil nil nil 23,611,7253 Month 8 (no purchases this month) nil nil nil 23,611,7253 Month 9 (no purchases this month) nil nil nil 23,611,7253 Month 10 (no purchases this month) nil nil nil 23,611,7253 Month 11 (no purchases this month) nil nil nil 23,611,7253 Month 12 461,815 2,580.3724 nil 23,611,7253 1 Reflects the resolution passed at the Company’s General MeetingAGM held on 8 October 2012.24 May 2013.2 Reflects the resolution passed at the Company’s AGM held on 242 May 2013.2014.3 Reflects the resolution passed at the Company’s General Meeting held on 30 June 2014. 2013, 1,196,0612014, 1,659,203 ordinary shares were purchased by the Company’s Employee Share Ownership Trust, at prices ranging from 1,9391,928 pence to 2,0282,633 pence per share, for the purpose of satisfying future share awards to employees.176 £ per ordinary share $ per ADS1 £ per ordinary share $ per ADS1 Year ended 31 December high low high low high low high low 2009 9.04 4.46 14.67 6.04 2010 12.66 8.87 20.04 13.84 12.66 8.87 20.04 13.84 2011 14.35 9.55 23.28 15.27 14.35 9.55 23.28 15.27 2012 17.25 11.57 27.82 17.99 17.25 11.57 27.82 17.99 2013 20.39 17.07 33.54 26.90 20.39 17.07 33.54 26.90 2014 27.10 18.66 42.51 30.88 Quarters in the year ended 31 December 2012 First quarter 14.97 11.57 23.67 17.99 Second quarter 15.73 13.95 24.70 21.84 Third quarter 17.25 15.02 27.02 23.16 Fourth quarter 17.10 15.24 27.82 24.50 2013 First quarter 20.22 17.07 30.64 27.82 20.22 17.07 30.64 27.82 Second quarter 20.39 17.37 30.61 26.90 20.39 17.37 30.61 26.90 Third quarter 20.30 17.88 31.08 27.77 20.30 17.88 31.08 27.77 Fourth quarter 20.25 17.63 33.54 28.27 20.25 17.63 33.54 28.27 2014 First quarter (through to 14 February 2014) 2,038 1,942 34.08 31.69 First quarter 20.47 18.66 34.08 30.88 Second quarter 24.21 19.04 41.51 31.60 Third quarter 24.75 21.99 42.51 36.84 Fourth quarter 27.10 21.20 42.38 34.03 2015 First quarter (to 16 February 2015) 27.56 25.33 41.57 38.32 Month ended August 2013 20.30 17.88 31.08 27.77 September 2013 19.16 18.02 30.26 28.09 October 2013 18.65 17.63 30.39 28.27 November 2013 19.08 17.94 31.22 28.74 December 2013 20.25 18.82 33.54 30.90 January 2014 20.38 19.66 34.08 32.44 February 2014 (through to 14 February 2014) 2,003 1,942 33.78 31.69 August 2014 23.75 21.99 40.02 37.15 September 2014 24.45 22.85 39.85 36.84 October 2014 23.69 21.20 38.01 34.03 November 2014 27.10 24.03 42.38 38.25 December 2014 26.39 24.17 41.30 37.63 January 2015 27.56 25.33 41.57 38.32 February 2015 (to 16 February 2015) 26.76 25.88 41.37 39.24 1 Fluctuations in the exchange rates between sterling and the US dollar will affect the dollar equivalent of the sterling price of the ordinary shares on the LSE and, as a result, are likely to affect the market price of ADSs. Interim dividend Final dividend Total dividend Special dividend pence cents pence cents pence cents pence cents 2014 14.8 25.0 33.8 52.0 48.6 77.0 174.9 1 293.0 1 2013 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 1 172.0 1 2011 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 – – 2009 7.3 12.2 18.7 29.2 26.0 41.4 – – 20082 6.4 12.2 20.2 29.2 26.6 41.4 – – 2007 5.7 11.5 14.9 29.2 20.6 40.7 200 1 – 2006 5.1 9.6 13.3 25.9 18.4 35.5 118 1 – 2005 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 1 – 2003 4.05 6.8 9.45 17.4 13.5 24.2 – – 1 Accompanied by a share consolidation. 2 IHG changed the reporting currency of its Consolidated Financial Statements from sterling to US dollars effective from the Half-Year Results as at 30 June 2008. Starting with the interim dividend for 2008, all dividends have first been determined in US dollars and converted into sterling immediately before announcement. Additional Information 179Shareholder informationShareholder informationcontinued20132014 Number of
shareholders Percentage total
of shareholders Number of
ordinary shares 
Number of
shareholders Percentage total of
shareholders Number of ordinary
shares Percentage
of issued
share capital
See chart g ¢ Private individuals 45,248 93.41 15,517,490 5.99 41,572 92.77 13,885,472 5.88 ¢ Nominee companies 1,512 3.12 234,757,478 90.59 1,428 3.18 194,775,369 82.49 1,501 3.10 2,595,009 1.00 1,647 3.68 12,813,041 5.43 ¢ Other corporate bodies 167 0.34 5,862,369 2.26 159 0.35 14,004,127 5.93 12 0.02 422,959 0.16 7 0.02 639,247 0.27 Total 48,440 100 259,155,305 100 44,813 100 236,117,256 100 Number of
shareholders Percentage total
of shareholders Number of
ordinary shares Number of
shareholders Percentage total of
shareholders Number of ordinary
shares Percentage
of issued
share capital
See chart g ¢ 1 — 199 30,577 63.12 1,954,825 0.75 
¢200 — 499 9,269 19.14 2,968,040 1.15 ¢500 — 999 4,488 9.27 3,130,129 1.21 ¢1,000 — 4,999 3,192 6.59 5,951,430 2.30 ¢5,000 — 9,999 248 0.51 1,730,546 0.67 ¢10,000 — 49,999 324 0.67 7,556,191 2.92 ¢50,000 — 99,999 103 0.21 7,601,747 2.93 ¢100,000 — 499,999 157 0.32 35,582,279 13.73 ¢500,000 — 999,999 31 0.06 21,340,235 8.23 ¢ 1 – 199 28,412 63.40 1,801,918 0.76 ¢ 200 – 499 8,696 19.41 2,774,193 1.17 ¢ 500 – 999 4,029 8.99 2,820,987 1.19 ¢ 1,000 – 4,999 2,808 6.27 5,309,076 2.25 ¢ 5,000 – 9,999 237 0.53 1,666,106 0.71 ¢ 10,000 – 49,999 306 0.68 7,239,768 3.07 ¢ 50,000 – 99,999 95 0.21 6,746,779 2.86 ¢ 100,000 – 499,999 146 0.33 31,810,194 13.47 ¢ 500,000 – 999,999 42 0.09 30,898,339 13.09 ¢ 1,000,000 and above 51 0.11 171,339,883 66.11 42 0.09 145,049,896 61.43 Total 48,440 100 259,155,305 100 44,813 100 236,117,256 100 Percentage
of issued
share capital1
See chart g ¢ UK 53.3 50.3 ¢ Rest of Europe 12.4 12.1 ¢ US (including ADRs) 29.0 33.6 ¢ Rest of World 5.3 4.0 Total 100 
100 1 The geographical profile presented is based on an analysis of shareholders (by manager) of 40,000 shares or above where geographical ownership is known. This analysis only captures 88.9%88.8% of total issued share capital. Therefore, the known percentage distributions have been multiplied by 100/88.9 (1.125)88.8 (1.126) to achieve the figures shown in the table above.1413 February 2014, 16,302,0582015, 15,835,637 ADSs equivalent to 16,302,05815,835,637 ordinary shares, or approximately 66.7 per cent of the total issued share capital, were outstanding and were held by 762685 holders. Since certain ordinary shares are registered in the names of nominees, the number of shareholders ofon record may not be representative of the number of beneficial owners.1413 February 2014,2015, there were a total of 48,25544,627 record holders of ordinary shares, of whom 252249 had registered addresses in the US and held a total of 685,165670,170 ordinary shares (0.25(0.27 per cent of the total issued share capital).
180 178IHG Annual Report and Form 20-F 2013 2013 2014 has been made available to shareholders through our website at www.ihgplc.com/investors under financial library.20142015 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.Hotel Discounthotel discount182)180).Corporate ResponsibilityResponsible Business ReportIHG updates its online Corporate ResponsibilityIn line with our commitment to responsible business practices, this year we have decided to produce a broader Responsible Business Report regularly, coveringshowcasing our approach to responsible business and progress on a range of environmental, social and community issues.against our corporate responsibility targets. This can be viewed at www.ihgplc.com/responsibility.responsiblebusiness ProgrammeThe IHG Shelter in a Storm Programme enables IHG to support our hotels and local communities, employees and guests when a disaster occurs, by providing immediate and vital assistance.If you would like toTo make a donation to the programme, you can do so online via avisit the secure payment page at www.ihgshelterinastorm.com.www.ihgshelterinastorm.comapplyforadrip.aspx.applyforadrip.aspx182)180).overseaspayments.aspx.Out of date/overseaspayments.aspxout of dateout-of-date dividend cheques or unclaimed dividend payments, please contact our Registrar (see page 182)180).wherethat can invest in IHG shares can be invested.shares. For further information, please contact Equiniti on 0871 384 22441,2.www.shareview.co.uk.www.shareview.co.uksincefrom April 2003 to December 2013,2014, for UK Capital Gains Tax purposes, may be found on our website at www.ihgplc.com/investors under shareholder centre/tax information.Away’away’ shareholdersup-to-date.up to date. We have funds waiting to be claimed and are committed to doing what we can to pay these to their rightful owners. For further details, please contact ProSearch on 01732 741 411 or email info@prosearchassets.com.info@prosearchassets.com182)180).office.office on request.1 Calls cost 8p per minute plus network extras. 2 Lines are open from 08.308.30am to 17.305.30pm Monday to Friday, excluding UK public holidays.3 Lines are open from 08.008.00am to 16.304.30pm Monday to Friday, excluding UK public holidays. Additional Information 181Additional informationcontinued 20132014 InterimSpecial dividend of 15.1p174.9p per share (23.0¢(293¢ per ADR): Payment date 4 October14 July SpecialInterim dividend of 87.1p14.8p per share (133.0¢(25.0¢ per ADR): Payment date 4 October26 September Financial year end 31 December 20142015 Announcement of Preliminary announcement of annual resultsResults for 2014 1817 February 2014 Final dividend of 28.1p33.8p per share (47.0¢(52.0¢ per ADR): Ex-dividend date 19 March2 April Record date 21 March7 April Announcement of first quarter interim management statements2015 First Quarter Interim Management Statement 28 May Annual General Meeting 28 May 2014 Final dividend of 28.1p33.8p per share (47.0¢(52.0¢ per ADR): Payment date 915 May Announcement of half-year resultsHalf-Year Results for 2015 5 August30 July 2015 Interim dividend: Payment date October Announcement of third quarter interim management statements2015 Third Quarter Interim Management Statement 2120 October Financial year end 31 December 20152016 Announcement of Preliminary announcement of annual resultsResults for 2015 February Registered officeBroadwater ParkDenhamBuckinghamshireUB9 5HRTelephone +44 (0) 1895 512 000Fax +44 (0) 1895 512 101www.ihgplc.comFor general information about the Group’s business, please contact the Corporate Affairs department at the above address. For all other enquiries, please contact the Company Secretariat department at the above address.RegistrarEquinitiAspect HouseSpencer RoadLancingWest SussexBN99 6DATelephone 0871 384 21321,2 (UK calls) +44 (0) 121 415 7034 (non-UK calls)www.shareview.co.uk 1For those with hearing difficulties a text phone is available on 0871 384 22552for UK callers with compatible equipment. 2Calls cost 8p per minute plus network extras. Lines are open from 8.30am to 5.30pm Monday to Friday, excluding UK public holidays.ADR DepositaryJPMorgan Chase Bank N.A.PO Box 64504St. PaulMN 55120-0854USATelephone +1(US calls) (toll-free) +1 651 453 2128 (non-US calls)Email: jpmorgan.adr@wellsfargo.comwww.adr.comIHG®IHG® Rewards Club(US (US and Canada)(Central (Central and South America)(Central (Central and South America)(Middle (Middle East and Africa)(Mandarin (Mandarin and(all (all other countries in3Telephone calls to this number are charged at 10p per minute. Standard network rates apply. Calls from mobiles will be higher.4Toll-free.5Toll charges apply.1 For those with hearing difficulties a text phone is available on 0871 384 22552for UK callers with compatible equipment. 2 Calls cost 8p per minute plus network extras. Lines are open from 8.30am to 5.30pm Monday to Friday, excluding UK public holidays. 3 Telephone calls to this number are charged at 10p per minute. Standard network rates apply. Calls from mobiles will be higher. 4 Toll free. 5 Toll charges apply. 180 Exhibit 11 Articles of Association of the Company (incorporated by reference to Exhibit 1 of the InterContinental Hotels Group PLC Annual Report on Form 20-F with(File No. 1-10409) dated 11 April 2011)Exhibit 4(a)(i) $400 million bank facility agreement dated 13 January 2015, among InterContinental Hotels Group PLC and certain of its subsidiaries, and Bank of America Merrill Lynch International Limited Exhibit 4(a)(ii) Share sale and purchase agreement between Kimpton Group Holding LLC and Dunwoody Operations, Inc. dated 15 December 2014 Exhibit 4(a)(iii) Share sale and purchase agreement relating to InterContinental Paris – Le Grand, between BHR Holdings BV and Constellation Hotels France Grand SA dated 7 December 2014 Exhibit 4(a)(iv)1 Contribution agreement relating to InterContinental New York Barclay, between Barclay Operating Corp., InterContinental Hotels Group Resources, Inc., Constellation Barclay Holding US, LLC, and 111 East 48th Street Holdings, LLC dated 19 December 2013 (incorporated by reference to Exhibit 4(a)(i) of the SEC:InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 26 February 2014)Exhibit 4(a)(v)1 Asset sale and purchase agreement relating to Intercontinental Hotel, Park Lane, London, between Hotel Inter-Continental London Limited, Constellation Hotel (Opco) UK S.A., and Six Continents Limited dated 27 March 2013 (incorporated by reference to Exhibit 4(a)(ii) of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 26 February 2014) Exhibit 4(a)(vi)1 Five-year $1,070 million bank facility agreement dated 7 November 2011, among The Royal Bank of Scotland plc, NB International Finance B.V., Citigroup Global Markets Limited, HSBC Bank plc, Lloyds TSB Bank plc and The Bank of Tokyo-Mitsubishi UFJ, Ltd. (incorporated by reference to Exhibit 4(a)(i) of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 29 March 2012) Exhibit 4(a)(vii)1 First supplemental trust deed dated 7 July 2011 modifying and restating the Euro Medium Term Note programme governed by a trust deed dated 29 November 2009 (incorporated by reference to Exhibit 4(a)(ii) of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 29 March 2012) Exhibit 4(a)(viii)1 Amended and restated trust deed dated 9 November 2012 relating to a £750 million Euro Medium Term Note Programme, among InterContinental Hotels Group PLC, Six Continents Limited, InterContinental Hotels Limited and HSBC Corporate Trustee Company (UK) Limited (incorporated by reference to Exhibit 4(a)(iii) of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 26 March 2013) Exhibit 4(c)(i)1 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)1 Tracy Robbins’ service contract dated 9 August 2011 (incorporated by reference to Exhibit 4(c)(i) of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 29 March 2012) Exhibit 4(c)(iii)1 Tom Singer’s service contract dated 26 July 2011 (incorporated by reference to Exhibit 4(c)(ii) of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 29 March 2012) Exhibit 4(c)(iv)1 Kirk Kinsell’s service contract commencing on 1 August 2010, as amended by a letter dated 5 July 2010 (incorporated by reference to Exhibit 4(c)(ii) of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 11 April 2011) Exhibit 4(c)(v)1 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)(vi)1 Rules of the InterContinental Hotels Group Long Term Incentive Plan as amended on 26 September 2012 (incorporated by reference to Exhibit 4(c)(v) of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 26 March 2013) Exhibit 4(c)(vii)1 Rules of the InterContinental Hotels Group Annual Bonus Plan as amended on 26 September 2012 (incorporated by reference to Exhibit 4(c)(vi) of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 26 March 2013) Exhibit 4(c)(ix) Rules of the InterContinental Hotels Group Long Term Incentive Plan as amended on 2 May 2014 Exhibit 4(c)(x) Rules of the InterContinental Hotels Group Annual Performance Plan as amended on 2 May 2014 Exhibit 8 List of subsidiaries as at 31 December 2014 Exhibit 12(a) Certification of Richard Solomons filed pursuant to 17 CFR 240.13a-14(a) Exhibit 12(b) Certification of Paul Edgecliffe-Johnson filed pursuant to 17 CFR 240.13a-14(a) Exhibit 13(a) Certification of Richard Solomons and Paul Edgecliffe-Johnson furnished pursuant to 17 CFR 240.13a-14(b) and 18 U.S.C.1350 Exhibit 15(a) Consent of independent registered public accounting firm, Ernst & Young LLP 1 Incorporated by reference. 181 IHG Annual Report and Form 20-F 2014 Item Form 20-F caption Location in this document Page 1 Identity of directors, senior management and advisers Not applicable – 2 Offer statistics and expected timetable Not applicable – 3 Key information: 3A – Selected financial data Shareholder information: Selected five-year consolidated financial information 174-175 Shareholder information: Dividend history 177 3B – Capitalisation and indebtedness Not applicable – 3C – Reason for the offer and use of proceeds Not applicable – 3D – Risk factors Group information: Risk factors 162-165 4 Information on the Company 4A – History and development of the Company Group information: History and developments 162 Shareholder information: Return of funds 176 Useful information: Contact details 180 4B – Business overview Strategic Report 2-51 Group information: Working Time Regulations 1998 169 4C – Organisational structure Group Financial Statements: Note 34 – Principal operating subsidiary undertakings 153 4D – Property, plants and equipment Strategic Report: Doing business responsibly – IHG’s global greenhouse gas (GHG) emissions 25 Group Financial Statements: Note 10 – Property, plant and equipment 126 4A Unresolved staff comments None – 5 Operating and financial review and prospects 5A – Operating results Strategic Report: Performance 34-51 Group Financial Statements: Accounting policies 107-113 5B – Liquidity and capital resources Strategic Report: Performance – Liquidity and capital resources 50-51 Group Financial Statements: Note 17 – Cash and cash equivalents 133 Group Financial Statements: Note 20 – Financial risk management 135-137 Group Financial Statements: Note 21 – Loans and other borrowings 138-139 Group Financial Statements: Note 22 – Derivative financial instruments 139 Group Financial Statements: Note 23 – Fair value measurement 140-141 Not applicable – 5D – Trend information Strategic Report: Performance 34-51 5E – Off-balance sheet arrangements Strategic Report: Performance – Liquidity and capital resources 50-51 5F – Tabular disclosure of contractual obligations Strategic Report: Performance – Liquidity and capital resources 50-51 5G – Safe harbour Additional Information: Forward-looking statements 186 6 Directors, senior management and employees 6A – Directors and senior management Corporate Governance: Who is on our Board of Directors and Who is on our Executive Committee 57-61 6B – Compensation Directors’ Remuneration Report 76-91 Group Financial Statements: Note 25 – Retirement benefits 142-146 Group Financial Statements: Note 26 – Share-based payments 146-148 6C – Board practices Corporate Governance 54-72 6D – Employees Strategic Report: Disciplined Execution – Investment in developing great talent 23 Group Financial Statements: Note 3 – Staff costs and Directors’ emoluments 120 Group information: Working Time Regulations 1998 169 6E – Share ownership Directors’ Report: Director and Executive Committee shareholdings 74 Directors’ Remuneration Report: Annual Report on Directors’ Remuneration – Scheme interests awarded during 2014 86 Directors’ Remuneration Report: Annual Report on Directors’ Remuneration – Statement of Directors’ shareholdings and share interests 88 Group Financial Statements: Note 26 – Share-based payments 146-148 Group information: Executive Committee members’ shareholdings 166 7 Major shareholders and related party transactions 7A – Major shareholders Directors’ Report: Major institutional shareholders 73 Shareholder information: Shareholder profiles 178 7B – Related party transactions Group Financial Statements: Note 14 – Investment in associates and joint ventures 130 Group Financial Statements: Note 31 – Related party disclosures 152 7C – Interests of experts and counsel Not applicable – 8 Financial Information 8A – Consolidated statements and other Directors’ Report: Dividends 73 financial information Group Financial Statements 92-153 Group information: Rights attaching to shares 167-168 8B – Significant changes None – 182 Item Form 20-F caption Location in this document Page 9 The offer and listing 9A – Offer and listing details Shareholder information: Share price information 177 9B – Plan of distribution Not applicable – 9C – Markets Shareholder information: Share price information 177 9D – Selling shareholders Not applicable – 9E – Dilution Not applicable – 9F – Expenses of the issue Not applicable – 10 Additional information 10A – Share capital Not applicable – 10B – Memorandum and articles of association Group information: Articles of Association 167-168 10C – Material contracts Group information: Material contracts 169-170 10D – Exchange controls Shareholder information: Exchange controls and restrictions on payment of dividends 171 10E – Taxation Shareholder information: Taxation 171-173 10F – Dividends and paying agents Not applicable – 10G – Statement by experts Not applicable – 10H– Documents on display Useful information: Investor information – Documents on display 179 10I – Subsidiary information Not applicable – 11 Quantitative and qualitative disclosures about market risk Group Financial Statements: Note 20 – Financial risk management 135-137 12 Description of securities other than equity securities 12A – Debt securities Not applicable – 12B – Warrants and rights Not applicable – 12C – Other securities Not applicable – 12D – American depositary shares Group information: Description of securities other than equity securities 166-167 13 Defaults, dividend arrearages and delinquencies Not applicable – 14 Material modifications to the rights of security holders and use of proceeds Not applicable – 15 Controls and Procedures 15A – Controls and Procedures Shareholder information: Disclosure controls and procedures 173 Group Financial Statements: Statement of Directors’ Responsibilities – Management’s report on internal control over financial reporting 94 Group Financial Statements: Independent Auditor’s US Report 99 Group Financial Statements: Statement of Directors’ Responsibilities: Management’s report on internal control over financial reporting 94 16 16A – Audit committee financial expert 16B – Code of ethics Strategic Report: Doing business responsibly 24-25, 74 16C – Principal accountant fees and services Corporate Governance: Audit Committee Report – External Auditor 66-67 Corporate Governance: Audit Committee Report – Non-audit services 67 Group Financial Statements: Note 4 – Auditor’s remuneration paid to Ernst & Young LLP 120 Not applicable – Shareholder information: Purchases of equity securities by the Company and affiliated purchasers 176 Not applicable – 16G – Corporate governance Shareholder information: Summary of significant corporate governance differences from NYSE listing standards 173-174 16H – Mine safety disclosure Not applicable – 17 Financial statements Not applicable – 18 Financial statements Group Financial Statements 92-153 19 Exhibits Additional information: Exhibits 181 183 IHG Annual Report and Form 20-F 2014 Exhibit 11Articles of Association of the Company (incorporated by reference to Exhibit 1 of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 11 April 2011)Exhibit 4(a)(i)Contribution agreement relating to the InterContinental New York Barclay between Barclay Operating Corp., InterContinental Hotels Group Resources, Inc., Constellation Barclay Holding US, LLC, and 111 East 48th Street Holdings, LLC dated 19 December 2013Exhibit 4(a)(ii)Asset sale and purchase agreement relating to the Intercontinental Hotel, Park Lane, London between Hotel Inter-Continental London Limited, Constellation Hotel (Opco) UK S.A., and Six Continents Limited dated 27 March 2013Exhibit 4(a)(iii)1Five-year $1,070 million bank facility agreement dated 7 November 2011, among The Royal Bank of Scotland plc, NB International Finance B.V., Citigroup Global Markets Limited, HSBC Bank plc, Lloyds TSB Bank plc and The Bank of Tokyo-Mitsubishi UFJ, Ltd. (incorporated by reference to Exhibit 4(a)(i) of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 29 March 2012)Exhibit 4(a)(iv)1First supplemental trust deed dated 7 July 2011 modifying and restating the Euro Medium Term Note programme governed by a trust deed dated 29 November 2009 (incorporated by reference to Exhibit 4(a)(ii) of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 29 March 2012)Exhibit 4(a)(v)1Amended and restated trust deed dated 9 November 2012 relating to a £750 million Euro Medium Term Note Programme, among InterContinental Hotels Group PLC, Six Continents Limited, InterContinental Hotels Limited and HSBC Corporate Trustee Company (UK) Limited (incorporated by reference to Exhibit 4(a)(iii) of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 26 March 2013)Exhibit 4(c)(i)Employment Agreement between Six Continents Limited and Paul Edgecliffe-Johnson’s dated 6 December 2013, commencing on 1 January 2014Exhibit 4(c)(ii)1Tracy Robbins’ service contract dated 9 August 2011 (incorporated by reference to Exhibit 4(c)(i) of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 29 March 2012)Exhibit 4(c)(iii)1Tom Singer’s service contract dated 26 July 2011 (incorporated by reference to Exhibit 4(c)(ii) of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 29 March 2012)Exhibit 4(c)(iv)1Kirk Kinsell’s service contract commencing on 1 August 2010, as amended by a letter dated 5 July 2010 (incorporated by reference to Exhibit 4(c)(ii) of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 11 April 2011)Exhibit 4(c)(v)1Richard Solomons’ service contract dated 16 March 2011, commencing on 1 July 2011 (incorporated by reference to Exhibit 4(c)(iii) of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 11 April 2011)Exhibit 4(c)(vi)1Rules of the InterContinental Hotels Group Long Term Incentive Plan as amended on 26 September 2012 (incorporated by reference to Exhibit 4(c)(v) of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 26 March 2013)Exhibit 4(c)(vii)1Rules of the InterContinental Hotels Group Annual Bonus Plan as amended on 26 September 2012 (incorporated by reference to Exhibit 4(c)(vi) of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 26 March 2013)Exhibit 8List of subsidiaries as at 31 December 2013Exhibit 12(a)Certification of Richard Solomons filed pursuant to 17 CFR 240.13a-14(a)Exhibit 12(b)Certification of Paul Edgecliffe-Johnson filed pursuant to 17 CFR 240.13a-14(a)Exhibit 13(a)Certification of Richard Solomons and Paul Edgecliffe-Johnson furnished pursuant to 17 CFR 240.13a-14(b) and 18 U.S.C.1350Exhibit 15(a)Consent of independent registered public accounting firm, Ernst & Young LLP1Incorporated by reference.Additional Information 183Form 20-F cross-reference guideItem Form 20-F caption Location in this document Page 1 Identity of directors, senior management and advisors 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 176-177 Shareholder Information: Dividend history 178 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 & development of the company Group Information: History and developments 164 Shareholder Information: Return of funds 178 Contact details 182 4B – Business overview Strategic Report 10-53 Group Information: Working Time Regulations 1998 170 4C – Organisational structure Group Financial Statements: Note 36 – Principal operating subsidiary undertakings 153 4D – Property, plant & equipment Strategic Report: Disciplined Execution – Commitment to responsible business practices: Global greenhouse gas emissions 33 Group Financial Statements: Note 10 – Property, plant and equipment 128 4A Unresolved staff comments None – 5 Operating and financial review & prospects 5A – Operating results Strategic Report: Performance 40-53 Group Financial Statements: Accounting policies 111-116 5B – Liquidity and capital resources Strategic Report: Performance – Liquidity and capital resources 52-53 Group Financial Statements: Note 18 – Cash and cash equivalents 134 Group Financial Statements: Note 21 – Financial risk management 135-137 Group Financial Statements: Note 22 – Loans and other borrowings 138 Group Financial Statements: Note 23 – Derivative financial statements 139 Group Financial Statements: Note 24 – Fair value measurement 140-141 5C – Research and development; intellectual property Not applicable – 5D – Trend information Not applicable – 5E – Off-balance sheet arrangements Strategic Report: Performance – Liquidity and capital resources 53 5F – Tabular disclosure of contractual obligations Strategic Report: Performance – Liquidity and capital resources 53 5G – Safe harbour Additional Information: Forward-looking statements 188 6 Directors, senior management and employees 6A – Director and senior management 57-60 6B – Compensation Directors’ Remuneration Report 74-97 Group Financial Statements: Note 26 – Retirement benefits 142-145 Group Financial Statements: Note 28 – Share-based payments 147-150 6C – Board practices Corporate Governance 61-72 6D – Employees Strategic Report: Winning Model – Preferred brands delivered through our people 20-23 Group Financial Statements: Note 3 – Staff costs and Directors’ emoluments 123 Group Information: Working Time Regulations 1998 170 6E – Share ownership Corporate Governance: Relations with shareholders 70-72 Directors’ Remuneration Report 90-96 Additional Information: Executive Committee members’ shareholdings 167 Group Financial Statements: Note 28 – Share-based payments 147-150 7 Major shareholders and related party transactions 7A – Major shareholders; Host country shareholders Directors’ Report 72-73 Shareholder Information: Shareholder profiles 180 7B – Related party transactions Group Financial Statements: Note 14 – Investment in associates and joint ventures 132 Group Financial Statements: Note 33 – Related party disclosures 152 7C – Interests of experts & counsel Not applicable – 8 Financial Information 8A – Consolidated statements and other Statement of Directors’ Responsibilities 100 financial information Independent Auditor’s US Report 103 Group Financial Statements 99-153 Shareholder Information: Legal proceedings 172 8B – Significant changes None – 184 IHG Annual Report and Form 20-F 2013Item Form 20-F caption Location in this document Page 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 170 10C – Material contracts Group Information: Material contracts 170-171 10D – Exchange controls Group Information: Exchange controls 172 10E – Taxation Shareholder Information: Taxation 173 10F – Dividends and paying agents Not applicable – 10G – Statement by experts Not applicable – 10H – Documents on display Shareholder Information: Investor Information – Documents on display 181 10I – Subsidiary information Not applicable – 11 Quantitative & qualitative disclosures Strategic Report: Performance – Market risk disclosures 53 about market risk Group Financial Statements: Note 21 – Financial risk management 135-137 12 Description of securities other than equity securities 12A – Debt securities Not applicable 12B – Warrants and rights Not applicable 12C – Other securities Not applicable 12D – American depositary shares Group Information: Description of securities other than equity securities 168 13 Defaults, dividend arrearages and delinquencies Not applicable – 14 Material modifications to the rights of security holders and use of proceeds Not applicable – 15 Controls and Procedures 15A – Controls and Procedures Shareholder information: Disclosure controls and procedures 175 15B – Management’s annual report on internal control over financial reporting Statement of Directors’ Responsibilities: Management’s report on internal control over financial reporting 100 15C – Attestation report Independent Auditor’s US Report 103 15D – Changes in internal controls over financial reporting Statement of Directors’ Responsibilities: Management’s report on internal control over financial reporting 100 16 16A – Audit committee financial expert Corporate Governance: Audit Committee Report 66 16B – Code of ethics Strategic Report: Disciplined Execution – Commitment to responsible business practices 31 Shareholder Information: Summary of significant corporate governance differences from NYSE listing standards – Code of Conduct 175-176 16C – Principal accountant fees and services Group Financial Statements: Note 4 – Auditor’s remuneration paid to Ernst & Young LLP 123 16D – Exemptions from the listing standards for audit committees Not applicable – 16E – Purchase of equity securities by the issuer and affiliated purchasers Shareholder Information: Purchases of equity securities by the Company and affiliated purchasers 179 16F – Change in registrant’s certifying accountant Not applicable – 16G – Corporate governance Shareholder Information: Summary of significant corporate governance differences from NYSE listing standards 175-176 16H – Mine safety disclosure Not applicable – 17 Financial statements Not applicable – 18 Financial statements Group Financial Statements1 100-153 19 Exhibits Additional Information: Exhibits 183 1The Parent Company Financial Statements and the Audit Report and Notes thereto, on pages 156 to 161 should not be considered to form part of IHG’s Annual Report on Form 20-F.Additional Information 185GlossaryAmerican Depositary Share (ADS).ADS.American Depositary Receipt,ADR, being a registered negotiable security, listed on the New York Stock Exchange, representing one ordinary share of 1415194 265/⁄329 pence each of the Company.articlesArticles of associationAssociation of the Company for the time being in force.whichthat are disclosed separately because of their size or nature.Top-upTop-Up Scheme.186 IHG Annual Report and Form 20-F 2013
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IHG System size the number of hotels/rooms franchised, managed, owned indirect channels online travel intermediaries and business and leisure travel agents. interest rate swap an agreement to exchange fixed for floating interest rate streams (or vice versa) on a notional principal. liquidated damages payments received in respect of the early termination of management and franchise contracts, where applicable. LTIP Long Term Incentive Plan. managed leases properties structured for legal reasons as operating leases but with the same characteristics as management contracts. management contract a contract to operate a hotel on behalf of the hotel owner. market capitalisation the value attributed to a listed company by multiplying its share price by the number of shares in issue. net debt borrowings less cash and cash equivalents, including the exchange element of the fair value of currency swaps hedging the borrowings. net rooms supply net total number of IHG hotel rooms. NYSE New York Stock Exchange. occupancy rate rooms occupied by hotel guests, expressed as a percentage of rooms that are available. ordinary share from owner the ultimate owner of pipeline hotels/rooms that will enter the IHG System at a future date. A new hotel only enters the pipeline once a contract has been signed and the appropriate fees paid. In rare circumstances, a hotel will not open for reasons such as the financing being withdrawn. | RevPAR or revenue per available room rooms revenue divided by the number of room nights that are available (can be mathematically derived from occupancy rate multiplied by average daily rate). room count number of rooms franchised, managed, owned or leased by IHG. rooms revenue revenue generated from the sale of room nights. royalty revenues rooms revenue that a franchisee pays to the brand owner for use of the brand name. SCETUS Six Continents Executive Top-Up Scheme. SEC US Securities and Exchange Commission. Six Continents Six Continents Limited; previously Six Continents PLC and re-registered as a private limited company on 6 June 2005. sterlingor pounds sterling, £, penceor p the pound sterling, the currency of the United Kingdom. subsidiary undertaking a company over which the Group exercises control. system contribution to revenue per cent of rooms revenue delivered through IHG’s direct and indirect systems and channels. System Fundor Fund assessment fees and contributions collected from hotels within the IHG System for the specific use of marketing, the IHG Rewards Club loyalty programme and the global reservations system. technology income income received from hotels under franchise and management agreements for the use of IHG’s proprietary reservations system. total gross revenue total rooms revenue from franchised hotels and total hotel revenue from managed, owned and leased hotels. It is not revenue attributable to IHG, as it is derived from hotels owned by third parties. TSRorTotal Shareholder Return the theoretical growth in value of a shareholding over a period, by reference to the beginning and ending share price, and assuming that | UK the United Kingdom. UK DB Plan the Defined Benefit section of the IC Plan. UK DC Plan the Defined Contribution section of the IC Plan. UK GAAP United Kingdom Generally Accepted Accounting Practice.
US the United States of America. US 401(k) Plan the Defined Contribution 401(k) plan. US Deferred Compensation Plan the Defined Contribution Deferred Compensation Plan. US dollars, US$, $or ¢ the currency of the United States of America. working capital the sum of inventories, receivables and payables of a trading nature, excluding financing and taxation items.
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The Annual Report and Form 20-F 2014 contain certain forward-looking statements as defined under US legislation (section 21E of the Securities Exchange Act of 1934) with respect to the financial condition, results of operations and business of InterContinental Hotels Group and certain plans and objectives of the Board of Directors of InterContinental Hotels Group PLC with respect thereto. Such statements include, but are not limited to, statements made in the Chairman’s Statement and in the Chief Executive Officer’s Review. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use words such as ‘anticipate’, ‘target’, ‘expect’, ‘estimate’, ‘intend’, ‘plan’, ‘goal’, ‘believe’, or other words of similar meaning. These statements are based on assumptions and assessments made by InterContinental Hotels Group’s management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors, they believe to be appropriate.
By their nature, forward-looking statements are inherently predictive, speculative and involve risk and uncertainty. There are a number of factors that could cause actual results and developments to differ materially from those expressed in, or implied by, such forward-looking statements, including, but not limited to: the risks of the effect of political and economic developments; the risk of events that adversely impact domestic or international travel; the risks of the hotel industry supply and demand cycle; the Group being subject to a competitive and changing industry; the Group’s exposure to risks related to executing and realising benefits from strategic transactions, including acquisitions; the Group’s dependence upon a wide range of external stakeholders and business partners; the Group’s exposure to increasing competition from online travel agents and intermediaries; the risks related to identifying, securing and retaining franchise and management agreements; the risks in relation to changing technology and systems; the risks associated with the Group’s financial stability and its ability to borrow and satisfy debt covenants; the risk of litigation; the Group’s reliance on the reputation of its brands and exposure to inherent reputation risks, including those associated with intellectual property; the risks involved in the Group’s reliance upon its reservations system and other key technology platforms, and the risks that could cause the failure of these systems; the risks related to information security and data privacy; the risks associated with safety, security and crisis management; the ability to acquire and retain the right people, skills and capability to manage growth and change; compliance with existing and changing regulations across numerous countries, territories and jurisdictions; the risks related to ethics and responsible business practices; and the risks associated with insuring its business.
The main factors that could affect the business and financial results are described in the Strategic Report of the Annual Report and Form 20-F 2014.
Designed and produced byAddison Group www.addison-group.net Managed byRR Donnelley This Report is printed on Satimatt Green
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www.addison-group.net
Managed byRR Donnelley
This Report is printed on Satimatt Green which is manufactured using 75% post-consumer recycled fibre and 25% FSC® certified virgin fibre. Both the manufacturing mills and printer are ISO 14001 and FSC® certified.
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InterContinental Hotels Group PLC
Broadwater Park, Denham,
Buckinghamshire UB9 5HR
United Kingdom
Tel +44 (0) 1895 512 000
Fax +44 (0) 1895 512 101
Web www.ihgplc.com
Make a booking at www.ihg.com
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.
INTERCONTINENTAL HOTELS GROUP PLC
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InterContinental Hotels Group PLC/s/ Paul Edgecliffe-Johnson
Broadwater Park, Denham,
Buckinghamshire UB9 5HR
United Kingdom
Tel +44 (0) 1895 512 000
Fax +44 (0) 1895 512 101
Web www.ihgplc.com
Make a booking at www.ihg.com
Date: February 26, 2015
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.
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Date: February 26, 2014
Responsible Business
Continue to focus on sustainable fee margin progression over the 
Annual Performance Plan (APP)
Long Term Incentive Plan (LTIP)
Benefits
Audit Committee member
Nomination Committee member
Corporate Responsibility
Remuneration Committee member
Annual incentive received