20-F 1 d52499d20f.htm 20-F 20-F
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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 20-F

 

 

(Mark One)

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

or

 

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

For the fiscal year ended December 31, 2020

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)

Nicolette Henfrey

General Counsel and Company Secretary

+44 (0) 1895 512000

companysecretariat@ihg.com

 

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

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

American Depositary Shares
Ordinary Shares of 20340/399 pence each
 

IHG

IHG

 

New York Stock Exchange

New York Stock Exchange*

 

 

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

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

None

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

None

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

 

Ordinary Shares of 20340/399 pence each   187,717,720

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

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

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

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted 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 such files).    Yes  ☑    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Emerging growth company  

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to
Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  ☑

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

 

US GAAP  ☐

  

International Financial Reporting Standards as issued by

the International Accounting Standards Board  ☑

   Other  ☐

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

 ☐ Item 17       ☐ Item 18

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

Yes            ☐                     No            ☑

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

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

  ☐    Yes      ☐No

 

 

 

 


Table of Contents

LOGO


Table of Contents

    

Our purpose

is to provide

True Hospitality

for Good.

It shapes our culture, brings our brands to life

and represents a commitment to make a difference

every day to our people, guests and communities,

and to protect the world around us.

Engaging with a wide range of stakeholders,

together we work towards common goals and help

ensure we create shared value for all.

 

LOGO

 

LOGO   See pages 22 to 33 for more information on how we work with our stakeholders.
      

 

LOGO

Front cover

Our Lights of Love social media campaign became a beacon of hope for the industry in 2020,

with hundreds of hotels globally creating light hearts in their windows

and colleagues doing the same with their hands.

 

    

 


Table of Contents

 

LOGO

    

Contents

 

    

 

    

Additional Information
212   Other financial information
219   Directors’ Report
224   Group information
236   Shareholder information
244   Exhibits
245   Forward-looking statements
246   Form 20-F cross-reference guide
248   Glossary
250   Useful information

The Strategic Report on pages 2 to 71

was approved by the Board on 22 February 2021.

Nicolette Henfrey, Company Secretary

 

 

IHG  |  Annual Report and Form 20-F 2020   1


Table of Contents

Strategic Report

2020 in review

 

 

LOGO

    

 

       

A response

shaped by

our purpose

 

   

 

 

Shareholders and investors

 

The impact of Covid-19 on our industry has led to difficult but unavoidable decisions to protect IHG in the short and long-term. We’ve had to make savings, protect cash and thoughtfully align our cost base to a longer period of lower demand, while still protecting investments in future growth.

 

 Fee business costs reduced by ~$150m in 2020 through reductions in discretionary costs, temporarily reduced salaries and redundancies

 

 Targeted ~$75m of fee business costs to be sustainable into 2021, while still investing for growth

 

 Reduced gross capital expenditure by over $100m, with investment focused on high-priority growth areas

 

 Suspended dividend payments

 

 Increased liquidity and extended debt maturities

 

LOGO See page 33

 

    

In an unimaginably challenging year, we’ve worked tirelessly to care for our stakeholders, protect our business and ensure our purpose of True Hospitality for Good is felt even in the toughest of times – all while ensuring we’re ready to grow strongly in a recovery.

 

 
     

 

Financial performance

L

  ike every company, our plans and expectations for 2020 were transformed by Covid-19. The global response to the pandemic, including lockdowns, travel bans and border closures, has impacted the lives of billions of people, severely damaged economies and posed    

Global RevPAR

(52.5)%

2019: (0.3)%

 

Net system size growth

+0.3%

2019: +5.6%

the biggest challenge our hospitality industry has ever faced. For IHG, a 52.5% reduction in RevPAR led to operating profit from reportable segments falling by 75%.

 

We’ve committed to responding quickly with great care and thought, doing what’s right to support our guests, colleagues, hotel owners and communities, keep our business protected and help our industry recover. On these pages, and within this year’s Annual Report, you will see some of the actions we have taken in response to the pandemic and to ensure the right foundations are in place for a successful recovery and continued growth.

   

 

Total gross revenue in

IHG’s Systema

$13.5bn

2019: $27.9bn

 

 

Total revenue

$2,394m

2019: $4,627m

 

We know things will take time to improve, but as vaccinations roll out and the world feels confident to rediscover travel, we’re ready to deliver clean and trusted stays.

 

We’re focused on ensuring IHG and our hotels can outperform as demand returns, and we continue to sign and open new properties around the world. Looking to future growth, our pipeline of 1,815 hotels represents 11% of the industry, with ~40% already under construction.

   

 

Revenue from

reportable segmentsa

$992m

2019: $2,083m

 

 

    

Operating (loss)/profit

$(153)m

2019: $630m

   

 

Operating profit from

reportable segmentsa

$219m

2019: $865ma

 

 

    

Basic EPSb

(142.9)¢

2019: 210.4¢

   

 

a  Use of Non-GAAP measures: in addition to performance measures directly observable in the Group Financial Statements (IFRS measures), other financial measures (described as Non-GAAP) are presented that are used internally by management as key measures to assess performance. Non-GAAP measures are either not defined under IFRS or are adjusted IFRS figures. Further explanation in relation to these measures can be found on pages 47 to 51 and reconciliations to IFRS figures, where they have been adjusted, are on pages 212 to 216.

b  Adjusted EPSa 31.3¢ (-90%); 2019: 303.3¢.

     
     

 

2   IHG  |  Annual Report and Form 20-F 2020


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LOGO

Our people

With Covid-19 completely changing daily life, we’ve tried to be there to help all our colleagues.

 

    Latest guidance, clear procedures and training have prioritised the safety of our hotel teams and kept them feeling supported

 

    Mental health, wellbeing and parenting resources provided to employees working remotely, alongside increased communication

 

    Recharge days were introduced for corporate employees working under intense pressure

 

    An emergency support fund was created for employees significantly impacted by temporary furlough or reduced hours

 

    A job centre and alumni network were established to offer displaced hotel and corporate colleagues ways to stay connected and pursue employment opportunities

 

     LOGO     See pages 26 to 28

LOGO

Hotel owners

Faced with temporary closures and low demand, our owners, many of whom are small business operators, have looked to IHG for advice, support and flexibility.

 

  Supplier discounts, fee relief and flexible payment options have all helped protect our owners’ cash flow

 

  New operational guidance offered to support performance, including evolved brand standards and digital services

 

  Tailored hotel-reopening and recovery toolkits developed alongside targeted marketing campaigns to drive demand

 

  Operational changes identified to improve profitability in a low-demand environment

 

  Close collaboration with governments and trade bodies on need for sustained industry support

 

     LOGO   See pages 31 to 32
 

 

LOGO

Our communities

We’ve shown how important our thousands of local communities are to us by helping those in need.

 

    From nurses to delivery drivers, we’ve accommodated frontline workers and helped travellers quarantine

 

    We’ve provided the homeless with a safe place to stay and created care packages for the vulnerable

 

    We’ve surprised frontline workers with free stays and offered discounted Heroes Rates for all

 

    Working with our charity partners, we’ve funded vital work from supporting foodbanks to rebuilding communities hit by wildfires

 

     LOGO   See page 29

LOGO

Our guests

At a time of great uncertainty, we’ve ensured guests can trust IHG for flexibility, consistency and cleanliness.

 

  Flexible cancellation policy for 2020 allowed guests to cancel stays up to 24 hours before arrival

 

  A Book Now Pay Later offer has provided comfort if plans change

 

  Status and points expiry protected for our loyalty members

 

  Our commitment to the highest cleanliness standards in our hotels was reflected in the launch of our IHG Clean Promise

 

  Introduced Meet with Confidence programme for corporate clients to prioritise safety, wellbeing and booking flexibility

 

  Leveraged technology to promote a safe and clean stay through cleanliness checklists and the roll out of contactless digital check-in

 

     LOGO   See pages 31 to 32
 

 

LOGO

 

 

2020 in review   IHG  |  Annual Report and Form 20-F 2020   3


Table of Contents

Strategic Report

Chair’s statement

    

    

 

 

LOGO

    

T  

 

he Covid-19 pandemic gripped the world in 2020, changing lives and challenging economies, societal norms and the existence of many businesses. Without doubt, hospitality was one of

 

the sectors hardest hit, and our success this year has been defined as much by our financial health and strategic progress as it has by our ability to offer clarity and care during an unprecedented crisis.

 

Border closures and restrictions designed to slow the spread of the virus have presented the travel sector with its greatest ever challenge. The World Travel & Tourism Council estimates as many as 174 million jobs have been lost, as businesses have closed or been forced to reduce staff and costs, with entire supply chains feeling the knock-on effect.

 

No pre-prepared response could have matched the magnitude of the situation. Instead, organisations will have learnt if they were equipped to manage such a crisis or not, and I am proud of IHG’s principled response, which has been guided by our purpose of True Hospitality.

 

Indeed, the experience has outlined the importance of purpose, giving new meaning to our potential to effect positive change, and highlighted the growing expectation that we must deliver that change in a challenging world. We have therefore evolved our purpose from True Hospitality for everyone, to True Hospitality for Good – still committed to looking after all those we interact with, but now more focused on the difference we can make to our people, guests, communities and planet.

 

We have strived to do the right thing for every stakeholder. As a global company, our asset-light, fee-based, predominantly franchised model, and industry-leading position in upper midscale, means that while Covid-19’s impact on our business has been severe, there is also a level of resilience. Nevertheless, working back from the initial peak in April, when one in six of our hotels were closed and global occupancy was at historic lows of ~20%, we have had to focus on costs and target pockets of leisure and business demand to help maintain cash flow in difficult circumstances.

 

Ensuring our business remains robust has, of course, been important, but there are many other dimensions to consider, not least the anxiety this crisis has caused colleagues, or the help that our owners – many of whom are small or medium enterprises – have

 

 

 

 

“ Reflecting what we’ve

learnt and what’s

needed to succeed in

an evolving environment,

we entered 2021 with

a refreshed strategy.”

 

    

   

 

 

4   IHG  |  Annual Report and Form 20-F 2020


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needed to keep their businesses alive. Our guests have also turned to us for enhanced safety and flexibility, and the communities our thousands of hotels are a part of have needed our compassion and support during an extremely challenging time.

Leading through adversity

Working intensely on so many fronts has placed huge demands on our leadership and teams. Testing IHG’s strategy, business model and management, this period has illustrated the importance of strong governance and the benefits of our recent business transformation, designed to inject pace, clarity and empowerment into our daily work. These elements have helped us respond to many unique challenges, including temporarily closing and reopening hotels, implementing new cleanliness and safety procedures, reviewing brand standards, reimagining services and operations, pausing priority programmes and accelerating others.

The role of the Board has been to support and constructively challenge – recognising a need for quick decisions but avoiding short-term reactions and maintaining a longer-term perspective that protects the assets and talent needed for future value creation. The importance of this approach increases immeasurably when decisions affect people, and every effort was made to minimise the impact on jobs as a result of preserving cash and adapting to a vastly changed operating environment.

Equally, our decision to suspend dividend payments was not made lightly. The Board will consider future dividends once visibility of the pace and scale of market recovery has improved. In keeping with our trusted reputation, we have updated shareholders regularly on all actions taken to protect liquidity, focusing on resilience and long-term growth prospects.

Acknowledgment must go to Chief Executive Officer Keith Barr and his leadership team for showing the required mix of control, flexibility, transparency and humanity that has characterised IHG’s response and given the business clarity over how it should function, execute and communicate.

Learning and adapting

There is an old adage that says what doesn’t break you makes you stronger, and while everybody wishes this pandemic to be over,

it has offered us some important lessons. We’ve demonstrated the agility needed to succeed in a fast-changing industry, while our teams have been more customer-centric than ever before, thinking like our guests and owners and delivering faster, more effective services and solutions as a result. Working remotely so efficiently at a corporate level has also invigorated discussions on where and how we work in the future.

Reflecting what we’ve learnt and what’s needed to succeed in an evolving environment, we entered 2021 with a refreshed strategy that preserves our business model and growth aspiration but refines the priorities that guide our actions. Our priorities include an increased focus on customer centricity, as well as our commitment to our environmental, social and governance responsibilities through a priority to care for our people, communities and planet. Linked to this, is our new 10-year responsible business plan, Journey to Tomorrow, and, having engaged as a Board and through its Committees on both elements, I am confident our strategies provide the direction needed to grow successfully and sustainably in a competitive market.

Board refreshment

To support that growth, I place great importance on ensuring our Board represents a rich mix of backgrounds and experiences, and we saw several changes during the year, as part of an ongoing commitment to assess capabilities and succession plans.

Both Malina Ngai and Luke Mayhew stepped down after valuable contributions in their three and nine years respectively, and we welcomed four new Independent Non-Executive Directors in 2020. Arthur de Haast joined in January, bringing more than 30 years of capital markets, hospitality and sustainability experience; Sharon Rothstein joined in June, bringing more than 25 years of senior experience at global companies; Graham Allan joined in September, bringing 40 years of strategic, commercial and brand experience; and Duriya Farooqui joined in December, bringing more than two decades of expertise in strategy, transformation and innovation, and a passion for responsible operations and diversity. Additionally in February 2021, the Board approved the appointments of Richard Anderson and Daniela Barone Soares as Independent Non-Executive Directors with effect from 1 March 2021, and accepted the resignation of Anne Busquet, who will step down from the Board at the AGM.

In 2020, we saw diversity, and in particular, ethnic diversity, brought into sharper focus, as part of important conversations internationally around social equality. Diversity and inclusion is a cornerstone of IHG’s culture, and while we’re proud of our achievements, we accept we must do more to instil equality at every level of the business and better represent our communities. We have introduced additional commitments, including driving gender balance and doubling under-represented groups across our leadership, alongside delivering projects that prioritise employee wellbeing and advance our work on human rights.

Thank you

While we know recovery will take time, we have shown our ability to operate adeptly through uncertainty and to evolve. The events of 2020 have underlined the growing importance to our industry of tailored, responsive experiences and operations, driven not only by strong brands and hotels, but also sophisticated technology and data, and a truly customer-centric mindset. As we navigate the intricacies of a global recovery, continuing to improve in these areas at pace will be crucial to performance and growth.

Looking to the future, our industry’s long-term prospects remain attractive, driven by factors including population growth, rising wealth in emerging markets, and consumer appetite to travel and stay in branded hotels. The ability to maintain and develop scale positions in key markets and segments is crucial to capitalising on this – however, quality growth must always come before quantity.

This has truly been a year like no other. I want to thank Keith and his leadership team for their tremendous hard work and the way they continue to navigate uncertain times with such strategic clarity and operational agility. I would also like to offer my respect and admiration to every hotel and corporate colleague for tackling 2020 with such care and commitment, and thank our owners for their confidence in IHG, as we look to a brighter future together.

    

LOGO

Patrick Cescau

Chair

 

 

 

LOGO

 

 

Chair’s statement   IHG  |  Annual Report and Form 20-F 2020   5


Table of Contents

Strategic Report

Chief Executive

Officer’s review

    

 

 

LOGO

    

 

“Globally, we’ve worked

as a team with such

speed and compassion

– leading, learning and

listening to keep

colleagues and guests

feeling safe, protect IHG

and our owners, and

support our industry”.

 

 

LOGO

e arrived in 2020 on the back of a record year of openings and real momentum behind the growth of our brands in a thriving industry. Our clear strategy and the changes made in recent years were enabling us to move faster, accelerate our growth and take advantage of new opportunities. The arrival of the Covid-19 pandemic has since presented enormous challenges for travel and tourism, and for IHG. Yet, in spite of this, the thoughtful, swift and decisive actions of so many dedicated colleagues have helped us emerge a stronger company.

 

The enormity of this crisis means very little has escaped its impact. From socioeconomic challenges to mental and physical health, it has touched everyone’s life, and as a company, it has shifted how we’ve worked together, partnered with our owners, and looked after our guests and communities.

 

Globally, we’ve worked as a team with such speed and compassion – leading, learning and listening to help keep colleagues, guests and communities feeling safe, protect IHG and our owners, and support our industry. We’ve seen past the barriers of remote working and physical distancing to find ways to work together closer than ever before. I am immensely proud of how everyone from our leadership, corporate teams and reservation offices, to our owners and hotel colleagues have helped IHG and those around us through such difficult times, including our frontline workers and people in need. Collectively, we provided not just hospitality but True Hospitality for Good.

 

 

Our 2020 journey

People’s appetite to explore, rest or work on their travels hasn’t changed, but understandably their confidence in when it’s safe to do so has, and we’ve had to respond. To help keep colleagues and guests feeling safe, we quickly aligned new training and operating procedures with guidance from world health bodies. We further enhanced our IHG Way of Clean programme with new science-led protocols, backed by an IHG Clean Promise and Meet with Confidence offer. We also accelerated the rollout of technology enhancements such as digital check-in, introduced flexible cancellation and booking options, and protected points and status for our loyalty members.

 

Working with governments and authorities, some of our hotels switched focus to accommodate nurses, doctors and other frontline workers. Others supported the

 

 

 

 

 

6   IHG  |  Annual Report and Form 20-F 2020


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homeless, and many have provided meals and care packages for the vulnerable in their communities.

 

Our hotels have also needed IHG’s care. Many are small businesses, whose owners have faced real hardship as occupancies have fallen and created significant cost and cash flow pressures. We’ve supported them by reducing operating costs, redefining brand standards, renegotiating with suppliers, temporarily reducing fees and offering flexible payment terms. Knowing a recovery will take time, much of that work continues, in partnership with the IHG Owners Association and individual owners. In parallel, we’re collaborating with peers and governments to ensure continued financial support for our industry and to increase the pace at which travel safely resumes and plays its vital part in economic growth.

 

Ensuring there is business continuity amid so much change has been crucial, requiring both the right technology and a commitment to work with greater agility and decisiveness. As many of our corporate and reservation teams have worked remotely, we’ve supported them with mental health and wellbeing resources, flexible working arrangements and regular communication. Speaking more often to all employees and in smaller virtual circles has allowed me to answer questions and understand challenges in a way that’s brought us closer as an organisation and must be maintained.

 

In an environment where RevPAR more than halved in the year, IHG’s financial health has been a key focus too, balancing what’s needed to protect the business, while continuing to invest in future growth. We moved quickly to adjust existing debt agreements, access increased liquidity and protect our cash flow by suspending dividend payments, controlling capital expenditure and reducing fee business costs by $150m. It is a measure of the resilience of IHG’s business model that we were able to generate positive cash flows in this most challenging of years. Looking ahead, around half of the cost savings are expected to be sustained into 2021.

 

While we prioritised savings in non job-related areas, difficult choices were also made to reduce teams and operations in line with demand. Support sites and a hardship fund were set up for employees who unfortunately had their hours reduced or went on furlough, and we launched an alumni network with access to like-minded employers for employees sadly leaving us.

 

 

There have been some hard moments, but we’ve tried to ensure we can look back on our decisions knowing we had the best intentions. It means so much that in our November survey, 88% of corporate employees felt we had made responsible choices in our response to the pandemic, and 86% felt we’ve looked after their wellbeing. Equally, many owners have told me how much they’ve valued the way in which we’ve stood beside them.

 

Business strength

The shape of recovery continues to differ by market. Structurally, we’ve benefitted from several factors, including being principally domestic focused in key markets like the US; having less exposure to heavily hit groups and meetings business; and having leading brands like our Holiday Inn Brand Family in the upper midscale segment, where demand has historically been more resilient during a downturn. With this foundation, we’ve used data and analytics to target pockets of ongoing leisure and business demand, and worked closely with our hotels to deliver safe and consistent experiences, which has led to industry outperformance in key markets.

 

We’ve worked hard to drive performance, however, the impact of such a significant fall in demand is reflected in operating profit from reportable segments declining 75% to $219m. After taking into account the System Fund result and exceptional items, we reported an operating loss of $153m. Looking longer-term, the confidence we share with our owners is illustrated in another 285 hotel openings in 2020 and an average of almost one signing a day into our pipeline, with an increasing number of conversions. Our Holiday Inn® Brand Family remains a growth engine, accounting for half of all signings and ~60% of openings in the year. More broadly, our global pipeline of 1,815 hotels represents an 11% share of the total industry, showing the significant growth potential ahead. Other achievements include taking voco to the US and Greater China, our first Atwell Suites property breaking ground, and bringing avid® to Mexico and Canada.

 

Evolving our strategy

Prior to 2020, we had step-changed the pace of our growth and, with a recovery in mind, we must resume what was working successfully, retain valuable lessons from this period, and ensure our future growth plans reflect what’s important to our stakeholders and brands. To this end, we’ve refreshed both our corporate and responsible business strategies.

 

 

 

From how we build demand for our brands and deliver seamless digital experiences, to always putting ourselves in the shoes of a guest or owner, or the way we care for our people, communities and planet – our refreshed strategy puts a sharper focus on our services, products, returns and reputation. In a competitive marketplace, it’s vital we operate with this clarity and ensure that what we prioritise helps better leverage our scale and systems to grow our customer base, increase signings and in turn drive high-quality, industry-leading net rooms growth.

 

Critical to the work we do to care for our people, communities and planet will be ambitious 10-year targets in our new responsible business plan, Journey to Tomorrow. This builds on our achievements from our 2018-2020 programme and will push us further as an employer, within our communities and in minimising our environmental impact.

 

The future

The rollout of vaccines is extremely encouraging for everyone and of course vital to our industry’s recovery, but we know it will take time. I’m confident that our business model and strategy, which builds on the investments made in recent years to expand our brand portfolio and enhance our ways of working, puts IHG in a strong position to outperform the industry as it returns to full strength.

 

In my more than 20 years with IHG, I cannot recall a time of such togetherness, which is all the more remarkable when considering the pressure everyone has been under. On behalf of the Executive Committee and myself, I want to express our sincere gratitude to all our corporate and hotel colleagues for their hard work, energy and understanding, and to our owners for their partnership and commitment.

 

I know everyone at IHG passionately believes the world is there to be explored, and as a company and alongside our owners, we will continue to work hard towards better times.

 

LOGO

Keith Barr

Chief Executive Officer

 

LOGO

 

 

Chief Executive Officer’s review   IHG  |  Annual Report and Form 20-F 2020   7


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Strategic Report

Industry overview

    

    

 

T  

 

he Covid-19 pandemic led to hotel occupancy across the globe falling to historic lows in 2020, as lockdowns,

travel bans and physical distancing measures were introduced to limit the spread of the virus. The impact on hospitality has been severe, though longer-term, the fundamental desire to travel for business or leisure continues to underpin the industry’s growth prospects, illustrated by sustained new hotel openings and signings.

The ~$240 billion hotel industry remains fragmented, with 53% of rooms affiliated with a global or regional chain. Branded hotel penetration is expected to continue to grow. Conversions from independent to branded hotels typically increased following the last downturn as owners sought the

benefits of a branded system. Consumer expectations in key areas such as technology, cleanliness and sustainability increased during the pandemic and looking forwards, hotel groups and third-party owners are adapting to meet changing demands while ensuring they optimise returns.

2020 industry performance

There are two key performance metrics: room supply and RevPAR. Room supply reflects how attractive the hotel industry is as an investment from an owner’s perspective. RevPAR indicates the value guests ascribe to a given hotel, brand or market, and grows when they stay more often or pay higher rates.

Following a decade of consecutive growth, global industry RevPAR dropped 54% in

2020, largely due to falling occupancy rates. The pandemic’s impact led to millions of job losses globally and the temporary closure of thousands of hotels. As has been the case in previous downturns, domestic travel across the midscale segments (midscale and upper midscale) has proved the most resilient, with occupancy at these hotels falling less than the overall industry. Underscoring the sector’s positive fundamentals, global rooms supply still grew by 2% in 2020.

The hotel industry is cyclical: long term fluctuations in RevPAR tend to reflect the interplay between industry demand, supply and the macroeconomic environment. At a local level, political, economic and factors such as terrorism, oil market conditions, pandemics and hurricanes can impact demand and supply in the short term.

 

 

Overview of global hotel industry

 

Geography

The US is the largest hotel market, while Greater China continues to growa

 

LOGO

 

Branded hotels

The top fivec hotel groups have increased their market share by 5 percentage pointsa

 

LOGO

 

Segment

The branded hotel industry can be categorised by price levela

 

LOGO

 

Hotel industry growth drivers:

10-year annual growth rate (2010-20)

Global GDP

 

+2.3%

  CAGRb

Indicator of economic growth – hotel performance correlates with GDP

Global household disposable income

 

+1.9%

  CAGRb

Growing consumer spending and leisure travel, supported by cheaper air travel

Global corporate profits

 

+3.6%

  CAGRb

Good indicator of business travel

a Source: Latest STR, Inc     b Source: Oxford Economics

Global hotel industry performance

Global industry RevPAR ($)a

RevPAR movements are illustrative of lodging demand

 

LOGO

Global rooms supply (m rooms)a

Supply growth reflects the attractiveness of the hotel industry

 

LOGO

 

c 

IHG, Marriott International, Inc., Hilton Worldwide Holdings Inc., Wyndham Hotels & Resorts Inc., Accor S.A.

Branded hotel business models

There are two principal business models:

 

  A fee-based, asset-light model

 

    Franchised: owned and operated by parties distinct from the brand, who pay fees to the hotel company for use of their brand.

 

    Managed: operated by a party distinct from the hotel owner. The owner pays management fees and, if the hotel uses a third-party brand name, fees to that third-party too.

 

  An owner-operated, asset-heavy model

 

    Owned: operated and branded by owner who benefits from all the income.

 

    Leased: similar to owned, except the owner-operator does not have outright ownership of the hotel but leases it from the ultimate owner.

Asset-heavy models allow tighter control over operations, while asset-light models enable faster growth with lower capital investment.

 

 

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Trends shaping our industry

 

 

Case study: Resilience of US midscale segments in downturns

  During periods of weak economic demand, the midscale segments (midscale and upper midscale) have historically proven more resilient than other chain scales, with RevPAR falling less than the overall industry.

 

  During the Covid-19 pandemic, hotels that remained open were more likely to be in the branded midscale segments, helped by their lower-cost operating model. These hotels could meet demand from those who needed a safe place to stay, including key workers and those travelling on essential business. Hotels in non-urban areas (where the majority of midscale and upper midscale hotels are located) outperformed their urban counterparts, which have a greater reliance on inbound international travel.

 

  Throughout the year, domestic leisure was the first segment to return. It is likely that large group travel and events will be the last to recover. This should favour midscale/upper midscale hotels, which have lower exposure to groups, meetings and events business.

 

 

 

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Long-term trends in travel

  Population growth, an emerging middle class and lower cost to travel have meant global travel has consistently grown over 4% per year, save for one-off impacts on demand (e.g. 9/11).

 

  Covid-19 saw travel largely restricted to domestic markets, with air travel down 60%. According to McKinsey, recovery is likely to be gradual, though could be achieved within five years from virus containment and rebounding economies.

 

 

 

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Evolving customer expectations

  As the market recovers, customer focus is likely to be needed in areas such as reinforcing guest confidence through higher standards of cleanliness and new operating procedures.

 

  Technology will continue to be key in driving guest demand to hotels. This includes greater levels of personalisation, digital booking and service delivery, the ability to choose

 

 

room attributes and a loyalty programme that provides added value to guests.

 

  Guests and other stakeholders are paying closer attention to the commitment of companies to operate responsibly. Many businesses, including IHG, have aligned their efforts to the UN Sustainable Development Goals, which range from wiping out poverty to climate action. For further information see pages 20-21 and our Responsible Business Report.

 

 

 

 

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Industry overview   IHG  |  Annual Report and Form 20-F 2020   9

 


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Strategic Report

Our brands

    

 

T  

 

o drive growth at scale in high-value markets globally, we invest in an attractive portfolio of distinct brands

that generate strong demand from both guests and owners. We have a relentless focus on the quality of our estate, efficiency of our hotel operations and investment in digital innovation, design and service trends.

 

In parallel to growing our established brands, we have launched or acquired five new brands in the past three years and are focused on taking them to scale in fast-growing and underserved segments.

Each of our brands is well positioned to grow, leveraging the power of IHG’s people, systems, technology and loyalty programme. To support this growth, we have adopted a more intuitive way of presenting the breadth of our portfolio to customers, as part of a refreshed approach to use our IHG® Hotels & Resorts masterbrand to enhance our brand

 

perception, sharpen our marketing and capture more demand. Linked to this, our loyalty programme has been refreshed to become IHG® Rewards, as we focus on growing membership and driving more business directly to our hotels.

Reflecting continued demand for our brands, we opened 285 hotels in 2020 and signed on average almost one property a day into our pipeline. This took our share of the industry pipeline to 11%, versus our current market share of 4%.

 

 

 

Masterbrand

and Loyalty

    

 

 

 

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HOTELS & RESORTS

 

 

 

LOGO

 

REWARDS

 

 

Luxury & Lifestyle

 

LOGO      LOGO      LOGO      LOGO      LOGO      Timeless legacy bound together by distinctive design and unforgettable service. Making every journey a celebration of extraordinary experiences, each in their unique way.

 

16 open

31 pipeline

    

7 open

6 pipeline

    

205 open

69 pipeline

    

73 open

32 pipeline

    

125 open

104 pipeline

 

 

Premium

LOGO   LOGO   LOGO   LOGO  

Making travel personal and purposeful. Giving guests a sense of belonging and wellbeing, with the thoughtful details to make every trip matter.

    

 

18 open

29 pipeline

 

 

 

12 open

25 pipeline

 

 

429 open

89 pipeline

 

 

16 open

31 pipeline

 

 

Essentials

 

LOGO

 

2,966 open

683 pipeline

    

 

 

LOGO

 

1,248 open

262 pipeline

 

 

LOGO

 

24 open

192 pipeline

    Always there, always just what you need. With the warmth and trusted experience that has come to define True Hospitality.

 

Suites

 

LOGO

 

0 open

19 pipeline

 

 

LOGO

 

303 open

155 pipeline

 

 

LOGO

 

28 open

0 pipeline

 

 

LOGO

 

366 open

73 pipeline

  When you’re not at home, be here. We invite guests to settle in for longer stays, knowing the comforts of home are always within reach.

 

 

 

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Our Brands   IHG  |  Annual Report and Form 20-F 2020   11

 

 


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Strategic Report

 

Our business model

 

 

We predominantly franchise our

brands and manage hotels on

behalf of third-party hotel owners.

 

Revenue from reportable segmentsa

Our revenue is directly linked to the revenue generated by the hotels in our system.

    

LOGO

Total rooms

886,036

rooms

Composition of rooms

    

 

LOGO

 

 

Our brands are presented as intuitive collections for consumers. For industry segmentation, the collections fall into the following categories: Suites (midscale, upper midscale and upscale), Essentials (predominantly in midscale and upper midscale); Premium (upscale); Luxury & Lifestyle (upper upscale and luxury).

 

a Excludes System Fund and hotel cost reimbursements.

W   e have 16 brands operating across more than 100 countries in the Suites, Essentials, Premium and Luxury & Lifestyle categories.

Supported by a leading loyalty programme, our brands meet clear consumer and corporate demand, and generate strong returns for our owners, which in turn attracts further hotel investment and drives the growth of our estate.

As an asset-light business, we focus on growing our fee revenues and fee margins, with limited requirements for capital. This enables us to grow our business whilst generating high returns on invested capital.

Whether we franchise or manage hotels is largely determined by market maturity, owner preference and, in certain cases, the particular brand. For instance, in more developed markets such as the US and Europe, ~90% of IHG hotels are franchised. These hotels tend to be limited service.

In emerging markets such as Greater China, ~80% of our hotels are managed by IHG, where we look after the day-to-day running of the property on behalf of the owner. Over time, we expect the Chinese market to move towards a franchise model. We launched the first tailored franchise offer for Holiday Inn Express® in 2016, and have since extended this to include Holiday Inn® and Crowne Plaza®.

Our asset-light business model means that we do not employ colleagues in franchised hotels, nor do we control their day-to-day operations, policies or procedures. That being said, IHG and our franchised hotels are committed to delivering a consistent brand experience, conducting business responsibly and delivering our purpose of providing True Hospitality for Good. See Our culture and responsible business section from page 24.

The weighting of our hotel estate towards the midscale segments and the location of our hotels in non-urban locations provides a degree of resilience to cyclical and exogenous events. A weighting to domestic demand also provides resilience.

IHG owner proposition

We focus on ensuring our brand portfolio, loyalty proposition, systems and expertise provide a highly valued and distinctive offer that stands out to consumers and is attractive to owners.

To keep our brands relevant to guests and evolving trends, we commit to developing our established brands with new designs, service enhancements and operational support that drives demand and owner returns.

Through our investments in development resources, we can provide outstanding operational support to owners. We have embedded new processes to help reduce the time taken from hotel signing to ground break and opening. Our hotels also have access to a suite of applications designed to help them manage and improve performance, with the aim of further boosting owner returns.

We have also developed state-of-the-art technology to drive hotel demand, be it through our mobile booking app or cloud-based hotel solutions. Our distribution channels (booking sites, GDS relationships, and call centres through which hotel rooms are marketed and booked) allow hotel owners to reach potential guests at lower costs of sale.

While historically, the vast majority of our signings and openings have come from new-build properties, we see the potential for branded hotel penetration to increase through conversions, given the attractiveness of our scale and brands, and value proposition to owners.

 

 

 

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Why owners choose to work with IHG

Hotel owners choose to work with IHG to either franchise or manage their hotels, driven by the trust they have in our brands and our track record in delivering strong returns.

    

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How we generate revenue

 

Franchised hotels

We receive a fixed percentage of rooms revenue when a guest stays at one of our hotels. This is our fee revenue.

 

Managed hotels

From our managed hotels, we generate revenue through a fixed percentage of the total hotel revenue and a proportion of hotel profit.

 

 

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Owned, leased and managed lease hotels

For hotels which we own or lease, we record the entire revenue and profit of the hotel in our financial statements. Our owned, leased and managed lease hotels have reduced from over 180 hotels 19 years ago, to 23 hotels at 31 December 2020.

    

 

 

 

 

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Our business model   IHG  |  Annual Report and Form 20-F 2020   13


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Strategic Report

 

Our business model continued

    

    

    

    

 

IHG revenue from reportable segmentsa and the System Fund

 

System Fund

IHG manages a System Fund on behalf of our third-party hotel owners, who pay contributions into it. This includes a marketing and reservation assessment and a loyalty assessment.

 

The System Fund also benefits from proceeds from the sale of IHG Rewards points under third-party co-branding arrangements.

The System Fund is managed by IHG for the benefit of hotels within the IHG system.

In 2020, IHG recognised $765 million of System Fund revenue, down from $1.4bn in 2019, reflecting lower assessments as a result of the Covid-19 pandemic.

 

 

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Disciplined approach to capital allocation and managing liquidity

 

Our asset-light business model is highly cash generative through the cycle and enables us to invest in our brands and strengthen our enterprise. We have a disciplined approach to capital allocation which ensures that the business is appropriately invested in, whilst looking to maintain an efficient and conservative balance sheet. This approach placed our business in a strong position as the depth and scale of the global pandemic became apparent.

Managing liquidity through the pandemic

With occupancies at hotels reaching historic lows, we moved quickly to preserve cash through cost reductions across all our main areas of spend, including capital expenditure and operating expenditure. This meant that during the year the business generated free cash flow of $29m.

We also took rapid action to strengthen our liquidity, building on our conservative balance sheet approach and the measures we took to reduce costs and preserve cash.

 

a 

Excludes System Fund and hotel cost reimbursements.

This included withdrawing the 2019 final dividend recommendation, and the issuance of £600m of commercial paper maturing in March 2021 under the UK Government’s Covid Corporate Financing Facility (CCFF). Furthermore, we issued 500m and £400m bonds maturing in 2024 and 2028 respectively. We concurrently repaid early £227m of our bonds maturing in November 2022. Our next bond maturity is £173m in November 2022, with no further bond maturities until October 2024. As a result, as at 31 December 2020, IHG had available liquidity of $2.9bn.

In addition, we secured covenant waivers up to and including 31 December 2021 for our $1.35bn syndicated and bilateral revolving credit facilities (RCF), further covenant relaxations in 2022 and extended the maturity of the facilities by 18 months to September 2023 (see page 70).

Despite the comprehensive actions we have taken to reduce costs and preserve cash, due to the impact of the pandemic on the

profitability of the Group, our net debt: adjusted EBITDA ratio of 7.7x as at 31 December 2020 is outside of our previously stated aim to maintain a ratio of 2.5-3.0x.

Looking forwards, our approach remains unchanged. As the business recovers, our priorities for the uses of cash are consistent: ensure the business is appropriately invested in to drive growth; target sustainable growth in the ordinary dividend and return surplus funds to shareholders, and do this whilst considering our stated aim of a leverage ratio of 2.5-3.0x, and our objective of maintaining an investment grade credit rating.

Bond maturity profile ($m)

 

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Consistent uses of cash

Our priorities for the uses of cash are consistent with previous years and comprise three pillars:

 

Shareholder returns (2003-20) ($bn)

Source of returns

 

LOGO

 

 

1   Invest in the business to drive growth

Whilst having strict control on investments and our day-to-day capital expenditures, we look to strategically drive growth.

 

2   Target sustainable growth in the ordinary dividend

IHG has a dividend policy where, whilst balancing all our stakeholder interests and ensuring the long-term success of IHG, we would look to maintain or grow the ordinary dividend each year. However, during 2020, as part of our actions to preserve cash and protect the business, a dividend was not paid.

 

3   Return surplus funds to shareholders

The Group has a strong track record of returning surplus cash to shareholders. Since 2003, including the ordinary dividend, the Group has returned $13.6bn.

 

  Capital expenditure  
  Spend incurred by IHG can be summarised as follows:    
   

Type

     

What is it?

     

Recent examples

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

Maintenance capital expenditure is devoted to the maintenance of our systems and corporate offices along with our owned, leased and managed lease hotels.

 

Key money is expenditure used to access strategic opportunities, particularly in high-quality and sought-after locations when returns are financially and/or strategically attractive.

      

Examples of maintenance spend include maintenance of our offices, systems and our owned, leased and managed lease hotels.

 

Examples of key money include investments to secure representation for our brands in prime city locations.

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

Recyclable investments are capital used to acquire real estate or investment through joint ventures or equity capital. This expenditure is strategic to help build brand presence.

 

We would look to divest these investments at an appropriate time and reinvest the proceeds across the business.

   

Examples of recyclable investments in prior years include our EVEN Hotels brand, where we used our capital to develop three hotel properties in the US to showcase the brand. Over time, we expect to divest our interest in these hotels.

 
  System Fund capital investments for strategic investment to drive growth at hotel level.     The development of tools and systems that hotels use to drive performance. This is charged back to the System Fund over the life of the asset.     We continue to develop our new pioneering cloud-based Guest Reservation System (GRS), one of IHG Concerto’s comprehensive set of capabilities, which we developed with Amadeus.  

 

 

 

Dividend policy

The Board consistently reviews the Group’s approach to capital allocation and seeks to maintain an efficient balance sheet and investment grade credit rating. IHG has an excellent track record of returning funds to shareholders through ordinary and special dividends, and share buybacks, with the ordinary dividend seeing 11% CAGR between 2003 and 2019.

  When reviewing dividend recommendations, the Directors take into account the long-term consequences of any recommendation. The Board looks to ensure that any recommendation does not harm the sustainable success of the Company and that there are sufficient distributable reserves to pay any recommended dividend. The Board will assess the Group’s ability to pay a dividend   

bearing in mind its responsibilities to its stakeholders and its objective of maintaining an investment grade credit rating.

 

For 2020, given the impact of the pandemic, the Group is not proposing to pay a final dividend. The Board will consider future dividends once the visibility of the pace and scale of market recovery has improved.

 

 

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Our business model   IHG  |  Annual Report and Form 20-F 2020   15


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Strategic Report

Our strategy

    

    

 

I  

 

n 2020, we evolved key elements of our strategy to further strengthen our ability to drive future growth.

Our ambition to deliver high-quality industry-leading net rooms growth is unchanged, driven by continued investment in enhancing our guest and owner offer and developing our brands at scale in high-value markets. Over the long term, with disciplined execution, this drives sustained growth in cash flows and profits, which can be reinvested in our business and returned to shareholders.

 

What has evolved is how we execute against our strategy, in terms of what we prioritise, the behaviours we champion, and the purpose that guides us. Listening to stakeholders, we’ve evaluated what’s most important, not just to IHG’s growth, but how we grow, taking into account all we’ve learnt from dealing with Covid-19 and planning for a strong recovery over time.

Our evolved priorities put our brands at the heart of our business, and our owners and guests at the heart of our thinking. They

recognise the crucial role of a sophisticated, well-invested digital approach, and ensure we meet our growing responsibility to care for our people and make a positive difference to our communities and planet.

Uniting our efforts as a company behind our four priorities will help create competitive advantage, build stronger guest and owner relationships, and enhance a culture that brings the best out of our talented teams.

 

 

 

 

OUR PURPOSE

 

True Hospitality

for Good

 

 

OUR AMBITION

 

To deliver

industry-leading

net rooms growth

 

 

 

OUR STRATEGY

 

Use our scale and expertise to create the exceptional guest experiences and owner returns needed to grow our brands in the industry’s most valuable markets and segments. Delivered through a culture that retains and attracts the best people and embraces opportunities to positively impact the world around us.

 

PRIORITIES

 

LOGO

 

Build loved

and trusted

brands

 

LOGO

 

Customer
centric in all

we do

 

LOGO

 

Create digital

advantage

 

LOGO

 

Care for
our people, communities and planet

 

BEHAVIOURS

 

LOGO

 

Move

fast

 

LOGO

 

Solutions    

focused

 

 

LOGO

 

Think

return

 

LOGO

 

Build one

team

 

 

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    Build loved

    and trusted

    brands

 

We focus on building and nurturing a leading portfolio of brands that offer exceptional quality and create meaningful guest connections with every stay. By striving for industry outperformance, effective hotel lifecycle management and strong returns, we aim to make our brands a leading choice for owners. Our outstanding loyalty programme enriches our entire offering.

 

Where we’re coming from

We’ve transformed the depth and breadth of our brand portfolio, with investment in quality, design and service, plus the launch and acquisition of new brands. It’s a portfolio designed to meet a range of needs for guests and owners, and in a fast-changing industry, we continue to evolve and enhance each brand to strengthen both consumer preference and owner returns.

 

What’s next?

We’re focused on several areas to accelerate both hotel performance and growth. To create a clearer connection to our hotel brands, better showcase the breadth of our portfolio to consumers and drive more business to our hotels, we’ve evolved our masterbrand to become IHG® Hotels & Resorts. Embedding this in our marketing, loyalty offer and digital channels is a key priority.

 

Continuing to take our newer brands – avid®, voco and Atwell Suites – to scale in key markets remains vital to future growth. With a low cost to build and attractive operating economics, we expect avid to be our next brand of scale in the midscale segment. We’ve signed more than 200 hotels since 2017 and the brand expanded beyond the US to Mexico and Canada in 2020. In three years, voco has reached more than 50 openings and signings and is tracking well against our aim of 200 hotels within 10 years; and Atwell Suites has 19 signings since launching in September 2019, with the first hotel now under construction.

 

Ensuring we capitalise on growing our transformed Luxury & Lifestyle offer is also a priority, and we will continue to add to – and open – an attractive pipeline of outstanding hotels and destinations.

 

Across all our brands, we understand the importance of ensuring our hotels deliver high-quality, consistent service and guest experiences, with a particular focus on cleanliness, and this will continue to be a top priority as we enhance performance and brand reputation.

 

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Our strategy continued

    

    

LOGO

 

    

Customer

centric in

all we do

 

We have two types of customers: our guests – business and leisure – and our owners, and it’s critical that we put them at the heart of every plan. Consistently acting with this mindset and insight will allow us to create the tailored services and solutions that increase demand for our brands, strengthen consumer preference, deliver stronger owner returns and drive industry-leading rooms net growth.

 

Where we’re coming from

We’ve invested heavily in recent years in ensuring IHG works even more closely and effectively with our owners. This customer-centric mindset came to the fore more than ever in 2020 – not just for our owners but for our guests, corporate clients and loyalty members, too.

 

The importance of this approach was illustrated by the Guest Satisfaction Index measure being net positive for IHG throughout the year, outperforming competitors.

 

What’s next

With a greater customer focus, we will refine elements of our offer for guests, loyalty members and owners to deepen brand loyalty, drive revenue and create more value.

 

Priority areas for our guests include: maintaining an increased focus on cleanliness; developing a hybrid meetings offer for corporate customers; and continuing to enhance our loyalty offer, building on improved member marketing in 2020 and features such as dynamic pricing for Reward Nights, which offers members more value outside of peak times.

 

For our owners, we know the importance of managing costs to build, open and operate, and we continue to collaborate and innovate to develop new services and solutions that both increase revenue and deliver more efficient and sustainable operations. Key programmes include: the roll out of our Owner Engagement Portal, which gives owners real-time oversight of performance metrics; and expansion of our central procurement services to use our scale to create additional savings for owners.

 

    

 

 

 

 

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LOGO

 

    

Create

digital

advantage

 

A digital-first approach is vital to enabling seamless experiences, driving direct bookings, saving time and money, and delivering the right data, insights, technology and platforms needed to connect with guests and drive performance for owners.

 

Where we’re coming from

Our investment in cloud-based technology allows us to develop and roll out performance-driving tools and new guest-facing products further and faster than ever before.

 

What’s next

We will create more sophisticated and targeted ways to transform the guest experience at every stage of the journey, while also ensuring our hotels can operate more efficiently, manage greater demand and drive stronger performance.

 

Key focus areas include continuing to increase the value our technology platforms, marketing, sales and loyalty distribution channels deliver for owners. We will also continue to create a first-class booking experience through our industry-leading Guest Reservation System on IHG Concerto. The roll-out of room attribute pricing is expected to be live across the estate by the end of 2021, enabling tailoring of stays and selection of add-ons. In 2020, initial pilots were conducted in each region, demonstrating to owners the ability to generate maximum value from their hotel’s unique attributes.

 

In 2020, we developed several new digital enhancements to keep everyone connected and in control, and ensuring we successfully roll these out at scale is a top priority. Digital check-in is now implemented in more than 1,000 hotels, with strong guest satisfaction scores and continues to expand across the estate. Digital check-out is live in 4,000 hotels.

 

In 2020, we also launched our first flagship store on the leading Chinese Online Travel Agent (OTA) platform, as part of IHG’s partnership with Ctrip. We expect to grow other partnerships in the future to continue providing enriching experiences and benefits for our loyalty members.

 

 

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Our strategy continued

    

 

LOGO

 

    

Care for

our people, communities

and planet

 

We are passionate about working and growing together within a culture that respects and invests in our people, and embraces opportunities to contribute positively to local communities and operate responsibly and sustainably in the world around us.

 

Where we’re coming from

We have ambitious growth plans, but equally important to us is how we grow. We’re proud to be a business that invests in a highly engaged workforce, supports its communities and looks after our planet. However, we recognise that to deliver on those things requires a commitment to constantly reflect on evolving expectations around what it means to operate as a responsible business.

 

What’s next

We enter 2021 with a determination to go even further – whether that’s in how we work or grow as individuals, how we build more diverse teams and a more inclusive culture, or how we operate around the world in ways that positively impact people and protect the environment.

 

Journey to Tomorrow, our new responsible business plan, starts a decade of action. Working with colleagues and those who stay and partner with us, together we will help shape the future of responsible travel. We’ll continue the work we’ve done so far on employee wellbeing and respect for human rights; supporting communities through skills training and disaster relief; and working with our hotels to reduce their environmental impact. We also made important strides in diversity and inclusion in 2020, and must now deliver on our commitment to listen and learn, advocate and act, as part of a pledge to create a more inclusive, equitable IHG for all.

 

Alongside Journey to Tomorrow, to keep everyone performing at their best and to attract more talented people, we are focusing on how we create a more flexible and dynamic working environment among our corporate teams, taking into account all we have learnt as a business by operating remotely for much of 2020.

 

We will also continue to work to the recommendations of the Task Force on Climate-related Financial Disclosures, and remain focused on collaborating with owners, partners, peers and governments to achieve a sustainable recovery.

 

 

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Introducing Journey to Tomorrow

 

 

 

A

 

 

t IHG Hotels & Resorts, we touch people’s lives around the world every day, whether that’s in our

teams, in our hotels or as a valued part of our local communities.

Caring for our guests and colleagues, giving back to society, and making sure we protect the environment are all part of how we deliver our purpose of providing True Hospitality for Good – and we want to make an even bigger impact with a fresh, ambitious 10-year plan.

We call it Journey to Tomorrow. A decade of commitments to ensure we grow in a responsible way and make sure travel has a beautiful future for everyone.

To develop this plan, we’ve looked at the changing world around us, listened to our owners, and got closer to shifting consumer expectations to help build a picture of what’s most important to our stakeholders and IHG.

How companies perceive their role in the environmental, social and governance agenda continues to gain much greater

prominence with all stakeholders, and each of our commitments will ensure we stretch ourselves in areas where we feel we can make the greatest impact.

The plan will also help ensure we play our part in supporting the UN Sustainable Development Goals to achieve a better and more sustainable future for all – something organisations all over the world are working toward to collectively tackle some of the biggest global challenges we face.

 

 

 

 

LOGO

LOGO

  See our Responsible Business Report on our website at www.ihgplc.com/responsible-business

 

 

 

LOGO
 

 

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Section 172 statement

    

 

The impact of Covid-19 during 2020 presented an unprecedented challenge for the Board, with the Company’s response to the pandemic dominating decisions and considerations. The Directors guided, supported and challenged management, giving them, where appropriate, a clear mandate to take short-term decisions at pace whilst still keeping focus on long-term strategic impact, helping to weigh competing priorities, and ensuring that all factors and stakeholders were taken into consideration. In their deliberations they focused on IHG’s values, business ethics, purpose, other stakeholders, risks, post-pandemic strategy and the financial and organisational resilience of the Company.

Section 172 of the Companies Act 2006 requires a director of a company to act in the way he or she considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole. In doing this, Section 172 requires directors to have regard, amongst other matters to: the likely consequences of any decision in the longer term; the interests of the company’s employees; the need to foster the company’s business relationships with suppliers, customers and others; the impact of the company’s operations on the community and the environment; the desirability of the company maintaining a reputation for high standards of business conduct; and the need to act fairly between members of the company.

IHG’s Directors give careful consideration to the factors set out above in discharging their duties under Section 172 including in taking decisions of strategic importance to the Group. The information set out on pages 22 and 23 below describes the importance of each factor set out in Section 172(1)(a) – (f) to IHG and gives examples of how the Directors have had regard to each of those factors in certain decisions taken during 2020.

 

Factor   Our engagement and commitment       2020 examples of key decisions and considerations

 

 

 

   

 

The likely consequences of any decisions in the long-term

 

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LOGO  See pages 14

        and16 to 21

 

  As set out in the Schedule of Matters reserved for the Board, there are a number of key decisions and matters the Board is responsible for, including the Group’s overall business and commercial strategy, annual operating and capital expenditure budget and financial plans. The Board, through its schedule of meetings, focuses on strategic and operational matters, corporate governance, investor relations and risk management. Board papers, reports and presentations are structured to include relevant stakeholder considerations and the likely consequences of each decision for the long-term success of the Company.

   

  As detailed on pages 2, 7 and 14, the Board, in the face of the pandemic and its impact on the business, took decisions throughout 2020 to protect the Company and position the business for recovery by reducing costs, strengthening liquidity and preserving cash. All discretionary costs were challenged, and salary and incentive reductions were made, including substantial remuneration decreases for Board and Executive Committee members. The Board withdrew its recommendation for a final 2019 dividend of 85.9¢ (~$150m), deferred consideration of further dividends until visibility improved, and took other decisions in relation to IHG’s financing arrangements to bolster IHG’s liquidity. In taking these decisions, the Board considered both the short and long term impact on its people, owners and investors.

 

  During the course of the year, the Board, having taken into consideration the impact of Covid-19, changing guest and societal expectations, and considering the long-term success of the Company, approved a refreshed strategy and purpose. See pages 16 to 21 for further information.

 

 

 

   

 

The interests of the company’s employees

LOGO

 

LOGO See page 26

 

  IHG’s direct workforce is made up of employees working in corporate offices, reservation centres and owned, managed, leased and managed lease hotels. Our employees are key to delivering both our purpose of True Hospitality for Good and our strategic initiatives. The Board acknowledges that their key concerns include continued employment, remuneration, diversity and inclusion and career development.

 

  The designated non-executive director with responsibility for workforce engagement provides a vital portal for the Board to hear employee views and receive their feedback, alongside regular Board and Committee agenda items relating to employee matters and Company culture. In addition, wherever and whenever possible all Directors directly engage with employees.

   

  During 2020, the Board made decisions and supported management to ensure employee engagement methods were prioritised and effective for working remotely during the pandemic, and concentrated on employee wellbeing and business cohesion. Regular internal communications and Staying In Touch forums were put in place to make sure employees were kept up to date on business performance and developments. Tools and resources were also selected to aid flexible and remote working, as well as the extension of our Employee Assistance Programme to cover mental health and wellbeing.

 

  The Board took key decisions to temporarily reduce compensation, furlough a large proportion of employees and implement a programme of redundancies. When considering these decisions, the Board balanced the immediate impact on the affected employees with the broader implications for all stakeholders. Measures to temporarily reduce compensation were taken quickly in recognition of the immediate and severe impact on revenues. Decisions on the scale and extent of furlough and redundancies were deferred until informed by a greater understanding of the impact of Covid-19 on the business. The Board kept all measures under regular review, and with growing confidence in the delivery of cost savings and successful management of cash flows, was able to reverse salary reductions ahead of original expectations.

 

 

 

   

 

The need to foster the company’s business relationships with suppliers, customers and others

 

 

LOGO

 

LOGO See page 31

 

  Building and maintaining relationships with both new and long-standing hotel owners, managing connections with critical suppliers and others within our supply chain, and focusing on guest experiences and loyalty are vital to our continued success. These stakeholders in turn look to IHG and rely on our trusted reputation, the advantages of our scale, our owner proposition, consistent guest experiences and rewards for loyalty.

 

  The Board maintains oversight and fosters relationships through focusing on strategic and operational matters as part of its regular meeting agendas and interactions with owners, either through the IHG Owners Association or in one to one meetings. It also reviews Guest and Owner HeartBeat surveys to understand the needs and interests of guests and owners. In addition, the Responsible Business Committee keeps under review the Group’s approach to its supply chain and our Supplier Code of Conduct.

   

  During the first quarter of the year the Board supported decisions to put Covid-19 health and safety operating procedures into place globally, including the IHG’s Way of Clean programme and IHG Clean Promise, protecting both guests and hotel colleagues. Decisions also allowed for revised flexible booking and cancellation options to be implemented, and protection of guest loyalty membership status.

 

  With Board review and support, IHG worked with owners to balance the need to keep hotels open with reduced occupancy, and reduce costs, advising them on adjusting operations, providing fee relief and payment flexibility, delaying renovation requirements, and relaxing brand standards to conserve owner funds. In addition, the Board supported the repurposing of many hotels to provide essential services including accommodation to frontline workers, military personnel and vulnerable members of society. The Company, including Executive Directors, supported hotel owners and lobbied to secure broad government support for the industry, including reliefs and other hospitality-related incentives.

 

  The Board reviewed and supported management in engaging with strategic suppliers to adjust service levels, anticipate continuity risks, and address payment terms.

 

 

 

   

 

 

22   IHG  |  Annual Report and Form 20-F 2020


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Factor   Our engagement and commitment       2020 examples of key decisions and considerations

 

 

 

   

 

The impact of the company’s operations on the community and planet

 

LOGO

 

 

  The Responsible Business Committee supports the Board by reviewing and advising on the Group’s objectives and strategy in relation to its environmental and social impact.

 

  IHG’s awareness of the impact it has on the environment, and the impact the environment has on IHG is vitally important to IHG’s reputation and long-term viability. We take active steps to help our hotels measure and manage their environmental impact. We advise and assist hotel owners with making sustainable choices to tackle issues such as climate change, water scarcity and waste management.

 

  Our success and the wellbeing of those who work in and around our hotels are closely linked. With nearly 6,000 hotels in over 100 countries, we are proud to be at the heart of local communities and recognise the opportunity we have to make a real difference to others. IHG forms strategic partnerships with non-governmental organisations (NGOs) and charities that can help to make a difference in communities and wider society, with a focus on providing assistance in times of need and boosting economic empowerment through skills building.

 

     

  In 2020, the Responsible Business Committee reviewed and approved a new set of responsible business commitments and a 10-year strategy, covering areas such as diversity and inclusion, carbon reduction, waste and water. As the pandemic spread across the globe, these commitments continued to be refined to address the changing nature of operating responsibly.

 

  Despite the short-term challenges IHG faced in 2020, it was important for IHG to commence a project, in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), to understand the risks and opportunities climate change poses for the business. With oversight from the Board and Responsible Business Committee, a readiness review was undertaken to understand where gaps to full TCFD alignment were, and a climate risk assessment framework tailored to our business was initiated. At the end of the year, the Board and third-party experts on climate change reviewed progress made and next steps for 2021, including financial qualification of climate-related risks and opportunities.

LOGO  See page 29

 

 

 

 

   

 

The desirability of the company maintaining a reputation for high standards of business conduct

LOGO

 

  IHG’s culture is based on its commitments to strong values and its Code of Conduct. Company culture promotes integrity and transparency, gives confidence to stakeholders and makes IHG a desirable company to work with and for. The Board directly, and through its Committees, has responsibility for the Company’s adherence to its values, policies and procedures relating to business conduct, and has a number of standing agenda items to ensure it reviews policies for continued relevance.

   

  In 2020, the Directors, through the Responsible Business Committee, reviewed and approved the Group’s fifth Modern Slavery Statement, which includes information on our response to the pandemic, including monitoring its impact on modern slavery and human rights risks and where we have adapted our activities and priorities to respond to these. To affirm its importance and visibility within IHG, the statement is signed by the CEO and published externally.

 

  The Audit Committee oversaw enhancements made to enable effective and efficient management of risk in a crisis environment. This included updates to the Global Delegation of Authority Policy and reinforcement of key policies (e.g. Code of Conduct, Information Security and other entity level control arrangements). The Board and the Audit Committee also reviewed continuity arrangements for key corporate offices and critical processes underpinning financial control.

 

LOGO  See page 24

 

 

 

 

   

 

The need to act fairly between members of the company

 

LOGO

 

  IHG’s clear purpose, strong culture, resilient business model and evolved strategy are vital to attracting investment in the Company. Shareholders look to IHG to provide consistent shareholder returns, be committed to robust business ethics, have a strong, diverse, innovative and inclusive culture, and respect the environment and local communities.

 

  The Chair and Committee Chairs engage directly with investors on several matters including executive remuneration, diversity and inclusion and environmental, social and governance (ESG) matters. In addition, they receive formal reviews of investor perceptions and regular shareholder updates to ensure the Board is cognisant of their views and interest.

 

   

  The Board commitment to engagement with investors and shareholders was particularly pertinent during 2020 as the pandemic unfolded. The Board received an increased number of business updates in relation to IHG’s liquidity and financing position, and further reviewed and approved an increased number of external trading updates. In addition, the Chair, Executive Directors, and Jo Harlow, Chair of the Remuneration Committee, held a series of meetings with investors in relation to a range of issues, including executive remuneration and IHG’s response to Covid-19, and responded to and acknowledged investor communications.

LOGO  See page 33

 

     

 

 

 

   

 

LOGO  The above statement should be read in conjunction with the rest of the Strategic Report and the Governance Report, including the Committee Reports and Board meeting focus areas.

 

LOGO  The Schedule of Matters reserved for the Board and the Terms of Reference for each of the Board Committees are available on our website at www.ihgplc.com/investors under Corporate governance.

 

 

LOGO

 

LOGO

 

 

Section 172 statement   IHG  |  Annual Report and Form 20-F 2020   23


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Our culture

    

    

 

 

Our success and reputation are dependent on our commitment to our values, Code of Conduct, principles, policies, and monitoring and assurance processes. Combined they ensure that we continue to build trust with all our stakeholders, and deliver our purpose of providing True Hospitality for Good.

LOGO

T  

 

he Board is committed to ensuring that IHG’s culture supports its purpose and strategy. The Board oversees and monitors culture through direct

engagement and regular agenda items, including employee engagement survey results, employee resource groups, diversity and inclusion reports, and updates from the designated non-executive director for workforce engagement. Board discussions focus on defining the culture needed to drive IHG’s strategy and embedding it, including through the Code of Conduct, procedures and controls, training programmes, employee communications and tone from the top. These mechanisms ensure that the desired Company culture is promoted and IHG’s purpose and strategy are aligned.

 

LOGO   See also Board meetings on pages 83 and 84.

Our behaviours

IHG’s behaviours are aligned to our purpose and strategy, encouraging employees to Move fast, be Solutions focused, Think return and Build one team. Our behaviours were brought into sharp focus in 2020, and we lived them in a range of ways, such as prioritising enhanced operational procedures, including the IHG Way of Clean programme to protect our guests and hotel colleagues, and creating hotel re-opening guides to deliver timely support and training for the re-opening of hotels under enhanced cleanliness and safety measures.

 

IHG values

Our values, led by the Board, Executive Committee and Senior Leaders, underpin our behaviours, guide how we deliver our strategy, make decisions and live our purpose.

 

LOGO

  Do the right thing

LOGO

  Show we care

LOGO

  Aim higher

LOGO

  Celebrate difference

LOGO

  Work better together

Code of Conduct

IHG’s Code of Conduct (Code) sets out IHG’s key principles and policies and is fundamental in supporting employees working in IHG corporate offices, reservation centres and managed hotels to make the right decisions, in compliance with the law and our high ethical standards. It provides information on our key principles and global policies, including human rights, diversity and inclusion, accurate reporting, information security, anti-bribery and the environment. It also provides employees with guidance on where to go if they are faced with a difficult issue and need further help. The Code is supported by mandatory e-learnings on Anti-Bribery, Antitrust and Handling Information Responsibly.

The Board, Executive Committee and all employees working in IHG corporate offices, reservation centres and managed hotels must comply with the Code. Each year, they are asked to reaffirm their commitment to it. The principles, spirit and purpose of the Code are relevant to all of IHG and we expect those we do business with, including our franchisees, to uphold similar standards.

 

The Code is reviewed and approved by the Board on an annual basis to ensure it reflects and responds to changes in the external environment and continues to support IHG’s purpose and strategy.

We continuously evolve our Code training, including our engagement and measurement approaches. During 2020, the Code provided a critical framework for responding to the challenges of Covid-19, and we focused on raising awareness, through targeted internal communications, of the annual Code e-learnings requirement.

The following policies and principles are key areas of the Code, each of which are supported by their own guidance and training materials.

Human rights and modern slavery

IHG is committed to respecting the human rights of all our colleagues, guests and the communities we operate in, and we continue to encourage those we do business with, including our suppliers and hotels owners, to prevent, mitigate and address adverse impacts on human rights, including modern slavery. We seek to advance human rights through our business activities and by working together with others to identify challenges and effective solutions.

A key focus of our human rights programme in 2020 has been on addressing risks relating to migrant workers, who may be increasingly vulnerable during the Covid-19 crisis. This work has included development of internal guidance, particularly in relation to staff accommodation for hotel colleagues.

 

LOGO  

 

Further information is provided in our Modern Slavery Statement, which is available on our website www.ihgplc.com/modernslavery

Bribery and financial crime

IHG does not permit any form of bribery or financial crime, including improper payments, money laundering and tax evasion, under any circumstances. This also applies to any agents, consultants and other service providers who work on IHG’s behalf.

Our Anti-Bribery Policy sets out our zero-tolerance approach and is applicable to all Directors, Executive Committee members, employees and managed hotels, and is accompanied by a mandatory Anti-Bribery e-learning module. In addition, our Gifts and Entertainment Policy supports our approach to anti-bribery and corruption.

IHG is a member of Transparency International UK’s Business Integrity Forum and participates in its annual Corporate Anti-Corruption Benchmark. Each year, the results from this benchmark help to measure the effectiveness of our anti-bribery and corruption programme and identify areas for continuous improvement.

 

 

24   IHG  |  Annual Report and Form 20-F 2020


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Handling information responsibly

IHG is committed to ensuring that the way we manage data and information received from the following is trusted and that we address cybersecurity threats: guests booking via our reservation channels, members of our loyalty programmes, colleagues, shareholders, and other stakeholders. We have standards, policies and procedures in place to manage how personal data can be used and protected. Our e-learning training for employees on handling information responsibly is a mandatory annual requirement, and covers topics such as password and email security, using personal data in accordance with our policies and privacy commitments, how to work with vendors and transferring data securely.

In 2020 we carried out additional awareness campaigns with communications to employees on a variety of topics such as phishing, passwords and security when working from home.

We continue to develop our privacy and security programmes to address evolving requirements and take account of developing best practice. The Board and Audit Committee regularly receive updates, and review our privacy and information security programmes.

 

LOGO  

 

IHG’s Code of Conduct is available
in 10 languages on our website
www.ihgplc.com/responsible-business
and also the Company intranet.

 

 

IHG is a member of the United Nations Global Compact (UNGC), and is committed to alignment of IHG’s operations, culture and strategies with the UNGC’s 10 universally accepted principles in relation to human rights, environment and anti-corruption.

 

Our monitoring and assurance processes

In addition to our Code e-learnings, we monitor and assess our culture through employee engagement surveys, feedback from employee forums, tracking of e-learning completion, our confidential reporting hotline, and third-party consultant surveys.

As a result of the pandemic, 2020 Executive Committee meetings were increased to a weekly cadence, in order to respond to the fast-moving industry and IHG environment. This increased frequency enabled regular performance and risk reviews, and allowed for rapid decision-making. The Executive Committee closely monitored high and trending risks, reviewed the status of hotel closures due to Covid-19, and tracked corporate and reservation employee sentiment aligned to our core values and behaviours.

 

 

Within IHG, various functions consider where additional guidance, learning materials or adjustments to existing controls are required. For example, during 2020 we enhanced our processes for handling information responsibly and our Information Security Team implemented additional monitoring to respond to heightened risks of data loss from stresses that Covid-19 placed on processes, people and supplier arrangements. The Board and Audit Committee received regular updates from key risk and control functions and considered the appropriateness of risk management and internal control arrangements.

In relation to our key business ethics, principles and policies, we carry out risk-based due diligence and compliance checks on new third-party hotel owners with whom we enter into hotel management or licence agreements. This includes the use of screening and monitoring tools and the provision of guidance for our Legal, Franchise Administration, and Development teams. In 2020, we successfully trialled and launched an enhanced version of our due diligence risk management platform, resulting in increased automation of internal escalation processes, faster counterparty searches and improved adverse media screening.

A central committee of senior IHG decision-makers considers and reviews any material issues identified in our due diligence, such as concerns or allegations of human rights violations, financial crime including bribery and corruption, or other activities which may have a reputational, legal or ethical impact on IHG. Contingent on any risks or concerns identified, external legal or consultancy expertise may also be utilised, including with respect to entry into new markets.

To help manage and monitor our corporate supply chain, an automated procurement system is used across many of our large corporate offices. In addition to acknowledging adherence to IHG’s Supplier Code of Conduct, new suppliers onboarded to the system are required to complete due

diligence questionnaires, which include questions on human rights, labour, environment and anti-corruption relevant to suppliers’ own operations and supply chains.

Our Internal Audit team provides objective and insightful assurance that we have appropriate controls in place to support our growth ambitions. Throughout 2020, Internal Audit focused on both specific reviews of processes and controls, and ongoing discussions with management, while considering the dynamic inherent risks created by the crisis and the organisational and process changes which have resulted from it. Internal Audit also provides independent oversight of the mechanisms in place for confidential reporting across IHG, including the design and operation of the reporting hotline, and maintains an ongoing dialogue with employees from Human Resources, Ethics and Compliance and Finance to monitor:

 

  the volume of reports received;

 

  the source and nature of allegations received; and

 

  the overall environment across the Group to promote a ‘speak-up’ culture.

 

 

Non-financial information statement

Non-financial information, including a description of policies, due diligence processes in pursuit of policies, outcomes and risks and opportunities are set out as follows:

 

 Impact of the Company’s activities on the environment on page 29

 

 Social matters on page 29

 

 Anti-corruption and anti-bribery matters on pages 24 and 25

 

 Employee matters on pages 26 to 28

 

 Respect for human rights on page 24

 

 A description of the Group’s business model on pages 12 to 15

 

 The Group’s principal risks on pages 34 to 41

 

 The Group’s KPIs on pages 43 to 46

 

 

 

Our key stakeholders and factors affecting IHG

 

The following pages describe the importance of our key stakeholders and factors

affecting IHG, and our consideration for them during 2020.

     
LOGO   LOGO   LOGO   LOGO
     

Our

people

see page 26

 

Communities

and planet

see page 29

 

Our guests, owners

and suppliers

see page 31

 

Shareholders

and investors

see page 33

                         

 

LOGO

 

 

Our culture and responsible business   IHG  |  Annual Report and Form 20-F 2020   25


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Our people

    

 

 

Our people are fundamental to IHG achieving its purpose and strategic goals. IHG’s business model means that we do not employ all colleagues. We directly employ individuals in our corporate offices, reservation centres, and managed, owned, leased and managed lease hotels. However, not all individuals in managed, owned, leased and managed lease hotels are directly employed, and we do not employ any individuals in franchised hotels (nor do we control their day-to-day operations, policies or procedures).

 

LOGO

 

 

 

 

W

 

 

e do not underestimate the immense amount of hard work, commitment and sacrifice that was shown by our

    

people over the course of last year. The Board and Executive Committee are immensely proud of all our employees around the world as teams adapted and responded to such an unprecedented challenge – their determination demonstrated the very best of IHG and our industry, living up to our values and delivering our purpose of providing True Hospitality for Good.

 

Attracting, developing and retaining talent

To achieve our strategic priorities, we know we need to attract, develop and retain a diverse and talented workforce. This commitment is emphasised throughout our global hiring guidelines and initiatives, such as unconscious bias training, and is backed up by our D&I Policy, which ensures we

 

 

consider diverse attributes, perspectives, cultures and experiences. Our global flexible working guidelines are aimed at making IHG an attractive company to work for and we advocate work/life balance.

During 2020, our recruitment activities reduced significantly as a result of Covid-19. However, we are committed to securing future talent pipelines and our candidate relationship management tool has 184,000 subscriptions from over 81,000 potential candidates.

As the impact of Covid-19 deepened, steps were taken to curtail people-related costs in both corporate offices and the managed hotel estate. The Board was consulted and a global plan was created to reduce costs and help employees, including supporting the re-deployment of hotel colleagues into other work opportunities. In the Americas and EMEAA, we launched the ‘IHG Hotel

 

Colleague Job Center’ to connect those impacted with organisations recruiting at scale. We also implemented IHG Alumni sites to stay connected with furloughed and former employees, sharing news and job opportunities.

In the mid to long term, we are focused on implementing features of our Talent Acquisition Programme, with a priority focus on our Employee Value Proposition (EVP). Our aim is to make IHG an employer of choice, and we launched the refreshed EVP in February 2021, including a new consolidated careers website which brings together multiple careers sites and key messaging around opportunities to belong, develop and make a difference. The website features job alert functionality where potential candidates will receive email notifications of any recently posted jobs that match their predefined criteria.

 

 

Employee engagement statement

Our statement relates to only IHG’s directly employed individuals and should be read in conjunction with our S172 statement.

At IHG we foster a culture of open and honest engagement and feedback. We have a wide range of engagement forums including an engagement survey, management-led performance updates and a designated non-executive director for workforce engagement. Through these forums we hear from and talk to employees about IHG’s performance, key metrics, values, and diversity and inclusion initiatives.

With the shift to remote working, we implemented virtual solutions to ensure employees kept in touch, maintained working relationships and were provided with Company updates. This included video meetings, podcasts and regular global calls with the CEO and other Executive Committee members. Global calls covered performance and other metric updates, alongside a wide range of other topics, as well as live Q&As.

The Board and Executive Committee were kept updated of employee interest and concern areas, and this influenced, for example, the set up of an emergency support fund to provide immediate help for employees facing financial hardship. The Company provided nearly $1.3m and assisted 2,134 employees across 10 countries.

The health and wellbeing of employees was a priority concern, and the Board and Executive Committee reviewed actions to help counter potential physical and mental effects of the pandemic and remote working, including re-charge days and no meeting Fridays. All corporate employees have access to an Employee Assistance Programme (EAP), which was extended to 31 countries. Other measures included a flexible learning summit, which more than 4,000 employees accessed, as well as surveys on employee remote working experiences, initiatives to raise mental health awareness, and HR and manager training programmes.

Due to the impact of the pandemic, our employee engagement survey, completed by employees in corporate and reservations offices and General Managers in managed hotels, was only conducted once during the year. The survey provided employees the opportunity to share their views on key issues relating to Company culture, IHG’s Covid-19 response, working from home, and health and wellbeing. Overall engagement remained stable at 79%, above external top quartile benchmarks. There were significant engagement improvements in relation to employees having the right tools and resources to carry out their jobs, work collaboration and decision-making speed. The main area for improvement was career development opportunities. Short pulse surveys carried out during the year also showed significant positive responses to the transparent and open nature of communications from Senior Leaders.

 

LOGO  

 

Further information about the activities of the designated non-executive director for workforce engagement can be found on page 92.

 

 

26   IHG  |  Annual Report and Form 20-F 2020


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LOGO

 

$1.3m

Emergency support fund

The Company provided $1.3m and

assisted 2,134 employees across 10

countries

 

79%

Employee engagement survey

Overall engagement remained stable

at 79%, above external top quartile

benchmarks

 

152

Future Leaders

Greater China successfully screened,

recruited and onboarded 152 Future

Leaders during 2020

 

49%

Our employee share plan

49% of eligible employees took up

the plan in 2020, its first year of

operation, with just over 82% opting

to pay the maximum contribution

 

 

 

 

Early talent development

Our Early Careers Programme offers work experience, internships and graduate opportunities to individuals looking to have a career in the hospitality industry, and helps attract talent into our managed hotel estate. The vast majority of face-to-face offerings were impacted as a result of the global pandemic, however in Greater China we successfully screened, recruited and onboarded 152 Future Leaders during 2020, which will support IHG’s continuing recovery in the region during 2021.

 

Ongoing talent development

We are firmly committed to investing in our employees and have various toolkits to help plan for and shape their development. We believe in having conversations that count. Employees engage in quarterly check-in conversations with line leaders to plan personal development and discuss career aspirations. Our leadership teams regularly discuss talent pipeline pools to identify and develop succession groups for roles with similar characteristics.

 

We also invest in individuals who work in and support our managed hotels, and have developed and delivered new learning modules during 2020 to help hotel teams adapt during Covid-19. Examples of new training topics include how to conduct a virtual sales call, how to implement an evolved food and beverage offering, and the IHG Way of Clean programme.

 

 

 

As at 31 December 2020        Male     Female     Total  
Directors       8       5       13  
Executive Committee       7       3       10  
Executive Committee direct reports       37       23       60  
Senior managers        
(including subsidiary directors)       73       27       100  
All employees        
((whose costs were borne by the Group or the System Fund)       5,748       7,084       12,832  

Reward culture

IHG’s reward culture aims to attract, retain and motivate top talent, and is centred around a set of core principles, managed through robust governance, including being recognised and paid competitively for contribution to the Group’s success. Our principles ensure that reward and recognition practices are fair and consistent across our employee population, regardless of gender and other aspects of diversity, and that there is alignment between the wider direct workforce and executive remuneration. We regularly review our approach externally, ensuring we meet the needs of employees by offering market-driven rewards packages.

Our employee share plan is available to around 98% of our corporate employees below the senior/mid-management level (who receive LTIP and restricted stock units awards). IHG matches the number of shares bought by employees through the plan. 49% of eligible employees took up the plan in 2020, its first year of operation, with just over 82% opting to pay the maximum contribution rate each month. Registration for the 2021 plan took place in December 2020, with a take up of 50%.

In response to Covid-19, IHG made difficult decisions in relation to pay, furloughs, reduced hours and redundancies to protect the Company’s long-term future. In March, the 2020 salary merit increase was cancelled, and at the end of Q1 reductions in salary and Company retirement contributions were implemented. However, bonuses earned over 2019 were honoured. In Q2, decisions to furlough and implement partial working hours were taken, and to further manage costs and set the business up for recovery, global redundancies were made from July. Though our recovery is still in progress, our efforts to manage our liquidity allowed us to return employees to full salaries ahead of schedule in October 2020.

 

LOGO  

 

See pages 98 and 100 for more information about our wider remuneration policies.

 

 

 

 

LOGO

 

 

Our culture and responsible business   IHG  |  Annual Report and Form 20-F 2020   27


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Our people continued

 

LOGO

 

Diversity and inclusion (D&I)

IHG is a global business, and our D&I Policy and approach are designed to represent our people and the guests who stay in our hotels, who are made up of multiple nationalities, cultures, races, sexual orientation, backgrounds and beliefs. We are proud of our diverse and inclusive culture. It underpins our purpose to provide True Hospitality for Good, and is crucial to who we are, how we work together and how we grow our business.

Our D&I Policy supports our recruitment, development and reward practices. Diversity and inclusion is a top priority for the Board, which, through the Responsible Business Committee, has assessed and realigned our priorities and commitments in 2020 to meet changing expectations and societal concerns. We bring our D&I Policy to life through a Global D&I Board and regional D&I Councils, who focus on locally relevant initiatives. Our diversity and inclusion framework is built on three core focus areas.

Strengthening a culture of inclusion:

We know we need to do more to support, nurture and strengthen our diverse and inclusive culture. During 2020, we made a number of commitments such as doubling ethnic minority representation in leadership, particularly to support our Black employees and communities in the Americas, which is helping to shape our response in other regions.

We continue to deliver ongoing inclusive leadership learning programmes and resources for leaders and managers, and we are developing an inclusion index to track perceptions of culture and behaviour in our employee engagement survey. We also are committed to supporting education, employability and empowerment in the community through partnerships with the National Urban League and National Center for Civil and Human Rights.

Our Employee Resource Groups (ERGs) have continued to expand and play a crucial role

in supporting our diversity and inclusion commitments. The BERG (Black Employee Resource Group) was instrumental in steering IHG’s response to racial inequality issues in the US.

Our drive to celebrate difference and contribute to making sustainable changes in our organisation also led to the creation of several new ERGs to support other facets of diversity and inclusion, including the Family Network which launched globally in the first half of 2020, and a new ethnic minority diversity network for UK-based employees, EMbrace. Similarly, our Hype ERG, focusing on early career opportunities and networking, is expected to debut in UK in the first half of 2021, after successfully launching in Greater China, the Americas and wider EMEAA. The importance of IHG’s ERGs can be seen in activities such as awareness campaigns for Black History Month, Diwali celebrations, and Senior Leaders sharing their experiences with Lean In circles.

Other activities in 2020 included celebrating International Women’s Day across our managed hotels and corporate offices, under the global theme of #eachforequal. A series of events was produced to celebrate equality throughout IHG and how we are supporting female progression and equality at work.

In June we committed globally to recognising and celebrating Pride month. Like many other companies, our approach in 2020 changed, initially to reflect the limitations of Covid-19 and then more significantly to support the fight against racism and inequality, particularly in the US. In collaboration with Senior Leaders, the BERG and Out & Open members, we adapted our celebration activities to emphasise the importance of inclusivity more broadly. We switched our visual support for Pride month from the traditional rainbow to a more inclusive Pride flag that reflected the rights of both people of colour and the transgender community.

 

Increasing the diversity of our leadership talent:

As part of our refreshed responsible business plan, we aim to drive gender and ethnicity balance in particular in our leadership teams.

We will continue to deliver talent programmes, such as the Rise programme, which is focused on increasing the number of women in General Manager and Operations roles. During 2020, this programme played a critical role in developing and retaining key female talent across all regions through mentoring sessions, career development workshops, high-impact learning modules, and empowering conversations. In October 2020 we launched a monthly series of ‘conversations with Leaders’ for the RISE cohort and their mentors in the EMEAA managed estate hotels. This inspiring platform connects the group virtually and continues to grow and develop critical leadership experiences.

In Greater China, a series of ERGs known as the ‘Rose Alliance’ was created for existing female General Managers to support further professional development and encourage networking.

In the Americas, as part of the commitments we announced in 2020, we are launching a bespoke programme to develop Black leadership talent and build partnerships with organisations dedicated to supporting Black employees.

Putting the right decision-making around our actions:

IHG recognises that decision-making must be inclusive and take into consideration diverse viewpoints. In the Americas, we are rolling out mandatory unconscious bias training for more than 10,000 US corporate and managed hotel employees. We are also implementing processes to ensure that our recruitment initiatives include a diverse candidate shortlist and interview panel process. In the UK, we signed the UK Race at Work charter with the BITC (Business in the Community) in July 2020. We are committed to using the key focus areas outlined in the charter to further drive our race and ethnicity diversity and inclusion actions.

We will continue to build on our diversity and inclusion practices over the year ahead, with a refreshed set of commitments to ensure we continue to expand access to conscious inclusion training for employees, and strengthen our data capture alongside piloting new diverse talent programmes.

 

LOGO   See also our Governance Report and statement on disability in the Directors’ Report.
LOGO   See our D&I Policy on our website at www.ihgplc.com/responsible-business
 

 

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Communities and planet

 

 

The Board’s Responsible Business Committee oversees and agrees IHG’s environment and community strategy and commitments, and our Responsible Business targets underpin both. We recognise changing expectations around environment and community matters, and as our 2018-2020 targets come to an end, we look ahead to our new 10-year responsible business plan and ambitious targets.

 

LOGO

 

 

 

Community

Our community policy promotes and guides us to support local communities, partner with global charities, assist communities impacted by disasters, and help build employment skills among the disadvantaged.

During our 2018-2020 target reporting period we contributed $3.4m to charitable causes, supporting more than 400,000 people. Over the same period, 328,000 colleagues supported community projects across the globe. Our annual Giving for Good month was transformed in 2020 into our Giving for Good awards, in honour of the UN International Day of Volunteering, to reflect the efforts of our colleagues. We celebrated more than 28,000 colleague stories, who collectively spent 212,580 hours supporting people in need.

As a result of the pandemic, we saw social disparities and inequalities exacerbated. We assisted local communities by working with existing charity partners and building new partnerships with NGOs:

 

  We supported frontline workers by repurposing hotels to provide accommodation for frontline workers, military personnel and vulnerable members of society.

 

  We partnered with #FirstRespondersFirst in the US, donating accommodation through IHG Rewards point donations; and launched a ‘heroes’ rate for first responders and key workers.

 

  We supported foodbank infrastructure and services across 70 countries. Key partners included ‘No Kid Hungry’ (US), ‘Trussell Trust’ (UK), Global FoodBanking Network and European Food Banks Federation. Our partner, the Global FoodBanking network, provided meals to more than 27 million people, across a network of 900 foodbanks in 44 countries.

 

  In 2020, we supported 1,428 colleagues impacted by disasters; we continued to work with CARE International UK, the British Red Cross, American Red Cross and International Federation of Red Cross and Red Crescent Societies (IFRC); and enabled point donations to these organisations from IHG Rewards members.

IHG® Academy and Change 100

IHG is committed to increasing the number of young people coming through the IHG Academy, a collaboration between our hotels, corporate offices, local education providers and community organisations. It provides local people with the opportunity to develop skills and improve their employment prospects. Despite having to pause the majority of programmes in 2020, we were able to support 3,277 participants, and achieved our target of supporting over 31,000 people between 2018 and 2020. We also have a partnership with Junior Achievement Worldwide, helping young people build hospitality skills. In 2020 we moved our offerings online.

Change 100 is a programme that takes place each summer and provides paid work placements and mentoring for students and recent graduates with disabilities. During 2020, in partnership with Leonard Cheshire, we held a virtual summer internship for 13 participants in the UK, that included a project focused on creating innovative ideas for IHG’s sustainable hotel room concept.

Planet

Our environment policy sets out our approach to measuring and managing our environmental impact, and supports and guides us to find ways to reduce our environmental footprint. Our Group-wide environmental management system, IHG Green Engage, helps hotels measure, manage and reduce energy, carbon, water and waste consumption, and recommends green solutions.

Waste management

Across the hospitality industry there is a significant amount of waste created. It is essential that we find ways to reduce this by reusing, recycling or designing out items at scale. IHG is committed to working with others to find innovative solutions.

Examples of this include:

 

  removing single-use plastic miniature bathroom amenities and switching to bulk-size products;

 

  partnering with organisations and innovators to help reduce food waste. In Australia, we partner with OzHarvest to
 

    

help donate food to local communities. We’re also working with Winnow Solutions to use technology to track, measure and reduce food waste at a number of our EMEAA hotels; and

 

  working with suppliers to repurpose single-use plastic bottles into fillings for duvets and pillows in our voco hotels. To date, more than three million bottles have been diverted from landfill this way.

As a result of Covid-19, hygiene and cleaning measures are likely to have an impact on the environment. Whilst short-term allowances have been made, we have considered and implemented ways to reduce our impact, such as fewer printed items across hotels.

Biodiversity

Through IHG Green Engage, we provide guidance aimed at preserving and protecting on-site local flora and fauna, and the wider regional ecosystems affected by hotel operations. This includes advice on management of green spaces and long-term strategies for protecting local habitats.

Carbon footprint

Hotel energy consumption across the industry represents around 1% of total global greenhouse gas (GHG) emissions. Since 2012 we have tracked carbon reduction per occupied room (CPOR), and our 2018-2020 target was to reduce CPOR by 6-7%. At the end of 2019 we reported a 5.9% reduction. As a result of reduced occupancy levels during 2020, we ended the target period with a 10.2% increase, meaning we did not achieve our target. However, over the same period we reduced our absolute carbon emissions by 23.6%.

 

 

In 2020, we had our carbon science-based target approved by the Science-Based Target Initiative, which requires we achieve a 15% absolute carbon footprint reduction in our managed, owned, leased and managed lease hotels; and a 46% per m2 carbon intensity reduction in our franchised estate by 2030, (from a 2018 base). From 2021 onwards we will be reporting in line with these targets.

 

Water stewardship

In relation to previous risks identified and our stewardship action plan, we worked with the Alliance for Water Stewardship during 2020, and launched projects in China and Australia, taking our total to six projects, meeting our commitment in this area. As signatories of the UN Global Compact CEO Water Mandate we communicate progress each year against six core commitment areas. Water stress is a local issue, which varies considerably between markets. To ensure we collaborate at a local level, we have become members of the Water Resilience Coalition.

 

LOGO

 

 

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TCFD

 

W   e are committed to doing our part to address climate change by reducing our carbon emissions, and in early 2020 we announced new 2030 science-based targets to reduce our greenhouse gas emissions in line with the Paris Climate Accord. While we have an
asset-light business model, with the majority of IHG hotels owned by a third party, our commitments cover the operations of all our hotels globally, whether managed, owned, leased, managed lease or franchised.

The Board recognises the importance of understanding and managing the impact of potential climate-related risks and opportunities on

IHG’s business and strategy. In early 2020 we made a formal commitment to support the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and have engaged a third-party expert to support with the more technical elements of the project. During the year we completed a ‘readiness review’ to understand IHG’s gaps to full TCFD alignment and developed a climate risk assessment framework tailored to our business which was used to conduct a qualitative risk assessment including scenario planning. This will be used as the basis for an in-depth quantitative risk assessment in 2021, which will enable detailed reporting against the TCFD recommendations in our 2021 Annual Report and Form 20-F.

 

 

Governance

 

 

The IHG Board has collective responsibility for managing climate-related risks and opportunities and is advised by the Board’s Responsible Business Committee on the Group’s corporate responsibility strategy, including our approach to climate-related risks and opportunities. Committee meetings are regularly attended by our Chair, CEO, EVP, Global Corporate Affairs and VP, Global Corporate Responsibility.

Our CFO, EVP, Global Corporate Affairs and EVP, General Counsel and Company Secretary co-lead executive level management of climate-related risks and opportunities and report to our CEO. Our regional CEOs for the Americas, EMEAA and Greater China lead the implementation of environmental programmes at an operational level, supported by IHG’s Global Corporate Responsibility team.

During 2020, we established an internal TCFD Steering Group, with senior representation from Finance, Risk and Assurance, Strategy, Corporate Responsibility, and the Legal, Compliance and Company Secretariat team, who are responsible for leading the project.

 

 

Strategy

 

 

Led by our TCFD Steering Group and working with specialist consultants, during 2020 we carried out over 30 Senior Leader stakeholder interviews to identify key value drivers for the business and completed a global qualitative risk assessment to understand where and how climate change may affect these value drivers over the short, medium and long term.

We held two scenario planning workshops with cross-functional Business Unit leaders, to review potential risks at 2°C and 4°C scenarios over one, five, 10, 15 and 30 year time horizons. Our analysis covered acute and chronic physical risks, including droughts or floods, water stress, wildfires and rising sea levels, as well as transition risks, such as changes in stakeholder expectations, travel patterns, climate policy and regulation.

This work culminated in a dedicated TCFD session with our Board in December 2020, to discuss climate change as a strategic resilience issue, review actions already completed and identify priorities for 2021 to close any gaps to TCFD alignment. The focus for next year will be an in-depth financial evaluation of key risks identified during the qualitative analysis, as well as an assessment of potential impacts on IHG’s growth strategy and financial planning.

 

 

Risk management

 

 

We consider climate change within the context of environmental and social megatrends as one of our principal risks. To reduce our carbon footprint and manage our exposure to climate-related risks, in 2019 we made carbon reduction a metric for all hotels globally (see below) and in 2020 we launched our science-based targets and started more formal implementation of the TCFD recommendations.

Our Risk Management team is part of our core TCFD working group and as such is closely involved in the work to assess in more detail IHG’s potential exposure to both physical and transition risks over the short, medium and long term. This will facilitate further embedding of climate-related risks into our global risk management and mitigation procedures, as appropriate, to support the long-term resilience of the business.

 

 

Metrics and targets

 

 

The IHG Green Engage system is our global environmental management platform and is critical to our ability to identify, assess and mitigate climate-related risks. As part of our brand standards, all IHG hotels globally are required to use the platform and report their monthly utility use on the platform, which in turn provides hotels with trend data, benchmarking information, green building solutions and return on investment information, to help them identify key opportunities for maximising carbon, energy, water and waste efficiency and reducing their overall utility costs.

Carbon reduction is one of IHG’s 10 global metrics, with both Group and hotel level targets set on an annual basis. Achievement of the global metrics is one of the criteria used in the annual performance plan calculations for corporate employees and General Managers of managed hotels.

In 2020, we launched our science-based carbon reduction targets – to reduce absolute carbon emissions from our managed, owned, leased and managed lease hotels by 15% by 2030, and to reduce carbon emissions per square metre from our franchised hotels by 46% by 2030, both against a 2018 base year. For more information on our Scope 1, 2 and 3 emissions and our performance against our targets, please see page 221.

As we complete our financial impact assessment of climate-related risks, this will inform the development of any additional metrics and targets around the management and mitigation of risks and the strengthening of IHG’s business resilience against climate change.

 

 

 

Management objectives for 2021

 

  Complete financial quantification of key climate-related risks and opportunities.

 

  Analysis of the relative importance of these climate-related risks compared to our wider enterprise risks.

 

  Develop roadmap for embedding climate-related risks and opportunities into IHG strategy, financial planning and decision-making.

 

  Present findings and proposals for discussion at our annual Board strategy day.

 

  Embed findings into 2021 Annual Report disclosures, to demonstrate full alignment with TCFD recommendations.

 

 

 

LOGO  

Please see further information in the preceding pages of the

Strategic Report, as well as risk management and Governance

and Directors’ Reports.

  LOGO  

See our Responsible Business Report on our website at

www.ihgplc.com/responsible-business

 

30   IHG  |  Annual Report and Form 20-F 2020


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Our guests, owners & suppliers

 

LOGO
       

 

Business relationships with suppliers, customers and others

As set out in our S172 statement, our business relationships with our guests, hotel owners and suppliers are fundamental to our commercial success.

 

During the year, the Board and Executive Committee focused on what was critical for guests, hotel owners and suppliers. They considered and agreed operational procedures, cost management solutions and payment terms to support these stakeholders through the pandemic.

 

The Board has standing agenda items to consider strategic and operational matters that include guests, owners and suppliers, and receives reports, presentations and feedback from management. Through the Responsible Business Committee, it monitors targets in relation to responsible procurement and reviews the Supplier Code of Conduct. In addition, the Chair and Executive Directors engage directly with hotel owners.

 

The following information sets out more detail about our relationships with our guests, hotel owners and suppliers, and describes how our relationships with these key stakeholders have been maintained and strengthened in 2020.

 

LOGO   See also our business relationships disclosure on page 222.

   

 

8

guest relations contact centres in 5 countries

 

1,700+

guest relations agents speaking 12 languages

 

12 m+

lines of enquiry dealt with during 2020

 

2.5 m

Guest HeartBeat surveys completed in 2020

 

2.5 m

social reviews received in 2020

 

       

Hotel guests

Operating with a clear focus on what’s important to customers is key to ensuring consumer preference for our brands. Important to them is a consistent and safe stay experience, reward for their loyalty, and brands that can be trusted. In 2020, this came to the forefront more than ever with the need to provide clean and safe hotels, and flexibility in relation to hotel stays and the IHG Rewards programme.

 

Day to day accountability for ensuring that IHG’s strategy relating to guests is prioritised lies with the Executive Committee, including the Executive Directors, who regularly receive guest data and insights including updates on guest satisfaction, Guest Heartbeat survey results, and loyalty contributions. To provide oversight, the Board also receives regular operational presentations and updates, including delivery against relevant metrics and KPIs.

 

During 2020, with Board agreement, IHG enhanced and drove implementation of the IHG Way of Clean programme and IHG’s Clean Promise into all regions to protect guests, and also implemented a flexible cancellation policy, temporary loyalty

   

programme changes, including reducing stay qualification, and revised operational procedures in relation to food and beverage offerings. These decisions balanced local government guidelines, owner costs and guest expectations. In addition, 1,500 guest relations agents switched to remote working, ensuring we continued to provide quality service to our guests.

 

Positive guest sentiment is vital to our customer-centric strategy. Apart from Guest Love we have other metrics in relation to loyalty, sales and guest relation interactions. Measures put in place during 2020, such as the flexible cancellation policy, were in direct response to guest requests to cancel and rearrange their bookings because of the pandemic.

 

LOGO    See page 18 for more information on our

          customer-centric strategy.

   
     
     

Hotel owners

IHG predominantly franchises its brands, but also manages hotels on behalf of third- party hotel owners, and has a global network of hotel owners. Our success is reliant on our effective execution of our corporate strategy, a strong owner proposition, our shared commitment to delivering our purpose and desire to maintain high business standards.

 

We predominantly measure our relationship with hotel owners through the Owner HeartBeat survey, which the Board and Executive Committee receive and review, but other metrics, such as the Signings KPI, indicates the attractiveness of our owner proposition.

 

We engage with hotel owners in a variety of ways, depending on whether their hotels are franchised or managed. For example, we engage with franchised hotel owners through annual portfolio and hotel reviews, and also through the IHG Owners Association (IHGOA). The IHGOA represents the interests of more than 4,500 hotel owners and operators worldwide. We work with them

   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
     
   

 

IHG complies with the statutory reporting duty on payment practices and performance and is a signatory of the Prompt Payment Code.

 

 
     
     
          

 

LOGO

 

 

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Our guests, owners & suppliers continued

 

 

LOGO

 

to obtain feedback on IHG standards, programmes and initiatives, including our System Fund.

During 2020, with the hospitality industry significantly impacted by Covid-19, the Board, through the Executive Committee, agreed and put in place a range of measures to help protect owner cash flow including supplier discounts, fee relief and flexible payment options. Decisions were reviewed against the impact on IHG’s own cash flow and revenue requirements, hotel operational costs and what was needed to be done to protect guests. For example, the costs of implementing the IHG Way of Clean programme were balanced against reductions in other operational and brand standard costs, such as delaying planned refurbishments.

Further support for owners included provision of tailored recovery toolkits and targeted marketing campaigns to drive hotel demand. Our regional CEOs lobbied at the highest levels of government (including with the President of the United States and the speaker of the US House of Representatives), as well as through trade bodies, to gain support for the hospitality industry. In the UK, Keith Barr worked with other Executive Committee members to ensure that appropriate support was provided by the UK Government to help owners through the difficult trading period caused by restrictions and government lockdowns.

Suppliers

Working with suppliers is vital for our operations and for driving our responsible business commitments. Our supply chain activities are split into two categories: corporate and hotel supply chains. Our corporate supply chain covers items such as

technology and professional services, and includes a number of strategic suppliers, identified for their contractual and operational value. For example, we have a technology agreement with Amadeus Hospitality Americas, Inc. for the development and hosting of the Group’s Guest Reservation System.

Procurement of goods and services at hotel level covers items required for opening, renovating and operating a hotel, such as food and beverages, furniture, linen and electrical goods. However, most of our hotels are owned by independent third-party owners, who are responsible for managing their own independent supply chains.

During 2020, IHG considered and responded to the impact of Covid-19 on suppliers, taking actions such as renegotiating payment schedules across key vendors and increasing engagement with strategic suppliers on service levels and continuity risks.

The Procurement function drives IHG’s responsible business agenda into our supply chains, which is agreed with the Responsible Business Committee. The responsible procurement agenda was significantly impacted by Covid-19 in 2020. However, the function was instrumental in supporting owners and hotels with sourcing PPE and other emergency supplies, and used IHG’s scale to provide support to supplier negotiations.

Despite much otherwise reduced sourcing activity, the function, supported by the Responsible Business Committee, focused on the core elements of responsible procurement through (i) our supply chain risk assurance programme, (ii) our IHG Green Supplier programme, (iii)

improving employee awareness of responsible procurement, and (iv) ongoing collaboration with key suppliers bringing innovation, smarter choices and business efficiency for our hotels and owners.

We made good progress with our supplier risk assurance programme. Following the previous launch of desktop-based risk assessment questionnaires and risk profiling suppliers based on their responses, we requested additional information from a number of suppliers to better understand their practices in certain areas. We paused the programme during the year to focus on addressing the challenges of the pandemic, but are expecting to recommence the programme in 2021.

We were also able to introduce a new set of responsible procurement criteria for prospective suppliers. The pre-contract assessment is part of IHG’s tendering process and includes questions about suppliers’ governance, human rights and environmental practices relevant to suppliers’ own operations and supply chains.

 

 

Supply chain mapping

During the year, in partnership with CARE International UK and our key suppliers, we continued our programme focused on the textiles supply chain, aimed at creating a more gender-inclusive workplace, leading to more productive, resilient and secure value chains. Recognising the environmental impact of textiles, we also partnered with the University of Exeter to carry out an environmental assessment of IHG’s textiles value chain in support of identifying opportunities for IHG to transition towards circularity.

 

 

 

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Our shareholders

 

 

LOGO

 

W  

 

e are committed to maintaining

an open dialogue and a comprehensive programme of

investor relations activities, and pride ourselves on keeping up-to-date

with best practice and market views

through independent advice and guidance

from a number of agencies and brokers.

The Chair and Committee Chairs actively engage with investors to ensure they are aware and understand the views and perceptions of our major shareholders, and the Board receives formal external reviews of investor perceptions. In addition, our Registrar, EQ, and J.P. Morgan Chase Bank, N.A., custodians of our American Depositary Receipts (ADR) programme, have teams set up to deal with shareholder and ADR holder queries.

During 2020 both Keith Barr and Paul Edgecliffe-Johnson presented IHG’s 2019 year-end and 2020 interim results to institutional investors, analysts and media. Telephone conferences were held following first and third-quarter trading updates, including Q&A sessions with sell-side analysts.

The Chair and other Board members continued with their annual cycle of investor meetings with major institutional shareholders during 2020, albeit meetings were held virtually and the usual range of meetings was adjusted as a result of the pandemic. Patrick Cescau engaged with our largest shareholders to discuss broader governance matters and the Company’s situation and response to Covid-19. Jo Harlow, Chair of the Remuneration Committee, held a series of investor consultation meetings with major shareholders, in relation to Executive Directors’ remuneration. In addition, following Sharon Rothstein’s appointment

to the Board she undertook an introductory meeting with a major shareholder, and Dale Morrison, our Senior Independent Director, was and remains available to shareholders if they have concerns they wish to discuss.

As in previous years, significant engagement occurred with sell-side analysts and investors. The market was kept updated of IHG’s business situation during the year through a number of stock exchange announcements, including updates on its financing and liquidity. Individual investor meetings and conferences were hosted, and both Keith Barr and Paul Edgecliffe-Johnson hosted virtual fire-side meetings. Below Board level, various business leaders including representatives from Corporate Responsibility and Ethics and Compliance, held meetings with shareholders to discuss responsible business focus areas.

AGM

The 2020 AGM was held in constrained circumstances, following UK Government lockdown measures and advice from IHG’s external legal advisors. Our belief is that AGMs are an invaluable forum for communicating with investors and shareholders. With the likelihood of continued constraints in place, due to UK Government Covid-19 physical distancing measures, we continue to evaluate how our AGM on Friday 7 May will be held. The notice of meeting, including details of the conditions of admission, will be sent to shareholders and be available at www.ihgplc.com/investors under Shareholder centre in the AGMs and meetings section. If any changes to the meeting details are required due to UK Government Covid-19 guidance, they will be published in the aforementioned website section.

 

Dividend

As the impact of Covid-19 became apparent the Board, after balancing the considerations of managing liquidity due to low hotel occupancy, with the expectations of investors and shareholders, withdrew its 2019 final dividend recommendation of 85.9¢ per share, a payment which would have had a cash outflow of ~$150m in the first half of 2020, and did not pay an interim dividend in respect of 2020. The decision to suspend dividends was not made lightly, and the Board is not proposing to pay a final dividend. They will consider future dividends once the visibility of the pace and scale of market recovery has improved.

 

 

LOGO   See also page 15 for information about our dividend policy.
      
LOGO   Please see www.ihgplc.com/investors for further information.
 

 

LOGO

 

 

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Our risk management

    

    

 

The Board’s role in risk management – stewardship and active partnership

The Board is ultimately accountable for establishing a framework of prudent and effective controls, which enable risk to be assessed and managed, and is supported by the Audit Committee, Executive Committee and delegated committees. Our governance framework and Committee agendas establish procedures for Board members to receive information on risk from the Executive Committee and Senior Leaders and a range of other internal and external sources.

In 2020, our Board and management team, supported by the Risk and Assurance team, have reviewed our risk profile with increased frequency, and evaluated the appropriateness and resilience of our risk management and internal control arrangements. Throughout the management of the Covid-19 crisis, the Board has also considered the longer-term impact of the pandemic and other external and internal factors on our risk profile.

 

 

Emerging risks

During 2020, alongside the close focus on responding to Covid-19, Board and Committee discussions have allowed for consideration of other emerging and evolving risks, including:

 

 competitor and macroeconomic risk factors within the Board’s discussion of strategy and key management presentations (e.g. for Brand strategies, Commercial & Technology, Loyalty, Corporate Governance and Regulatory Developments);

 

 workforce related risks at the Remuneration and Nomination Committees, including the impact of Covid-19 on attraction, retention and succession arrangements; and risks relating to the competitiveness of Executive remuneration and Board composition;

 

 

 

 regulatory and financial governance risks at the Audit Committee (e.g. tax risks relating to digital businesses, treasury and liquidity risks linked to volatility and sentiment in the capital markets, and financial control risks in a cost-constrained environment);

 

 risks relating to people and culture at the Responsible Business Committee, including updates on employee engagement and well-being; diversity and inclusion; community impact; sustainability; human rights; and our continuing responsibilities across our supply chain; and

 

 potential risks relating to the impact of climate change on IHG in the future at a dedicated Board briefing on our progress to comply with the TCFD reporting requirements.

 

 

 

The most prominent emerging risk we face is a sustained downturn caused by further waves of the pandemic and/or a slower than anticipated industry recovery. This could create further volatility in our risk factors and also challenging conditions in the capital markets, making it more difficult to obtain additional funding if required and manage our liquidity, potentially impacting financial performance. Our financial planning includes identifying levers which could be pulled to enable flexibility and adaptability to changes to our financial assumptions and circumstances. More detail on the topics covered by the Board and Committees is available in the Governance Report, pages 74 to 95.

 

 

Procedures for identifying, discussing and escalating emerging risks

Many topics and potential risks to longer term viability and sustainability are considered as part of our ongoing management decision making, as well as Board and Committee agendas and presentations, enabling escalation of emerging risks where appropriate. These combined elements have also enabled us to react to uncertainties and changing circumstances as the Covid-19 crisis evolved.

 

LOGO

 

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How risk management and our appetite for risk have supported decision making in 2020

Our risk management and internal control systems remain fully integrated with the way we run the business, and IHG’s risk appetite is visible through the nature and extent of risk taken by the Board in pursuit of strategic and other business objectives. We cascade this appetite through our culture, values and behaviours, see pages 24 and 25, the goals and targets we set, and our Code of Conduct and other global policies, all of which are further reinforced by frequent leadership communications to guide behaviours and set priorities.

The short- and medium-term uncertainties created by Covid-19 led to active ‘real time’ consideration of acceptable risk tolerances and whether any adjustments were required to financial and operational controls. Enhancements were made to controls to enable effective and efficient management of risk throughout the crisis, including the decentralisation of decisions to front line crisis teams within a framework of agreed

principles. This was balanced with updates to the Global Delegation of Authority Policy, reinforcement of policies (e.g. Code of Conduct, Information Security) and updates to other entity level control arrangements.

After the initial operational disruption of Covid-19, additional adjustments to controls were required to maintain acceptable risk levels during IHG-initiated changes to the workforce and to safeguard continuity across our supply chain. These changes were guided by principles developed by the Executive Committee to ensure that any actions taken were not disproportionately de-stabilising, and supported by communications plans.

Formal and informal monitoring, reporting and assurance arrangements, also described on pages 24 and 25 have been reinforced during 2020 to enable the Board and Executive Committee to maintain ongoing oversight of key areas of uncertainty and the effectiveness of our risk management and internal control arrangements.

As we move into 2021 the Board will continue to focus on whether levels of risk in the business are managed or controlled to an acceptable level (either individually or in total) and whether we are appropriately balancing opportunities for efficiency or investment with the need to build in resiliency in the short and longer term. Many leadership teams, including the Executive Committee, plan to continue to meet more frequently than pre-pandemic, which will also enable more active consideration and reaction to changing risks.

Our Annual Report and Form 20-F provide more detail on formal risk appetite and tolerance in a number of places. For example, our appetite for financial risk is described in note 24 to the Group Financial Statements, see page 179.

 

LOGO   This section should be read together with the rest of the Strategic Report, Governance on pages 74 to 111, the going concern statement on page 223, and Risk Factors on pages 224 to 229.
 

 

 

 

 

A practical illustration of IHG’s risk management system in action during 2020:

The wider primary public health concerns of Covid-19 created several secondary impacts for IHG, including rapidly emerging risks relating to customer demands, how we operate our hotels and the standards required of our franchisees.

 

The table below illustrates how we managed these risks in a systemic way across IHG, working with our owners and third-party experts to develop and deliver enhancements to our “IHG Way of Clean” brand standards to reassure our guests, colleagues and owners of our response to Covid-19 risks across all our hotels globally.

 

 
   
    Policies, procedures and principles       ...applied by our people within key processes...        ...with close monitoring and reporting    
 

 

   

 

    

 

 
 

Executive, regional and functional leadership formed a Cleanliness Board to provide a clear “tone from the top” of the importance of safety and cleanliness, and to engage third-party expertise.

 

Communications were coordinated centrally to ensure consistency of internal and external messaging, including with owners.

 

Regional teams quickly mobilised to adopt and communicate the global policy to operational teams and hotel colleagues.

   

We created a suite of guidance including:

 

 enhanced standards and supporting guidance for the IHG Way of Clean programme;

 

 training for colleagues on how to wear face coverings and gloves;

 

 physical distancing and hand washing best practice;

 

 procedures for colleague symptom screening; and

 

 appropriate signage to be used throughout the hotels.

 

Our Procurement team worked with regional Operations and Safety teams to source protective items ranging from masks and gloves to hand sanitiser machines and brand appropriate signage.

    

We implemented a frequent and effective monitoring system to ensure that these cleanliness standards are upheld throughout our hotel portfolio.

 

This includes new virtual hotel audits allowing us to monitor the implementation of the IHG Way of Clean standards despite travel and restrictions on face-to-face interactions.

 

In addition to the hotel audits, we also track the completion levels of training materials and monitor social media to enable us to respond to guest or colleague feedback.

 
 

 

   

 

    

 

 

 

LOGO

 

 

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Strategic Report

Our risk management continued

    

 

IHG’s principal risks and uncertainties

While the Covid-19 crisis has not fundamentally changed the principal risks to our business and strategy, it has heightened the uncertainty we face in the short term and also created the potential for longer term impacts based on trade-offs that have been required to protect liquidity in 2020. The crisis has also accentuated the increasingly interconnected nature of risk.

We have not managed Covid-19 as a separate risk during the year, as the pandemic has increased the risk profile across many of our existing principal risks as we look forwards. This is most obvious in relation to the continuing significance of the safety and security of our colleagues and guests, government regulations impacting domestic and international travel, consumer

confidence and appetite to travel internationally in the longer term, how we operate our hotels and the overall impact on our business resilience.

The necessary response to Covid-19 safety concerns has also created several secondary impacts and the potential for disruption and additional stress on our risk management and internal control arrangements. In addition, continued scrutiny of the social performance of major corporates may also lead to any incident or failure to manage risk receiving significant and rapid attention.

All the risks on the grid below meet the definition of ‘principal’, however we have reviewed the trends carefully to more accurately reflect the current behaviour of these risks. In relative terms, some risks continue to trend upwards as we move into

2021 while other risks remain more stable on 2020 levels. Where we have indicated changes on the grid this is typically because of something we have noted in the nature of the risk itself, for example as a result of changes in the external environment, our extended enterprise, or a specific internal initiative.

By distributing the risks across the grid in this way based on their behaviour, it allows the Board and management to consider what different responses may be required to individual factors (for example, rapid factors which may require continuity planning), or the overall level of risk we are facing and what it means for governance of the whole portfolio.

 

 

 

Risk trend and speed of impact

We assess whether the risk area is stable or dynamic in its impact and/ or likelihood (inherent risk trend), and the rate at which there could be a material impact on IHG. The trend and speed of impact are summarised in the diagram with further detail on activities to manage each of these risks in the following pages.

 

 

 

 

Principal risk – assessment of trend and speed of impact

 

LOGO

 

Principal risks descriptions

    Inherent risk trend   Risk impact – link to our strategic priorities
  LOGO   Dynamic/Rapid   LOGO   Build loved and trusted brands
  LOGO   Dynamic/Gradual   LOGO   Customer centric in all we do
  LOGO   Stable/Rapid   LOGO   Create digital advantage
  LOGO   Stable/Gradual   LOGO   Care for our people, communities and planet
       

 

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Risk description

      Trend       Impact       Initiatives to manage these risks

 

   

 

   

 

   

 

Macro external factors such as political and economic disruption, the emerging risk of infectious diseases, actual or threatened acts of terrorism or war, natural or man-made disasters could have an impact on our ability to perform and grow.

 

Secondary impacts and continuing uncertainty from the Covid-19 pandemic may also exacerbate these factors across several markets and external sources indicate that these risks are likely to trend upwards in future years with the potential for more rapid impact on IHG.

    LOGO     LOGO    

  Our initial focus for Covid-19, both in China and in other markets, prioritised the safety and security of our colleagues and guests by supporting crisis management teams in our individual business units and global functions. This support included monitoring intelligence from a range of external and internal sources (e.g. government health and travel advice), and developing guidance for hotel and corporate offices on sanitation and cleaning procedures, including for when hotels have been used for quarantine and to house essential workers.

 

  The Risk and Assurance and Global Corporate Affairs teams have developed guidance and internal and external communications strategies, and coordinated across regional and functional crisis management teams to review business continuity preparations for corporate offices (e.g. business service centres, reservation offices and corporate offices) and key supplier relationships. Furthermore, we established protocols for tracking and reporting on the status of hotels in China early in 2020, which then evolved into monitoring of hotels in other regions.

 

  We maintain a range of intelligence sources at our disposal to horizon-scan for emerging threats, provide insight to leadership on incidents that impact operations, and analyse future political and economic scenarios to inform the business planning cycle, including at the Board and Executive Committee level. We are also applying lessons learned from Covid-19 and using data analytics to better prepare for future disruption, in particular in relation to other fire safety and security threats that continue to receive industry-wide scrutiny.

 

  In addition to epidemics and pandemics, the risk of earthquakes and extreme weather events continues to pose a threat to IHG operations. IHG manages these events through training, advanced monitoring and warning, and standard operating procedures. As we moved into the 2020 hurricane season, regional operations teams planned and communicated with hotels, including those operating at reduced capacities, to ensure they were prepared to maintain safe operations for colleagues and guests.

 

 

   

 

   

 

   

 

Failure to deliver preferred brands and loyalty could impact our competitive positioning, our growth ambitions and our reputation with guests and owners.

 

Competition from other hotel brands and third-party intermediaries create inherent risks and opportunities to the longer-term value of IHG’s franchised and managed proposition for our brands. The Covid-19 crisis has also refocused guest expectations in relation to the cleanliness and safety of individual hotels and IHG’s brands. In a potentially lower-demand environment it will also be critical to use our loyalty programme to drive business to our hotels and take share from our competitors.

    LOGO     LOGO    

  The focus of our brands and loyalty teams during the crisis has been on supporting our guests, owners and hotels. This has included adjusting our cancellation policy to allow guests flexibility to change or cancel bookings, rolling over our IHG Rewards Elite membership status to 2021 and reducing the achievement criteria for 2022, extending the deadline for points expiry until July 2021, and launching a suite of solutions to engage members.

 

  We have implemented enhanced cleanliness and safety measures through the IHG Way of Clean programme to drive customer confidence. Initially established in 2015, the IHG Way of Clean programme is now a global brand standard that includes deep cleaning processes and operating protocols developed with expertise from third party partners, which reflect the advice of public health authorities. As travel resumes, we have also introduced other enhanced guest experiences such as a contactless journey through the hotel, modified food and beverage offers and ‘Meet with Confidence’ programmes to drive revenue recovery, and we have created new virtual quality audit and compliance processes to reinforce standards and drive consistency.

 

  We also reduced costs for owners by relaxing brand standards and operational and food and beverage requirements to balance enhanced cleanliness and safety protocols.

 

  While the focus of our marketing management shifted rapidly to respond to the pandemic and to support regional recovery, we have built on the active transformation already underway with enhancements to our Marketing organisation and processes which enable us to drive efficiency in a financially constrained environment and optimise resources and speed to market. We conduct regular monitoring of indicators, including loyalty member data, to identify emerging trends quickly.

 

  Throughout 2020, we also have prioritised our commercial spend behind our loyalty programme towards the highest returning marketing investments that drive business to all brands through the loyalty programme umbrella. See page 17 for more details on our priority to Build loved and trusted brands.

 

 

   

 

   

 

   

 

 

LOGO

 

 

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Strategic Report

Our risk management continued

    

 

Risk description

      Trend       Impact       Initiatives to manage these risks

 

   

 

   

 

   

 

Attracting, developing and retaining leadership and talent and failure to do this could impact our ability to achieve growth ambitions and execute effectively.

 

Risks relating to people underpin the majority of processes and controls across IHG, and our ability to develop talent is critical to delivering value to our brands and hotels in the global markets where we operate and compete. It is essential that we retain key executive, leadership and specialist talent, both at the corporate and hotel levels, in an uncertain hospitality industry and in a resource constrained, highly competitive, and remote working environment.

    LOGO     LOGO    

  At the start of the Covid-19 crisis a cross-functional taskforce was established to guide how we protect our employer reputation and culture. While we have had to take actions to reduce costs at corporate and hotel levels, HR teams have partnered with operations and functional teams to develop guiding principles to protect our reputation as a responsible employer; maintain our culture during the crisis period; and equip teams to bounce back with great talent and people practices. This has enabled us to maintain engagement, avoid burnout and bolster support to leadership. Our approach to managing our people during 2020 is outlined in detail on pages 26 to 28 and our normal business planning process includes a review of workforce risks.

 

  Due to the Covid-19 crisis, our programme of engagement surveys and HR scorecards adapted to reflect the realities of virtual and remote working and a challenging period of furloughs and reduced hours. We have monitored key workforce indicators, leveraged our existing virtual learning platforms to understand employee sentiment, and utilised short pulse surveys to gather employee feedback throughout the crisis and to shape our thinking on returning to office working.

 

  The Executive Committee has regularly discussed talent retention risks, and the HR team is focusing on talent plans with each leadership team. We have refined our diversity and inclusion strategy to drive recruitment and retention, and employee resource groups help educate employees and build a culture of inclusion.

 

  Effective communications have been established for internal audiences, including regular all employee calls with the Chief Executive Officer to provide latest updates, ongoing leadership communications and virtual team meetings at regional and functional levels, and continued development of our flexible learning summits. Through these channels, leaders are able to answer questions from employees at all levels.

 

  IHG has the ability to manage talent and retention risks directly in relation to IHG employees but relies on owners and third-party suppliers to manage these risks within their own businesses. Our Procurement, Legal and Risk teams also consider more indirect workforce risks relating to our third-party relationships.

 

  The Remuneration Committee reviews our approach to executive remuneration, aligned with the interests of shareholders and the UK corporate governance environment.

 

   

 

   

 

   

 

Inherent threats to cybersecurity and information governance remain significant and dynamic and external attacks against the hospitality industry have continued in 2020.

 

We are aware of our responsibilities in relation to a range of high-value assets (critical systems and employee and other sensitive data) which may be targeted by various threat ‘actors’ (including organised criminals, third parties and colleagues). Rapid societal, regulatory and media scrutiny of privacy arrangements mean that the potential impact of data loss to IHG financially, reputationally or operationally remains a dynamic risk factor. The disrupted working conditions (including increased remote access) caused by the pandemic for our employees and suppliers and advances in attack sophistication also heighten inherent information security risks.

 

    LOGO     LOGO    

  While Covid-19 has modified the threat profile, our Information Security team has pivoted to implement new solutions and controls to address potential vulnerabilities, and to focus resources on those operational tasks that best protect our sensitive data sets and systems and detect and respond to potentially malicious events in an appropriate way.

 

  In the early stages of the pandemic, we deployed our Intelligence functions to gain early knowledge of potential new attack campaigns; implemented controls to prevent malicious emails from getting to email inboxes; and educated employees worldwide on the increased dangers from phishing, business email compromise and social engineering. We also accelerated the rollout of multi-factor authentication to limit successful phishing attacks. To respond to heightened inherent risks from remote working, we reviewed controls for remote access solutions and increased monitoring to more quickly identify malicious activity. Our Procurement team engaged key providers on their approach for maintaining operations and fulfilling their contractual obligations for the safety and security of our data and systems.

 

  We have continued to work with our specialist technology providers to continuously improve key operational security processes and capabilities such as Identity & Access Management, Security Monitoring, Incident Response, and the support and maintenance of technical solutions architecture.

 

  Preserving security across our complex corporate and hotel estate requires continuous maintenance and enhancement or replacement of hardware and software. With finances at a premium for hotel owners, our Information Security and Technology teams collaborate to provide reliable, scalable and cost-effective solutions, targeted at areas of greatest opportunity for future attacks.

 

  Our information security programme is supported and reviewed by internal and external assurance activities, including our Internal Audit and Financial Governance teams and PCI assessments. The Board receives regular reports using key risk indicators to track inherent risk trends and mitigation activities. We also continue to work closely with our insurers to ensure we are adequately protecting against our risks, and have assessed and quantified potential cyber incident scenarios to drive risk-based discussions on investing in remediation versus risk acceptance and transfer opportunities.

 

 

   

 

   

 

   

 

 

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Risk description

      Trend       Impact       Initiatives to manage these risks

 

   

 

   

 

   

 

Failure to capitalise on innovation in booking technology and to maintain and enhance the functionality and resilience of our channel management and technology platforms (including those of third-parties, on which we rely directly or indirectly), and to respond to changing guest and owner needs remains a dynamic and critical risk to IHG’s revenues and growth ambitions.

 

Increasing personalisation and understanding our guests and their needs will drive return stays and further build loyalty. Despite the pandemic placing cost pressures on our owners, the pace of change in the hospitality industry continues to accelerate and IHG must evolve to effectively grow and compete in the marketplace. It will be key for us to prioritise digital capabilities to drive our channels, actively expanding the breadth and depth of our digital relationships with current and new guests.

 

    LOGO     LOGO    

  Our comprehensive channels strategy is a key driver and enabler of accelerated growth. Rapidly evolving guest and owner expectations have increased the pressure to deliver commercial and technological change more quickly. We continue to seek opportunities to align and innovate our channels and technology platforms to Create digital advantage (see page 19 for more details). Our IHG Concerto platform is operating at all IHG hotels, and over time future releases will enhance the guest travel journey, deliver efficiencies for hotels, and drive sustainable revenue.

 

  To respond to the initial disruption from Covid-19, a new Global Revenue Committee was formed across global and regional teams to manage and drive booking activity and revenue. The Committee developed and monitored specific leading indicators on market status, sentiment, search and demand, and loyalty member trends, and further tracked communications penetration, internal pulse surveys and public relations effectiveness. The relatively reduced level of booking activity in 2020 also created the opportunity to reorganise our technology delivery model, moving more development to technology partners and co-sourcing arrangements. We have also engaged with our strategic suppliers during 2020 to adjust service levels and anticipate continuity risks.

 

   

 

   

 

   

 

In a resource constrained environment, the importance of investment effectiveness and efficiency will be critical to balance short- and longer-term strategic needs (e.g. developing infrastructure, increasing growth, enhancing digital capabilities).

 

Failure to manage risks associated with investments may impact commercial performance, lead to financial loss, and undermine stakeholder confidence.

 

    LOGO     LOGO    

  Our oversight and finance teams regularly review and evolve our governance and control frameworks, including delegated approval authorities and processes, to enable decisions on investments to be made quickly and efficiently with consideration of the risks involved. In early 2020 the Delegation of Authority Policy was specifically updated to help drive cost-conscious behaviours and close control of investment expenditure required in the business at that time.

 

  With on-going uncertainty in the industry outlook, we need to retain flexibility in the extent to which we commit to expenditure until there is improved visibility. Our financial planning balances a disciplined approach to discretionary investments with a need to appropriately reward our people and invest in strategic growth initiatives. There is, and will continue to be, a constant focus on retaining flexibility within our cost base to ensure spend is being prioritised in the right areas given the ever-changing environment. Financial resource allocation is kept under regular review, with decisions taken as part of our quarterly forecasting process.

 

  We have also sought to protect key functions that are critical for fulfilling our responsibilities as a publicly listed company and in maintaining our reputation across our external stakeholders. For example, we continue to ensure that we have the right level of support in our Legal, Corporate Affairs and Financial Reporting teams.

 

 

   

 

   

 

   

 

 

LOGO

 

 

Our risk management   IHG  |  Annual Report and Form 20-F 2020   39


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Strategic Report

Our risk management continued

    

 

Risk description       Trend       Impact       Initiatives to manage these risks

 

   

 

   

 

   

 

The global business regulatory and contractual environment and societal expectations have continue to evolve throughout 2020. Failure to ensure legal, regulatory and ethical compliance would impact IHG operationally and reputationally, and non-regulatory stakeholders (including corporate sales clients) and investors continue to focus on IHG’s performance as a corporate entity to uphold ethical and social expectations. Significant fines can be imposed for regulatory non-compliance, most notably in relation to privacy obligations and data security. In an uncertain hospitality industry, there may be increased pressure on compliance programmes, and a heightened risk of liabilities relating to our franchise model both in relation to brand reputation issues as well as litigation.

 

    LOGO     LOGO    

  Our Ethics and Compliance team focuses on ensuring IHG has a globally coordinated approach to material ethical and compliance risks, taking into account the regulatory environment, stakeholder expectations and IHG’s commitment to a culture of responsible business. The overarching framework for ethics and compliance is the IHG Code of Conduct (see page 24) and we provide e-learning training on an annual basis to all corporate, reservation offices and managed hotel employees and new joiners.

 

  We continue to monitor changes and advise stakeholders on risks across a range of regulatory issues, including safety, employment, contract, privacy, anti-bribery and anti-trust, while also addressing legal and regulatory issues that have emerged as a result of Covid-19. We also continue to participate in Transparency International UK’s 2020 Corporate Anti-Corruption Benchmark. This is a comprehensive tool that measures and compares the performance of anti-corruption programmes across companies on an anonymous and confidential basis.

 

  We continue to focus on key human rights risks, particularly those heightened by Covid-19. For example, to address migrant worker staff accommodation risks which may have been heightened by the pandemic, we developed a guidance note on staff living accommodation for hotel teams.

 

  Monitoring of sanctions continues to be an increasingly important part of our due diligence processes as their use by the US, UK and EU in particular continues to grow. A sanctions update is communicated annually to the Legal, Development and Strategy teams and other relevant employees providing a reminder of ‘No Go’ countries and sanctions issues that may restrict IHG. Our owner legal due diligence process also requires that all new owners are screened against sanctions lists and we utilise due diligence tools for this purpose. Ethics and compliance country-level due diligence is also undertaken for new country entry assessments, taking into account country- specific risks and impacts.

 

  The Ethics and Compliance team currently monitors training completions, gifts and entertainment reporting and the owner due diligence process, and they receive informal queries/escalation of issues directly from colleagues and via an Ethics and Compliance email channel which is publicised in training and awareness materials. The Board receives regular reports on the Confidential Reporting Channel and matters directly related to our responsible business agenda.

 

 

   

 

   

 

   

 

The manner in which IHG responds to operational risk and the steps taken to safeguard the safety and security of colleagues and guests will continue to receive heightened scrutiny, particularly in light of the Covid-19 pandemic, and could affect IHG’s reputation for high standards of business conduct, result in financial damage, and undermine confidence in our brands.

 

The rapid progression of Covid-19 has also given rise to significantly increased litigation risk across all markets. These risks relate both to our direct operations in hotels and other locations where we have management responsibility, and also to outsourced activities and others with whom we collaborate and trade, including the owners of our franchised hotels which operate as independent businesses.

 

    LOGO     LOGO    

  Our Business Reputation and Responsibility team coordinates and monitors IHG’s risk management system, which is designed to anticipate and identify relevant operational safety and security risks and provide appropriate levels of control necessary to mitigate against significant incidents, whether in hotels or corporate offices. Regional and global subject matter experts in safety and security work regularly with relevant stakeholders, including hotels, operations leaders, and operations support teams such as Design & Engineering, Food and Beverage and Human Resources, to review and set operational safety and security policies and procedures.

 

  The Covid-19 pandemic has led to the enhancement of IHG’s operational safety and crisis management procedures for hotels and corporate offices. In early 2020, our safety experts worked closely with Operations and Global Corporate Affairs to develop a Hotel and Corporate Office Response Toolkit of guidance, processes and procedures for operating a safe work environment in line with the advice issued by government authorities and public health officials. As the pandemic has progressed, this guidance has been revised and expanded to address emerging operational safety issues, and changes in local government requirements or public health advice.

 

  Alongside Covid-19, subject matter experts in safety and security have continued to monitor external trends that may impact the safe operation of hotels, customer expectations, and development opportunities (e.g. fire safety, food allergens), and we continue to review our relevant standards and guidance as these issues evolve and/or new regulatory requirements and best practices are published.

 

  Our experts also track a range of internal indicators relating to safety and security to assess their potential impact on the safety of hotels, colleagues and guests as well as the impact on the reputation of IHG and its brands. Despite our best efforts, incidents may occur across our global hotel operations and corporate offices and an assessment of severity and impact is made before the most serious are promptly forwarded to senior management. The Board receives and reviews regular safety reports and monitors safety performance. Through this monitoring, IHG can determine where additional standards or guidance may be necessary or whether existing controls may need to be adjusted.

 

 

   

 

   

 

   

 

 

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Risk description

     

Trend

     

Impact

     

Initiatives to manage these risks

A material breakdown in financial management and control systems would lead to increased public scrutiny, regulatory investigation and litigation.

 

This risk includes our ongoing (and stable) operational risks relating to our financial management and control systems which have been adapted to cope with remote working arrangements during the pandemic; the continuing expectations of IHG’s management decision making and financial judgements; and our own business model and transactions.

    LOGO     LOGO    

  Covid-19 inevitably impacted IHG’s financial control environment, with heightened risks relating to liquidity, business continuity and fraud and a need to adapt and enhance existing processes for employees working remotely and, in some cases, with a reduced workforce. The Finance leadership team regularly monitors the primary risks to the function and to IHG and, as the impact of Covid-19 became clear, reviewed controls and implemented enhancements to provide additional mitigation, including controls over cash disbursements and expenditure, applying data analytics where possible.

 

  We reviewed our business continuity arrangements, including for our India-based Global Business Service Centre, given the operational importance of processes located there such as accounts payable, billing and cash collection, and financial reporting for both corporate and hotels. In response to decisions to furlough corporate employees during 2020 we evaluated risks, processes and controls relating to accuracy of payroll; access to IT systems and company credit cards; as well as completeness of payment processes.

 

  Throughout the year we have reinforced policies across the organisation, including particular emphasis on entity level controls. We have continued to operate an established set of processes across our financial control systems, which is verified through testing relating to our Sarbanes-Oxley compliance responsibilities. See pages 68, 144, 157 to 162 for details of our approach to taxation, page 87 for details of our approach to internal financial control, and pages 179 to 183 for specific details on financial risk management policies. These processes and our financial planning will continue to evolve to reflect the changes in our management structure and business targets, including system enhancements and further automation where possible.

 

  While it remains difficult to assess trading conditions in 2021 with certainty, we will continue to adapt our approach to financial control across our hotel estate. Given the differences in the culture and ways of working across our regions, we apply globally and/or regionally consistent policies and procedures to manage the risks, such as fraud and reporting risks, wherever possible.

 

  Our Group insurance programmes are also maintained to support financial stability.

 

 

   

 

   

 

   

 

As a global business, IHG faces uncertainties relating to evolving environmental and social megatrends and our response to these is subject to scrutiny from a wide range of stakeholders.

 

These stakeholders include regulators and investor groups (such as the Task Force on Climate-related Financial Disclosures (TCFD)), who focus on various environmental, social and governance issues that have the potential to impact performance and growth in key markets. The focus on companies acting responsibly and being true to their purpose has been heightened by the pandemic and will continue into the future.

 

    LOGO     LOGO    

  Working together with governments and industry associations has been key in ensuring our voice is heard among key stakeholders, as well as being able to advocate for our industry and our owners. As the pandemic has progressed there has been an expectation from governments for companies to do the right thing by their stakeholders. We work with key industry bodies to engage governments and officials to take steps that support our industry and owners across a number of different markets.

 

  To support our hotels in better understanding, managing and reporting their environmental footprint, while driving operational efficiency and reducing their utility costs, we are replacing IHG’s Green Engage system with a more comprehensive and engaging platform as well as an automated data entry solution to enable much more accurate information capture. See pages 20 and 21, and 29 and 30 for details of our environmental policies and initiatives, including our commitment to support the TCFD recommendations.

 

  Our long-standing commitment to operating our business responsibly has underpinned the actions we are taking in our local communities see page 29. The Corporate Responsibility team has established core principles to support our local communities, while establishing clear governance for our overall community support strategy in partnership with legal and communications.

 

  Our values and behaviours, underpinned by our Code of Conduct, inform our decision-making at all levels. For example, specific elements of our Code of Conduct define expectations for IHG employees in relation to human rights and the environment, and our Procurement, Legal and Risk teams monitor supply chain and human rights risks (see pages 24 and 25).

 

 

   

 

   

 

   

 

 

LOGO

 

 

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Strategic Report

Viability statement

    

 

The Covid-19 global pandemic has resulted in the worst ever period of trading for the hotel industry. The resilience of the Group’s fee-based model and wide geographic spread has however left it well-placed to manage through these challenging times. Our weighting towards upper midscale hotels in non-urban locations with low reliance on groups business has supported IHG’s performance. In addition to taking decisive action to reduce costs and protect IHG cash flows, we have also used IHG’s scale and expertise to support owners in reducing their costs and managing cash flows. As a result, Group free cash flow was $29m during 2020 and net debt has reduced by $136m through this challenging trading perioda.

We also entered the Covid-19 pandemic with a conservative balance sheet which has been managed with the objective of maintaining an investment grade credit rating. This has supported covenant amendments which have been agreed as required through the year with minimal additional restrictions.

Although previous viability assessments had not considered a plausible scenario as severe as the scale of the Covid-19 pandemic, the resilience of the business has been demonstrated.

Looking forward, the Directors have determined that the three-year period to 31 December 2023 is an appropriate period to be covered by the Viability statement.

The Group’s annual planning process builds a three-year plan. The detailed three-year plan takes into consideration the principal risks, the Group’s strategy and current and emerging market conditions. That plan then forms the basis for strategic actions taken across the business. The plan is reviewed annually by the Directors. Once approved, the plan is then cascaded to the business and used to set performance metrics and objectives. Performance against those metrics and objectives is then regularly reviewed by the Directors.

There remains unusually limited visibility on the pace and scale of market recovery and therefore there are a wide range of possible planning scenarios over the three-year period considered in this review.

In assessing the viability of the Group, the Directors have reviewed a number of scenarios, weighting downside risks that would threaten the business model, future performance, solvency and liquidity of the Group more heavily than opportunities.

Viability scenarios and assumptions

In performing the viability analysis, the Directors have considered a ‘Base Case’ scenario which is based on a gradual improvement in demand during 2021 as vaccines become more widely

available, and a steady but gradual improvement to the end of 2023 by when RevPAR is expected to reach 90% of 2019 levels. The assumptions applied in the viability assessment are consistent with those used for Group planning purposes and for impairment testing (see further detail on page 135).

The Directors have also considered a ‘Downside Case’ scenario, which assumes a slower impact from vaccine rollout and is based on the performance of the second half of 2020 continuing throughout 2021, with the recovery to 2019 levels starting in 2022.

The key assumption included in the three-year plan relates to RevPAR growth which is explained above. The Board has stated that consideration of dividends has been deferred until visibility of the pace and scale of the market recovery improves and for the purposes of this analysis no dividends have been assumed in the period under review.

Principal risks

In assessing the viability of the Group, the Directors have considered the impact of the principal risks as outlined on pages 36 to 41. A large number of the principal risks would result in an impact on RevPAR which is the main scenario modelled in the ‘Downside Case’. These risks include: preferred brands and loyalty, leadership and talent, channel management and technology platforms, investment effectiveness and efficiency, macro external factors, environmental and social megatrends, safety and security and financial management and control systems.

There are other principal risks that could result in a large one-off incident that has a material impact on cash flow and the income statement. These include cybersecurity and information governance and legal, regulatory and ethical compliance. The impact of these has been considered in the viability assessment.

Funding

The Group has taken steps to strengthen its liquidity during 2020. The existing covenants on it’s syndicated and bilateral revolving credit facilities (‘the bank facilities’) have been waived or amended until December 2022. See note 24 for further details.

The other assumptions relating to debt maturities are as follows:

 

The $1.35bn bank facilities mature in September 2023. It has been assumed that these facilities are renewed as they mature.

 

£600m of CCFF due in March 2021 is repaid on maturity.

 

£173m of bonds due in November 2022 are repaid on maturity.

No other new or additional financing has been assumed in the analysis performed.

Viability assessment

Under the Base Case the Group is forecast to generate positive cash flows over the 2021-2023 period and the bank facilities remain undrawn. The principal risks which could be applicable have been considered and are able to be absorbed within the $400m liquidity covenant and amended covenant requirements.

Under the Downside Case the Group is also forecast to generate positive cash flows over the 2021-2023 period and the bank facilities remain undrawn. In this scenario, the Group could be at risk of breaching the covenant requirements in 2023 (which have not been amended at this time). However, additional actions could be taken in order to mitigate this risk such as reductions in discretionary spend.

In the Downside Case, the Group has substantial levels of existing cash reserves available and is not expected to draw on the bank facilities. The Directors reviewed a reverse stress test scenario to determine how much additional RevPAR downside could be absorbed before utilisation of the bank facilities would be required. The Directors concluded that the outcome of the reverse stress test showed it was very unlikely the bank facilities would need to be drawn and therefore the Group does not need to rely on the additional liquidity provided by the bank facilities. This means that in the event the covenant test was failed, the bank facilities could be cancelled by the lenders but would not trigger a repayment demand which threatened the viability of the Group.

In the event that a further covenant amendment was required, the Directors believe it is reasonable to expect that such an amendment could be obtained based on their prior experience in relation to negotiating the 2020 amendments. The Group also has alternative options to manage this risk including raising additional funding in the capital markets.

In the event of additional or multiple principal risks occurring during the period of review e.g. continued depressed RevPAR and a widespread cybersecurity incident, it is expected that these risks could be absorbed within the liquidity headroom available without relying on the additional liquidity provided by the bank facilities.

Conclusion

The Directors have assessed the viability of the Group over a three-year period to

31 December 2023, taking account of the Group’s current position, the Group’s strategy and the principal risks documented in the Strategic Report. Based on this assessment, the Directors have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period to 31 December 2023.

 

 

a 

Definitions for Non-GAAP measures can be found on pages 47 to 51.

 

42   IHG  |  Annual Report and Form 20-F 2020


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Key performance indicators (KPIs)

 

Our KPIs are carefully selected to allow us to monitor the delivery of our strategy and long-term success. They remain organised around our refreshed strategy, which articulates our purpose and ambition and our four main priorities, (see page 16). KPIs are reviewed annually by senior management to ensure continued alignment to our strategy and are included in internal reporting and regularly monitored. Measures included are those considered most relevant

 

in assessing the performance of the business and relate to our growth agenda and commitment to our key stakeholders including owners, guests, employees, shareholders and the communities in which we work. KPIs should be read in conjunction with the other sections of the Strategic Report, and where applicable, references to specific relevant topics are noted against each KPI.

 

 

   

 

A guide to this KPI section

 

      
    

Link between KPIs and Director remuneration

Whilst performance was impacted by Covid-19 in 2020, our long-term focus remained to deliver high-quality growth and, as in prior years, Directors’ remuneration for 2020 was directly related to key aspects of our strategy. The following indicates which KPIs have impacted Directors’ remuneration:

 

LOGO The Annual Performance Plan

 

  70% was linked to operating profit from reportable segments

 

  30% was linked to strategic focus on improvements in net System size growth

 

LOGO The Long Term Incentive Plan

 

  40% was linked to Total Shareholder Return

 

  20% was linked to rooms growth

 

  20% was linked to total gross revenue growth

 

  20% was linked to cash flow generation

 

LOGO   For more information on Directors’ remuneration see pages 96 to 111.

 
       
 

 

 
 

Link to our strategy

In 2020 we evolved some key elements of our strategy (see pages 16 to 20 for more information). This evolution included definition of four strategic priorities, represented as follows:

 

 

LOGO

Build loved and

trusted brands

 

LOGO

Customer centric

in all we do

 

LOGO

Create digital

advantage

  

LOGO

Care for our people, communities and planet

 

 

KPIs            2020 status and 2021 priorities

 

    

 

Net rooms supply

Net total number of rooms in the IHG System.

 

Increasing our rooms supply provides significant advantages of scale, including increasing the value of our loyalty programme. This measure is a key indicator of achievement of our growth agenda (see page 16).

  LOGO     

2020 status

Grew net System size by 0.3%, impacted by a slower pace of openings due to Covid-19 disruption to non-essential activity and removal of 16.7k rooms (102 hotels) associated with the SVC portfolioa, taking total rooms supply to 886,036 rooms. Net System size grew +2.2% excluding the impact of the SVC portfolio termination.

 

Signings of 56,146 rooms (360 hotels) represented almost one hotel a day but a decrease of 43% on 2019 levels, as Covid-19 disrupted all regions, particularly impacting Americas and EMEAA. Greater China maintained solid performance throughout 2020 with a reduction of only 21%.

 

Overall performance was driven by:

 

 

Signings

Gross total number of rooms added to the IHG pipeline.

 

Continued signings secure the future growth of our System and continued efficiencies of scale. Signings indicate our ability to deliver sustained growth (see page 16).

 

 

LOGO

    

  Continued strength of the Holiday Inn Brand Family with 47.3k rooms opened and 26.6k signed, representing half of all signings.

 

  Conversions, representing ~25% of all signings and ~25% of openings.

 

  Further growth of our recently launched brands with:

 

–  avid hotels adding 17 openings and 19 signings in 2020 taking the total estate to 24 hotels open with a further 192 in the pipeline;

 

–  voco hotels growing to 18 hotels opened by the end of 2020, with a total of 37 signed since launch. Openings included the first hotels in the Americas (three signings) and Greater China (two signings); and

 

–  Atwell Suites growing at pace, with nine further signings and breaking ground on the first hotel in Miami.

 

  Total removals of 36.9k including 2.1k rooms associated with a previously flagged portfolio in Germany, 16.7k rooms (102 hotels) associated with the SVC portfolioa, and ongoing focus on quality.

 

2021 priorities

  Continued focus on our ambition to deliver industry-leading net System size growth, whilst protecting our longer-term growth prospects by ensuring the health of our brands and consistent quality of the estate.

 

  Continue to scale avid hotels in the US and voco hotels globally.

 

  Open the first Atwell Suites hotels in the US and continue to scale the brand.

 

  Continue to expand our Luxury & Lifestyle offer through acquired brands Regent, Six Senses and Kimpton.

 

    

 

 

a 

A portfolio of management agreements with Services Properties Trust (‘SVC’) was terminated on 30 November 2020.

 

LOGO

 

 

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Strategic Report

Key performance indicators (KPIs) continued

    

 

KPIs            2020 status and 2021 priorities

 

    

 

Global RevPAR growth

Revenue per available room: rooms revenue divided by the number of room nights that are available.

 

RevPAR growth indicates the increased value guests ascribe to our brands in the markets in which we operate and is a key measure widely used in our industry (see page 8).

  LOGO     

2020 status

  RevPAR declined by an unprecedented level due to the global impact of Covid-19 on domestic and international travel demand, with disruption throughout the year as countries around the world introduced travel restrictions to limit the spread of the pandemic.

 

  Throughout the crisis we supported owners to maximise revenues by:

 

–  Providing advice and support to help keep hotels open, including how to flex operations and reduce costs, or how to temporarily close and re-open most efficiently and effectively.

 

–  Coordinating Covid-related demand, such as government repurposing of hotels with enhancements made to demand driver mapping, rate loading and centralised booking to manage urgent and bespoke needs.

 

  Enterprise contribution (previously defined as system contribution) had been growing each year. However in 2020, as a direct result of Covid-19, a greater number of guests chose to phone hotels direct in order to check for the latest updates and availability, or drive straight to hotels without any advanced booking. Our Enterprise Contribution metric therefore declined marginally but the overall strength of our brand equity continued to be reflected in direct to hotel business.

 

  Enhanced and leveraged our technology and loyalty platforms and services to drive revenue by:

 

–  Optimising our Revenue Management for Hire (RMH) services using machine learning technology, to provide enhanced capabilities to help owners protect pricing and returns during periods of volatile demand.

 

–  Commencing rollout of digital check-in, implemented in over 1,000 properties, and digital check-out, implemented in 4,000 hotels worldwide, and piloted other mobile-enabled improvements including in-room dining orders.

 

–  Expanded pilot of attribute pricing via IHG Concerto platform, across regions and brands, ahead of full roll out in 2021.

 

–  Enhancing our Owner Engagement Portals to provide real-time scorecard metrics to our global owner community, including Guest Love measures, RevPAR, financial and operational performance with recommendations for action.

 

–  Commencing roll out of dynamic pricing for Reward Nights, with rates now set daily, enabling more than 80% of hotels to reduce their points pricing to deliver around 25% more value for guests outside of peak times, leading to increased penetration since launch.

 

  Further strengthened IHG Rewards by completing integration of Mr & Mrs Smith partnership, allowing members access to over 400 Mr & Mrs Smith hotels at which to earn and redeem points.

 

  Launched a new, sharper, more engaging identity under IHG Hotels & Resorts to strengthen perception, making a clearer connection to our hotels and better promoting the breadth of our portfolio.

 

2021 priorities

  Apply focused data analytics to drive more efficient and effective marketing to identify and target available demand during the recovery.

 

  Complete roll out of attribute pricing across the entire estate via IHG Concerto.

 

  Continue roll out of digital check-in to 4,500 hotels by the end of the year.

 

  Continue to develop strategic partnerships to enhance the value of our loyalty programme for members.

 

  Continue to innovate our loyalty offering including in-hotel experiences and brand integrations, to provide greater opportunities for our members to earn and redeem IHG Rewards points.

 

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

Growth in underlying fee revenuesa,b

Group revenue from reportable segments excluding revenue from owned, leased and managed lease hotels, significant liquidated damages and current year acquisitions, stated at constant currency.

 

Underlying fee revenue growth demonstrates the continued attractiveness to owners and guests of IHG’s franchised and managed business (see page 13).

  LOGO  

Total gross revenue from hotels in IHG’s Systemb

Total rooms revenue from franchised hotels and total hotel revenue from managed, owned, leased and managed lease hotels. Other than for owned, leased and managed lease hotels, it is not revenue wholly attributable to IHG, as it is mainly derived from hotels owned by third parties.

 

The growth in gross revenue from IHG’s System illustrates the value of our overall System to our owners (see page 14).

  LOGO  

Enterprise contribution to revenuec

The percentage of room revenue booked through IHG managed channels and sources: direct via our websites, apps and call centres; through our interfaces with Global Distribution Systems (GDS) and agreements with Online Travel Agencies (OTAs); other distribution partners directly connected to our reservation system; and Global Sales Office business or IHG Reward members that book directly at a hotel.

 

Enterprise contribution is one indicator of IHG value-add and the success of our technology platforms and our marketing, sales and loyalty distribution channels (see page 13).

  LOGO  

 

    

 

 

a 

In 2019 the underlying fee revenue calculation was restated for 2017 onwards following a change in the definition of how we calculate constant currency. The 2017 and 2016 growth figures are not comparable and thus excluded from comparison.

 

b 

Use of Non-GAAP measures: In addition to performance measures directly observable in the Group Financial Statements (IFRS measures), additional financial measures (described as Non-GAAP) are presented that are used internally by management as key measures to assess performance. Non-GAAP measures are either not defined under IFRS or are adjusted IFRS figures. Further explanation in relation to these measures can be found on pages 47 to 51 and reconciliations to IFRS figures, where they have been adjusted, are on pages 212 to 216. A reconciliation of total gross revenue to owned, leased and managed lease revenue as recorded in the Group Financial Statements can be found on page 53.

 

c 

In 2020, changes were made to the calculation of enterprise contribution (previously system contribution) and 2019 was restated. This followed an enhanced level of analysis enabled by the roll out of the new Guest Reservation System (GRS). Restatement of years prior to the implementation of the GRS is not possible. The 2019 enterprise contribution of 76% is 3% lower than the 79% previously reported as system contribution under the prior calculation. We would not anticipate a material impact of the change in prior years.

 

44   IHG  |  Annual Report and Form 20-F 2020


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KPIs            2020 status and 2021 priorities

 

    

 

Guest Love

IHG’s guest satisfaction measurement indicator.

 

Guest satisfaction is fundamental to our continued success and is a key measure to monitor the risk of failing to deliver preferred brands that meet guests’ expectations (see page 37 for details).

  LOGO     

2020 status

  Guest satisfaction of 81.6% dropped minimally compared to 2019, a successful outcome given the substantial changes to the guest experience resulting from Covid-19. Additionally, the externally measured Guest Satisfaction Index (GSI) was net positive for IHG in 2020.

 

  Introduced additional Covid-19 cleanliness-specific guidance to protect our frontline hotel colleagues and enable them in turn to deliver clean and safe hotels for all our guests.

 

  Rolled out training, information and new equipment including social distancing operating procedures and signage, front desk screens, sanitiser stations and reduced contact at check-in.

 

  Enhanced IHG Way of Clean programme by partnering with industry leading experts to enhance guest safety and trust in our cleanliness and launched IHG Clean Promise.

 

  Leveraged our prior investment in the cloud-based Concerto GRS platform, implemented across the entire global estate, to remotely and rapidly deploy further technological developments to support a safe and secure guest experience and reduce unnecessary contact.

 

  Waived cancellation fees and created a Book Now Pay Later option and allowed members to keep status for 2020 to enhance the flexibility of our loyal guests.

 

  Launched a special Heroes rate for government workers, healthcare professionals, the military and other frontline worker groups.

 

2021 priorities

  Continue to invest in brand innovation, including room design and F&B enhancements to meet evolving guest needs.

 

  Ensure that, whilst driving strong rooms supply growth, we maintain a high level of guest satisfaction across our entire portfolio through a heightened focus on quality and cleanliness standards.

 

  Continue to invest behind digitisation of the guest journey and improve on-property processes to improve guest satisfaction and streamline hotel operations.

 

 

    

 

Fee margina,b

Operating profit as a percentage of revenue, excluding System Fund, reimbursement of costs, revenue and operating profit from owned, leased and managed lease hotels, significant liquidated damages, the results of the Group’s captive insurance company and exceptional items.

 

Our fee margin progression indicates the profitability of our fee revenue growth and benefit of our asset-light business model (see page 12).

  LOGO     

2020 status

  Fee margin was impacted by the substantial impacts of Covid-19 on fee revenue, however rapid cost actions taken across the business to protect profitability maintained fee margin in excess of 34%, despite the unprecedented disruption.

 

  Actions taken to reduce salary and incentives and challenge all areas of discretionary spend delivered ~$150m of fee business cost savings.

 

  Commenced activities to sustainably embed ~50% of 2020 costs savings through ongoing control of discretionary spend and a re-balancing of resources to meet expected demand.

 

2021 priorities

  Embed 50% of savings generated in 2020 (~$75m), continuing our strong cost and efficiency focus, whilst continuing to invest in growth initiatives.

 

  Continue to look for further operational efficiencies through greater application of technology.

 

 

    

 

Free cash flowb

Cash flow from operating activities excluding payments of contingent purchase consideration, less purchase of shares by employee share trusts, maintenance capital expenditure and lease payments.

 

Free cash flow provides funds to invest in the business, sustainably grow the dividend and return any surplus to shareholders (see page 15). It is a key component in measuring the ongoing viability of our business (see page 42).

  LOGO     

2020 status

  Free cash flow of $29m was down $480m year-on-year with significant reductions in revenues driven by Covid-19, together with a System Fund outflow, partially offset by cost saving measures taken across the Group and a working capital inflow, following proactive management through the year.

 

  Impact of Covid-19 on cash flow mitigated through cost saving actions taken across both the P&L and System Fund to reduce salaries and incentives and challenge discretionary spend.

 

  Gross capex reduced by $117m year-on-year to $148m outflow.

 

  Sustained focus on accounts receivable, cash management and liquidity through the crisis delivered positive free cash flow in 2020 and resulted in closing liquidity of ~$2.9bn.

 

2021 priorities

  Continued cost focus, maintaining challenge around all areas of discretionary spend and prioritising investment behind growth.

 

  Continued focus on accounts receivable to maintain robust cash position.

 

  Tightly controlled, disciplined capex deployment.

 

    

 

 

a 

In 2019 the fee margin calculation was restated for 2017 onwards following implementation of IFRS 16 ‘Leases’. The 2016 figure is not comparable and is thus excluded from comparison.

 

b 

Use of Non-GAAP measures: In addition to performance measures directly observable in the Group Financial Statements (IFRS measures), additional financial measures (described as Non-GAAP) are presented that are used internally by management as key measures to assess performance. Non-GAAP measures are either not defined under IFRS or are adjusted IFRS figures. Further explanation in relation to these measures can be found on page 47 to 51 and reconciliations to IFRS figures, where they have been adjusted, are on pages 212 to 216.

 

LOGO

 

 

Key performance indicators   IHG  |  Annual Report and Form 20-F 2020   45


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Strategic Report

Key performance indicators (KPIs) continued

    

 

KPIs            2020 status and 2021 priorities

 

    

 

IHG® Academy

Number of people participating in IHG Academy programmes.

 

Sustained participation in the IHG Academy indicates the strength of our progress in creating career building opportunities and engagement with the communities in which we operate (see page 29).

  LOGO     

2020 status

  Covid-19 significantly impacted the vast majority of IHG Academy face-to-face offerings such as internships and work experience. In some locations we pivoted our offering to deliver online events, introducing participants to IHG and the hospitality industry through virtual challenges.

 

  Evolved our partnership with Junior Achievement Worldwide, offering young people opportunities to gain skills and experience, empowering them to consider career opportunities in the industry, pivoting to virtual solutions.

 

2021 priorities

  Continue to provide skills and improved employability through IHG Academy, ensuring a positive impact for local communities, our owners and IHG. We will flex our approach to delivery between face-to-face and virtual solutions depending on regional recovery.

 

  Launch a Global IHG Academy NGO Portal hosting a variety of resources bespoke to entry level participants. NGOs can use the resource to educate participants about the hospitality industry, increase their awareness of IHG, and develop their skills to ensure a great start in the hospitality industry.

 

  Drive quality growth in the programme through enabling our regional teams to measure impact through a robust reporting solution and convert IHG Academy hires into employees.

 

    

 

Carbon footprint per occupied room (CPOR)a

We work with our hotels to drive energy efficiency and carbon reductions across our estate. In 2017, we set ourselves a target to reduce CPOR by 6-7% by 2020. This is therefore the last reporting year against this target, while we shift our focus towards achieving our science-based carbon reduction targets to 2030 (see page 29).

  LOGO     

2020 status

  At the end of 2019, we reported a 5.9%a reduction in CPOR against our 2017 baseline, nearly meeting our three-year intensity target a year early.

 

  CPOR was significantly affected by the impacts of Covid-19 on our industry, and 2020 closed with a 10.2% increase against our 2017 baseline. Over the same period, our absolute carbon emissions fell by 23.6% (see page 29). This was largely due to the impacts of Covid-19, but also in part a result of targeted efforts in our estate to help minimise energy consumption during hotel closures and maximise energy efficiency at re-opening.

 

2021 priorities

  Continue to work with our hotels to maximise energy efficiency and reduce our carbon footprint.

 

  Use a bespoke decarbonisation tool, developed with a third party during 2020, to model the possible impacts of different interventions on our carbon footprint and develop a roadmap to 2030.

 

  Enhance our environmental reporting systems, to continue building more robust and complete datasets, and providing more detailed performance insights and guidance for our hotels to support continuous improvement.

 

  Assess renewable energy opportunities for IHG to maximise/optimise the role of renewable energy in achieving our carbon reduction targets.

 

    

 

Employee engagement survey scoresb

Revised Colleague HeartBeat survey, completed by our corporate, customer reservations office and managed hotel general managers (excluding our joint ventures).

 

We measure employee engagement to monitor risks relating to talent (see page 38) and to help us understand the issues that are relevant to our people as we build a diverse and inclusive culture (see page 28).

  LOGO     

2020 status

  The 2020 score of 79% was 2% higher than external benchmarks.

 

  In response to the pandemic our priorities pivoted to developing training, tools and support to maintain colleague engagement during remote working and furlough, including flexible learning summits, ‘keeping in touch’ mechanisms and more frequent leadership communications.

 

  Prioritised support for employee health and wellbeing including:

 

–  creation of an Employee Assistance Programme (EAP), containing details of local support services that employees could call on;

 

–  launch of a resilience and wellbeing newsletter in Greater China plus online resources to assist our support centre employees; and

 

–  monthly dedicated ‘re-charge days’ from June to August for corporate employees to focus on health, wellbeing or personal development.

 

  Established ERGs to champion and drive our diverse, inclusive culture.

 

  Advanced our General Manager talent pipeline by developing new systems and processes to enable visibility of key talent in hotels.

 

2021 priorities

  Build our future career proposition to remain a leading employer within the industry via a compelling employer value proposition.

 

  Engage our corporate employees with our new behaviours to support our future strategy and cultural shifts.

 

  Continue to purposefully grow and develop our corporate Senior Leaders and General Managers to help lead our recovery strategy and future growth.

 

  Continue to build an inclusive culture and increase the diversity of our leadership and talent pipelines to enable IHG to maximise the talents and contributions of all employees.

 

    

 

 

a 

Carbon intensity figures for 2017 to 2019 have been restated in a move to calendar reporting in 2020. Prior reported growth based on previous methodology. The 2016 figure could not be restated.

 

b 

Due to the complexity of survey administration in hotels during the pandemic the employee engagement survey process was amended. The 2020 score reflects the results of a single survey and includes employees in corporate, reservations offices and general managers (in managed hotels). Prior results from 2017 to 2019 have been restated for comparability to exclude the results of surveys from the managed estate, other than general managers. The 2016 survey results could not be restated.

 

46   IHG  |  Annual Report and Form 20-F 2020


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Performance

 

Key performance measures (including Non-GAAP measures) used by management

The Annual Report and Form 20-F presents certain financial measures when discussing the Group’s performance which are not measures of financial performance or liquidity under International Financial Reporting Standards (IFRS). In management’s view these measures provide investors and other stakeholders with an enhanced understanding of IHG’s operating performance, profitability, financial strength and funding requirements. These measures do not have standardised meanings under IFRS, and companies do not necessarily calculate these in the same way. Accordingly, they should be viewed as complementary to, and not as a substitute for, the measures prescribed by IFRS and as included in the Group Financial Statements (see pages 126 to 132).

 

         
     Linkage of performance measures to Directors’ remuneration and KPIs   LOGO  

See pages 96 to 111 for more

information on Directors’

remuneration and pages

43 to 46 for more

information on KPIs.

 

             
  LOGO   The Annual Performance Plan   LOGO   The Long Term Incentive Plan   LOGO   Key Performance Indicators  
             
             

 

Measure       Commentary

 

   

 

Global revenue per available room (RevPAR) growth

LOGO

RevPAR, average daily rate and occupancy statistics are disclosed on pages 217 to 218.

        

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

 

RevPAR comprises IHG’s System (see Glossary, page 249) rooms revenue divided by the number of room nights available and can be derived from occupancy rate multiplied by average daily rate (ADR). ADR is rooms revenue divided by the number of room nights sold.

 

References to RevPAR, occupancy and ADR are presented on a comparable basis, comprising groupings of hotels that have traded in all months in both the current and prior year. The principal exclusions in deriving this measure are new hotels (including those acquired), hotels closed for major refurbishment and hotels sold in either of the two years. These measures include the adverse impact of hotels temporarily closed as a result of Covid-19.

 

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

 

 

   

 

Total gross revenue from hotels in IHG’s System

LOGO

Owned, leased and managed lease revenue as recorded in the Group Financial Statements is reconciled to total gross revenue on page 53.

   

Total gross revenue is revenue not wholly attributable to IHG, however, management believes this measure is meaningful to investors and other stakeholders as it provides a measure of System performance, giving an indication of the strength of IHG’s brands and the combined impact of IHG’s growth strategy and RevPAR performance.

 

Total gross revenue refers to revenue which IHG has a role in driving and from which IHG derives an income stream. IHG’s business model is described on pages 12 to 15. Total gross revenue comprises:

 

  total rooms revenue from franchised hotels;

 

  total hotel revenue from managed hotels including food and beverage, meetings and other revenues and reflects the value IHG drives to managed hotel owners by optimising the performance of their hotels; and

 

  total hotel revenue from owned, leased and managed lease hotels.

 

Other than total hotel revenue from owned, leased and managed lease hotels, total gross hotel revenue is not revenue attributable to IHG as these managed and franchised hotels are owned by third parties.

 

 

   

 

Revenue and operating profit measures

The reconciliation of the most directly comparable line item within the Group Financial Statements (i.e. total revenue and operating profit, accordingly) to the non-IFRS revenue and operating profit measures is included on pages 212 to 215.

   

Revenue and operating profit from (1) fee business and (2) owned, leased and managed lease hotels, are described as ‘revenue from reportable segments’ and ‘operating profit from reportable segments’, respectively, within note 2 to the Group Financial Statements. These measures are presented for each of the Group’s regions.

 

Management believes revenue and operating profit from reportable segments is meaningful to investors and other stakeholders as it excludes the following elements and reflects how management monitors the business:

 

  System Fund – the Fund is not managed to generate a profit or loss for IHG over the longer term, but is managed for the benefit of the hotels within the IHG System. As described within the Group’s accounting policies (page 139), the System Fund is operated to collect and administer cash assessments from hotel owners for the specific purpose of use in marketing, the Guest Reservation System and hotel loyalty programme.

 

 

   

 

 

LOGO

 

 

Performance   IHG  |  Annual Report and Form 20-F 2020   47


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Strategic Report

Performance continued

    

    

 

Measure

 

Commentary

Revenue and operating profit measures continued  

  Revenues related to the reimbursement of costs – as described within the Group’s accounting policies (page 139), there is a cost equal to these revenues so there is no profit impact. Cost reimbursements are not applicable to all hotels and growth in these revenues is not reflective of growth in the performance of the Group. As such, management do not include these revenues in their analysis of results.

 

  Exceptional items – these are identified by virtue of either their size, nature, or incidence and can include, but are not restricted to, gains and losses on the disposal of assets, impairment charges and reversals, and reorganisation costs. As each item is different in nature and scope, there will be little continuity in the detailed composition and size of the reported amounts which affect performance in successive periods. Separate disclosure of these amounts facilitates the understanding of performance including and excluding such items.

  In further discussing the Group’s performance in respect of revenue and operating profit, additional non-IFRS measures are used and explained further below:
 

  Underlying revenue;

 

  Underlying operating profit;

 

  Underlying fee revenue; and

 

  Fee margin.

  Operating profit measures are, by their nature, before interest and tax. Management believes such measures are useful for investors and other stakeholders when comparing performance across different companies as interest and tax can vary widely across different industries or among companies within the same industry. For example, interest expense can be highly dependent on a company’s capital structure, debt levels and credit ratings. In addition, the tax positions of companies can vary because of their differing abilities to take advantage of tax benefits and because of the tax policies of the various jurisdictions in which they operate.
  Although management believes these measures are useful to investors and other stakeholders in assessing the Group’s ongoing financial performance and provide improved comparability between periods, there are limitations in their use as compared to measures of financial performance under IFRS. As such, they should not be considered in isolation or viewed as a substitute for IFRS measures. In addition, these measures may not necessarily be comparable to other similarly titled measures of other companies due to potential inconsistencies in the methods of calculation.

 

 

 

Underlying revenue and underlying operating profit  

These measures adjust revenue from reportable segments and operating profit from reportable segments, respectively, to exclude revenue and operating profit generated by owned, leased and managed lease hotels which have been disposed, and significant liquidated damages, which are not comparable year-on-year and are not indicative of the Group’s ongoing profitability. The revenue and operating profit of current year acquisitions are also excluded as these obscure underlying business results and trends when comparing to the prior year. In addition, in order to remove the impact of fluctuations in foreign exchange, which would distort the comparability of the Group’s operating performance, prior year measures are restated at constant currency using current year exchange rates.

 

Management believes these are meaningful to investors and other stakeholders to better understand comparable year-on-year trading and enable assessment of the underlying trends in the Group’s financial performance.

 

 

 

Underlying fee revenue growth

LOGO

  Underlying fee revenue is used to calculate underlying fee revenue growth. Underlying fee revenue is calculated on the same basis as underlying revenue as described above but for the fee business only.
  Management believes underlying fee revenue is meaningful to investors and other stakeholders as an indicator of IHG’s ability to grow the core fee-based business, aligned to IHG’s asset-light strategy.

 

 

 

 

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Measure

 

Commentary

Fee margin

LOGO

  Fee margin is presented at actual exchange rates and is a measure of the profit arising from fee revenue. Fee margin is calculated by dividing ‘fee operating profit’ by ‘fee revenue’. Fee revenue and fee operating profit are calculated from the revenue from reportable segments and operating profit from reportable segments, as defined above, adjusted to exclude the revenue and operating profit from the Group’s owned, leased and managed lease hotels and significant liquidated damages.
  In addition, fee margin is adjusted for the results of the Group’s captive insurance company, where premiums are intended to match the expected claims over the longer term (see page 138 to the Group Financial Statements), and as such these amounts are adjusted from the fee margin to better depict the profitability of the fee business.
  Management believes fee margin is meaningful to investors and other stakeholders as an indicator of the sustainable long-term growth in the profitability of IHG’s core fee-based business, as the scale of IHG’s operations increases with growth in IHG’s System size.

 

 

 

Adjusted interest

Financial income and financial

expenses as recorded in the Group Financial Statements is reconciled to adjusted interest on page 216.

 

Adjusted interest is presented before exceptional items and excludes the following items of interest which are recorded within the System Fund:

 

 

  IHG records an interest charge on the outstanding cash balance relating to the IHG Rewards programme. These interest payments are recognised as interest income for the Fund and interest expense for IHG.

 

 

  The System Fund also benefits from the capitalisation of interest related to the development of the next-generation Guest Reservation System.

 

As the Fund is included on the Group income statement, these amounts are included in the reported net Group financial expenses, reducing the Group’s effective interest cost. Given results related to the System Fund are excluded from adjusted measures used by management, these are excluded from adjusted interest and adjusted earnings per ordinary share (see below).

 

Management believes adjusted interest is a meaningful measure for investors and other stakeholders as it provides an indication of the comparable year-on-year expense associated with financing the business including the interest on any balance held on behalf of the System Fund.

 

 

 

Tax excluding the impact of exceptional items and System Fund

A reconciliation of the tax charge as recorded in the Group Financial Statements to tax excluding the impact of exceptional items and System Fund can be found in note 8 to the Group Financial Statements on page 158.

 

As outlined above, exceptional items can vary year-on-year and, where subject to tax at a different rate than the Group as a whole, they can therefore impact the current year’s tax charge. The System Fund is not managed to a profit or loss for IHG over the longer term and is, in general, not subject to tax either.

 

Management believes removing these provides a better view of the Group’s underlying tax rate on ordinary operations and aids comparability year-on-year, thus providing a more meaningful understanding of the Group’s ongoing tax charge.

 

 

 

Adjusted earnings per ordinary share

Basic earnings per ordinary share as recorded in the Group Financial Statements is reconciled to adjusted earnings per ordinary share in note 10 to the Group Financial Statements on page 163.

 

Adjusted earnings per ordinary share adjusts the profit available for equity holders used in the calculation of basic earnings per share to remove System Fund revenue and expenses, the items of interest related to the System Fund as excluded in adjusted interest (above), change in fair value of contingent purchase consideration, exceptional items, and the related tax impacts of such adjustments.

 

  Management believes that adjusted earnings per share is a meaningful measure for investors and other stakeholders as it provides a more comparable earnings per share measure aligned with how management monitors the business.

 

 

 

 

LOGO

 

 

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Strategic Report

Performance continued

    

    

 

Measure

 

Commentary

Net debt

Net debt is included in note 23 to the Group Financial Statements.

  Net debt is used in the monitoring of the Group’s liquidity and capital structure and is used by management in the calculation of the key ratios attached to the Group’s bank covenants and with the objective of maintaining an investment grade credit rating (see page 14 for further discussion). Net debt is used by investors and other stakeholders to evaluate the financial strength of the business.
  Net debt comprises loans and other borrowings, lease liabilities, the exchange element of the fair value of derivatives hedging debt values, less cash and cash equivalents.

 

 

 

Adjusted EBITDA

Operating profit recorded in the

Group Financial Statements is reconciled to adjusted EBITDA on page 216.

 

Adjusted EBITDA has been added as a measure in 2020 as it has become an increasingly useful measure to investors for comparing the performance of different companies.

 

  One of the key measures used by the Group in monitoring its debt and capital structure is the net debt: adjusted EBITDA ratio, which is managed with the objective of maintaining an investment grade credit rating. The Group has a stated aim of maintaining this ratio at 2.5-3.0x. Adjusted EBITDA is defined as operating profit, excluding System Fund revenues and expenses, exceptional items and depreciation and amortisation.
  Adjusted EBITDA is useful to investors and other stakeholders for comparing the performance of different companies as depreciation, amortisation and exceptional items are eliminated. It can also be used as an approximation of operational cash flow generation. This measure is relevant to the Group’s banking covenants, which have been waived until 31 December 2021. Details of covenant levels and performance against these is provided in note 24 to the Group Financial Statements. The leverage ratio uses a Covenant EBITDA measure which is calculated on a ‘frozen GAAP’ basis, which excludes the effect of IFRS 16.

 

 

 

Gross capital expenditure, net capital expenditure, free cash flow

The reconciliation of the Group’s statement of cash flows (i.e. net cash from investing activities, net cash from operating activities, accordingly) to the non-IFRS capital expenditure and cash flow measures are included on pages 215 to 216.

  These measures have limitations as they omit certain components of the overall cash flow statement. They are not intended to represent IHG’s residual cash flow available for discretionary expenditures, nor do they reflect the Group’s future capital commitments. These measures are used by many companies, but there can be differences in how each company defines the terms, limiting their usefulness as a comparative measure. Therefore, it is important to view these measures only as a complement to the Group statement of cash flows.

 

 

 

Gross capital expenditure   Gross capital expenditure represents the consolidated capital expenditure of IHG inclusive of System Fund capital investments (see page 15 for a description of System Fund capital investments and recent examples).
  Gross capital expenditure is defined as net cash from investing activities, adjusted to include contract acquisition costs (key money). In order to demonstrate the capital outflow of the Group, cash flows arising from any disposals or distributions from associates and joint ventures are excluded. The measure also excludes any material investments made in acquiring businesses, including any subsequent payments of deferred or contingent purchase consideration included within investing activities, which represent ongoing payments for acquisitions.
  Gross capital expenditure is reported as either maintenance, recyclable, or System Fund. This disaggregation provides useful information as it enables users to distinguish between:
 

  System Fund capital investments which are strategic investments to drive growth at hotel level;

 

  recyclable investments (such as investments in associates and joint ventures), which are intended to be recoverable in the medium term and are to drive the growth of the Group’s brands and expansion in priority markets; and

 

  maintenance capital expenditure (including contract acquisition costs), which represents a permanent cash outflow.

  Management believes gross capital expenditure is a useful measure as it illustrates how the Group continues to invest in the business to drive growth. It also allows for comparison year-on-year.

 

 

 

 

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Measure

 

Commentary

Net capital expenditure   Net capital expenditure provides an indicator of the capital intensity of IHG’s business model. Net capital expenditure is derived from net cash from investing activities, adjusted to include contract acquisition costs (net of repayments) and to exclude any material investments made in acquiring businesses, including any subsequent payments of deferred or contingent purchase consideration included within investing activities, which represent ongoing payments for acquisitions. Net capital expenditure includes the inflows arising from any disposal receipts, or distributions from associates and joint ventures.
  In addition, System Fund depreciation and amortisation relating to property, plant and equipment and intangible assets, respectively, is added back, reducing the overall cash outflow. This reflects the way in which System Funded capital investments are recharged to the System Fund, over the life of the asset (see page 15).
  Management believes net capital expenditure is a useful measure as it illustrates the net capital investment by IHG, after taking into account capital recycling through asset disposal and the funding of strategic investments by the System Fund. It provides investors and other stakeholders with visibility of the cash flows which are allocated to long-term investments to drive the Group’s strategy.

 

 

 

Free cash flow

LOGO

  Free cash flow is net cash from operating activities adjusted for: (1) the inclusion of the cash outflow arising from the purchase of shares by employee share trusts reflecting the requirement to satisfy incentive schemes which are linked to operating performance; (2) the inclusion of maintenance capital expenditure (excluding contract acquisition costs); (3) the inclusion of the principal element of lease payments; and (4) the exclusion of payments of deferred or contingent purchase consideration included within net cash from operating activities.
  In 2016, free cash flow was also adjusted for the cash receipt arising from the renegotiation of a long-term partnership agreement.
  Management believes free cash flow is a useful measure for investors and other stakeholders, as it represents the cash available to invest back into the business to drive future growth and pay the ordinary dividend, with any surplus being available for additional returns to shareholders.

 

 

 

 

LOGO   The performance review should be read in conjunction with the Non-GAAP
reconciliations on pages 212 to 218 and the Glossary on pages 248 to 249.
 

 

LOGO

 

 

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Strategic Report

    

 

Performance continued

Group

    

Group results

 

                                                12 months ended 31 December 
                                       2020
$m
                                      2019
$m
                         2020 vs 2019
% change
                                      2018
$m
                         2019 vs 2018 
% change 
Revenuea                                                   
Americas        512          1,040          (50.8        1,051        (1.0)
EMEAA        221          723          (69.4        569        27.1 
Greater China        77          135          (43.0        143        (5.6)
Central        182          185          (1.6        170        8.8 
Revenue from reportable segments        992          2,083          (52.4        1,933        7.8 
System Fund revenues        765          1,373          (44.3        1,233        11.4 
Reimbursement of costs        637          1,171          (45.6        1,171        – 
Total revenue        2,394          4,627          (48.3        4,337        6.7 
Operating profita                                                   
Americas        296          700          (57.7        673        4.0 
EMEAA        (50        217          (123.0        206        5.3 
Greater China        35          73          (52.1        70        4.3 
Central        (62        (125        (50.4        (117      6.8 
Operating profit from reportable segments        219          865          (74.7        832        4.0 
System Fund result        (102        (49        108.2          (146      (66.4)
Operating profit before exceptional items        117          816          (85.7        686        19.0 
Operating exceptional items        (270)          (186        45.2          (104      78.8 
Operating (loss)/profit        (153)          630          (124.3        582        8.2 
Net financial expenses        (140)          (115        21.7          (96      19.8 
Fair value gains/(losses) on contingent purchase consideration        13          27          (51.9        (4      (775.0)
(Loss)/profit before tax        (280)          542          (151.7        482        12.4 
(Loss)/earnings per ordinary share                                                   
Basic        (142.9)¢          210.4¢          (167.9        183.7¢        14.5 
Adjustedb        31.3 ¢         303.3 ¢         (89.7        293.2 ¢       3.4 
Average US dollar to sterling exchange rate        $1: £0.78          $1: £0.78                   $1: £0.75        4.0 

 

Highlights for the year ended

31 December 2020

Covid-19 significantly impacted IHG’s financial performance in 2020, resulting in large RevPAR declines in all regions, commencing in the first quarter as governments across the globe successively imposed significant and wide-reaching restrictions on mobility between and within countries. The peak impact to the Group was witnessed at the beginning of the second quarter at the point where travel and movement restrictions were in place across much of the US and Europe, whilst domestic travel restrictions were starting to be lifted in China. Many hotels were temporarily closed during the height of the first wave of the pandemic with ~15% of IHG’s global estate shut by the end of April. Performance improved into the third quarter, driven by increases in domestic travel in countries that had lifted restrictions, including the US, where our performance has been ahead of

 

the industry. As Covid-19 cases rose through the fourth quarter, particularly in the US and Europe, varying levels of restrictions were reintroduced in several countries, resulting in a slowing in the pace of RevPAR recovery.

Overall, Group comparable RevPARc declined 25% in the first quarter, 75% in the second quarter, 53% in the third quarter, 53% in the fourth quarter and 53% in the full year, all compared to the prior year.

During the year ended 31 December 2020, total revenue decreased by $2,223m (48.3%) to $2,394m, whilst revenue from reportable segments decreased by $1,091m (52.4%) to $992m, due to the significant and wide-ranging impacts of Covid-19 on both fee revenue and revenues from owned, leased and managed lease hotels. Operating profit decreased by $783m (124.3%) to a loss of $153m and profit before tax decreased by $822m (151.7%) to a loss of $280m, driven predominantly by materially lower fee

revenues, significantly lower revenues in the owned, leased and managed lease estate, coupled with a $53m decrease the System Fund result to a $102m deficit, a $84m net increase in operating exceptional charges, and an increase in expected credit losses. These reductions in revenue and increases in charges were partially offset by rapid and decisive action by management to mitigate against the scale and speed of trading disruption through limiting discretionary spend, reducing salaries and incentives, and other targeted cost reductions. The $270m operating exceptional charge was driven principally by: $274m of impairment charges including $48m recognised in relation to trade deposits and loans, $53m recognised in relation to contract assets, $48m recognised in relation to acquired management agreements and $90m recognised in relation to property, plant and equipment, substantially all relating to owned and leased hotel assets. Additionally,

 

 

a 

Americas and EMEAA include revenue and operating profit before exceptional items from both fee business and owned, leased and managed lease hotels. Greater China includes revenue and operating profit before exceptional items from fee business.

 

b 

Definitions for Non-GAAP revenue and operating profit measures can be found on pages 47 to 51. Reconciliations of these measures to the most directly comparable line items within the Group Financial Statements can be found on pages 212 to 215.

 

c 

Comparable RevPAR includes the adverse impact of hotels temporarily closed as a result of Covid-19.

 

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a $52m credit was recognised in related to the derecognition or termination of certain leases. Detail of impairments is described in note 6 of the Group Financial Statements and on pages 135 to 137.

Operating profit from reportable segments decreased by $646m (74.7%) to $219m.

Underlyinga revenue and underlyinga operating profit decreased by $1,071m (52.0%) and $635m (74.7%) respectively.

IHG System size increased by 0.3% to 886,036 rooms, increasing by 2.2% excluding the impact of the exit of hotels associated with the SVC portfolio, whilst underlying fee revenuea decreased by 45.0%.

Fee margina decreased by 20.0 percentage points to 34.1%, impacted by the significant reduction in fee revenue driven by Covid-19, partially offset by targeted cost reductions.

Basic earnings per ordinary share decreased by (167.9)% to a loss per ordinary share of (142.9)¢, whilst adjusteda earnings per ordinary share decreased by 89.7% to 31.3¢.

 

For discussion of 2019 results, and the changes compared to 2018, refer to the 2019 Annual Report and Form 20-F.

 

a 

Definitions for Non-GAAP revenue and operating profit measures can be found on pages 47 to 51. Reconciliations of these measures to the most directly comparable line items within the Group Financial Statements can be found on pages 212 to 215.

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 134 to 137 of the Group Financial Statements.

The Group discloses certain financial information both including and excluding exceptional items. For comparability of the periods presented, some of the performance indicators in this performance review are calculated after eliminating these exceptional items. An analysis of exceptional items is included in note 6 on page 154 of the Group Financial Statements.

 

 

Total gross revenue in IHG’s System

         12 months ended 31 December  
      

 

 

 

                2020

$bn

 

 

 

     

 

 

 

                2019

$bn

 

 

 

     

 

 

 

%

           change

 

 

b 

Analysed by brand                                             
InterContinental        2.0           5.1           (60.2
Kimpton        0.4           1.4           (71.2
HUALUXE        0.1           0.1           5.3  
Crowne Plaza        1.8           4.3           (57.3
Hotel Indigo        0.3           0.6           (56.9
EVEN Hotels        0.0           0.1           (66.8
Holiday Inn        2.8           6.3           (55.0
Holiday Inn Express        4.2           7.3           (42.4
Staybridge Suites        0.7           1.0           (32.8
Candlewood Suites        0.7           0.9           (22.3
Other        0.5           0.8           (41.1
Total        13.5           27.9           (51.5
Analysed by ownership type                                   
Fee business        13.3           27.3           (51.1
Owned, leased and managed lease        0.2           0.6           (70.6
Total        13.5           27.9           (51.5

 

b  Year-on-year percentage movement calculated from source figures, to provide better illustration of relative impact of Covid-19 on brands and on fee business and owned, leased and managed lease hotels.

 

Total gross revenue in IHG’s System decreased by 51.5% (51.4% decrease at constant currency) to $13.5bn, due to the significant RevPAR decline of 52.5% driven by the global impact of Covid-19.

 

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Strategic Report

Performance continued

Group continued

    

 

Group hotel and room count

 

          Hotels          Rooms  
                      Change                      Change  
At 31 December                     2020               over 2019                      2020               over 2019  
Analysed by brand                                                       
Six Senses         16           (2        1,129           (319
Regent         7           1          2,190           187  
InterContinental         205           (7        69,941           (1,040
Kimpton         73           7          13,085           39  
HUALUXE         12           3          3,433           723  
Crowne Plaza         429           (2        118,879           (1,703
Hotel Indigo         125           7          15,604           1,030  
EVEN Hotels         16           3          2,410           461  
voco         18           6          5,077           784  
Holiday Inna         1,276           (8        236,554           (3,340
Holiday Inn Express         2,966           91          309,487           10,253  
avid hotels         24           17          2,156           1,521  
Staybridge Suites         303           3          32,895           262  
Candlewood Suites         366           (44        32,435           (5,897
Otherb         128           (14        40,761           (488
Total         5,964           61          886,036           2,473  
Analysed by ownership type                                               
Franchised         5,005           135          627,348           12,374  
Managed         936           (71        253,288           (8,965
Owned, leased and managed lease         23           (3        5,400           (936
Total         5,964           61          886,036           2,473  

 

During 2020, the global IHG System (the number of hotels and rooms which are franchised, managed, owned, leased or managed lease) increased by 61 hotels (2,473 rooms) to 5,964 hotels (886,036 rooms).

Openings of 285 hotels (39,392 rooms) was 30.7% lower than in 2019, impacted by large periods of restriction on non-essential activity in major markets. Openings in the Americas included 96 hotels (8,945 rooms) in the Holiday Inn Brand Family. 61 hotels (11,288 rooms) were opened in EMEAA in 2020, with the Greater China region also

contributing openings of 57 hotels (11,358 rooms). 224 hotels (36,919 rooms) left the IHG System in 2020, of which 102 hotels (16,655 rooms) related to SVC and 13 hotels (2,118 rooms) related to a portfolio of hotels in Germany. This compared to 111 hotels (18,198 rooms) that left the IHG System in 2019.

 

a 

Includes 47 Holiday Inn Resort properties (11,446 rooms) and 28 Holiday Inn Club Vacations properties (8,679 rooms), (2019: 46 Holiday Inn Resort properties (11,502 rooms) and 28 Holiday Inn Club Vacations properties (8,592 rooms)).

 

b 

Includes three open hotels that will be re-branded to voco.

Total number of hotels

5,964

Total number of rooms

886,036

 

 

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Group pipeline

          Hotels          Rooms  
                      Change                      Change  
At 31 December                     2020             over 2019                      2020               over 2019  
Analysed by brand                                                       
Six Senses         31           6          2,239           469  
Regent         6           1          1,535           591  
InterContinental         69           4          17,774           756  
Kimpton         32           (1        6,265           62  
HUALUXE         25           3          6,907           727  
Crowne Plaza         89           1          24,228           (278
Hotel Indigo         104           3          15,704           556  
EVEN Hotels         31           5          5,046           704  
voco         29           12          8,179           1,959  
Holiday Inna         262           (13        51,163           (1,746
Holiday Inn Express         683           (71        87,152           (8,722
avid hotels         192           (15        17,526           (1,542
Staybridge Suites         155           (27        17,490           (3,244
Candlewood Suites         73           (18        6,369           (1,817
Atwell Suites         19           9          1,849           849  
Otherb         15           (2        2,631           (310
Total         1,815           (103        272,057           (10,986
Analysed by ownership type                                               
Franchised         1,310           (101        159,068           (7,573
Managed         504           (2        112,834           (3,413
Owned, leased and managed lease         1                    155            
Total         1,815           (103        272,057           (10,986

 

At the end of 2020, the global pipeline totalled 1,815 hotels (272,057 rooms), a decrease of 103 hotels (10,986 rooms) on 31 December 2019. The IHG pipeline represents hotels where a contract has been signed and the appropriate fees paid.

Group signings decreased from 623 hotels in 2019 to 360 hotels and rooms decreased from 97,754 rooms to 56,146 rooms, as movement restrictions, enforced hotel closures and the shock to the global economy caused by Covid-19 reduced the pace of signings across the hospitality industry. Signings in 2020 included 180

hotels (26,600 rooms) signed for the Holiday Inn Brand Family, over half of which were contributed by Greater China (94 hotels, 16,692 rooms). Conversions represented 25.2% of Group signings in 2020.

Active management of the pipeline to remove deals that have become dormant or no longer viable reduced the pipeline by 178 hotels (27,740 rooms), compared to 153 hotels (20,439 rooms) in 2019.

 

a 

Includes 34 Holiday Inn Resort properties (7,251 rooms) and zero Holiday Inn Club Vacations properties (zero rooms), (2019: 29 Holiday Inn Resort properties (6,335 rooms) and one Holiday Inn Club Vacations properties (110 rooms)).

 

b 

Includes one hotel to be branded as a voco.

Total number of hotels in the pipeline

1,815

Total number of rooms in the pipeline

272,057

 

 

LOGO

 

 

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Strategic Report

Performance continued

Regional review

    

 

The performance, plans and priorities of each of our regions have been impacted to a different extent by Covid-19, in terms of both the length and severity of disruption.

IHG’s response was shaped by our purpose of True Hospitality for Good, with each region implementing the IHG Clean Promise and developing policies, operating procedures, brand standards and training programmes to protect the health and safety of guests and colleagues. In each region, plans were developed to support owners to reduce costs and protect cash flow by relaxing brand standards, temporarily reducing fees and helping owners meet the challenge of closing and reopening hotels safely. At the same time, each region developed commercial and operational plans to support their recovery to benefit all stakeholders. These measures continue into 2021 regional priorities, with a focus on customer centricity, maximising owner returns by making sustainable savings in hotel operating costs and driving improved guest satisfaction through quality improvements. The information set out below describes each region’s delivery against our strategic priorities and measures taken to respond to Covid-19, the following pages describe each region’s 2020 performance.

 

 

 

 

2020 review

Americas  

 Ensured hotels were delivering on Covid-19 health and safety measures and the IHG Clean Promise by developing a virtual process to monitor compliance to our new standards; audited over 4,000 hotels in the region in a few short months.

 

 Worked with the highest levels of the US government to advocate for small business funding and assisted our owners with resources to apply for federal funds.

 

 Assisted communities by partnering with #FirstRespondersFirst and donated 50 million IHG Rewards points to provide free accommodation at hotels across the United States for frontline Covid-19 first responders.

 

 Captured domestic travel demand and achieved strong share gains across our brands in the midscale segments, which demonstrated resilience during the crisis.

 

 Strengthened the overall portfolio with 137 new signings and 167 openings driven by Holiday Inn Express, avid hotels, and our Suites brands.

 

 Achieved several brand milestones with the opening of the first voco in the Americas (New York City), first avid in Mexico, and first Kimpton in Mexico.

 

 

 

EMEAA  

 Supported hotel owners and colleagues throughout Covid-19, focusing on the health and safety of our hotel colleagues and providing cost management solutions for our owners.

 

 EMEAA’s operating model continued to unlock high-value growth opportunities, opening 61 hotels and signing 82. Highlights included the expansion of Kimpton to eight open hotels, voco to 16 and Hotel Indigo to 46, as well as eight InterContinental signings. The total EMEAA estate reached 1,149 hotels with 389 in the pipeline.

 

 Continued focus on delivering operations efficiency for our owners, simplifying brand standards, reducing procurement costs, and continuously strengthening our approach to commercial and operational hotel support.

 

 Built great momentum behind critical guest experience initiatives, with a focus on quality, service and cleanliness (IHG Way of Clean programme), resulting in increased Guest Love scores across EMEAA.

 

 Engaged and supported employees through a wide range of pan-regional initiatives focused on mental and physical wellbeing; continued to develop and prioritise our diversity and inclusion agenda.

 

 

 

Greater China  

 Responding to the outbreak of Covid-19, we successfully implemented the IHG Clean Promise measured through improvements in guest satisfaction scores, and developed data driven commercial and operational plans to drive business recovery.

 

 Achieved brand milestones with opening of our 100th franchise hotel, 200th Holiday Inn Express, 100th Crowne Plaza, 50th InterContinental and launch of EVEN and voco brands.

 

 Strengthened market presence of IHG brand portfolio in Greater China, with 141 signings and 57 openings, including many iconic properties in key markets such as the Regent Shanghai Pudong, InterContinental Chongqing Raffles City, voco Hangzhou Binjiang Minghao and Hualuxe Shanghai Twelve at Hengshan.

 

 Launched mobile booking and payment solutions, a corporate travel portal and an industry first tri-party credit card.

 

 Developed and implemented a Franchise Performance Support platform that delivers owner and hotel solutions, focused on driving operating performance with revenue tools and support.

 

 Received the Magnolia Award in recognition of IHG’s contribution to Shanghai’s development and international cooperation.

 

 

 

 

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LOGO

 

Staybridge, Washington DC, US     Hotel Indigo, Bath, UK               Holiday Inn Express, Macau City
                Centre, Macau SAR

 

 

 

 

 

2021 priorities

Americas  

 Continue to lead our hotels through recovery to capture share from industries that are seeing increased demand including construction, engineering, technology, communications, education and medical services.

 

 Build on the momentum of our most recent brand launches and targeted transformations:

 

–  continue the growth of avid hotels, Atwell Suites and EVEN Hotels;

 

–  expand voco to capture the opportunity of increased hotel conversions in the coming years;

 

–  sustain focus on quality and consistency of estate, including established brands Holiday Inn and Crowne Plaza; and

 

–  expand our luxury and lifestyle footprint and open our first Six Senses in the region.

 

 Maximise owner returns by identifying opportunities for efficiencies in hotel construction and operations.

 

 Expand contactless check-in and check-out, and explore additional technology solutions to improve the guest experience.

 

 Strengthen our focus on diversity and inclusion by increasing representation of ethnically diverse employees, rolling out mandatory unconscious bias training, and enhancing our partnerships in the community.

 

 

 

EMEAA  

 Continue to support our owners, guests and colleagues through Covid-19 recovery, focused on driving domestic demand, generating best-in-class returns for our owners and developing capabilities within our teams.

 

 Execute and deliver the EMEAA growth strategy, expanding our market-leading, loved and trusted brands with a continued focus on quality and guest satisfaction.

 

 Continue to maximise owner returns on investment across EMEAA by focusing on labour efficiency, energy, procurement, technology and brand standards.

 

 Deliver value throughout the region with the execution of an innovative digital strategy which utilises the data, insights, technology and platforms required to make us attractive to guests and drive performance for owners.