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True Hospitality for Good Annual Report and Form 20-F
Welcome Our purpose is to provide True Hospitality for Good. It brings our brands to life, shapes our culture and represents a commitment to make a difference to our people, guests and communities, and to protect the world around us. With strong stakeholder engagement, together we work towards common goals that help create shared value for all. Holiday Inn Resort, Phuket, Surin Beach, Thailand
Strategic Report 2023 in review Demand continued to grow during 2023 as people’s appetite for travel shone through. Significant investments in our enterprise platform, including our brands, loyalty, digital offer and sustainability initiatives, saw us enrich the guest experience, grow our estate and drive returns. a Definitions for key performance measures can be found in the use of key performance measures and non-GAAP measures section, which can be found on pages 84 to 88. b Use of Non-GAAP measures: In addition to performance measures directly observable in the Group Financial Statements (IFRS measures), additional financial measures (described IFRS or are adjusted as Non-GAAP) IFRS figures. are presented Further that explanation are used in internally relation by to these management measures as can key be measures found on to pages assess 84 performance. to 88, and reconciliations Non-GAAP measures to IFRS figures, are either where not defined they have under been adjusted, are on pages 226 to 231. c 2023 operating profit shown after $19m System Fund and reimbursable reported profit and $28m net exceptional gain. See page 154 for details. d 2022 share buyback completed in January 2023.
Our focus on building a stronger business for guests and owners, coupled with increasing demand, led to strong trading and shareholder returns delivered via our cash-generative business model.
• Total dividend of 152.3c proposed and $750m share buyback completed. New $800m programme approved for 2024
• Americas RevPAR +7.0% vs 2022; EMEAA +23.7%; Greater China +71.7%
• Surpassed 6,300 open hotels; +3.8% net system size growth
• Signings +26% YOY*; grew conversions – represented 37% of openings and signings combined
• Fee marginb 59.3%, 3.4%pts ahead of 2022
• $1,019m operating profit from reportable segmentsb, up 23% vs 2022
• Net cash from operating activities of $893m (2022: $646m), adjusted free cash flowb of $819m (2022: $565m)
• Adjusted EPSb grew 33% to 375.7¢
• Elie Maalouf appointed Group CEO
• Michael Glover appointed Group CFO
• Refreshed corporate strategy to drive growth and long-term shareholder value
* Excluding Iberostar Beachfront Resorts
Owners choose to work with IHG based on trust in our brands, our ability to drive returns and the strength of our enterprise – underpinned by a focus on the cost to build, open and operate our hotels.
• Enterprise contribution of ~80% of total room revenue (vs 72% three years ago), boosted by technology and channels enhancements
• Launched new midscale conversion brand Garner
• Guest How You Guest masterbrand campaign lifted awareness and brand favourability measures
• Enhanced design, service and F&B
• Launched new procurement programmes to reduce costs across hotel lifecycle
• Guest Reservation System now enabling attribute upsell to drive revenue across estate; pilots launched for new revenue management system
• IHG LIFT launched in US and Canada to support historically under-represented groups and further diversify owner base
We focus on ensuring the services, technology and experiences we provide meet evolving expectations, increase consumer preference and loyalty, and drive bookings.
• Guest Satisfaction Index continued to maintain a four-year high
• Grew loyalty members to over 130m, with record enrolments and ~20% increase in Reward Nights vs 2022
• New partnerships providing access to music festivals and sporting events
• Revenue driven by mobile app up 38% and downloads up 60% YOY
• Websites covering 92% of open hotels redesigned and relaunched
• Updated guest room and public space designs, F&B and service
• Strengthened artificial intelligence capabilities to improve self-service guest offer
• Over 60% increase in new co-brand credit card accounts YOY
high-performance culture and focus on providing the tools, technology and working environment we need to succeed as individuals and as a business.
• Employee engagement 87% (+1%pt on 2022). A Kincentric Global Best Employer
• Rated 2nd on Financial Times Europe’s Diversity Leaders 2024 list; recognised as a top company for women by Forbes
• Employee Resource Groups expanded to foster diverse and inclusive culture
• Strengthened partnerships with US Historically Black Colleges to enhance early careers pipeline
• IHG University launched to support development and drive performance
• Extended conscious inclusion training to hotel colleagues
• Launched Leading for Growth Executive Development Programme
We aim to improve millions of lives within our communities by supporting disaster relief, tackling food poverty and providing skills training to help drive social and economic change.
• More than 39,000 colleagues volunteered over 121,000 hours to support their local communities
• Supported charities providing aid following 15 natural disasters
• Expanded supplier diversity programme to build inclusion through supply chain
• More than 30,000 participants received free access to skills and training through our IHG Academy offerings
• Launched IHG Community Tracker to measure Journey to Tomorrow progress
• Supported Global FoodBanking Network, which operates in nearly 50 countries
We are committed to reducing carbon, waste and water usage so we can operate and grow with our owners in ways that minimise our impact on the planet.
• 3.8% reduction in carbon emissions per occupied room since 2019; 1.9% absolute reduction against baseline
• Introduced new energy conservation measures as brand standards
• Expanded Community Solar to give more US hotels access to renewable energy
• Launched collaborations with certification programmes so hotels can showcase their sustainability credentials to guests and corporate clients
• Over 1,600 hotels accessed food waste training, with over 37,000 courses completed by managed and franchised colleagues
• Launched Meeting for Good to provide more sustainable events
Strategic Report Chair’s statement in Significant recent years investment across every enterprise aspect platform of IHG’s has our competitive strengthened guests edge and and offer owners. for ” Deanna Oppenheimer Non-Executive Chair his has been another important year Tof progress for IHG Hotels & Resorts, characterised not only by excellent financial performance underpinned by strong guest demand and further growth with our owners, but also a smooth evolution of leadership and strategy that positions the business for an exciting next chapter. The backdrop to these achievements was one of travel demand ahead of 2019 in many markets and strong recovery in others, while the attractiveness of our brand portfolio saw the continued expansion of our footprint in high-value markets and segments. This has been achieved thanks to significant investment in recent years across every aspect of IHG’s enterprise platform to strengthen our competitive edge and offer for guests and owners. In what was my first full year as Chair, I have been impressed in my conversations with senior leadership, wider colleagues and on market visits with how the business works together to make this happen, with guests and owners central to every plan. I have also valued time spent meeting many owners who clearly appreciate this commitment to continuous improvement and delivering strong returns.
| Leadership changes Elie Maalouf became Group CEO on 1 July 2023, succeeding Keith Barr, who stepped down following more than 30 years with the business, including six as CEO. I would like to thank Keith for his outstanding contribution and leadership, which included growing IHG’s brand portfolio, strengthening its enterprise, embarking on a 10-year responsible business plan and helping the business navigate the Covid-19 pandemic with such agility, clarity and care.
We place great value on succession planning and talent development, and Elie brings significant industry experience and an excellent track record within the business. Having successfully led IHG’s Americas operations for eight years, where he oversaw record profits, growth of the region’s estate and the launch of new brands and formats, the Board was unanimous in its assessment that Elie was the best candidate for the job.
This was one of several leadership changes in 2023 that underlines the depth of talent at IHG, with Michael Glover replacing Paul Edgecliffe-Johnson as Chief Financial Officer, Jolyon Bulley becoming Americas CEO and Heather Balsley replacing Claire Bennett as Global Chief Customer Officer. Each individual brings industry expertise, a track record of excellent results and a deep understanding of IHG and its business, and I have great confidence in the leadership team delivering success on the next stage of IHG’s growth journey.
Importance of strategy Elie is already instilling great passion and energy for using the strong enterprise platform established in recent years to realise the full growth potential of the Company. Central to this progress is having a clear ambition and effective strategy, and Elie has introduced refreshed versions of both to the business in 2023 to sharpen our focus on growth, succeed in a competitive marketplace and prioritise long-term value for all stakeholders.
The hotel industry brings joy like no other – connecting people and helping communities thrive. IHG and our hotels have a central role to play, united by a purpose of providing True Hospitality for Good for the benefit of all stakeholders. This purpose is embedded within our brands and culture and is therefore unchanged within our refreshed strategy. It also underpins our Journey to Tomorrow programme, which ensures our commitment to operate and grow responsibly across the environmental, social and governance (ESG) agenda is woven into the fabric of the business. |
The Board fully supports the evolution of our strategy. It stays informed of how colleagues are engaging with business priorities and IHG’s wider culture through feedback forums, including the work of our designated Voice of the Employee Non-Executive Director and IHG’s Colleague HeartBeat survey.
Our purpose, ambition, strategy and behaviours are all being applied to an asset-light, fee-based, largely franchised business model. This remains a great strength of IHG, with a regional approach enabling flexibility by market, and high cash generation supporting enterprise investments across brands, loyalty and technology that enhance performance and drive growth, and also create surplus funds to return to shareholders.
During the year, important strategic progress was made on several fronts. Enhancements to IHG® One Rewards strengthened loyalty, we introduced new capabilities to our mobile app to enhance the guest experience and drive owner returns, and the launch of Garner™ added a 19th brand to our portfolio in a midscale segment with significant growth potential. A cornerstone of how we work with owners is helping them run an efficient business and new procurement programmes and brand prototypes were among key updates to strengthen operational and commercial support alongside close collaboration with the IHG Owners Association. Further steps were also taken towards our Journey to Tomorrow commitments across our people, communities and planet agenda.
The role of the Board Amid a shifting global macro-economic landscape, the role of the Board has been to support and constructively challenge the Executive Committee (EC) around how we prioritise, manage risk, grow and generate future value. Focus areas spanned our approach to cybersecurity risk management – including emerging risks, such as the rise of artificial intelligence – how we optimise owner returns, and growth plans in the context of a competitive landscape.
To support IHG’s operations and growth aspirations, I place great importance on ensuring our Board represents a rich blend of backgrounds, expertise and experience that reflects the focus of the business and the evolving corporate landscape.
As part of clear succession plans, several Board changes took place during the year. Jo Harlow retired following nine years of excellent service, and we welcomed two new Independent Non-Executive Directors. Angie Risley joined in September, bringing a wealth of board and senior management experience from a career in HR spanning executive roles across sectors including hospitality, retail and banking. |
Angie has succeeded Jo as Chair of the Remuneration Committee and joins the Responsible Business and Nomination Committees. Sir Ron Kalifa joined in January 2024, bringing many years of technology industry experience across strategy, sales, marketing and operations, and joins the Audit and Remuneration Committees.
Shareholder returns Following a strong financial performance this year, I am pleased to announce the Board is recommending a final dividend of 104 cents per ordinary share, an increase of 10% on the final dividend for 2022. An interim dividend of 48.3 cents was paid in October 2023, taking the total dividend for the year to 152.3 cents, representing an increase of 10% on 2022. An additional $750m was also returned to shareholders through a share buyback programme (completed in December 2023), taking the total returns for the year to $1bn, and the Board has approved a further share buyback of $800m for 2024. The Board expects IHG’s business model to continue its strong long-term track record of generating substantial capacity to enable investment plans that drive growth, fund a sustainably growing ordinary dividend, and allow surplus capital to be returned to our shareholders.
Looking ahead, as a global business, we must remain alive to potential challenges created by political instability and conflict in parts of the world, but the industry has proven its resilience over many years and its future is a bright one. An expanding middle class in emerging markets, rising GDP, and consumer appetite to travel and stay in branded hotels all remain fundamental drivers of industry demand and future supply growth. With strong leadership, talented teams and a refreshed strategy focused on capitalising on the powerful enterprise we have created in recent years, I am confident in IHG’s ability to drive performance, growth and shareholder value.
There is real momentum in the business for the year ahead, and I’d like to thank all our colleagues for their hard work and dedication, and our owners for their continued confidence in IHG.
Deanna Oppenheimer Non-Executive Chair | ||
| Chair’s statement | IHG | Annual Report and Form 20-F 2023 | 5 |
Strategic Report Chief Executive Officer’s review Q&A We talk to Elie Maalouf, Chief Executive Officer, about the Company’s performance and outlook Elie Maalouf Chief Executive Officer Q What have been the highlights since becoming Group CEO in July 2023? A It is an honour to lead this iconic company and one of many highlights so far has been getting even closer to our markets. I’ve really valued time spent meeting colleagues, owners and shareholders on visits across the world, seeing the relationships we have built, hearing first-hand what we are doing well, where we need to go further and how we can best work together to achieve shared success. IHG has enormous growth potential and I’m inspired by the passion of our teams and the power of their collaboration to drive performance and returns using the strong enterprise platform we have built in recent years. My predecessor, Keith Barr, played a major role in laying the foundation for an exciting chapter ahead, and I would like to take the opportunity to thank him on behalf of everyone at IHG. Q How did the Company perform in 2023? A Testament to the strength and scale of our brands and wider enterprise platform, I am proud to say we delivered an excellent financial performance alongside strong system size and pipeline growth. Very healthy average daily rate and occupancy pushed global RevPAR ahead of both 2022 and 2019 levels, with leisure leading
| the way, and business travel and group activity improving steadily. The Americas continued its upward trajectory with RevPAR up 7.0% year-on-year, EMEAA was up by +23.7% following a strong performance in Continental Europe and the reopening of Japan, and Greater China increased by 71.7%, reflecting a strong rebound in demand following the lifting of pandemic restrictions.
That performance, coupled with fee margin growth and disciplined cost management, helped drive operating profit to more than $1bn for the first time. We returned $1bn to shareholders through ordinary dividend payments and a $750m share buyback programme, and a new $800m share buyback programme for 2024 has been approved.
Our brands continued to grow around the world, too. We opened 275 hotels, contributing to net system size growth of 3.8%, and signed another 556 properties into our global pipeline, which now stands at 2,016 hotels – or 32% of today’s system size. Notably, our openings and signings performance in Q4 was one of our biggest ever for development activity.
We can be proud of this performance alongside all we have done to strengthen our business further on multiple fronts for guests and owners. On behalf of the Executive Committee, I would like to thank all our hotel and corporate teams for delivering this excellent performance, and our owners for their continued commitment to IHG.
Q How has IHG’s strategy changed since you became Group CEO?
A Our strategy needs to constantly evolve in this dynamic industry. Having added eight brands to our portfolio in the past six years and made big investments in the enterprise platform that supports them, it was important to reassess how IHG capitalises on what we have built to unlock and drive growth in a competitive landscape.
Our purpose of True Hospitality for Good remains unchanged and is something that resonates strongly across the organisation, in our communities and with those we work with. However, our strategy has evolved, starting with a simpler ambition that sharpens our focus on what is central to accelerating growth: being the hotel company of choice for guests and owners. We have also refreshed our strategic pillars and looked carefully at the behaviours we need to deliver them successfully. Relentless Focus on Growth establishes a targeted approach to expanding our brands in high-value markets; Brands Guests and Owners Love shows our explicit intention to deliver for both; Leading Commercial Engine recognises the importance of investing in the technology and tools that |
drive commercial success and make the biggest difference to guests, owners and hotel teams; and Care for our People, Communities and Planet remains unchanged and in step with our Journey to Tomorrow plan. These elements combined are designed to drive us further and faster towards realising IHG’s full growth potential.
Q What strategic progress was made in 2023?
A We advanced on multiple fronts, strengthening our ability to capture guest demand, deepening loyalty, and driving returns and new growth opportunities with our owners.
Our Holiday Inn Brand Family’s enduring appeal saw it generate 38% of openings and signings in the year. We continued to diversify our exposure to different segments, with our Luxury & Lifestyle brands now representing 14% of our system size and 22% of our pipeline – around twice the size it was five years ago. Almost a quarter of signings globally were in this high-fee segment, and flagship openings included the Regent® Hotels Carlton Cannes and Shanghai on The Bund.
We also continued to expand our offer in other areas where we see strong demand and growth opportunities. We launched our conversion brand Garner in the midscale segment – worth $14bn today in the US alone. Our first two hotel openings and seven signings were achieved within months of launch in the US, and the brand is already now heading for Japan and Mexico. All our newer brands are gaining traction, with the seven launched or acquired in recent years – not including Garner or our commercial agreement with Iberostar – now accounting for 16% of our pipeline. Conversions also remain an important focus for us across all segments, reaching record levels of 37% of openings and signings combined.
Looking across the enterprise more broadly, IHG One Rewards members booked more than 55% of our room nights globally in 2023, and in what was a record year for enrolments, the programme has now grown to more than 130 million members. Our mobile app generated 38% more revenue in 2023 on the back of fresh updates to personalise the guest experience and grew downloads by 60% year-on-year. Collectively, the impact of these investments and more are creating increasing value for our owners, with enterprise contribution rising from 72% to almost 80% in the past three years. At the same time, we have kept guest satisfaction at a four-year high and we remain focused on working closely with our owners to reduce the cost to build, open and operate our hotels. |
As we strengthen the business, it is important we do so responsibly for our people and the world around us. Maintaining an inclusive, engaging culture is vital to our success, so seeing IHG once again named a Kincentric Global Best Employer was a special moment. We continued to support our communities by responding to natural disasters, creating opportunities for people to learn new skills in our industry, and making a positive difference to thousands of people during Giving for Good month. We also took further steps to reduce our environmental impact in several areas, including incorporating more energy conservation measures into brand standards, educating colleagues on food waste and delivering more sustainable events for corporate clients.
Q How do you see the future of the hotel industry?
A The long-term prospects for our industry are very attractive when you consider global population growth, rising middle classes and prosperity in emerging markets, and people’s inherent desire to travel. Oxford Economics is forecasting the number of global hotel room nights consumed to grow annually at an average rate of +4.0% from 2023 through to 2033.
In the Americas, the world’s biggest tourism market, where IHG has almost 4,500 hotels, industry forecasts expect room nights to increase from 2.3 billion to 3.0 billion by 2033. In Greater China, where we strengthened our position as the leading international hotel company this year with the opening of our 700th hotel, an extra 660 million room nights are forecast over the same period. Meanwhile, across EMEAA, there is growing travel demand across key markets, from Asia and the Middle East to Europe. This landscape underpins global net new supply growth for our industry. Over the past decade, supply has grown annually at an average rate of 2.4% and it is expected to continue at a similar rate into the future.
These fundamentals and the outlook have remained strong through varying economic cycles, and so while as a global business we must always remain agile in an evolving macro-economic landscape, we look forward to an important next chapter of growth for IHG and value creation for our owners and shareholders.
Elie Maalouf Chief Executive Officer | ||
| Chief Executive Officer’s review | IHG | Annual Report and Form 20-F 2023 | 7 |
Strategic Report
Industry overview
We operate in an industry with high growth potential, underpinned by strong long-term fundamentals.
he global hotel industry continued Tto strengthen in 2023, benefitting from further consumer appetite for leisure stays and a robust return of business demand, which together drove record RevPAR levels.
The $700 billion hotel industry has compelling structural growth drivers, underpinned by factors including the inherent needs and desires to travel for business and leisure purposes, population growth, and an expanding middle class in emerging markets with increasing disposable incomes. Spend on travel continues to be among the most resilient of discretionary areas for consumers, while demand for business travel remains robust, with hotels adapting to support flexible working trends in the post-Covid-19 environment. Although there are uncertainties within the wider economic outlook, we anticipate a number of tailwinds persisting through 2024, including further progress in returning to pre-Covid-19 levels of demand for group travel to meetings and events, as well as the ongoing recovery of travel demand to and from Greater China as international flight capacity continues to increase.
In what is a relatively fragmented sector, with 56% of rooms affiliated with a global or regional chain, competitor pressures in the branded space remain intense as all major players pursue growth strategies through a combination of organic growth, partnership arrangements and acquisitions. Branded hotel penetration has steadily increased as a long-term trend, with this expected to continue to grow as consumers look to trusted brands to meet their evolving expectations, particularly when it comes to state-of-the-art technology and the skills, scale and resources required to provide guests with enjoyable, effective and sustainable stays.
While there have been short-term challenges impacting the completion and opening of new-build hotels, primarily driven by the cost and availability of financing, there remains a long-term need for new hotel supply to satisfy the demand drivers previously mentioned. Global hotel room net new supply increased at a CAGR of 2.4% over the 10 years from 2013 to 2023, with industry forecasts showing a similar rate across the next five years.
Cost remains a significant barrier to building a scale position in the global hotel industry, whether that’s due to investment to build and maintain the properties, establish strong loyalty programmes and technology platforms, or to develop and market leading brands. Hotel owners affiliated with a major global brand and enterprise system also tend to generate higher returns.
The hotel industry is cyclical: long-term fluctuations in RevPAR tend to reflect the interplay between industry demand, supply and the macro-economic environment. At a local level, political and economic factors, as well as those such as terrorism, oil market conditions and significant weather events, can also impact demand and supply.
While the potential for macro-economic challenges from factors such as persistent inflation, higher borrowing costs and geopolitical flashpoints create some ongoing uncertainty in 2024, the attractive industry fundamentals that led to the sector outpacing global economic growth in 19 out of 24 years between 2000 and 2023 remain very firmly in place for the long term. As a global business, with a footprint in over 100 countries, operating in the midst of change and uncertainty is something IHG is very used to and it continues to be one of our greatest strengths. Our strategy of developing a strong brand portfolio and an industry-leading loyalty programme, together with our fee-based income streams and prevalent midscale positioning, means we remain resilient through varying economic cycles.
The hotel industry has attractive tailwinds…
US disposable personal income grew on average by