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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 20-F
 
     
(Mark One)    
 
o
  REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)
OF THE SECURITIES EXCHANGE ACT OF 1934
or
þ
  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the fiscal year ended December 31, 2010
or
o
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
Commission file number: 1-10409
 
InterContinental Hotels Group PLC
(Exact name of registrant as specified in its charter)
England and Wales
(Jurisdiction of incorporation or organization)
 
Broadwater Park,
Denham, Buckinghamshire UB9 5HR
(Address of principal executive offices)
 
Securities registered or to be registered pursuant to Section 12(b) of the Act:
 
     
Title of each class
 
Name of each exchange on which registered
 
American Depositary Shares
  New York Stock Exchange
Ordinary Shares of 1329/47 pence each
  New York Stock Exchange*
 
 
* Not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission.
 
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 1329/47 pence each
  289,472,651
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act:  Yes þ     No o
 
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 o     No þ
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days:  Yes þ     No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o     No þ
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
             
Large accelerated filer þ
  Accelerated filer o   Non-accelerated filer o
(Do not check if a smaller reporting company)
  Smaller reporting company o
 
Indicate by check mark which financial statement item the registrant has elected to follow:
 
Item 17 o     Item 18  þ
 
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):
Yes          o                No          þ
 
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
 
         
US GAAP  o
  International Reporting Standards as issued by
the International Standards Accounting Board þ
  Other  o
 


Table of Contents

 
TABLE OF CONTENTS
 
         
        Page
 
  4
  5
 
PART I
  Identity of Directors, Senior Management and Advisors   7
  Offer Statistics and Expected Timetable   7
  Key Information   7
    Selected Consolidated Financial Information   7
    Risk Factors   10
  Information on the Company   13
    Summary   13
    Segmental Information   16
    Business Overview   17
    Trademarks   37
    Organizational Structure   37
    Property, Plant and Equipment   38
    Environment   38
  Unresolved Staff Comments   39
  Operating and Financial Review and Prospects   39
    Critical Accounting Policies   40
    Operating Results   42
    Liquidity and Capital Resources   51
  Directors, Senior Management and Employees   53
    Directors and Senior Management   53
    Compensation   57
    Board Practices   58
    Employees   61
    Share-based Compensation   62
    Share Ownership   62
  Major Shareholders and Related Party Transactions   63
    Major Shareholders   63
    Related Party Transactions   63
  Financial Information   63
    Consolidated Statements and Other Financial Information   63
    Significant Changes   64
  The Offer and Listing   64
    Plan of Distribution   65
    Selling Shareholders   65
    Dilution   65
    Expenses of the Issue   65


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        Page
 
  Additional Information   65
    Articles of Association   65
    Material Contracts   68
    Exchange Controls   71
    Taxation   71
    Documents on Display   75
  Quantitative and Qualitative Disclosures About Market Risk   75
  Description of Securities Other Than Equity Securities   78
 
PART II
  Defaults, Dividend Arrearages and Delinquencies   80
  Material Modifications to the Rights of Security Holders and Use of Proceeds   80
  Controls and Procedures   80
  [Reserved]   80
  Audit Committee Financial Expert   80
  Code of Ethics   80
  Principal Accountant Fees and Services   81
  Exemptions from the Listing Standards for Audit Committees   81
  Purchases of Equity Securities by the Issuer and Affiliated Purchasers   81
  Change in Registrant’s Certifying Accountant   82
  Summary of Significant Corporate Governance Differences from NYSE Listing Standards   82
 
PART III
  Financial Statements   83
  Financial Statements   84
  Exhibits   84
 EX-1
 EX-4.C.I
 EX-4.C.II
 EX-4.C.III
 Ex-8
 EX-12.A
 EX-12.B
 EX-13.A


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INTRODUCTION
 
As used in this document, except as the context otherwise requires, the terms:
 
  •  “ADR” refers to an American Depositary Receipt, being a receipt evidencing title to an ADS;
 
  •  “ADS” refers to an American Depositary Share, being a registered negotiable security, listed on the New York Stock Exchange, representing one InterContinental Hotels Group PLC ordinary share of 1329/47 pence each;
 
  •  “Board” refers to the Board of directors of InterContinental Hotels Group PLC or, where appropriate, the Boards of directors of InterContinental Hotels Limited or Six Continents Limited;
 
  •  “Britvic” refers to Britannia Soft Drinks Limited for the period up to November 18, 2005, and thereafter, Britannia SD Holdings Limited (renamed Britvic plc on November 21, 2005) which became the holding company of the Britvic Group on November 18, 2005;
 
  •  “Britvic Group” refers to Britvic and its subsidiaries;
 
  •  “Company” refers to InterContinental Hotels Group PLC, InterContinental Hotels Limited or Six Continents Limited or their respective Board of directors as the context requires;
 
  •  “EMEA” refers to Europe, the Middle East and Africa;
 
  •  “Group” refers to InterContinental Hotels Group PLC and its subsidiaries or, where appropriate, InterContinental Hotels Limited or Six Continents Limited and their subsidiaries as the context requires;
 
  •  “Hotels” refers to the hotels business of the Group;
 
  •  “IHG” refers to InterContinental Hotels Group PLC or, where appropriate, its Board of directors;
 
  •  “IHL” refers to InterContinental Hotels Limited, previously InterContinental Hotels Group PLC, former parent company of the Group and re-registered as a private limited company on June 27, 2005;
 
  •  “ordinary share” or “share” refers, before April 14, 2003, to the ordinary shares of 28 pence each in Six Continents Limited; following that date and until December 10, 2004 to the ordinary shares of £1 each in IHL; following that date and until June 27, 2005 to the ordinary shares of 112 pence each in IHL; following that date and until June 12, 2006 to the ordinary shares of 10 pence each in IHG; following that date until June 4, 2007 to the ordinary shares of 113/7 pence each in IHG; and following June 4, 2007 to the ordinary shares of 1329/47 pence each in IHG;
 
  •  “Six Continents” refers to Six Continents Limited; previously Six Continents PLC and re-registered as a private limited company on June 6, 2005;
 
  •  “Soft Drinks” refers to the soft drinks business of InterContinental Hotels Group PLC, which the Company had through its controlling interest in Britvic and which the Company disposed of by way of an initial public offering effective December 14, 2005; and
 
  •  “VAT” refers to UK value added tax levied by HM Revenue and Customs on certain goods and services.
 
References in this document to the “Companies Act” mean the Companies Act 2006 of Great Britain; references to the “EU” mean the European Union; references in this document to “UK” refer to the United Kingdom of Great Britain and Northern Ireland; references to “US” refer to the United States of America.
 
The Company publishes its Consolidated Financial Statements expressed in US dollars following a management decision to change the reporting currency from sterling during 2008. The change was made to reflect the profile of the Group’s revenue and operating profit, which are primarily generated in US dollars or US dollar-linked currencies.
 
In this document, references to “US dollars”, “US$”, “$” or “¢” are to United States currency, references to “euro” or “€” are to the euro, the currency of the European Economic and Monetary Union, references to “pounds sterling”, “sterling”, “£”, “pence” or “p” are to UK currency. Solely for convenience, this Annual Report on


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Form 20-F contains translations of certain pound sterling amounts into US dollars at specified rates. These translations should not be construed as representations that the pound sterling amounts actually represent such US dollar amounts or could be converted into US dollars at the rates indicated. The noon buying rate in The City of New York for cable transfers in pounds sterling as certified for customs purposes by the Federal Reserve Bank of New York on March 25, 2011 was £1.00 = $1.6086. For further information on exchange rates please refer to page F-23.
 
The Company’s fiscal year ends on December 31. The December 31 fiscal year end is in line with the calendar accounting year ends of the majority of comparable US and European hotel companies. IHG will continue to report on a December 31 fiscal year-end basis, as the Group believes this facilitates more meaningful comparisons with other key participants in the industry. References in this document to a particular year are to the fiscal year unless otherwise indicated. For example, references to the year ended December 31, 2010 are shown as 2010 and references to the year ended December 31, 2009 are shown as 2009, unless otherwise specified, and references to other fiscal years are shown in a similar manner.
 
The Company’s Consolidated Financial Statements are prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and in accordance with IFRS as adopted by the European Union (“EU”). IFRS as adopted by the EU differs in certain respects from IFRS as issued by the IASB. However, the differences have no impact on the Group’s Consolidated Financial Statements for the years presented.
 
In keeping with UK practice IHG believes that the reporting of profit and earnings measures before exceptional items provides additional meaningful information on underlying returns and trends to shareholders. The Group’s key performance indicators used in budgets, monthly reporting, forecasts, long-term planning and incentive plans for internal financial reporting focus primarily on profit and earnings measures before exceptional items. Throughout this document earnings per ordinary share is also calculated excluding the effect of all exceptional operating items, exceptional interest, exceptional tax and gain on disposal of assets and is referred to as adjusted earnings per ordinary share.
 
The Company furnishes JPMorgan Chase Bank, N.A., as Depositary, with annual reports containing Consolidated Financial Statements and an independent auditor’s opinion thereon. These Consolidated Financial Statements are prepared on the basis of IFRS. The Company also furnishes to the Depositary all notices of shareholders’ meetings and other reports and communications that are made generally available to shareholders of the Company. The Depositary makes such notices, reports and communications available for inspection by registered holders of ADRs and mails to all registered holders of ADRs voting instruction cards with specific reference to the section of the Company’s website on which such notices, reports and communications can be viewed. During 2010, the Company reported interim financial information at June 30, 2010 in accordance with the Listing Rules of the UK Listing Authority. In addition, it provided quarterly financial information at March 31, 2010 and at September 30, 2010 and intends to continue to provide quarterly financial information during fiscal 2011. The Consolidated Financial Statements may be found on the Company’s website at www.ihgplc.com.
 
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
This Form 20-F contains certain forward-looking statements as defined in Section 21E of the Securities Exchange Act of 1934 with respect to the financial condition, results of operations and business of InterContinental Hotels Group and certain plans and objectives of the Board of Directors of InterContinental Hotels Group PLC with respect thereto. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use words such as “anticipate”, “target”, “expect”, “estimate”, “intend”, “plan”, “goal”, “believe”, or other words of similar meaning. These statements are based on assumptions and assessments made by InterContinental Hotels Group’s management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate.
 
Such statements in the Form 20-F include, but are not limited to, statements under the following headings; (i) “Item 4. Information on the Company”; (ii) Item 5. Operating and financial review and prospects”; (iii) “Item 8.


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Financial information”; and (iv) “Item 11. Quantitative and qualitative disclosures about market risk”. Specific risks faced by the Company are described under “Item 3. Key information — Risk factors” commencing on page 10.
 
By their nature, forward-looking statements are inherently predictive, speculative and involve risk and uncertainty. There are a number of factors that could cause actual results and developments to differ materially from those expressed in, or implied by, such forward-looking statements, including, but not limited to: the risks involved with the Group’s reliance on the reputation of its brands and the protection of its intellectual property rights; the risks related to identifying, securing and retaining franchise and management agreements; the effect of political and economic developments; the ability to acquire and retain the right people and skills and capability to manage growth and change; the risk of events that adversely impact domestic or international travel; the risks involved in the Group’s reliance upon its proprietary reservations system and increased competition in reservations infrastructure; the risks in relation to technology and systems; the risks of the hotel industry supply and demand cycle; the possible lack of selected development opportunities; the risks related to corporate responsibility; the risk of litigation; the risks associated with the Group’s ability to maintain adequate insurance; the risks associated with the Group’s financial stability, its ability to borrow and satisfy debt covenants; compliance with data privacy regulations; the risks related to information security; and the risks associated with funding the defined benefits under its pension plans.


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PART I
 
ITEM 1.   IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
 
Not applicable.
 
ITEM 2.   OFFER STATISTICS AND EXPECTED TIMETABLE
 
Not applicable.
 
ITEM 3.   KEY INFORMATION
 
SELECTED CONSOLIDATED FINANCIAL INFORMATION
 
Summary
 
The selected consolidated financial data set forth below for the years ended December 31, 2010, 2009, 2008, 2007 and 2006 has been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and in accordance with IFRS as adopted by the European Union (“EU”), and is derived from the Consolidated Financial Statements of the Group which have been audited by its independent registered public accounting firm, Ernst & Young LLP.
 
IFRS as adopted by the EU differs in certain respects from IFRS as issued by the IASB. However, the differences have no impact on the Group’s Consolidated Financial Statements for the years presented. The selected consolidated financial data set forth below should be read in conjunction with, and is qualified in its entirety by reference to, the Consolidated Financial Statements and Notes thereto included elsewhere in this Annual Report.
 
For the year ended December 31, 2010, the selected consolidated financial data differs from the consolidated financial statements issued to UK listing authorities on February 15, 2011, as explained in Note 1 of Notes to the Consolidated Financial Statements.


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Consolidated Income Statement Data
 
                                         
    Year ended December 31,
    2010   2009   2008   2007   2006
    ($ million, except earnings per ordinary share)
 
Revenue:
                                       
Continuing operations     1,628       1,538       1,897       1,817       1,487  
Discontinued operations                       33       278  
                                         
      1,628       1,538       1,897       1,850       1,765  
                                         
Total operating profit before exceptional operating items:
                                       
Continuing operations     444       363       549       488       374  
Discontinued operations                       3       50  
                                         
      444       363       549       491       424  
                                         
Exceptional operating items:
                                       
Continuing operations     (7 )     (373 )     (132 )     60       48  
Discontinued operations                              
                                         
      (7 )     (373 )     (132 )     60       48  
                                         
Total operating profit/(loss):
                                       
Continuing operations     437       (10 )     417       548       422  
Discontinued operations                       3       50  
                                         
      437       (10 )     417       551       472  
Financial income
    2       3       12       18       48  
Financial expenses
    (64 )     (57 )     (113 )     (108 )     (68 )
                                         
Profit/(loss) before tax
    375       (64 )     316       461       452  
                                         
Tax:
                                       
On profit before exceptional items     (98 )     (15 )     (101 )     (90 )     (97 )
On exceptional operating items     1       112       17             (11 )
Exceptional tax credit           175       25       60       184  
                                         
      (97 )     272       (59 )     (30 )     76  
                                         
Profit after tax
    278       208       257       431       528  
Gain on disposal of assets, net of tax*
    2       6       5       32       226  
                                         
Profit for the year
    280       214       262       463       754  
                                         
Attributable to:
                                       
Equity holders of the parent     280       213       262       463       754  
Non-controlling interest           1                    
                                         
Profit for the year
    280       214       262       463       754  
                                         
Earnings per ordinary share:
                                       
Continuing operations:
                                       
Basic     96.5¢       72.6¢       89.5¢       134.1¢       127.5¢  
Diluted     93.9¢       70.2¢       86.8¢       130.4¢       124.3¢  
                                         
Total operations:
                                       
Basic     97.2¢       74.7¢       91.3¢       144.7¢       193.8¢  
Diluted     94.6¢       72.2¢       88.5¢       140.7¢       189.0¢  
                                         
 
 
* Relates to discontinued operations.


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Consolidated Statement of Financial Position Data
 
                                         
    December 31,
    2010   2009   2008   2007   2006
    ($ million, except number of shares)
 
Goodwill and intangible assets
    358       356       445       556       516  
Property, plant and equipment
    1,690       1,836       1,684       1,934       1,956  
Investments and other financial assets
    178       175       195       253       251  
Retirement benefit assets
    5       12       40       49        
Deferred tax assets
    88       95                    
Current assets
    466       419       544       710       892  
Non-current assets classified as held for sale
                210       115       98  
                                         
Total assets
    2,785       2,893       3,118       3,617       3,713  
                                         
Current liabilities
    943       1,040       1,141       1,226       1,261  
Long-term debt
    776       1,016       1,334       1,748       594  
Net assets
    278       156       1       98       1,346  
Equity share capital
    155       142       118       163       129  
IHG shareholders’ equity
    271       149       (6 )     92       1,330  
                                         
Number of shares in issue at period end (millions)
    289       287       286       295       356  
                                         
 
Dividends
 
InterContinental Hotels Group PLC paid an interim dividend of 8.0 pence per share (equivalent to 12.8 cents per ADS at the closing exchange rate of August 6, 2010) on October 1, 2010. The IHG Board has proposed a final dividend of 22.0 pence per share (equivalent to 35.2 cents per ADS at the closing exchange rate on February 11, 2011), payable on June 3, 2011, if approved by shareholders at the Annual General Meeting to be held on May 27, 2011, bringing the total IHG dividend for the year ended December 31, 2010 to 30.0 pence per share (equivalent to 48.0 cents per ADS).
 
The table below sets forth the amounts of interim, final and total dividends on each ordinary share in respect of each fiscal year indicated. Comparative dividends per share have been restated using the aggregate of the weighted average number of shares of InterContinental Hotels Group PLC. For the purposes of showing the dollar amount per ADS in respect of the interim and final dividends for each of 2006 and 2007, such amount is translated into US dollars per ADS at the Noon Buying Rate on the UK payment date. In respect of the interim and final dividends for each of 2008, 2009 and 2010 such amounts are translated from US dollars into GBP at the prevailing exchange rate immediately prior to their announcement.
 
Ordinary dividend
 
                                                 
    Pence per ordinary share   $ per ADS
    Interim   Final   Total   Interim   Final   Total
 
Year ended December 31,
                                               
2006
    5.10       13.30       18.40       0.096       0.259       0.355  
2007
    5.70       14.90       20.60       0.115       0.292       0.407  
2008
    6.40       20.20       26.60       0.122       0.292       0.414  
2009
    7.30       18.70       26.00       0.122       0.292       0.414  
2010
    8.00       22.00       30.00       0.128       0.352       0.480  
 
Special dividend
 
                 
    Pence per
   
    ordinary share   $ per ADS
 
June 2006
    118.00       2.17  
June 2007
    200.00       4.00  


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RISK FACTORS
 
This section describes the principal risks that could materially affect the Group’s business. The factors below should be considered in connection with any financial and forward-looking information in this Form 20-F and the cautionary note regarding forward-looking statements contained on pages 5 and 6.
 
The risks below are not the only ones that the Group faces. Some risks are not yet known to the Group and some that the Group does not currently believe to be material could later turn out to be material.
 
The Group is reliant on the reputation of its brands and the protection of its intellectual property rights
 
Any event that materially damages the reputation of one or more of the Group’s brands and/or failure to sustain the appeal of the Group’s brands to its customers could have an adverse impact on the value of that brand and subsequent revenues from that brand or business.
 
In addition, the value of the Group’s brands is influenced by a number of other factors, some of which may be outside the Group’s control, including commoditization (whereby price and/or quality becomes relatively more important than brand identifications due, in part, to the increased prevalence of third-party intermediaries), consumer preference and perception, failure by the Group or its franchisees to ensure compliance with the significant regulations applicable to hotel operations (including fire and life safety requirements), or other factors affecting consumers’ willingness to purchase goods and services, including any factor which adversely affects the reputation of those brands.
 
In particular, where the Group is unable to enforce adherence to its operating and quality standards, or the significant regulations applicable to hotel operations, pursuant to its franchise and management contracts, there may be further adverse impact upon brand reputation or customer perception and therefore the value of the hotel brands.
 
Given the importance of brand recognition to the Group’s business, the Group has invested considerable resources in protecting its intellectual property, including registration of trademarks and domain names. However, the controls and laws are variable and subject to change. Any widespread infringement, misappropriation or weakening of the control environment could materially harm the value of the Group’s brands and its ability to develop the business.
 
The Group is exposed to a variety of risks related to identifying, securing and retaining franchise and management agreements
 
The Group’s growth strategy depends on its success in identifying, securing and retaining franchise and management agreements. This is an inherent risk for the hotel industry and franchise business model. Competition with other hotel companies may generally reduce the number of suitable franchise, management and investment opportunities offered to the Group and increase the bargaining position of property owners seeking to become a franchisee, or engage a manager. The terms of new franchise or management agreements may not be as favorable as current arrangements and the Group may not be able to renew existing arrangements on similarly favorable terms or at all.
 
There can also be no assurance that the Group will be able to identify, retain or add franchisees to the Group system or to secure management contracts. For example, the availability of suitable sites, planning and other local regulations or the availability and affordability of finance may all restrict the supply of suitable hotel development opportunities under franchise or management agreements. In connection with entering into franchise or management agreements, the Group may be required to make investments in, or guarantee the obligations of, third parties or guarantee minimum income to third parties. There are also risks that significant franchisees or groups of franchisees may have interests that conflict, or are not aligned, with those of the Group including, for example, the unwillingness of franchisees to support brand improvement initiatives.
 
Changes in legislation or regulatory changes may be implemented that have the effect of favoring franchisees relative to brand owners.


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The Group is exposed to the risks of political and economic developments
 
The Group is exposed to the inherent risks of global and regional adverse political, economic and financial market developments, including recession, inflation, availability of affordable credit and currency fluctuations that could lower revenues and reduce income. A recession reduces leisure and business travel to and from affected countries and adversely affects room rates and/or occupancy levels and other income-generating activities. This may result in deterioration of results of operations and potentially reduce the value of properties in affected economies. The owners or potential owners of hotels franchised or managed by the Group face similar risks which could adversely impact the Group’s ability to retain and secure franchise or management agreements. More specifically, the Group is highly exposed to the US market and, accordingly, is particularly susceptible to adverse changes in the US economy.
 
Further political or economic factors or regulatory action could effectively prevent the Group from receiving profits from, or selling its investments in, certain countries, or otherwise adversely affect operations. For example, changes to tax rates or legislation in the jurisdictions in which the Group operates could decrease the proportion of profits the Group is entitled to retain, or the Group’s interpretation of various tax laws and regulations may prove to be incorrect, resulting in higher than expected tax charges.
 
The Group requires the right people, skills and capability to manage growth and change
 
In order to remain competitive, the Group must employ the right people. This includes hiring and retaining highly skilled employees with particular expertise or leadership capability. The implementation of the Group’s strategic business plans could be undermined by failure to build resilient corporate culture, recruit or retain key personnel, unexpected loss of key senior employees, failures in the Group’s succession planning and incentive plans, or a failure to invest in the development of key skills.
 
Some of the markets in which the Group operates are experiencing economic growth and the Group must compete against other companies inside and outside the hospitality industry for suitably qualified or experienced employees. Failure to attract and retain these employees may threaten the success of the Group’s operations in these markets. Additionally, unless skills are supported by a sufficient infrastructure to enable knowledge and skills to be passed on, the Group risks losing accumulated knowledge if key employees leave the Group.
 
The Group is exposed to the risk of events that adversely impact domestic or international travel
 
The room rates and occupancy levels of the Group could be adversely impacted by events that reduce domestic or international travel, such as actual or threatened acts of terrorism or war, epidemics, travel-related accidents, travel-related industrial action, increased transportation and fuel costs and natural disasters, resulting in reduced worldwide travel or other local factors impacting individual hotels. A decrease in the demand for hotel rooms as a result of such events may have an adverse impact on the Group’s operations and financial results. In addition, inadequate preparedness, contingency planning or recovery capability in relation to a major incident or crisis may prevent operational continuity and consequently impact the value of the brand or the reputation of the Group.
 
The Group is reliant upon its proprietary reservations system and is exposed to the risk of failures in the system and increased competition in reservations infrastructure
 
The value of the brands of the Group is partly derived from the ability to drive reservations through its proprietary HolidexPlus reservations system, a central repository of all hotel room inventories linked electronically to multiple sales channels including the Group’s own websites, call centers and hotels, third-party intermediaries and travel agents.
 
Lack of resilience in operational availability could lead to prolonged service disruption and may result in significant business interruption and subsequent impact on revenues. Lack of investment in these systems may also result in reduced ability to compete. Additionally, failure to maintain an appropriate e-commerce strategy and select the right partners could erode the Group’s market share.


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The Group is exposed to inherent risks in relation to technology and systems
 
The Group is reliant upon certain technologies and systems (including IT systems) for the running of its business, particularly those which are highly integrated with business operational processes. Disruption to those technologies or systems could adversely affect the efficiency of the business, notwithstanding business continuity or disaster recovery processes. The Group may have to make substantial additional investments in new technologies or systems to remain competitive. Failing to keep pace with developments in technologies or systems may put the Group at a competitive disadvantage. The technologies or systems that the Group chooses may not be commercially successful or the technology or system strategy employed may not be sufficiently aligned with the needs of the business or responsive to changes in business strategy. As a result, the Group could lose customers, fail to attract new customers or incur substantial costs or face other losses.
 
The Group is exposed to the risks of the hotel industry supply and demand cycle
 
The future operating results of the Group could be adversely affected by industry overcapacity (by number of rooms) and weak demand due, in part, to the cyclical nature of the hotel industry, or other differences between planning assumptions and actual operating conditions. Reductions in room rates and occupancy levels would adversely impact the results of Group operations.
 
The Group may experience a lack of selected development opportunities
 
While the Group is operating in 100 countries and territories, if the availability of suitable development sites becomes limited for the Group and its prospective hotel owners, for example, due to saturation or changing geo-political circumstances, this could adversely affect the Group’s future growth pipeline.
 
The Group is exposed to risks related to corporate responsibility
 
The reputation of the Group and the value of its brands are influenced by a wide variety of factors, including the perception of key stakeholders and the communities in which the Group operates. The social and environmental impacts of business are under increasing scrutiny, and the Group is exposed to the risk of damage to its reputation if it fails to demonstrate sufficiently responsible practices, ethical behavior or fails to comply with regulatory requirements in a number of areas such as fraud, bribery and corruption, safety and security, sustainability and responsible tourism, environmental management, equality, diversity and human rights, and support for local communities.
 
The Group is exposed to the risk of litigation
 
The Group could be at risk of litigation from many parties, including guests, customers, joint venture partners, suppliers, employees, regulatory authorities, franchisees and/or the owners of hotels managed by it. Claims filed in the US may include requests for punitive damages as well as compensatory damages. Exposure to litigation or fines imposed by regulatory authorities may also affect the reputation of the Group.
 
The Group may face difficulties insuring its business
 
Historically, the Group has maintained insurance at levels determined to be appropriate in light of the cost of cover and the risk profiles of the business in which it operates. However, forces beyond the Group’s control including market forces, may limit the scope of coverage the Group can obtain and the Group’s ability to obtain coverage at reasonable rates. Other forces beyond the Group’s control, such as terrorist attacks or natural disasters may be uninsurable or simply too expensive to insure. Inadequate or insufficient insurance could expose the Group to large claims or could result in the loss of capital invested in properties, as well as the anticipated future revenue from properties, and could leave the Group responsible for guarantees, debt or other financial obligations related to such properties.


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The Group is exposed to a variety of risks associated with its financial stability, ability to borrow and satisfy debt covenants
 
While the strategy of the Group is to extend the hotel network through activities that do not involve significant amounts of its own capital, the Group does require capital to fund some development opportunities, and to maintain and improve owned hotels. The Group is reliant on having financial strength and access to borrowing facilities to meet these expected capital requirements. The majority of the Group’s borrowing facilities are only available if the financial covenant in the facilities are complied with. Non-compliance with covenants could result in the lenders demanding repayment of the funds advanced. If the Group’s financial performance does not meet market expectations, it may not be able to refinance existing facilities on terms considered favorable.
 
The Group is required to comply with data privacy regulations
 
Existing and emerging data privacy regulations limit the extent to which the Group can use personal identifiable information. Compliance with these regulations in each jurisdiction in which the Group operates may require changes in the way data is collected, monitored, shared and used, which could increase operating costs or limit the advantages from processing such data. In addition, non-compliance with data privacy regulations may result in fines, damage to reputation or restrictions on the use or transfer of information.
 
The Group is exposed to the risks related to information security
 
The Group is increasingly dependent upon the availability, integrity and confidentiality of information including, but not limited to, guest and employee credit card, financial and personal data, business performance and financial reporting.
 
The reputation and performance of the Group may be adversely affected if it fails to maintain appropriate confidentiality of information and ensure relevant controls are in place to enable the release of information only through the appropriate channels in a timely and accurate manner.
 
The Group is exposed to funding risks in relation to the defined benefits under its pension plans
 
The Group is required by law to maintain a minimum funding level in relation to its ongoing obligation to provide current and future pensions for members of its UK pension plans who are entitled to defined benefits. In addition, if certain plans of the Group are wound-up, the Group could become statutorily liable to make an immediate payment to the trustees to bring the funding of defined benefits to a level which is higher than the minimum legal requirements. The contributions payable by the Group must be set with a view to making prudent provision for the benefits accruing under the plans of the Group.
 
In particular, the trustees of the Group’s UK defined benefit plan may demand increases to the contribution rates relating to the funding of this plan, which would oblige relevant employers of the Group to contribute extra amounts. The trustees must consult the plan’s actuary and principal employer before exercising this power. In practice, contribution rates are agreed between the Group and the trustees on actuarial advice, and are set for three-year terms. The funding implications of the last actuarial review are disclosed in the notes to the Group’s Consolidated Financial Statements on page F-30.
 
ITEM 4.   INFORMATION ON THE COMPANY
 
SUMMARY
 
Group overview
 
The Group is an international hotel business which owns a portfolio of established and diverse hotel brands, including InterContinental Hotels & Resorts (“InterContinental”), Crowne Plaza Hotels & Resorts (“Crowne Plaza”), Holiday Inn Hotels & Resorts (including Holiday Inn Club Vacations) (“Holiday Inn”), Holiday Inn Express, Staybridge Suites, Candlewood Suites and Hotel Indigo. At December 31, 2010, the Group had 4,437 franchised, managed, owned and leased hotels and 647,161 guest rooms in 100 countries and territories around the world. The Group also manages the hotel loyalty program, Priority Club Rewards.


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The Group’s revenue and earnings are derived from hotel operations, which include franchise and other fees paid under franchise agreements, management and other fees paid under management contracts, where the Group operates third-parties’ hotels, and operation of the Group’s owned and leased hotels.
 
At March 25, 2011, InterContinental Hotels Group PLC had a market capitalization of approximately £3.7 billion, and was included in the list of FTSE 100 companies, a list of the 100 largest companies by market capitalization on the London Stock Exchange.
 
InterContinental Hotels Group PLC is the holding company for the Group. Six Continents Limited (formerly Six Continents PLC), which was formed in 1967, is the principal subsidiary company. The Company’s corporate headquarters are in the United Kingdom, and the registered address is:
 
InterContinental Hotels Group PLC
Broadwater Park
Denham
Buckinghamshire UB9 5HR
Tel: +44 (0) 1895 512000
Internet address: www.ihgplc.com
 
InterContinental Hotels Group PLC was incorporated in Great Britain on May 21, 2004 and registered in, and operates under, the laws of England and Wales. Operations undertaken in countries other than England and Wales are subject to the laws of those countries in which they reside.
 
Group history and recent developments
 
The Group, formerly known as Bass and, more recently, Six Continents, was historically a conglomerate operating as, among other things, a brewer, soft drinks manufacturer, hotelier, leisure operator, and restaurant, pub and bar owner. In the last several years, the Group has undergone a major transformation in its operations and organization, as a result of the Separation (as discussed below) and a number of significant disposals during this period, which has narrowed the scope of its business.
 
On April 15, 2003, following shareholder and regulatory approval, Six Continents PLC (as it then was) separated into two new listed groups, InterContinental Hotels Group PLC (as it then was) comprising the Hotels and Soft Drinks businesses and Mitchells & Butlers plc comprising the Retail and Standard Commercial Property Developments businesses (the “Separation”).
 
The Group disposed of its interests in the soft drinks business by way of an initial public offering (“IPO”) of Britvic, a manufacturer and distributor of soft drinks in the United Kingdom, in December 2005.
 
Acquisitions and dispositions
 
From Separation to December 31, 2010, 185 hotels with a net book value of $5.3 billion have been sold, generating aggregate proceeds of $5.6 billion. Of these 185 hotels, 166 hotels have remained in the Group’s global system (the number of hotels and rooms franchised, managed, owned and leased by the Group) through either franchise or management agreements. At December 31, 2010, the Group owned 15 hotels.
 
The following provides details relating to the hotels disposed and retained pursuant to the asset disposal program.
 
                         
Asset disposal program detail
  Number of hotels   Proceeds   Net book value
    ($ billion)
 
Disposed since April 2003
    185       5.6       5.3  
Remaining owned and leased hotels as of December 31, 2010
    15             1.5  
 
During 2010, the Group disposed of the Holiday Inn Lexington for $5 million and the InterContinental Buckhead, Atlanta for $105 million. During 2009, the Group disposed of the InterContinental Sao Paulo for $22 million. During 2008, the Group disposed of the Holiday Inn Jamaica for $30 million.


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The Group also divested a number of equity interests for total proceeds of $17 million, $15 million and $61 million in 2010, 2009 and 2008, respectively. The most significant interests sold were a 31.25% interest in the Crowne Plaza Christchurch and a 17% interest in the Crowne Plaza Amsterdam in 2008. In 2010, a loan repayment of $11 million was also received.
 
The asset disposal program which commenced in 2003 has significantly reduced the capital requirements of the Group whilst largely retaining the hotels in the Group’s system through management and franchise agreements.
 
Capital expenditure in 2010 totaled $95 million compared with $148 million in 2009 and $108 million in 2008. 2009 included the $65 million purchase of the Hotel Indigo San Diego.
 
At December 31, 2010 capital committed, being contracts placed for expenditure on property, plant and equipment and intangible assets not provided for in the Consolidated Financial Statements, totaled $14 million.
 
On October 24, 2007 the Group announced a worldwide relaunch of its Holiday Inn brand family which is now substantially complete. In support of this relaunch, the Group has made a non-recurring revenue investment of $63 million which has been charged to the Consolidated income statement as an exceptional item since the 2007 relaunch. During 2010, $9 million (2009 $19 million, 2008 $35 million) was charged.
 
Return of funds
 
Since March 2004, the Group has returned over £3.5 billion of funds to shareholders by way of special dividends, share repurchase programs and capital returns (see table below).
 
A £150 million share repurchase program was announced on February 20, 2007. During 2010 no shares were repurchased. By March 25, 2011, a total of 14.4 million shares had been repurchased under the £150 million repurchase program at an average price per share of 831 pence per share (approximately £120 million). Purchases are made under the existing authority from shareholders which will be renewed at the Company’s Annual General Meeting. Any shares repurchased under these programs will be canceled.
 
Information relating to the purchases of equity securities can be found in Item 16E.
 
                                 
Return of funds program
  Timing   Total return   Returned to date(i)   Still to be returned
 
£501 million special dividend
    Paid in December 2004       £501m       £501m       Nil  
First £250 million share buyback
    Completed in 2004       £250m       £250m       Nil  
£996 million capital return
    Paid in July 2005       £996m       £996m       Nil  
Second £250 million share buyback
    Completed in 2006       £250m       £250m       Nil  
£497 million special dividend
    Paid in June 2006       £497m       £497m       Nil  
Third £250 million share buyback
    Completed in 2007       £250m       £250m       Nil  
£709 million special dividend
    Paid in June 2007       £709m       £709m       Nil  
£150 million share buyback
    Deferred       £150m       £120m       £30m  
                                 
Total
            £3,603m       £3,573       £30m  
                                 
 
(i) As of March 25, 2011.
 
Hotels
 
The Group is an international hotel business which owns a portfolio of established and diverse hotel brands, including InterContinental Hotels & Resorts, Crowne Plaza Hotels & Resorts, Holiday Inn Hotels & Resorts (including Holiday Inn Club Vacations), Holiday Inn Express, Staybridge Suites, Candlewood Suites and Hotel Indigo. At December 31, 2010, the Group had 4,437 franchised, managed, owned and leased hotels and 647,161 guest rooms in 100 countries and territories around the world. The Group also manages the hotel loyalty program, Priority Club Rewards.


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SEGMENTAL INFORMATION
 
Geographic segmentation
 
The following table show the Group’s revenue and operating profit before exceptional operating items and the percentage by geographical area, for the years ended December 31, 2010, 2009 and 2008.
 
                         
    Year ended December 31,
    2010   2009   2008
    ($ million)
 
Revenue(1)
                       
Americas
    807       772       963  
EMEA
    414       397       518  
Asia Pacific
    303       245       290  
Central(2)
    104       124       126  
                         
Total
    1,628       1,538       1,897  
                         
Operating profit before exceptional operating items(1)(3)
                       
Americas
    369       288       465  
EMEA
    125       127       171  
Asia Pacific
    89       52       68  
Central
    (139 )     (104 )     (155 )
                         
Total
    444       363       549  
                         
 
                         
    Year ended December 31,
    2010   2009   2008
    (%)
 
Revenue
                       
Americas
    49.6       50.2       50.8  
EMEA
    25.4       25.8       27.3  
Asia Pacific
    18.6       15.9       15.3  
Central
    6.4       8.1       6.6  
                         
Total
    100.0       100.0       100.0  
                         
Operating profit before exceptional operating items
                       
Americas
    83.1       79.3       84.7  
EMEA
    28.2       35.0       31.1  
Asia Pacific
    20.0       14.3       12.4  
Central
    (31.3 )     (28.6 )     (28.2 )
                         
Total
    100.0       100.0       100.0  
                         
 
 
(1) The results of operations have been translated into US dollars at the average rates of exchange for the year. In the case of sterling, the translation rate is $1 = £0.65 (2009 $1 = £0.64, 2008 $1 = £0.55). In the case of the euro, the translation rate is $1 = €0.76 (2009 $1 = €0.72, 2008 $1 = €0.68).
 
(2) Central revenue primarily relates to Holidex (the Group’s proprietary reservation system) fee income. Central operating profit includes central revenue less costs related to global functions.
 
(3) Operating profit before exceptional operating items does not include exceptional operating items for all periods presented. Exceptional operating items (charge unless otherwise noted) by region were the Americas $8 million (2009 $301 million, 2008 $99 million); EMEA credit of $3 million (2009 $22 million, 2008 $21 million); Asia Pacific $2 million (2009 $7 million, 2008 $2 million); and Central $nil (2009 $43 million, 2008 $10 million).


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BUSINESS OVERVIEW
 
The Group is an international hotel business which owns a portfolio of established and diverse hotel brands, including InterContinental Hotels & Resorts, Crowne Plaza Hotels & Resorts, Holiday Inn Hotels & Resorts (including Holiday Inn Club Vacations), Holiday Inn Express, Staybridge Suites Candlewood Suites and Hotel Indigo. At December 31, 2010, the Group had 4,437 franchised, managed, owned and leased hotels and 647,161 guest rooms in 100 countries and territories around the world. The Group also manages the hotel loyalty program, Priority Club Rewards.
 
Industry and market trends
 
2010 was a turnaround year for the global economy, with clear signs that the global recession was easing during the second half and business and consumer confidence returning. This assisted the hotel industry’s recovery from a challenging economic period. The lodging industry is cyclical, tending to reflect the state of the general economic cycle. Historically, in previous cycles the industry has experienced periods of five to eight years of growth in revenue per available room (RevPAR) followed by up to two years of decline. Demand has rarely fallen for sustained periods and it is the interplay between hotel supply and demand that drives longer-term fluctuations in RevPAR.
 
The expected recovery in demand took place in 2010. The more modest increases in industry pricing, or average daily rate, which along with occupancy make up RevPAR, was caused by the increase in supply of hotel rooms globally, a legacy of the growth in hotel construction which began prior to the downturn.
 
The sustained success of the economic recovery is likely to be determined by both the challenging choices policy makers are faced with regarding austerity measures and the issues surrounding sovereign debt, along with the response of corporations and the financial sector. Corporations will need to play an important role in the recovery through sustained investment and job creation, and the Group, with an ambitious program to open new hotels, anticipates the need to recruit approximately 160,000 people over the next few years.
 
The Group monitors key industry drivers and business fundamentals, such as RevPAR, to ensure its strategy remains well suited to the environment and the Group’s capabilities.
 
Different regions, countries and types of demand vary in the speed they recover and it is our understanding of local demand drivers, combined with a global outlook, that help us anticipate the needs of different types of guest demand and so continue to develop the business to meet these needs. As an example, the Group’s recent launch of new tools to support meetings and events in our hotels was well-timed with the earlier than anticipated recovery in this type of demand. Many commentators thought meetings and events business would remain subdued into 2011.
 
There are a number of external drivers from which IHG expects to benefit:
 
  •  global economic recovery — the global economy grew by 3.8% during 2010 (Oxford Economics), and US historic market data show that following recessions, hotel industry revenues broadly increase ahead of Gross Domestic Product (GDP) (Smith Travel Research). We expect the current recovery to be similar, and are investing in the business to capture demand as it continues to strengthen;
 
  •  increase in affluence and freedom to travel in emerging markets — countries such as China are increasingly significant as domestic and international travel markets. They already have a sizeable hotel industry, and the importance of hotel brands in such emerging markets is growing;
 
  •  rising global travel volumes — airline capacity continues to grow, with affordability of travel improving globally. Business travel is expected to recover in most markets in 2011 and leisure travellers — who have been resilient in the downturn — will continue to travel both internationally and within domestic markets;
 
  •  change in demographics — as the population ages and becomes wealthier in developed markets, increased leisure time and incomes encourage more travel and hotel stays; conversely, younger generations are increasingly seeking a better work/life balance, with higher expectations from those providing their accommodation. This has positive implications for increased leisure travel; and
 
  •  demand for branded hotels is growing faster than that for independent hotels.


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Our strategy
 
With a portfolio of well-established brands, in the best developed and emerging markets, the Group is using its size, scale, people and expertise to realize its Vision of becoming one of the world’s great companies. The Group will be a great company when guests love to stay with us, people love to work for us, owners love our brands and investors love our performance. This strategy is measured by a series of key performance indicators around ‘‘Where we compete’’ and ‘‘How we win’’ (pages 22 and 23).
 
The Group’s strategy has ensured that it remains the largest hotel company in the world, by number of rooms. By grounding its operations and growth in its core purpose of creating Great Hotels Guests Love, the Company uses elements of its strategy, such as the business model of third-party ownership, to grow faster than its global competitors.
 
Delivering the elements of the Group’s strategy
 
Competing with an appropriate business model
 
The Group’s business model has a clear focus on franchising and managing hotels, rather than owning them outright, enabling the Group to grow at an accelerated pace, with limited capital investment. Furthermore, the Group benefits from the reduced volatility of fee-based income streams, as compared with the ownership of assets.
 
A key characteristic of the franchised and managed business is that it generates more cash than is required for investment in the business, with a high return on capital employed. At December 31, 2010 87% of operating profit before regional and central overheads, exceptional items, interest and tax is derived from franchised and managed operations.
 
Where necessary, the Group actively supports its brands by employing its own capital to showcase “best-in-class” operations through flagship assets.
 
The Group’s business model creates opportunities to build relationships with independent hotel owners and generate revenues by offering access to our global demand delivery systems, where guests can book their hotels through the Group’s booking channels, including branded websites and call centers. The latest example is our strategic relationship with Summit Hotel Properties Inc. (“Summit”), a US hotel investment company focused on branded hotels. On any unbranded hotel bought by Summit, the Group now has first rights to give the hotel a Group’s brand and earn fee revenues through generating demand for that hotel.
 
The key features of the Group’s business model are represented in the following table and charts.
 
                         
        Marketing and
          The Group’s
  The Group’s
    Brand   distribution   Staff   Ownership   capital   income
 
                         
Franchised
This is the largest part of our business: 3,783 hotels operate under franchise agreements
  The Group’s
brands
  The Group   Third party   Third party   None   Fee % of
rooms
revenue
                         
Managed
The Group manages 639 hotels worldwide
  The Group’s
brands
  The Group   The Group
usually
supplies
general
manager as
a minimum
  Third party   Low/none   Fee % of
total
revenue
plus % of
profit
                         
Owned and leased
The Group owns 15 hotels worldwide (less than 1% of our portfolio)
  The Group’s
brands
  The Group   The Group   The Group   High   All
revenues
and profits


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The following table shows the number of hotels and rooms franchised, managed, owned and leased by the Group as at December 31, 2010, 2009 and 2008.
 
                                                                 
        Managed
       
        contracts and joint
       
    Franchised   ventures   Owned and leased   Total
    No. of
  No. of
  No. of
  No. of
  No. of
  No. of
  No. of
  No. of
    hotels   rooms   hotels   rooms   hotels   rooms   hotels   rooms
 
2010
    3,783       479,320       639       162,711       15       5,130       4,437       647,161  
2009
    3,799       483,541       622       157,287       17       5,851       4,438       646,679  
2008
    3,585       465,967       585       148,240       16       5,644       4,186       619,851  
 
The Group’s continuing operating profit* by ownership type for the year ended December 31, 2010:
 
 
The Group’s global room count by ownership type at December 31, 2010:
 
 
 
* Before regional and central overheads, exceptional items, interest and tax
 
Competing in developed and emerging markets
 
When considering open hotel rooms and those in development, the Group has leadership positions in 15 of the top 20 markets globally. These markets alone account for over 80% of global lodging spend. These include large developed markets such as the United States (“US”), United Kingdom (“UK”), and Germany, as well as emerging markets like China.
 
The US is the largest market for branded rooms, with 3.4 million. The segment in the US with the greatest share is midscale, with 1.3 million branded hotels rooms, and the Group’s Holiday Inn brand family is the largest operator in this segment.
 
The Group is also focused on growing in large markets such as the UK and Germany where it ranks second and third, respectively in terms of number of available rooms. The benefits of a large hotel presence across these high-value self-supporting markets for the Group include the ability to build relationships with the largest possible number of guests.
 
The Group is the largest hotel company in China, the emerging market with the greatest scale, having 0.5 million branded rooms. The Group, which was the first international chain to open hotels in the country, remains the largest, with close to 50,000 rooms. The rapid pace of openings for the Group and the wider lodging industry shows that China, and other emerging markets are behaving as the Group has seen in developed markets over the past 50 years. The strong demand drivers for hotels suggest these will remain key growth markets.
 
Outside the largest markets, the Group focuses on achieving presence for its biggest brands in key gateway cities which show the potential for high demand from business and leisure guests, and where its brands can generate revenue premiums.
 
In the hotel industry, the future supply of hotels and hotel rooms is visible through the pipeline, and the Group’s pipeline reflects the sustainability of its leadership position.
 
In 2010, the Group’s portfolio opened 35,744 rooms in 29 countries, and signed a further 55,598 into the pipeline, across 38 countries. The Group currently has 204,859 rooms in 1,275 hotels under development in 64 countries.


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The Group’s pipeline ensures sustainable development in new and emerging markets that best suit the Company’s strengths and anticipate the future needs of customers. The Group has committed development teams ensuring a sizeable pipeline in developing markets: during 2010 the Group opened 7,253 rooms in Greater China, representing 20% of all new rooms opened by it across the globe during 2010.
 
The Group’s pipeline is the largest branded hotel pipeline in the world, representing 18% of all hotels under development, including those that are independent or unaffiliated.
 
Winning with our scale and expertise
 
The major benefit the Group brings to guests who stay in the Group’s portfolio of hotels, and owners who invest with us, is our system to help guests book and stay with us, and then maintain the relationship with them after they leave. This includes having hotels in key locations, great brands with consumer appeal, efficient reservations systems, global web presence, our loyalty rewards schemes, along with other elements. Together, these form the largest such ‘system’ in the industry and are the engine of our business, delivering, on average, 68% of total rooms revenue in 2010.
 
With continued focus on the success of this global system, we have developed “best-in-class” marketing and technology to support our hotels and drive incremental revenues.
 
Our focus on key geographical markets where we operate a large number of hotels, such as the US, UK, China, Middle East and Germany, means we can run hotels and our operating system with greater efficiencies, delivering more to the consumer at a lower cost.
 
The size of the global hotel market is estimated by the Group to be close to 20 million rooms. Competitors in the market include other branded hotel companies, both large and small, international and domestic, and independently owned hotels.
 
IHG remains the largest branded hotel company, with our share currently at approximately 10% of the branded rooms (Smith Travel Research), and a presence in 100 countries and territories. Leading research (Smith Travel Research) calculates that there are 6.6 million branded hotel rooms, with the remainder a combination of independent hotels, guesthouses and other types of lodging.
 
Although currently less than half of all hotel rooms are branded, the benefits of being part of a brand are recognized by many owners and the growth of branded rooms has exceeded the growth of unbranded rooms over the past 10 years. Raising finance is still an issue globally, and branded hotels are perceived as offering greater security through global reservations systems, loyalty schemes, and international networks. Branded hotel companies, such as the Group, are attractive to independent hotel owners and are therefore gaining market share at the expense of the unbranded portion of the industry. The Group is well positioned to benefit from this trend.
 
Hotel owners are increasingly recognising the benefits of franchising or managing with the Group, which can offer a portfolio of brands to suit the different real estate opportunities an owner may have, together with effective revenue delivery through global reservations channels. Furthermore, hotel ownership is increasingly being separated from hotel operations, encouraging hotel owners to use third parties, such as the Group, to manage their hotels.
 
Winning with our people and values
 
Our Vision can only be realized if we have collaborative and engaged employees, delivering the right experience to our guests through shared values and living our brands. We have extensive on-boarding, communication, development and recognition programs, aligned under our employment brand, “Room to be yourself”, providing the right environment for our people to be successful.


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Our people dictate our culture, and the Group is aligned around great values which are consistently brought to life through a set of five behaviors, the “Winning Ways”:
 
  •  Do the right thing;
 
  •  Show we care;
 
  •  Aim Higher;
 
  •  Celebrate difference; and
 
  •  Work better together.
 
Business relationships with others
 
The Group maintains effective relationships across all aspects of its operations. The Group’s operations are not dependent upon any single customer, supplier or hotel owner due to the extent of its brands, market segments and geographical coverage. For example, the Group’s largest third-party hotel owner controls just 3% of the Group’s total room count.
 
The Group continued to enhance and streamline its procurement processes during 2010, and with the implementation of initiatives to combat waste and enhance relationships with suppliers, the Group is striving to ensure best-practice is employed throughout the Group. With a focus on ensuring high-quality goods and services are sourced at competitive prices, the Group strives to ensure enhanced value for the Group, our hotel owners and shareholders.
 
IHG is proud of its strong and important relationship with the IAHI, the Owners’ Association for owners of hotels in the Group’s seven brands across the world. IHG meets with the IAHI, in large and small groups, on a regular basis and works together to support and facilitate the continued development of the Group’s brands and systems. During 2010, the combined work of the Group and IAHI implemented several enhancements to the Group’s system.
 
Examples of such enhancements include:
 
Holiday Inn relaunch — the near completion of the $1 billion global relaunch of the Holiday Inn brand family;
 
InnSupply — improving purchasing efficiencies and streamlining the procurement processes across both organizations;
 
Way of Sales — developing “best-in-class” practices for the sales operations of both organizations, having identified critical roles for generating revenues;
 
Celebrate Service week — giving recognition and thanks to the many thousands of front-line employees, and emphasizing engagement through the Group’s brands; and
 
People Tools — enhancing the recruitment, hiring, training and retention practices across both organizations, with specific focus on reflecting the individual qualities of each brand. These tools are supplied to all hotels: managed, franchised and owned and leased.
 
Many jurisdictions and countries regulate the offering of franchise agreements and recent trends indicate an increase in the number of countries adopting franchise legislation. As a significant percentage of the Group’s revenue is derived from franchise fees, the Group’s continued compliance with franchise legislation is important to the successful deployment of the Group’s strategy.


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Measuring our success
 
We measure our success in terms of shareholder value, as well as through a set of strategic priorities. These form our key performance indicators (KPIs) to ensure a consistent approach to running the business. These KPIs consist of “Where we compete”, including the appropriate business model, key target markets and consumer segments; and “How we win”, including financial returns, our people, the guest experience and responsible business.
 
Where we compete
 
             
    Key performance
  Current status and
   
Strategic priorities
 
indicators (KPIs)
 
2010 developments
 
2011 priorities
 
To accelerate profitable growth of our core business in the largest markets where presence and scale really count and also in key global gateway cities. Seek opportunities to leverage our scale in new business areas.  
•   Sustained system size growth; and
•   deal signings focused in scale markets and key gateway cities.
  •   System size maintained at 647,161 rooms;
•   over 90% of deals signed in scale markets and key gateway cities;
•   re-entry into Hawaii with a Holiday Inn Resort;
•   opening our second Hotel Indigo in London, and our first in Asia Pacific, on the Bund in Shanghai;
•   17 signings of Hotel Indigo and Staybridge Suites outside of North America; and
•   259 hotels opened globally.
  •   Continue international roll-out of Staybridge Suites and Hotel Indigo;
•   accelerate growth strategies in quality locations in agreed scale markets; and
•   continue to leverage scale and build upon improved strategic position during the economic downturn.


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How we win
 
             
Strategic priorities
Financial returns
To generate higher returns for owners and the Group through increased revenue share, improved operating efficiency and growing margins.













Our people
Creating hotels that are well run, with brands brought to life by people who are proud of the work they do.











Guest experience
To operate a portfolio of brands attractive to both owners and guests that have clear market positions and differentiation in the eyes of the guest.







Responsible business
To take a proactive stance and seek creative solutions through innovation and collaboration on environment and community issues, and to drive increased value for the Group, owners, guests and the communities where we operate.
  (Graph)   Current status and 2010 developments
• Further procurement efficiencies made;
• enhanced Customer Relationship Management with new technology and campaign management tools to involve non-Priority Club Rewards (PCR) members; and
• enhanced communications with PCR loyalty program members with refreshed loyalty systems.







• Launched and cascaded our Vision to become one of the world’s great companies;
• developed management tools to deliver a branded guest experience;
• further emphasis on our culture of learning and development with industry recognition;
• “Celebrate Service” week — a global event to recognize our people, in partnership with the IAHI ownership community; and
• managing employee engagement.

• Global pilots to identify opportunities to create branded hallmarks with guest appeal;
• near completion of the Holiday Inn relaunch; and
• grew our industry-leading loyalty program PCR, to 56 million members, contributing $6.5 billion of global system rooms revenue.




• “Green Engage” developed (patent pending); rolled out to over 1,000 hotels by December 31, 2010;
• collaborated with the University of Oxford’s Department of Plant Sciences to understand better how hotel design and development impacts the environment; and
• Corporate Responsibility approach defined and agreed.
  2011 priorities
• Capitalize on recovery of group and meetings business;
• strengthen global sales force effectiveness;
• optimize revenues from third party and Group websites;
• ensure the Group’s industry leading system of delivering demand and revenue to hotels retains competitive advantage; and
• strengthen loyalty program, with enhanced member offer.






• Cascade of branded management tools to whole hotel estate, including our franchised hotels;
• ongoing partnership with IAHI ownership community for people events;
• continued focus on developing skills to deliver our Vision and branding capability; and
• opportunities for employees and communities to be involved with Olympics partnership.


• Leverage strong position of Holiday Inn relaunch with roll-out of global marketing initiatives;
• ensure growth plans of each brand aligns fully with corporate Vision;
• focus on strength of Priority Club Rewards and visibly enhance offering to its members in hotels and across global reservations channels; and
• increase the Group’s business from Priority Club Rewards members.

• Continue to roll out “Green Engage” to our owned and managed hotels, and expand into the franchised estate in all regions;
• work with stakeholders, such as Harvard University, to educate decision-makers on the Group’s economic impacts; and
• continue to embed our community strategy, including establishing the “IHG Academy” program and activating our strategic partner in providing disaster recovery.


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Segmental Results by Activity
 
The following table shows the Group’s continuing revenue and operating profit before exceptional operating items by activity and the percentage contribution of each activity, for the years ended December 31, 2010, 2009 and 2008.
 
                         
    Year ended December 31,
    2010   2009   2008
    ($ million)
 
Revenue(1)
                       
Americas
                       
Franchised
    465       437       495  
Managed
    119       110       168  
Owned and leased
    223       225       300  
                         
      807       772       963  
                         
EMEA
                       
Franchised
    81       83       110  
Managed
    130       119       168  
Owned and leased
    203       195       240  
                         
      414       397       518  
                         
Asia Pacific
                       
Franchised
    12       11       18  
Managed
    155       105       113  
Owned and leased
    136       129       159  
                         
      303       245       290  
                         
Central(2)
    104       124       126  
                         
Total
    1,628       1,538       1,897  
                         
Operating profit before exceptional operating items(1)(3)
                       
Americas
                       
Franchised
    392       364       426  
Managed
    21       (40 )     51  
Owned and leased
    13       11       55  
Regional overheads
    (57 )     (47 )     (67 )
                         
      369       288       465  
                         
EMEA
                       
Franchised
    59       60       75  
Managed
    62       65       95  
Owned and leased
    40       33       45  
Regional overheads
    (36 )     (31 )     (44 )
                         
      125       127       171  
                         
Asia Pacific
                       
Franchised
    7       5       8  
Managed
    73       44       55  
Owned and leased
    35       30       43  
Regional overheads
    (26 )     (27 )     (38 )
                         
      89       52       68  
                         
Central(2)
    (139 )     (104 )     (155 )
                         
Total
    444       363       549  
                         
 
 
Footnotes on page 25.
 


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    Year ended December 31,
    2010   2009   2008
    (%)
 
Revenue
                       
Americas
                       
Franchised
    28.6       28.4       26.1  
Managed
    7.3       7.2       8.9  
Owned and leased
    13.7       14.6       15.8  
                         
      49.6       50.2       50.8  
                         
EMEA
                       
Franchised
    5.0       5.4       5.8  
Managed
    8.0       7.7       8.9  
Owned and leased
    12.4       12.7       12.6  
                         
      25.4       25.8       27.3  
                         
Asia Pacific
                       
Franchised
    0.7       0.7       0.9  
Managed
    9.5       6.8       6.0  
Owned and leased
    8.4       8.4       8.4  
                         
      18.6       15.9       15.3  
                         
Central
    6.4       8.1       6.6  
                         
Total
    100.0       100.0       100.0  
                         
Operating profit before exceptional operating items
                       
Americas
                       
Franchised
    88.3       100.2       77.6  
Managed
    4.7       (11.0 )     9.3  
Owned and leased
    2.9       3.0       10.0  
Regional overheads
    (12.8 )     (12.9 )     (12.2 )
                         
      83.1       79.3       84.7  
                         
EMEA
                       
Franchised
    13.3       16.5       13.6  
Managed
    14.0       17.9       17.3  
Owned and leased
    9.0       9.1       8.2  
Regional overheads
    (8.1 )     (8.5 )     (8.0 )
                         
      28.2       35.0       31.1  
                         
Asia Pacific
                       
Franchised
    1.6       1.4       1.5  
Managed
    16.4       12.1       10.0  
Owned and leased
    7.9       8.2       7.8  
Regional overheads
    (5.9 )     (7.4 )     (6.9 )
                         
      20.0       14.3       12.4  
                         
Central
    (31.3 )     (28.6 )     (28.2 )
                         
Total
    100.0       100.0       100.0  
                         
 
 
(1) The results of operations have been translated into US dollars at the average rates of exchange for the year. In the case of sterling, the translation rate $1 = £0.65 (2009 $1 = £0.64, 2008 $1 = £0.55). In the case of the euro, the translation rate is $1 = €0.76 (2009 $1 = €0.72, 2008 $1 = €0.68).
 
(2) Central revenue primarily relates to Holidex (the Group’s proprietary reservation system) fee income. Central operating profit includes central revenue less costs related to global functions.
 
(3) Operating profit before exceptional operating items does not include exceptional operating items for all periods presented. Exceptional operating items (charge unless otherwise noted) by region were the Americas $8 million (2009 $301 million, 2008 $99 million); EMEA credit of $3 million (2009 $22 million, 2008 $21 million); Asia Pacific $2 million (2009 $7 million, 2008 $2 million); and Central $nil (2009 $43 million, 2008 $10 million).

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Global System
 
In addition to management or franchise fees, hotels within the Group’s system pay cash assessments and contributions which are collected by the Group for specific use within the System Fund (the “Fund”). The Fund also receives proceeds from the sale of Priority Club Rewards points. The Fund is managed for the benefit of hotels in the system with the objective of driving revenues for the hotels. The Fund is used to pay for marketing, the Priority Club Rewards loyalty program and the global reservations system.
 
Priority Club Rewards:  The Group’s worldwide loyalty scheme, Priority Club Rewards, is the largest of its kind in the hotel industry. Members enjoy a variety of privileges and rewards as they stay at the Group’s hotels around the world. The global system room revenue generated from Priority Club Rewards members during 2010 was $6.6 billion. Priority Club Rewards membership reached 56 million customers as at December 31, 2010, compared to 48 million as at December 31, 2009.
 
Central Reservations System Technology:  The Group operates the HolidexPlus reservations system. The HolidexPlus system receives reservations requests entered on terminals located at most of the Group’s reservations centers, as well as from global distribution systems operated by a number of major corporations and travel agents. Where local hotel systems allow, the HolidexPlus system immediately confirms reservations or indicates alternative accommodation available within the Group’s network. Confirmations are transmitted electronically to the hotel for which the reservation is made.
 
Reservations Call Centers:  The Group operates 10 reservations call centers around the world which enable it to sell in local languages in many countries and offer a high quality service to customers.
 
Internet:  The Group introduced electronic hotel reservations in 1995. The Internet is an important communications, branding and distribution channel for hotel sales. During 2010, 24% (24% in 2009) of global system room revenue booked via the Internet through various branded websites, such as www.intercontinental.com and www.holidayinn.com, as well as certified third parties.
 
The Group has established standards for working with third-party intermediaries — online travel distributors — who sell or re-sell the Group’s branded hotel rooms via their Internet sites. Under the standards, certified distributors are required to respect the Group’s trademarks, ensure reservations are guaranteed through an automated and common confirmation process, and clearly present fees to customers.
 
During 2010, global system room revenue booked through the Group’s global systems (which includes Priority Club Rewards members, central reservations and call centers, global distribution systems and the Internet) was 68% (68% in 2009).
 
Sales and Marketing
 
The Group targets its sales and marketing expenditure in each region on driving revenue and brand awareness or, in the case of sales investments, targeting segments such as corporate accounts, travel agencies and meeting organizers. The majority of the Group’s sales and marketing expenditure is funded by contractual fees paid by most hotels in the system.


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Global Brands
 
Brands Overview
 
The Group offers hotel brands that appeal to guests with different needs and tastes. This requires a portfolio of large global brands, growing alongside innovative new brands to meet the unique experiences our guests desire.
 
The hotel industry is usually split into segments based upon price point and consumer expectations. The Group is focused on the three segments that together generate over 90% of branded hotel revenues: midscale (broadly 3 star hotels), upscale (mostly 4 star), and luxury (5 star).
 
                 
    At December 31, 2010
Brands
  Room numbers   Hotels
 
InterContinental Hotels & Resorts
    58,429       171  
Crowne Plaza Hotels & Resorts
    106,155       388  
Holiday Inn Hotels & Resorts(1)
    230,117       1,247  
Holiday Inn Express
    191,228       2,075  
Staybridge Suites
    20,762       188  
Candlewood Suites
    28,253       288  
Hotel Indigo
    4,548       38  
Other
    7,669       42  
                 
Total
    647,161       4,437  
                 
 
 
(1) Includes Holiday Inn Club Vacations (2,892 rooms, 6 hotels)
 
InterContinental Hotels & Resorts
 
                         
    Americas   EMEA   Asia Pacific
 
Average room rate $(1)
    158.54       232.90       174.76  
Room numbers(2)
    19,120       20,111       19,198  
 
 
(1) For the year ended December 31, 2010; quoted at constant US$ exchange rate. Average room rate is for comparable InterContinental hotels.
 
(2) At December 31, 2010.
 
InterContinental Hotels & Resorts (“InterContinental”) is the Group’s 5-star brand located in major cities in over 60 countries worldwide. With over 60 years’ experience, the brand’s understanding of high quality, understated service and outstanding facilities, coupled with a genuine interest in our guests differentiate it in a competitive segment. The philosophy of the brand is to enable every guest to maximize the enjoyment of their stay — specializing in engaging guests with the destination by sharing local knowledge to create authentic experiences that enrich our guests’ lives and help them broaden their outlook.
 
InterContinental hotels are principally managed by the Group. At December 31, 2010, there were 171 InterContinental hotels which represented 9% of the Group’s total hotel rooms. During 2010, nine InterContinental hotels were added to the portfolio, while four hotels were removed.


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Crowne Plaza Hotels & Resorts
 
                         
    Americas   EMEA   Asia Pacific
 
Average room rate $(1)
    101.94       140.39       105.16  
Room numbers(2)
    57,073       22,941       26,141  
 
 
(1) For the year ended December 31, 2010; quoted at constant US$ exchange rate. Average room rate is for comparable Crowne Plaza hotels.
 
(2) At December 31, 2010.
 
Crowne Plaza Hotels & Resorts (“Crowne Plaza”), in the upscale, 4 star segment, specializes in offering state-of-the-art business and meeting facilities that provide productive, successful and energizing experiences to guests who believe travel is fun and rewarding.
 
The majority of Crowne Plaza hotels are operated under franchise agreements in the US and Europe, and managed in other markets by the Group. At December 31, 2010, there were 388 Crowne Plaza hotels which represented 16% of the Group’s total hotel rooms. During 2010, 29 Crowne Plaza hotels were added to the portfolio, while seven hotels were removed.
 
The Holiday Inn Family of Brands
 
The Holiday Inn family of brands is the world’s largest midscale hotel brand family by number of rooms, and the Group’s most significant operation. Focused around a relaxed atmosphere, the brands are designed to support both business travellers and families. During 2010, the brand family neared completion of a $1 billion refresh, updating their image by upgrading facilities, service and amenities, ensuring the brands continue to remain competitive within their midscale markets. The Holiday Inn family was the first international hotel chain to open in China in 1984 and the first hotel chain to launch a direct bookings website in 1995.
 
Holiday Inn Hotels & Resorts
 
                         
    Americas   EMEA   Asia Pacific
 
Average room rate $(1)
    95.12       115.51       88.57  
Room numbers(2)(3)
    147,575       52,945       29,597  
 
 
(1) For the year ended December 31, 2010; quoted at constant US$ exchange rate. Average room rate is for comparable Holiday Inn hotels.
 
(2) At December 31, 2010.
 
(3) The Americas total includes Holiday Inn Club Vacations (2,892 rooms).
 
Holiday Inn Hotels & Resorts (including Holiday Inn Club Vacations) (“Holiday Inn”) are predominantly operated under franchise agreements. At December 31, 2010, there were 1,247 Holiday Inn hotels which represented 36% of the Group’s total hotel rooms, of which 64% were located in the Americas. During 2010, 53 Holiday Inn hotels were added to the portfolio, while 131 hotels were removed.
 
Holiday Inn Express
 
                         
    Americas   EMEA   Asia Pacific
 
Average room rate $(1)
    95.55       95.18       45.70  
Room numbers(2)
    159,867       23,706       7,655  
 
 
(1) For the year ended December 31, 2010; quoted at constant US$ exchange rate. Average room rate is for comparable Holiday Inn Express hotels.
 
(2) At December 31, 2010.
 
Holiday Inn Express hotels are almost entirely operated under franchise agreements. At December 31, 2010, there were 2,075 Holiday Inn Express hotels worldwide which represented 30% of the Group’s total hotel rooms, of which 84% were located in the Americas. During 2010, 122 new Holiday Inn Express hotels were added to the portfolio, while 116 hotels were removed.


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Staybridge Suites
 
                 
    Americas   EMEA
 
Average room rate $(1)
    94.16       112.18  
Room numbers(2)
    20,014       748  
 
(1) For the year ended December 31, 2010; quoted at constant US$ exchange rate. Average room rate is for comparable Staybridge Suites hotels.
 
(2) At December 31, 2010.
 
Staybridge Suites is the Group’s upscale extended stay brand, offering a sociable, family-like atmosphere. It was the fastest upper-tier extended stay brand to reach the 50-hotel and 100-hotel milestones, and was ranked highest in the prestigious J.D. Power and Associates’ 2009 North America Hotel Guest Satisfaction Index Study for extended stay hotels. In 2008 Staybridge Suites opened its first EMEA hotel in Liverpool and has since opened properties in Cairo, Abu Dhabi and Newcastle.
 
The Staybridge Suites brand is principally operated under management contracts and franchise agreements. At December 31, 2010 there were 188 Staybridge Suites hotels, which represented 3% of the Group’s total hotel rooms, of which 96% (183 hotels) were located in the Americas. During 2010, seven hotels were added to the portfolio, and one hotel was removed.
 
Candlewood Suites
         
    Americas
 
Average room rate $(1)
    62.30  
Room numbers(2)
    28,253  
 
(1) For the year ended December 31, 2010; quoted at constant US$ exchange rate. Average room rate is for comparable Candlewood Suites hotels.
 
(2) At December 31, 2010.
 
Candlewood Suites is the Group’s midscale extended stay brand that gives its guests all the essentials they need for a home-like stay at great value. Shortly after being acquired by IHG in 2003, Candlewood Suites won J.D. Power’s award for highest extended stay guest satisfaction in North America in 2004 whilst also ranking first in the Market Metrix Hospitality Index survey for customer satisfaction. Candlewood Suites continues to lead the way in midscale extended stay lodging, with the most properties under development.
 
The Candlewood Suites brand is operated under management contracts and franchise agreements. At December 31, 2010, there were 288 Candlewood Suites hotels, which represented 4% of the Group’s total rooms, all of which were located in the Americas. During 2010, 35 hotels were added to the portfolio, and one hotel was removed.
 
Hotel Indigo
 
                         
    Americas   EMEA   Asia Pacific
 
Average room rate $(1)
    104.36       204.65        
Room numbers(2)
    4,254       110       184  
 
(1) For the year ended December 31, 2010; quoted at constant US$ exchange rate. Average room rate is for comparable Hotel Indigo hotels.
 
(2) At December 31, 2010.
 
Hotel Indigo is the Group’s boutique and youngest brand, launched in 2004, and focuses on a guest that appreciates art and design and that is seeking affordable luxury. Hotel Indigo provides guests with the refreshing design and intimate service synonymous with a boutique along with the consistency, reliability, and accessibility of a branded hotel. Each hotel is unique and reflects its local neighborhood with local murals and images, a vibrant color palette and locally sourced and seasonal menu items.
 
The Hotel Indigo brand is principally operated under franchise agreements. At December 31, 2010, there were 38 Hotel Indigo hotels, 35 located in the Americas. During 2010, five hotels were added to the portfolio, and no hotels were removed.


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Geographical Analysis
 
Although it has worldwide hotel operations, the Group is most dependent on the Americas for operating profit, reflecting the structure of the branded global hotel market. The Americas region generated 63% of the Group’s operating profit before central overheads and exceptional operating items during 2010.
 
The geographical analysis, split by number of rooms and operating profit, is set out in the table below.
 
                         
    Americas   EMEA   Asia Pacific
    (% of total)
 
Room numbers(1)
    68       19       13  
Regional operating profit (before central overheads and exceptional operating items)(2)
    63       22       15  
 
 
(1) At December 31, 2010.
 
(2) For the year ended December 31, 2010.
 
Americas
 
In the Americas, the largest proportion of rooms is operated under the franchise business model (89% of rooms in the Americas operate under this model) primarily in the midscale segment (Holiday Inn and Holiday Inn Express). Similarly, in the upscale segment, Crowne Plaza is predominantly franchised, whereas the majority of the InterContinental branded hotels are operated under franchise and management agreements. With 3,458 hotels (439,375 rooms), the Americas represented 68% of the Group’s room count and 63% of the Group’s operating profit before central overheads and exceptional operating items during the year ended December 31, 2010. The key profit producing region is the United States, although the Group is also represented in each of Latin America, Canada, Mexico and the Caribbean.
 
EMEA
 
In EMEA, the largest proportion of rooms is operated under the franchise business model primarily in the midscale segment (Holiday Inn and Holiday Inn Express). Similarly, in the upscale segment, Crowne Plaza is predominantly franchised whereas the majority of the InterContinental branded hotels are operated under management agreements. Comprising 694 hotels (120,852 rooms) at the end of 2010, EMEA represented 22% of the Group’s operating profit before central overheads and exceptional operating items during the year ended December 31, 2010. Profits are primarily generated from hotels in the United Kingdom, Continental European gateway cities and the Middle East portfolio.
 
Asia Pacific
 
In Asia Pacific, the largest proportion of rooms are operated under the managed business model. The majority of hotels are in the midscale and upscale segments. Comprising 285 hotels (86,934 rooms) at December 31, 2010, Asia Pacific represents 15% of the Group’s operating profit before central overheads and exceptional operating items during the year ended December 31, 2010. The Chinese tourism market continues to grow, with the country forecast to become one of the world’s biggest tourist destinations within 10 years. At December 31, 2010 the Group had 145 hotels in Greater China and a further 147 hotels in development.


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The following table shows information concerning the geographical locations and ownership of the Group’s hotels as at December 31, 2010.
 
                                                                 
    Franchised   Managed   Owned and leased   Total
    Hotels   Rooms   Hotels   Rooms   Hotels   Rooms   Hotels   Rooms
 
Americas
                                                               
InterContinental
    27       7,616       26       10,015       3       1,489       56       19,120  
Crowne Plaza
    191       50,761       18       6,312                   209       57,073  
Holiday Inn(1)
    787       137,691       28       8,825       3       1,059       818       147,575  
Holiday Inn Express
    1,846       159,615       1       252                   1,847       159,867  
Staybridge Suites
    137       14,280       44       5,501       2       233       183       20,014  
Candlewood Suites
    211       18,934       77       9,319                   288       28,253  
Hotel Indigo
    31       3,639       3       405       1       210       35       4,254  
Other
                22       3,219                   22       3,219  
                                                                 
Total
    3,230       392,536       219       43,848       9       2,991       3,458       439,375  
                                                                 
EMEA
                                                               
InterContinental
    10       2,278       51       16,540       3       1,293       64       20,111  
Crowne Plaza
    71       15,888       27       7,053                   98       22,941  
Holiday Inn
    245       38,250       80       14,695                   325       52,945  
Holiday Inn Express
    194       23,241       3       312       1       153       198       23,706  
Staybridge Suites
    1       183       4       565                   5       748  
Hotel Indigo
    2       110                               2       110  
Other
                2       291                   2       291  
                                                                 
Total
    523       79,950       167       39,456       4       1,446       694       120,852  
                                                                 
Asia Pacific
                                                               
InterContinental
    6       1,814       44       16,889       1       495       51       19,198  
Crowne Plaza
    3       482       78       25,659                   81       26,141  
Holiday Inn
    9       1,826       94       27,573       1       198       104       29,597  
Holiday Inn Express
    1       138       29       7,517                   30       7,655  
Hotel Indigo
                1       184                   1       184  
Other
    11       2,574       7       1,585                   18       4,159  
                                                                 
Total
    30       6,834       253       79,407       2       693       285       86,934  
                                                                 
Total
                                                               
InterContinental
    43       11,708       121       43,444       7       3,277       171       58,429  
Crowne Plaza
    265       67,131       123       39,024                   388       106,155  
Holiday Inn(1)
    1,041       177,767       202       51,093       4       1,257       1,247       230,117  
Holiday Inn Express
    2,041       182,994       33       8,081       1       153       2,075       191,228  
Staybridge Suites
    138       14,463       48       6,066       2       233       188       20,762  
Candlewood Suites
    211       18,934       77       9,319                   288       28,253  
Hotel Indigo
    33       3,749       4       589       1       210       38       4,548  
Other
    11       2,574       31       5,095                   42       7,669  
                                                                 
Total
    3,783       479,320       639       162,711       15       5,130       4,437       647,161  
                                                                 
 
 
(1) Includes Holiday Inn Club Vacations (6 hotels, 2,892 rooms) within franchised.
 
Room Count and Pipeline
 
During 2010, the Group’s global system (the number of hotels and rooms which are franchised, managed, owned or leased by the Group) remained in line with 2009 at 4,437 hotels (647,161 rooms). Openings of 259 hotels (35,744 rooms) were driven, in particular, by continued expansion in the US and China and offset the removal of 260 hotels (35,262 rooms).
 
In Asia Pacific, demand for upscale brands (InterContinental, Crowne Plaza and Hotel Indigo) contributed 65% of total room openings in the region.


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The Holiday Inn brand family relaunch is substantially complete with 2,956 hotels (89% of the total Holiday Inn brand family) open under the updated signage and brand standards at December 31, 2010. During 2010, the removal of non-brand-conforming hotels contributed to the total removal of 247 Holiday Inn and Holiday Inn Express hotels (30,892 rooms).
 
At the end of 2010, the pipeline totaled 1,275 hotels (204,859 rooms). The Group’s pipeline represents hotels and rooms where a contract has been signed and the appropriate fees paid.
 
Signings of 319 hotels (55,598 rooms) represent an increase in rooms signed from 2009 levels. Demonstrating the continued demand for the Group’s brands globally, 50% of the rooms pipeline is now outside the Americas region. There were 25 hotel signings (3,025 rooms) for Hotel Indigo as it gains real momentum in Europe and Asia Pacific where, together, 12 hotels (1,456 rooms) were signed. The Group also entered into an InterContinental Alliance relationship with the Las Vegas Sands Corp. to bring the 6,874 all-suite Venetian and Palazzo Resorts into the Group’s system in 2011.
 
During 2010, the opening of 35,744 rooms contributed to a net pipeline decline of 5,504 rooms. Terminations from the pipeline in 2010 totaled 25,358 rooms, a decrease of 21% compared with 2009. Terminations occur for a number of reasons such as the withdrawal of financing and changes in local market conditions.
 
There are no assurances that all of the hotels in the pipeline will open. The construction, conversion and development of hotels is dependent upon a number of factors, including meeting brand standards, obtaining the necessary permits relating to construction and operation, the cost of constructing, converting and equipping such hotels and the ability to obtain suitable financing at acceptable interest rates. The supply of capital for hotel development in the United States and major economies may not continue at previous levels and consequently the pipeline could decrease.
 
Americas
 
The Americas hotel and room count in 2010 decreased by 21 hotels (5,979 rooms) to 3,458 hotels (439,375 rooms). Openings of 194 hotels (20,980 rooms) included key openings of the InterContinental New York Times Square and the first Staybridge Suites in New York, taking IHG’s room count in New York city to 6,570. The Holiday Inn brand family generated openings of 137 hotels (13,446 rooms) and the Group’s extended stay brands, Staybridge Suites and Candlewood Suites, achieved openings of 41 hotels (3,862 rooms). Removals of 215 hotels (26,959 rooms) were mainly from Holiday Inn and Holiday Inn Express hotels.
 
The Americas pipeline totaled 890 hotels (102,509 rooms) at December 31, 2010. Overall signings of 30,223 rooms were flat on 2009 as slow real estate and construction activity continued into 2010. Notable signings included the InterContinental Alliance established with the Las Vegas Sands Corp., and the re-entry to the Hawaii market with the Holiday Inn Beachcomber Resort in Waikiki Beach.
 
EMEA
 
During 2010, EMEA hotel and room count decreased by one hotel (a net increase of 556 rooms) to 694 hotels (120,852 rooms). Activity included openings of 33 hotels (5,767 rooms) and removals of 34 hotels (5,211 rooms). The net decrease of seven Holiday Inn and Holiday Inn Express hotels comprised 25 openings and 32 removals.
 
The pipeline in EMEA increased by one hotel (a net decrease of 26 rooms) to 153 hotels (31,435 rooms). There were 9,303 room signings in 2010, with continued demand for the Group’s brands in the UK and Germany. Demand was particularly strong in the midscale segment which represented 61% of room signings. There were eight signings for the Group’s lifestyle brand, Hotel Indigo, including four in the UK and entry into new markets in Lisbon, Madrid and Berlin. There were also six Crowne Plaza signings including the strategic markets of Istanbul, St Petersburg and Amsterdam.
 
Asia Pacific
 
Asia Pacific hotel and room count increased by 21 hotels (5,905 rooms) to 285 hotels (86,934 rooms). Openings of 32 hotels (8,997 rooms) were partially offset by the removal of 11 hotels (3,092 rooms). The growth


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was driven by 24 hotel openings in 17 cities across Greater China (7,253 rooms), seven hotels (1,477 rooms) more than in 2009. This included key hotel openings in Shanghai of the InterContinental at the Expo site and the Hotel Indigo on the Bund, the first opening for this brand in Asia Pacific. Across the region 65% of rooms opened were in upscale brands (InterContinental, Crowne Plaza and Hotel Indigo).
 
The pipeline in Asia Pacific increased by 19 hotels (5,741 rooms) to 232 hotels (70,915 rooms). Pipeline growth was evenly balanced between the Greater China market (nine hotels, 3,128 rooms) and Asia Australasia (10 hotels, 2,613 rooms) including six hotel signings in India taking its total pipeline to 10,073 rooms.
 
Across the region there were 18 Holiday Inn Express signings, more than double the number for this brand in 2009, indicating the potential for midscale growth in the region. In Vietnam two new Holiday Inn resorts were signed in the prime beachfront locations of Cam Ranh Bay and Phu Quoc. There were also 12 Crowne Plaza signings, including the Crowne Plaza Lumpini Park in Bangkok.
 
                                                 
    Hotels   Rooms
            Change
          Change
Global hotel and room count at December 31,
  2010   2009   over 2009   2010   2009   over 2009
 
Analyzed by brand
                                               
InterContinental
    171       166       5       58,429       56,121       2,308  
Crowne Plaza
    388       366       22       106,155       100,994       5,161  
Holiday Inn(1)
    1,247       1,325       (78 )     230,117       243,460       (13,343 )
Holiday Inn Express
    2,075       2,069       6       191,228       188,007       3,221  
Staybridge Suites
    188       182       6       20,762       19,885       877  
Candlewood Suites
    288       254       34       28,253       25,283       2,970  
Hotel Indigo
    38       33       5       4,548       4,030       518  
Other
    42       43       (1 )     7,669       8,899       (1,230 )
                                                 
Total
    4,437       4,438       (1 )     647,161       646,679       482  
                                                 
Analyzed by ownership type
                                               
Franchised(1)
    3,783       3,799       (16 )     479,320       483,541       (4,221 )
Managed
    639       622       17       162,711       157,287       5,424  
Owned and leased
    15       17       (2 )     5,130       5,851       (721 )
                                                 
Total
    4,437       4,438       (1 )     647,161       646,679       482  
                                                 
 
 
(1) Includes Holiday Inn Club Vacations (6 hotels, 2,892 rooms in both 2010 and 2009).
 


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    Hotels   Rooms
            Change
          Change
Global pipeline at December 31,
  2010   2009   over 2009   2010   2009   over 2009
 
Analyzed by brand
                                               
InterContinental
    60       63       (3 )     19,374       20,173       (799 )
Crowne Plaza
    123       129       (6 )     38,994       38,555       439  
Holiday Inn
    313       338       (25 )     57,505       59,008       (1,503 )
Holiday Inn Express
    494       563       (69 )     53,219       57,756       (4,537 )
Staybridge Suites
    101       123       (22 )     10,760       13,360       (2,600 )
Candlewood Suites
    120       169       (49 )     10,506       14,851       (4,345 )
Hotel Indigo
    62       53       9       7,627       6,660       967  
Other
    2             2       6,874             6,874  
                                                 
Total
    1,275       1,438       (163 )     204,859       210,363       (5,504 )
                                                 
Analyzed by ownership type
                                               
Franchised
    970       1,158       (188 )     113,940       126,386       (12,446 )
Managed
    305       280       25       90,919       83,977       6,942  
                                                 
Total
    1,275       1,438       (163 )     204,859       210,363       (5,504 )
                                                 
 
Seasonality
 
Although the performance of individual hotels and geographic markets might be highly seasonal due to a variety of factors such as the tourist trade and local economic conditions, the geographical spread of the Group’s hotels in 100 countries and territories and the relative stability of the income stream from franchising and management activities, diminishes, to some extent, the effect of seasonality on the results of the Group.
 
Competition
 
The Group’s hotels compete with a wide range of facilities offering various types of lodging options and related services to the public. The competition includes several large and moderate sized hotel chains offering upper, mid and lower priced accommodation and also includes independent hotels in each of these market segments, particularly outside of North America where the lodging industry is much more fragmented. Major hotel chains which compete with the Group include Marriott International, Inc., Starwood Hotels & Resorts Worldwide, Inc., Choice Hotels International, Inc., Best Western International, Inc., Hilton Hotels Corporation, Wyndham Worldwide Corporation, Four Seasons Hotels Inc. and Accor S.A. The Group also competes with non-hotel options, such as timeshare offerings and cruises.
 
RevPAR
 
The following tables present RevPAR statistics for the year ended December 31, 2010 and a comparison to 2009. RevPAR is a meaningful indicator of performance because it measures period-over-period change in rooms revenue for comparable hotels. RevPAR is calculated by dividing rooms revenue for comparable hotels by room nights available to guests for the period.
 
Franchised, managed, owned and leased statistics are for comparable hotels, and include only those hotels in the Group’s system at December 31, 2010 and franchised, managed, owned or leased by the Group since January 1, 2009.

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The comparison with 2009 is at constant US$ exchange rates.
 
                                                 
    Franchised   Managed   Owned and leased
        Change vs
      Change vs
      Change vs
    2010   2009   2010   2009   2010   2009
 
Americas
                                               
InterContinental
                                               
Occupancy
    58.5 %     3.3 %pts     68.7 %     4.7 %pts     79.4 %     0.4 %pts
Average daily rate
  $ 124.05       (0.3 )%   $ 170.14       2.7 %   $ 223.15       8.1 %
RevPAR
  $ 72.54       5.7 %   $ 116.93       10.2 %   $ 177.22       8.7 %
Crowne Plaza
                                               
Occupancy
    58.3 %     3.3 %pts     70.7 %     3.4 %pts            
Average daily rate
  $ 97.79       (1.5 )%   $ 125.36       1.2 %            
RevPAR
  $ 57.04       4.5 %   $ 88.63       6.2 %            
Holiday Inn
                                               
Occupancy
    58.1 %     2.8 %pts     68.9 %     4.0 %pts     72.5 %     1.5 %pts
Average daily rate
  $ 94.10       (0.9 )%   $ 106.74       0.9 %   $ 106.24       (2.1 )%
RevPAR
  $ 54.64       4.1 %   $ 73.56       7.1 %   $ 76.98       (0.1 )%
Holiday Inn Express
                                               
Occupancy
    61.8 %     3.0 %pts     80.3 %     5.2 %pts            
Average daily rate
  $ 95.45       (0.7 )%   $ 133.96       2.4 %            
RevPAR
  $ 58.95       4.4 %   $ 107.59       9.5 %            
Staybridge Suites
                                               
Occupancy
    70.4 %     6.7 %pts     75.3 %     6.9 %pts     76.7 %     8.5 %pts
Average daily rate
  $ 92.17       (2.8 )%   $ 98.16       (3.5 )%   $ 89.10       (5.9 )%
RevPAR
  $ 64.91       7.4 %   $ 73.96       6.3 %   $ 68.38       5.9 %
Candlewood Suites
                                               
Occupancy
    67.1 %     5.2 %pts     71.9 %     8.7 %pts            
Average daily rate
  $ 66.92       (5.0 )%   $ 57.13       (8.8 )%            
RevPAR
  $ 44.88       3.0 %   $ 41.10       3.7 %            
Hotel Indigo
                                               
Occupancy
    59.0 %     6.7 %pts     62.7 %     3.3 %pts            
Average daily rate
  $ 102.99       (0.7 )%   $ 111.17       2.6 %            
RevPAR
  $ 60.76       12.0 %   $ 69.65       8.4 %            
 


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    Franchised   Managed   Owned and leased
        Change vs
      Change vs
      Change vs
    2010   2009   2010   2009   2010   2009
 
EMEA
                                               
InterContinental
                                               
Occupancy
    57.3 %     1.0 %pts     65.8 %     4.3 %pts     76.5 %     2.9 %pts
Average daily rate
  $ 283.71       0.5 %   $ 210.41       (1.9 )%   $ 359.89       7.1 %
RevPAR
  $ 162.68       2.3 %   $ 138.55       4.9 %   $ 275.43       11.4 %
Crowne Plaza
                                               
Occupancy
    66.9 %     4.7 %pts     75.6 %     2.7 %pts            
Average daily rate
  $ 135.32       (0.8 )%   $ 156.14       (4.7 )%            
RevPAR
  $ 90.48       6.7 %   $ 118.03       (1.2 )%            
Holiday Inn
                                               
Occupancy
    64.7 %     4.4 %pts     71.6 %     1.3 %pts            
Average daily rate
  $ 117.37       2.2 %   $ 111.30       0.9 %            
RevPAR
  $ 75.99       9.6 %   $ 79.73       2.7 %            
Holiday Inn Express
                                               
Occupancy
    69.8 %     3.0 %pts     50.8 %     4.1 %pts     70.2 %     9.7 %pts
Average daily rate
  $ 95.23       1.3 %   $ 75.33       (9.8 )%   $ 110.30       11.7 %
RevPAR
  $ 66.43       5.9 %   $ 38.26       (2.0 )%   $ 77.49       29.5 %
Staybridge Suites
                                               
Occupancy
                74.3 %     7.7 %pts            
Average daily rate
              $ 112.18       (3.1 )%            
RevPAR
              $ 83.39       8.0 %            
Hotel Indigo
                                               
Occupancy
    93.4 %     7.4 %pts                        
Average daily rate
  $ 204.65       2.2 %                        
RevPAR
  $ 191.16       11.1 %                        
 
                                                 
    Franchised   Managed   Owned and leased
        Change vs
      Change vs
      Change vs
    2010   2009   2010   2009   2010   2009
 
Asia Pacific
                                               
InterContinental
                                               
Occupancy
    69.7 %     1.2 %pts     66.9 %     6.1 %pts     71.1 %     5.9 %pts
Average daily rate
  $ 181.67       9.6 %   $ 165.41       1.9 %   $ 358.55       5.7 %
RevPAR
  $ 126.65       11.5 %   $ 110.59       12.2 %   $ 254.97       15.3 %
Crowne Plaza
                                               
Occupancy
    59.0 %     2.5 %pts     67.7 %     6.8 %pts            
Average daily rate
  $ 125.74       (0.5 )%   $ 104.93       1.6 %            
RevPAR
  $ 74.21       4.0 %   $ 71.05       12.9 %            
Holiday Inn
                                               
Occupancy
    74.7 %     2.6 %pts     67.3 %     5.5 %pts     90.1 %     5.4 %pts
Average daily rate
  $ 84.20       (1.3 )%   $ 88.51       5.2 %   $ 129.34       (0.5 )%
RevPAR
  $ 62.86       2.2 %   $ 59.57       14.5 %   $ 116.52       5.8 %
Holiday Inn Express
                                               
Occupancy
    61.3 %     (2.4 )%pts     66.2 %     9.5 %pts            
Average daily rate
  $ 47.79       (6.4 )%   $ 45.61       13.7 %            
RevPAR
  $ 29.27       (9.9 )%   $ 30.20       32.6 %            
Other
                                               
Occupancy
    70.3 %     4.7 %pts     77.0 %     2.4 %pts            
Average daily rate
  $ 108.52       (6.2 )%   $ 92.30       (6.5 )%            
RevPAR
  $ 76.31       0.5 %   $ 71.03       (3.5 )%            

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Regulation
 
Both in the United Kingdom and internationally, the Group’s hotel operations are subject to regulation, including health and safety, zoning and similar land use laws as well as regulations that influence or determine wages, prices, interest rates, construction procedures and costs.
 
TRADEMARKS
 
Group companies own a substantial number of service brands upon which it is dependent and the Group believes that its significant trademarks are protected in all material respects in the markets in which its brands currently operate.
 
ORGANIZATIONAL STRUCTURE
 
Principal operating subsidiary undertakings
 
InterContinental Hotels Group PLC was the beneficial owner of all of the equity share capital, either itself or through subsidiary undertakings, of the following companies during the year. The companies listed below include those which principally affect the amount of profit and assets of the Group.
 
Six Continents Limited(a)
 
Hotel Inter-Continental London Limited(a)
 
IHG Hotels Limited(a)
 
Six Continents Hotels, Inc.(b)
 
Inter-Continental Hotels Corporation(b)
 
111 East 48th Street Holdings, LLC(b)
 
InterContinental Hotels Group Resources, Inc.(b)
 
InterContinental Hong Kong Limited(c)
 
Société Nouvelle du Grand Hotel SA(d)
 
(a) Incorporated in Great Britain and registered in England and Wales.
 
(b) Incorporated in the United States.
 
(c) Incorporated in Hong Kong.
 
(d) Incorporated in France.


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PROPERTY, PLANT AND EQUIPMENT
 
Group companies own and lease properties throughout the world, principally hotels but also offices. The table below analyzes the net book value of the Group’s property, plant and equipment at December 31, 2010. Approximately 45% of hotel properties by value were directly owned, with 50% held under leases having a term of 50 years or longer.
 
                                 
Net book value at December 31, 2010
  Americas   EMEA   Asia Pacific   Total
    ($ million)
 
Land and buildings
    495       523       317       1,335  
Fixtures, fittings and equipment
    119       146       90       355  
                                 
      614       669       407       1,690  
                                 
 
Approximately 85% of the net book value relates to the top five owned and leased hotels (in terms of value) of a total of 15 hotels, including $183 million relating to assets held under finance leases.
 
There were no assets classified as held for sale at December 31, 2010. Subsequent to December 31, 2010, four hotels, including the InterContinental Barclay in New York, met the “held for sale” criteria of IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations.” Three of the properties are located in North America and one in Australia, and all are expected to be sold within the next 12 months. The fair value less estimated costs to sell for each property exceeds its net book value.
 
Contracts placed for expenditure on property, plant and equipment not included in the Consolidated Financial Statements at December 31, 2010 amounted to $10 million.
 
Charges over one hotel totaling $85 million exist as security provided to the Group’s pension plans.
 
ENVIRONMENT
 
With over 4,400 hotels globally and almost 1,300 in the pipeline, the Group has an opportunity to make a positive difference in the communities in which it operates.
 
As such the Group is committed to:
 
  •  Implementing sound environmental practices in the design, development and operation of its hotels;
 
  •  Encouraging the development and integration of sustainable technologies;
 
  •  Endeavoring to reduce its use of energy, water and re-use and recycle the resources consumed by its business wherever practical;
 
  •  Engaging its customers, colleagues, hotel owners, suppliers and contractors in its efforts to protect the environment;
 
  •  Providing the training and resources required to meet its objectives;
 
  •  Monitoring, recording and benchmarking its environmental performance on a regular basis;
 
  •  Making business decisions taking into account these commitments; and
 
  •  Communicating its policies, practices and programs to all its stakeholders.
 
Corporate responsibility (“CR”) is central to the way the Group does business. Acting responsibly creates value for its brands while helping its hotels to manage costs, drive revenue and be prepared for the future. It also keeps the Group in tune with the thinking of its stakeholders, and supports its mission to champion and protect the Group’s trusted reputation, which in turn reinforces trust in the Group’s brands, builds competitive advantage and strengthens its corporate reputation.
 
The Group is focused on developing better ways to design, build and run its hotels. The Group’s strategy is based on innovation and collaboration.


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  •   Innovation — the Group develops innovative concepts and technologies, and works closely with its partners to find creative solutions to the challenges it faces.
 
  •   Collaboration — the Group’s stakeholders play a key role in helping it identify and tackle its priorities. Stakeholders include guests and corporate clients, hotel owners and franchise holders, local communities, employees, shareholders, suppliers, academic institutions, non-government organizations, governments and industry-specific institutions.
 
The Group’s innovation and collaboration activities are focused on the areas that make most sense to its business, and where it believes it can make most difference, in its communities. The Group’s CR strategy focuses on two main pillars:
 
  •   Environment — reduce energy use in the Group’s owned and managed estate by between 6% and 10% over three years (2010-2012) via the use of Green Engage; and
 
  •   Communities — generate local economic opportunities, particularly through the ‘‘IHG Academy’’, and provide support through disaster relief.
 
The Group chooses not simply to mitigate its greenhouse gas emissions through the purchase of voluntary carbon offsets. The Group believes that as a global organization with operations in many markets, its biggest contribution towards cutting greenhouse gas emissions will come from delivering real emission cuts — through innovating new and better ways to design, build and run its hotels — not through offsetting.
 
The Group’s key programs include;
 
  •   Green Engage — Green Engage is the Group’s innovative online sustainability management system, which launched in 2009 and, which defines the Group’s vision of a sustainable hotel. Green Engage is designed to help hotels reduce energy costs, with hotels achieving energy savings of up to 25%. The system, which has recently received a LEED (Leadership in Energy and Environmental Design) endorsement, allows hotels to track, measure and report on their energy, water and waste, and recommends actions that will cut energy bills without compromising the guest experience. The Group is the world’s first hotel company to be awarded LEED endorsement for an existing hotel program, further cementing its place as an industry leader in sustainability.
 
  •   ‘‘IHG Academy’’ — The ‘‘IHG Academy’’ is a public/private partnership with education providers and community organizations that helps the Group create local economic opportunities.
 
  •   The Innovation Hotel — The Group’s online ‘‘innovation hotel’’ takes visitors on a tour of the model hotel of the future, pointing out practical solutions and technology that can make its hotels greener and more efficient.
 
Over 1,000 of the Group’s hotels are registered to use Green Engage and 2,000 individuals are registered as users. The Group’s aim is to have its entire global system using it over time. In 2011 the Group will launch version 2.0 of Green Engage based on feedback from existing users. The new version retains all the features and benefits of the original but is easier to use with better benchmarking.
 
ITEM 4A.   UNRESOLVED STAFF COMMENTS
 
None.
 
ITEM 5.   OPERATING AND FINANCIAL REVIEW AND PROSPECTS
 
INTRODUCTION
 
Business and Overview
 
The Group is an international hotel business which owns a portfolio of established and diverse hotel brands, including InterContinental Hotels & Resorts, Crowne Plaza Hotels & Resorts, Holiday Inn Hotels & Resorts (including Holiday Inn Club Vacations), Holiday Inn Express, Staybridge Suites, Candlewood Suites and Hotel Indigo. At December 31, 2010, the Group had 4,437 franchised, managed, owned and leased hotels and 647,161


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guest rooms in 100 countries and territories around the world. The Group also manages the hotel loyalty program, Priority Club Rewards.
 
The Group’s revenue and earnings are derived from hotel operations, which include franchise and other fees paid under franchise agreements, management and other fees paid under management contracts, where the Group operates third-parties’ hotels, and operation of the Group’s owned hotels.
 
Operational Performance
 
Revenue increased by 5.9% to $1,628 million and operating profit before exceptional items increased by 22.3% to $444 million during the year ended December 31, 2010.
 
The 2010 results reflect a return to RevPAR growth in a recovering global market, with an overall RevPAR increase of 6.2% led by occupancy. 2010 fourth quarter comparable RevPAR increased 8.0% compared to the same quarter in 2009, including a 2.4% increase in average daily rate. During 2010, average daily rate for the InterContinental and Holiday Inn brands increased by 1.3% and 0.5% respectively.
 
The $1 billion roll-out of the Holiday Inn brand family relaunch is substantially complete. By December 31, 2010, 2,956 hotels were converted globally under the relaunch program, representing 89% of all Holiday Inn hotels. The required improvement in quality standards contributed to the removal of a total of 35,262 rooms from the Group’s global system during 2010. In spite of this necessary reduction, the closing global room count was 647,161 rooms, in line with 2009 levels.
 
The performance of the Group is evaluated primarily on a regional basis. The regional operations are split by business model: franchise agreement, management contract, and owned and leased operations. All three income types are affected by occupancy and room rates achieved by hotels, the ability to manage costs and the change in the number of available rooms through acquisition, development and disposition. Results are also impacted by economic conditions and capacity. The Group’s segmental results are shown before exceptional operating items, interest expense, interest income and income taxes.
 
CRITICAL ACCOUNTING POLICIES
 
The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and costs and expense during the reporting period. On an ongoing basis, management evaluates its estimates and judgments, including those relating to revenue recognition, bad debts, investments, property, plant and equipment, goodwill and intangible assets, income taxes, guest program liability, self insurance claims payable, restructuring costs, retirement benefits and contingencies and litigation.
 
Management bases its estimates and judgments on historical experience and on other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates under different assumptions and conditions.
 
The Group’s critical accounting policies are set out below.
 
Revenue recognition
 
Revenue is the gross inflow of economic benefits received and receivable by the Group on its own account where those inflows result in increases in equity.
 
Revenue is derived from the following sources: franchise fees; management fees; owned and leased properties and other revenues which are ancillary to the Group’s operations, including technology fee income.
 
Generally, revenue represents sales (excluding VAT and similar taxes) of goods and services, net of discounts, provided in the normal course of business and recognized when services have been rendered. The following is a description of the composition of revenues of the Group.


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Franchise fees — received in connection with the license of the Group’s brand names, usually under long-term contracts with the hotel owner. The Group charges franchise royalty fees as a percentage of room revenue. Revenue is recognized when earned and realized or realizable under the terms of the agreement.
 
Management fees — earned from hotels managed by the Group, usually under long-term contracts with the hotel owner. Management fees include a base fee, which is generally a percentage of hotel revenue, and an incentive fee, which is generally based on the hotel’s profitability or cash flows. Revenue is recognized when earned and realized or realizable under the terms of the contract.
 
Owned and leased — primarily derived from hotel operations, including the rental of rooms and food and beverage sales from owned and leased hotels operated under the Group’s brand names. Revenue is recognized when rooms are occupied and food and beverages are sold.
 
In addition to management or franchise fees, hotels within the IHG system pay cash assessments and contributions which are collected for specific use within the System Fund (the “Fund”). The Fund also receives proceeds from the sale of Priority Club Rewards points. The Group exerts significant influence over the operation of the Fund, however, the Fund is managed for the benefit of hotels in the system with the objective of driving revenues for the hotels. The Fund is used to pay for marketing, the Priority Club Rewards loyalty program and the global reservations system. The Fund is planned to operate at breakeven with any short-term timing surplus or deficit carried in the Consolidated statement of financial position within working capital. As all Fund income is designated for specific purposes and does not result in a profit or loss for the Group, the revenue recognition criteria as outlined in the accounting policy above are not met and therefore the income and expenses of the Fund are not included in the Consolidated income statement. Financial information relating to the Fund is included in Note 31 of Notes to the Consolidated Financial Statements.
 
Goodwill, intangible assets, and property, plant and equipment
 
Goodwill arising on acquisitions prior to October 1, 1998 was eliminated against equity. From October 1, 1998 to December 31, 2003, acquired goodwill was capitalized and amortized over a period not exceeding 20 years. Since January 1, 2004, goodwill continued to be capitalized but amortization ceased as at that date, replaced by an impairment review on an annual basis or more frequently if there are indicators of impairment. The annual review is performed in the fourth quarter. Goodwill is allocated to cash-generating units for impairment testing purposes.
 
Intangible assets and property, plant and equipment are capitalized and amortized over their expected useful lives, and reviewed for impairment when events or circumstances indicate that the carrying value may not be recoverable. Assets that do not generate independent cash flows are combined into cash-generating units.
 
The impairment testing of individual assets or cash-generating units requires an assessment of the recoverable amount of the asset or cash-generating unit. If the carrying value of the asset or cash-generating unit exceeds its estimated recoverable amount, the asset or cash-generating unit is written down to its recoverable amount. Recoverable amount is the greater of fair value less cost to sell and value in use. Value in use is assessed based on estimated future cash flows discounted to their present value using a pre-tax discount rate that is based on the Group’s weighted average cost of capital adjusted to reflect the risks specific to the business model and territory of the cash-generating unit or asset being tested. The outcome of such an assessment is subjective, and the result sensitive to the assumed future cashflows to be generated by the cash-generating units or assets and discount rates applied in calculating the value in use. Any impairment arising is charged to the income statement.
 
Following the full impairment of Americas managed goodwill in 2009, the remaining balance of goodwill of $92 million at December 31, 2010, relates to Asia Australasia franchised and managed operations. Given the substantial valuation headroom relating to this goodwill, management believe that the carrying value of the cash-generating unit would only exceed its recoverable amount in the event of highly unlikely changes in the key assumptions.
 
During 2010, the Group recognized total impairment charges of $7 million across two asset categories as follows:
 
  •  Property, plant and equipment — $6 million in respect of one hotel in the Americas; and
 
  •  Other financial assets — $1 million in respect of two equity investments in North America.


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The hotel impairment charge was measured by reference to value in use calculations using a pre-tax discount rate of 11.8%. Following the impairment charge, the hotel had a net book value of $4 million at December 31, 2010.
 
The equity investments were impaired following significant and prolonged declines in their fair value below cost. Following the impairment charges, the combined investments had a net book value of $5 million.
 
Income taxes
 
The Group provides for deferred tax in accordance with IAS 12 “Income Taxes” in respect of temporary differences between the tax base and carrying value of assets and liabilities including accelerated capital allowances, unrelieved tax losses, unremitted profits from overseas where the Group does not control remittance, gains rolled over into replacement assets, gains on previously revalued properties and other short-term temporary differences. Deferred tax assets are recognized to the extent that it is regarded as probable that the deductible temporary differences can be realized. The Group estimates deferred tax assets and liabilities based on current tax laws and rates, and in certain cases, business plans, including management’s expectations regarding the manner and timing of recovery of the related assets. Changes in these estimates may affect the amount of deferred tax liabilities or the valuation of deferred tax assets.
 
Provisions for tax contingencies require judgments on the expected outcome of tax exposures which may be subject to significant uncertainty, and therefore the actual results may vary from expectations resulting in adjustments to contingencies and cash tax settlements. During 2010, exceptional provision releases of $7 million were made in relation to tax matters which have been settled or in respect of which the relevant statutory limitation period has expired.
 
Loyalty program
 
The hotel loyalty program, Priority Club Rewards enables members to earn points, funded through hotel assessments, during each qualifying stay and redeem the points at a later date for free accommodation or other benefits. The future redemption liability is included in trade and other payables and is estimated using eventual redemption rates determined by actuarial methods and points values. Actuarial gains and losses on the future redemption liability are borne by the System Fund and any resulting changes in the liability would correspondingly adjust the amount of short-term timing differences held in the Group statement of financial position. The future redemption liability amounted to $531 million at December 31, 2010.
 
Pensions and other post-employment benefit plans
 
Accounting for pensions and other post-employment benefit plans requires the Group to make assumptions including, but not limited to, future asset returns, discount rates, rates of inflation, life expectancies and health care costs. The use of different assumptions could have a material effect on the accounting values of the relevant assets and liabilities which could result in a material change to the cost of such liabilities as recognized in the income statement over time. These assumptions are subject to periodic review. A sensitivity analysis to changes in various assumptions is included in Note 3 of Notes to the Consolidated Financial Statements.
 
OPERATING RESULTS
 
Accounting Principles
 
The following discussion and analysis is based on the Consolidated Financial Statements of the Group, which are prepared in accordance with IFRS.
 
For the year ended December 31, 2010 the results include exceptional items totaling a net charge of $4 million (2009 $80 million, 2008 $85 million). For comparability of the periods presented, some performance indicators in this Operating and financial review and prospects discussion have been calculated after eliminating these exceptional items. Such indicators are prefixed with “adjusted”. An analysis of exceptional items is included in Note 5 of Notes to the Consolidated Financial Statements.
 


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    Year ended December 31,
    2010   2009   2008
    ($ million)
 
Total revenue
    1,628       1,538       1,897  
                         
Operating profit before exceptional operating items
    444       363       549  
                         
Exceptional operating items
    (7 )     (373 )     (132 )
                         
Operating profit/(loss)
    437       (10 )     417  
Net financial expenses
    (62 )     (54 )     (101 )
                         
Profit/(loss) before tax
    375       (64 )     316  
Tax
    (97 )     272       (59 )
                         
Profit after tax
    278       208       257  
Gain on disposal of assets, net of tax
    2       6       5  
                         
Profit for the year
    280       214       262  
                         
Earnings per ordinary share:
                       
Basic
    97.2¢       74.7¢       91.3¢  
Adjusted
    98.6¢       102.8¢       120.9¢  
 
Year ended December 2010 compared with year ended December 2009
 
Revenue increased by 5.9% to $1,628 million and operating profit before exceptional items increased by 22.3% to $444 million during the year ended December 31, 2010.
 
In 2010, the InterContinental Buckhead, Atlanta and the Holiday Inn Lexington were sold for $105 million and $5 million, respectively, with proceeds used to reduce net debt. These disposals resulted in a reduction in owned and leased revenue and operating profit of $19 million and $4 million, respectively, compared to 2009.
 
The average US dollar exchange rate to sterling strengthened during 2010 (2010 $1=£0.65, 2009 $1=£0.64). Translated at constant currency, applying 2009 exchange rates, revenue increased by 6.0% and operating profit increased by 22.3%.
 
Exceptional operating items
 
Exceptional operating items of $7 million consisted of a litigation provision of $22 million, an impairment charge of $7 million, severance costs of $4 million and costs of $9 million to complete the Holiday Inn brand family relaunch offset by gains of $35 million from the disposal of assets, including a $27 million profit on the sale of the InterContinental Buckhead, Atlanta.
 
Compared with the previous year, exceptional operating items in 2010 were significantly lower as 2009 was impacted by difficult trading which resulted in exceptional operating costs of $373 million, primarily due to the recognition of impairment charges, an onerous contract provision and the cost of office closures.
 
Exceptional operating items are treated as exceptional by reason of their size or nature and are excluded from the calculation of adjusted earnings per ordinary share in order to provide a more meaningful comparison of performance.
 
Net financial expenses
 
Net financial expenses increased from $54 million in 2009 to $62 million in 2010, as the effect of the £250 million 6% bond offset lower net debt levels and low interest rates. Average net debt levels in 2010 were lower than 2009 primarily as a result of improved trading, the disposal of the InterContinental Buckhead, Atlanta and a continuing focus on cash management.

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Financing costs included $2 million (2009 $2 million) of interest costs associated with Priority Club Rewards where interest is charged on the accumulated balance of cash received in advance of the redemption points awarded. Financing costs in 2010 also included $18 million (2009 $18 million) in respect of the InterContinental Boston finance lease.
 
Taxation
 
The effective rate of tax on the combined profit from continuing and discontinued operations, excluding the impact of exceptional items, was 26% (2009 5%). The rate was particularly low in 2009 due to the impact of prior year items relative to a lower level of profit than in 2010. By excluding the impact of prior year items, which are included wholly within continuing operations, the equivalent tax rate would be 35% (2009 42%). This rate is higher than the UK statutory rate of 28% due mainly to certain overseas profits (particularly in the US) being subject to statutory rates higher than the UK statutory rate, unrelieved foreign taxes and disallowable expenses.
 
Taxation within exceptional items totaled a credit of $1 million (2009 $287 million) in respect of continuing operations. This represented the release of exceptional provisions relating to tax matters which were settled during 2010, or in respect of which the statutory limitation period had expired, together with tax relief on exceptional costs, tax arising on disposals and also tax relating to an internal reorganization in 2010.
 
Net tax paid in 2010 totaled $68 million (2009 $2 million) including $4 million paid (2009 $1 million) in respect of disposals. Tax paid is lower than the current period income tax charge, primarily due to the receipt of refunds in respect of prior years, together with provisions for tax for which no payment of tax was made.
 
Earnings per ordinary share
 
Basic earnings per ordinary share in 2010 was 97.2 cents, compared with 74.7 cents in 2009. Adjusted earnings per ordinary share was 98.6 cents, against 102.8 cents in 2009.
 
Highlights for the year ended December 31, 2010
 
The following is a discussion of the year ended December 31, 2010 compared with the year ended December 31, 2009.
 
                         
    Year ended
  Year ended
   
    December 31,
  December 31,
   
    2010   2009   Change
    ($ million)   %
 
Revenue
                       
Americas
    807       772       4.5  
EMEA
    414       397       4.3  
Asia Pacific
    303       245       23.7  
Central
    104       124       (16.1 )
                         
Total
    1,628       1,538       5.9  
                         
Operating profit before exceptional operating items(1)
                       
Americas
    369       288       28.1  
EMEA
    125       127       (1.6 )
Asia Pacific
    89       52       71.2  
Central
    (139 )     (104 )     (33.7 )
                         
Total
    444       363       22.3  
                         
 
 
(1) Operating profit before exceptional operating items does not include exceptional operating items for all periods presented. Exceptional operating items (charge unless otherwise noted) by region were Americas $8 million (2009 $301 million); EMEA credit of $3 million (2009 $22 million); Asia Pacific $2 million (2009 $7 million); and Central $nil (2009 $43 million).


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Revenue increased by 5.9% to $1,628 million and operating profit before exceptional items increased by 22.3% to $444 million during the year ended December 31, 2010.
 
The 2010 results reflect a return to RevPAR growth in a recovering global market, with an overall RevPAR increase of 6.2% led by occupancy. 2010 fourth quarter comparable RevPAR increased 8.0% compared to the same quarter in 2009, including a 2.4% increase in average daily rate. During 2010, average daily rate for the InterContinental and Holiday Inn brands increased by 1.3% and 0.5% respectively.
 
The $1 billion roll-out of the Holiday Inn brand family relaunch is substantially complete. By December 31, 2010, 2,956 hotels were converted globally under the relaunch program, representing 89% of all Holiday Inn hotels. The required improvement in quality standards contributed to the removal of a total of 35,262 rooms from the Group’s global system during 2010. In spite of this necessary reduction, the Group’s closing global room count was 647,161 rooms, in line with 2009 levels.
 
The ongoing focus on efficiency across the Group largely sustained underlying cost reductions achieved in 2009. Regional and central overheads increased by $49 million, from $209 million in 2009 to $258 million in 2010, driven by incremental performance based incentive costs of $47 million and charges of $4 million relating to a self-insured healthcare benefit plan.
 
Primarily as a result of these actions taken across the Group to improve efficiencies, operating profit margin was 35.7%, up 1.1 percentage points on 2009, after adjusting for owned and leased hotels, Americas managed leases, significant liquidated damages received in 2009, an onerous contract provision established in 2009 and non-payment of performance based incentive costs in 2009.
 
In 2010 the InterContinental Buckhead, Atlanta and the Holiday Inn Lexington were sold for $105 million and $5 million respectively, with proceeds used to reduce net debt. These disposals resulted in a reduction in owned and leased revenue and operating profit of $19 million and $4 million, respectively, compared to 2009.
 
Americas
 
Americas Results
 
                         
    Year ended
  Year ended
   
    December 31,
  December 31,
   
    2010   2009   Change
    ($ million)   %
 
Revenue
                       
Franchised
    465       437       6.4  
Managed
    119       110       8.2  
Owned and leased
    223       225       (0.9 )
                         
Total
    807       772       4.5  
                         
Operating profit before exceptional operating items 
                       
Franchised
    392       364       7.7  
Managed
    21       (40 )     152.5  
Owned and leased
    13       11       18.2  
                         
      426       335       27.2  
Regional overheads
    (57 )     (47 )     (21.3 )
                         
Total
    369       288       28.1  
                         
 
Revenue and operating profit before exceptional items increased by $35 million to $807 million (4.5%) and $81 million to $369 million (28.1%) respectively.
 
Franchised revenue increased by $28 million to $465 million (6.4%) and operating profit by $28 million to $392 million (7.7%) compared to 2009. Royalties growth was driven by RevPAR gains across all brands and by a 4.5% RevPAR increase in total. While franchised hotel and room count at December 31, 2010 was lower than at


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December 31, 2009, the weighting of removals towards the end of 2010 meant that daily rooms available actually increased in 2010 from 2009 levels, further boosting royalty growth. Non royalty revenues and profits remained flat on 2009, as real estate financing for new activity remained constrained.
 
Managed revenue increased by $9 million to $119 million (8.2%) in line with the RevPAR growth of 7.5%. Operating profit increased by $61 million to $21 million from a $40 million loss in 2009. The loss in 2009 included a charge for priority guarantee shortfalls relating to a portfolio of hotels. A provision for onerous contracts was established on December 31, 2009 and further payments made during 2010 were charged against this provision. Excluding the effect of the provision, managed operating profit increased by $3 million, driven by RevPAR growth of 23.3% in Latin America.
 
Results from managed operations included revenues of $71 million (2009 $71 million) and operating profit of $1 million (2009 nil) from properties that are structured, for legal reasons, as operating leases but with the same characteristics as management contracts.
 
Owned and leased revenue declined by $2 million to $223 million (0.9%) and operating profit increased by $2 million to $13 million (18.2%). Improving trading conditions led to a RevPAR increase of 6.4%, including an 8.1% increase at the InterContinental New York Barclay. The disposal of the InterContinental Buckhead, Atlanta in July 2010 and its subsequent conversion to a management contract resulted in reductions of $15 million in revenue and $4 million in operating profit when compared to 2009. The Holiday Inn Lexington was also sold in March 2010, which led to a $4 million reduction in revenue and no reduction in operating profit compared to 2009. Excluding the impact of these two disposals, owned and leased revenue increased by $17 million (9.0%) and operating profit by $6 million (150.0%) compared to 2009.
 
Regional overheads increased by $10 million (21.3%) from $47 million in 2009 to $57 million in 2010. The increase was attributable primarily to performance based incentives and $4 million from increased claims in a self-insured healthcare benefit plan.
 
EMEA
 
EMEA Results
 
                         
    Year ended
  Year ended
   
    December 31,
  December 31,
   
    2010   2009   Change
    ($ million)   %
 
Revenue
                       
Franchised
    81       83       (2.4 )
Managed
    130       119       9.2  
Owned and leased
    203       195       4.1  
                         
Total
    414       397       4.3  
                         
Operating profit before exceptional operating items 
                       
Franchised
    59       60       (1.7 )
Managed
    62       65       (4.6 )
Owned and leased
    40       33       21.2  
                         
      161       158       1.9  
Regional overheads
    (36 )     (31 )     (16.1 )
                         
Total
    125       127       (1.6 )
                         
 
Revenue increased by $17 million to $414 million (4.3%) and operating profit before exceptional items decreased by $2 million to $125 million (1.6%) compared to 2009. At constant currency, revenue increased by $30 million (7.6%) and operating profit before exceptional items increased by $3 million (2.4%). Excluding $3 million of liquidated damages received in 2009, revenue at constant currency increased by 8.4% and operating profit by 4.8%.


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Franchised revenue and operating profit decreased by $2 million to $81 million (2.4%) and $1 million to $59 million (1.7%) respectively compared to 2009. At constant currency, revenue increased by 1.2% and operating profit increased by 1.7% respectively. Excluding the impact of $3m in liquidated damages received in 2009, revenue and operating profit at constant currency increased by 5.0% and 7.0% respectively. The underlying increase was driven by a RevPAR increase of 7.6%. Revenues associated with new signings, relicensing and terminations decreased compared to 2009 as real estate activity remained slow.
 
EMEA managed revenue increased by $11 million to $130 million (9.2%) and operating profit decreased by $3 million to $62 million (4.6%) compared to 2009. At constant currency, revenue increased by 10.9% while operating profit declined by 3.1%. Positive RevPAR growth in key European cities and markets, including growth of 14.8% in the Group’s managed properties in Germany, was offset by unfavorable trading across much of the Middle East where RevPAR declined overall by 0.7%. At the year end, a provision of $3 million was made for future estimated cash outflows relating to guarantee obligations for one hotel.
 
In the owned and leased estate, revenue increased by $8 million to $203 million (4.1%) and operating profit increased by $7 million to $40 million (21.2%), or at constant currency, revenue and operating profit increased by 8.2% and 27.3% respectively. RevPAR increase of 11.9% benefited from average daily rate growth of 6.5% across the year. The InterContinental London Park Lane and InterContinental Paris Le Grand delivered strong year-on-year RevPAR growth of 15.0% and 11.5% respectively. Margins improved in both these hotels as the focus remained on cost control.
 
Regional overheads increased by $5 million to $36 million (16.1%) compared to 2009, mainly attributable to performance based incentive costs.
 
Asia Pacific
 
Asia Pacific Results
 
                         
    Year ended
  Year ended
   
    December 31,
  December 31,
   
    2010   2009   Change
    ($ million)   %
 
Revenue
                       
Franchised
    12       11       9.1  
Managed
    155       105       47.6  
Owned and leased
    136       129       5.4  
                         
Total
    303       245       23.7  
                         
Operating profit before exceptional operating items 
                       
Franchised
    7       5       40.0  
Managed
    73       44       65.9  
Owned and leased
    35       30       16.7  
                         
      115       79       45.6  
Regional overheads
    (26 )     (27 )     3.7  
                         
Total
    89       52       71.2  
                         
 
Asia Pacific revenue and operating profit before exceptional items increased by $58 million to $303 million (23.7%) and by $37 million to $89 million (71.2%) respectively compared to 2009.
 
Continued strong economic growth in the region was given a further boost by the World Expo held in Shanghai from May to October 2010. Resulting RevPAR growth in key Chinese cities was exceptional, with increases of 55.9% and 29.9% in Shanghai and Beijing respectively.
 
Franchised revenue increased by $1 million to $12 million (9.1%) and operating profit increased by $2 million to $7 million (40.0%).


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Managed revenue increased by $50 million to $155 million (47.6%) and operating profit increased by $29 million to $73 million (65.9%) compared to 2009. In addition to strong comparable RevPAR performance, there was a positive contribution from recently opened hotels, with a 9% room increase in the size of the Asia Pacific managed estate during 2010 following a 10% increase in 2009, and a $4 million operating profit increase due to the collection of old or previously provided for debts.
 
In the owned and leased estate, revenue increased by $7 million to $136 million (5.4%) and operating profit by $5 million to $35 million (16.7%). These results were driven by the InterContinental Hong Kong, where RevPAR increased 15.3% during 2010.
 
Regional overheads decreased by $1 million to $26 million (3.7%), with an increase in performance-based incentive costs offset by the effect of the 2009 restructuring.
 
Central
 
                         
    Year ended
  Year ended
   
    December 31,
  December 31,
   
    2010   2009   Change
    ($ million)   %
 
Revenue
    104       124       (16.1 )
Gross central costs
    (243 )     (228 )     (6.6 )
                         
Net central costs
    (139 )     (104 )     (33.7 )
                         
                         
 
During 2010, net central costs increased by $35 million from $104 million to $139 million (33.7%). The increase was primarily driven by an increase in performance based incentive costs where no payments were made on some plans in 2009. At constant currency, net central costs increased by $36 million (34.6%) compared to 2009.
 
System Fund
 
                         
    Year ended
  Year ended
   
    December 31,
  December 31,
   
    2010   2009   Change
    ($ million)   %
 
Assessment fees and contributions received from hotels
    944       875       7.9  
Proceeds from sale of Priority Club Rewards points
    106       133       (20.3 )
                         
      1,050       1,008       4.2  
                         
 
In the year ended December 31, 2010, System Fund income increased by 4.2% to $1.1 billion primarily as a result of growth in hotel room revenues and marketing programs. Sale of Priority Club Rewards points declined by 20.3% due to the impact of a special promotional program in 2009.
 
In addition to management or franchise fees, hotels within the Group’s system pay cash assessments and contributions which are collected by the Group for specific use within the Fund. The Fund also receives proceeds from the sale of Priority Club Rewards points. The Fund is managed for the benefit of hotels in the system with the objective of driving revenues for the hotels. The Fund is used to pay for marketing, the Priority Club Rewards loyalty program and the global reservation system. The operation of the Fund does not result in a profit or loss for the Group and consequently the revenues and expenses of the Fund are not included in the Group Income Statement.
 
Highlights for the year ended December 31, 2009
 
The following is a discussion of the year ended December 31, 2009 compared with the year ended December 31, 2008.
 
Group results
 
Revenue decreased by 18.9% to $1,538 million and operating profit before exceptional items decreased by 33.9% to $363 million during the year ended December 31, 2009. The results reflect the challenging global


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economic environment faced by the Group throughout 2009. Group RevPAR fell 14.7% during the year, with declines in both occupancy and rate. However, stabilizing occupancy levels in the fourth quarter indicated a slight rebound in trading conditions which resulted in a RevPAR decline of 10.9% compared to the fourth quarter in 2008. Furthermore, the Group continued to achieve organic growth during the year, increasing its net room count by 4.3% or 26,828 rooms. The Group also made significant progress in the roll-out of the Holiday Inn brand family relaunch, with 1,697 hotels converted globally at December 31, 2009.
 
In the year, the Group took a number of actions to improve efficiency and reduce costs which led to a reduction in regional and central overheads of $95 million, from $304 million in 2008 to $209 million in 2009, including a $23 million favorable movement in foreign exchange.
 
Americas
 
Revenue and operating profit before exceptional items decreased by 19.8% to $772 million and 38.1% to $288 million respectively compared to 2008. Excluding the receipt of significant liquidated damages of $13 million in 2008, revenue and operating profit declined by 18.7% and 36.3% respectively.
 
The region experienced challenging trading conditions throughout the year leading to RevPAR, revenue and profit declines across all ownership types. Despite RevPAR declines, the region’s US comparable hotels demonstrated outperformance relative to the US market.
 
Franchised revenue and operating profit decreased by 11.7% to $437 million and 14.6% to $364 million respectively, compared to 2008. This decrease was predominantly driven by a fall in royalty revenues as a consequence of a RevPAR decline of 14.3%. Revenues also included the impact of a decline in real estate activity leading to lower fees associated with activities such as the signing of new hotels and conversions. An increase in overall room supply partially offset the decline in revenue and profit.
 
Managed revenues decreased by 34.5% to $110 million during the year or, by 29.0% excluding the impact of $13 million in liquidated damages received in 2008. All brands were impacted by the economic downturn which resulted in RevPAR declines of 17.8%. Operating profit declined by $91 million ($78 million excluding liquidated damages) resulting in a loss of $40 million. The loss was due to the RevPAR driven revenue declines, the Group funding owner’s priority return shortfalls on a number of hotels managed by one owner and certain guarantee payments. At 2009 year end, an exceptional charge of $91 million was recognized comprising the write off of a deposit related to the priority return contracts and the total estimated net cash outflows to this owner under the guarantee. Therefore, future payments to this owner will be charged against the provision and will not impact operating results. The managed results also included the impact of provisions recognized following the devaluation of the Venezuelan currency and the potential impact of asset nationalization.
 
Results from managed operations include revenues of $71 million (2008 $88 million) and operating profit of $nil (2008 $6 million) from properties that are structured, for legal reasons, as operating leases but with the same characteristics as management contracts.
 
Owned and leased revenue declined by 25.0% to $225 million and operating profit decreased by 80.0% to $11 million. Underlying trading was driven by RevPAR declines, including the InterContinental brand with a decline of 28.2%. Trading at the InterContinental New York Barclay, in particular, was severely impacted by the collapse of the financial markets. Results also included the impact of the sale of the Holiday Inn Jamaica, sold in August 2008, which led to a reduction in revenue and operating profit of $16 million and $2 million respectively when compared to 2008.
 
As a result of the declining real estate market the InterContinental Buckhead, Atlanta and Staybridge Suites Denver Cherry Creek no longer met the criteria for designation as held for sale assets and consequently the results of these hotels are no longer categorized as discontinued operations and comparative figures have been re-presented accordingly.
 
Regional overheads declined 29.9% during the year, from $67 million to $47 million. The favorable movement was driven by increased efficiencies and the impact of an organizational restructuring undertaken to further align the regional structure with the requirements of the Group’s owners and hotels.


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EMEA
 
Revenue and operating profit before exceptional items decreased by 23.4% to $397 million and 25.7% to $127 million, respectively. At constant currency, revenue and operating profit before exceptional items decreased by 16.8% and 22.8%, respectively. The region received significant liquidated damages totaling $16 million in 2008 and $3 million in 2009. Excluding these receipts, revenue declined by 21.5% and operating profit before exceptional items declined by 20.0%, and at constant currency by 14.7% and 16.8%, respectively.
 
During the year, RevPAR declines were experienced across the region, with declines in key markets ranging from 9.8% in the UK to 17.8% in Continental Europe.
 
Franchised revenue and operating profit decreased by 24.5% to $83 million and 20.0% to $60 million, respectively, or at constant currency by 18.2% and 13.3%, respectively. Excluding the impact of $3 million in liquidated damages received in 2009 and $7 million received in 2008, revenue and operating profit declined by 22.3% and 16.2% respectively, or at constant currency by 15.5% and 8.8% respectively. The decline was principally driven by RevPAR declines across Continental Europe and the UK, partly offset by a 6% increase in room count.
 
EMEA managed revenue and operating profit decreased by 29.2% to $119 million and by 31.6% to $65 million, respectively, or at constant currency by 25.0% and 29.5%, respectively. Excluding the impact of $9 million in liquidated damages received in 2008, revenue and operating profit declined by 25.2% and 24.4%, respectively, or at constant currency by 20.8% and 22.1%, respectively. The results were driven by managed RevPAR declines of 14.9%.
 
Owned and leased revenue decreased by 18.8% to $195 million and operating profit decreased by 26.7% to $33 million, or at constant currency by 10.4% and 17.8% respectively. The InterContinental Paris Le Grand, in particular, was adversely impacted by the economic downturn as both business and leisure travel declined in Paris. However, trading at the InterContinental London Park Lane was more resilient, with RevPAR down just 1.7% during the year.
 
Regional overheads decreased by 29.5% to $31 million due to improved efficiencies and cost savings, as well as a favorable movement in foreign exchange of $6 million.
 
Asia Pacific
 
Asia Pacific revenue and operating profit before exceptional items decreased by 15.5% to $245 million and 23.5% to $52 million, respectively. Excluding the receipt of $4 million in significant liquidated damages in 2008, revenue and operating profit declined by 14.3% and 18.8% respectively. Despite RevPAR declines of 13.5%, the region’s brands demonstrated outperformance relative to the market.
 
Franchised revenues and operating profit decreased by 38.9% to $11 million and by 37.5% to $5 million, respectively. Excluding the impact of $4 million liquidated damages received in 2008, revenue decreased by 21.4% and profit increased by $1 million or 25.0%. The decline in revenue was driven by lower RevPARs and the loss of royalties following the removal of six hotels (1,067 rooms) which did not meet IHG’s brand and quality standards.
 
Managed revenue decreased by 7.1% to $105 million and operating profit decreased by 20.0% to $44 million. RevPAR across the Greater China managed estate declined 15.6%, primarily due to room oversupply in key Chinese cities, such as Beijing and trading upside in 2008 from the Olympic Games.
 
Owned and leased revenue decreased by 18.9% to $129 million and operating profit decreased by 30.2% to $30 million. These results were driven by the InterContinental Hong Kong, where RevPAR declined 22.2% during the year.
 
Regional overheads decreased by 28.9% to $27 million, due to the impact of regional restructuring and lower marketing costs associated with the ANA joint venture in Japan.
 
Central
 
During 2009, net central costs decreased by 32.9% from $155 million to $104 million. The significant reduction was driven by management actions to increase efficiencies and implement cost-saving measures across


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the Group. Relative to 2008, the 2009 net central costs also benefited from a $16 million favorable movement in foreign exchange whilst the 2008 results included the receipt of a favorable $3 million insurance settlement.
 
System Fund
 
In the year ended December 31, 2009, System Fund income increased by 1.8% to $1.01 billion primarily as a result of the growth in system size and marketing programs.
 
LIQUIDITY AND CAPITAL RESOURCES
 
Sources of Liquidity
 
The Group is primarily financed by a $1.6 billion syndicated bank facility which expires in May 2013 (the “Syndicated Facility”) and £250 million of public bonds which are repayable on December 9, 2016. Short-term borrowing requirements are met from drawings under bilateral bank facilities. Additional funding is provided by the 99-year finance lease on the InterContinental Boston.
 
The £250 million public bonds were issued on December 9, 2009 at a coupon of 6% and were initially priced at 99.465% of face value and are unsecured. Interest is payable annually on December 9, in each year commencing December 9, 2010 to the maturity date. Currency swaps were transacted at the same time the bonds were issued in order to swap its proceeds and interest flows into US dollars. The reasons for issuing the bonds were to diversify the Group’s funding sources and extend the duration of a portion of its borrowings.
 
At December 31, 2010, total borrowings were $794 million, including the finance lease creditor of $206 million. The currency denomination of the borrowings was $303 million of US dollar denominated borrowings, $385 million of sterling denominated borrowings, $100 million of euro denominated borrowings and $6 million of borrowings denominated in other currencies, mainly Hong Kong dollars. The impact of currency swaps traded in December 2009 is to convert the sterling denominated borrowings above into US dollar denominated borrowings.
 
At December 31, 2010, total committed bank facilities amounted to $1,605 million of which $1,400 million were unutilized. Uncommitted facilities totaled $53 million. In the Group’s opinion, the available facilities are sufficient for the Group’s present requirements.
 
The Group held cash and short-term deposits at December 31, 2010 amounting to $78 million. Credit risk is minimized by operating a policy that generally restricts the investment of surplus cash to counterparties with an A credit rating or better or those providing adequate security. Limits are also set on the amounts invested with individual counterparties. Notwithstanding that counterparties must have an A credit rating or better, during periods of significant financial market turmoil, counterparty exposure limits are significantly reduced and counterparty credit exposure reviews are broadened to include the relative placing of credit default swap pricings. Most of the Group’s surplus funds are held in the United Kingdom or United States and there are no material funds where repatriation is restricted as a result of foreign exchange regulations.
 
The Syndicated Facility contains two financial covenants: interest cover and net debt divided by earnings before interest, tax, depreciation and amortization (“EBITDA”). Net debt is calculated as total borrowings less cash and cash equivalents. The Group is in compliance with all of the financial covenants in its loan documents, none of which is expected to present a material restriction on funding in the near future.
 
Further details of exchange and interest rate risk and financial instruments are disclosed in “Item 11. Quantitative and qualitative disclosures about market risk”.
 
Cash From Operating Activities
 
Net cash from operating activities totaled $462 million for the year ended December 31, 2010 (2009 $432 million).
 
Cash flow from operating activities is the principal source of cash used to fund the ongoing operating expenses, interest payments, maintenance capital expenditure and dividend payments of the Group. The Group believes that


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the requirements of its existing business and future investment can be met from cash generated internally, disposition of assets and external finance expected to be available to it.
 
Cash From Investing Activities
 
Net cash inflows from investing activities totaled $36 million (2009 $114 million outflow) comprising proceeds (net of tax paid) from the disposal of hotels and investments of $131 million (2009 $34 million) and capital expenditure of $95 million (2009 $148 million). Proceeds in 2010 included $105 million from the sale of the InterContinental Buckhead, Atlanta. Capital expenditure in 2009 included $65 million for the acquisition of the Hotel Indigo San Diego.
 
Cash Used in Financing Activities
 
Net cash used in financing activities totaled $447 million (2009 $362 million), including a reduction in gross borrowings of $292 million (2009 $249 million). Returns to shareholders, comprising dividend payments, totaled $121 million (2009 $118 million). The share repurchase program was suspended in 2008.
 
Overall net debt decreased during the year by $349 million to $743 million at December 31, 2010.
 
The Group had committed contractual capital expenditure of $14 million at December 31, 2010 (2009 $9 million).
 
Off-Balance Sheet Arrangements
 
At December 31, 2010, the Group had no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Group’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
 
Contractual Obligations
 
The Group had the following contractual obligations outstanding as of December 31, 2010:
 
                                         
    Total amounts
  Less than
          After
    committed   1 year   1-3 Years   3-5 years   5 years
    ($ million)
 
Long-term debt(i)(ii)
    621       1       205             415  
Interest payable(ii)
    166       32       56       52       26  
Finance lease obligations(iii)
    3,428       16       32       32       3,348  
Operating lease obligations
    505       50       76       56       323  
Agreed pension scheme contributions(iv)
    152       41       17             94  
Capital contracts placed
    14       14                    
                                         
      4,886       154       386       140       4,206  
                                         
 
 
(i) Repayment period classified according to the related facility maturity date.
 
(ii) Including the impact of derivatives.
 
(iii) Represents the minimum lease payments related to the 99-year lease on the InterContinental Boston. Payments under the lease step up at regular intervals over the lease term.
 
(iv) Primarily relates to the recovery plan agreed with trustees of the InterContinental Hotels UK Pension Plan (see below).
 
In limited cases, the Group may provide performance guarantees to third-party hotel owners to secure management contracts. Forecast payments of $32 million have been provided for in the financial statements and the maximum unprovided exposure under such guarantees was $90 million at December 31, 2010.
 
As of December 31, 2010, the Group had outstanding letters of credit of $54 million mainly relating to self insurance programs.


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The Group may guarantee loans made to facilitate third-party ownership of hotels in which the Group has an equity interest and also a management contract. As of December 31, 2010, there were no such guarantees in place.
 
The Group has given warranties in respect of the disposal of certain of its former subsidiaries and hotels. It is the view of the Directors that, other than to the extent that liabilities have been provided for in the Consolidated Financial Statements, such warranties are not expected to result in material financial loss to the Group.
 
Pension Plan Commitments
 
The Group operates the following material defined benefits plans: the InterContinental Hotels UK Pension Plan and, in the United States, the InterContinental Hotels Pension Plan and the InterContinental Hotels non-qualified plans.
 
On an IAS 19 “Employee Benefits” basis, the InterContinental Hotels UK Pension Plan had a deficit of $34 million at December 31, 2010, including the tax that would be deducted at source in respect of a refund of surplus taking into account amounts payable under funding commitments. The defined benefits section of this Plan is closed to new members. In addition, there are unfunded UK pension arrangements for certain members affected by the lifetime allowance; at December 31, 2010, these arrangements had an IAS 19 deficit of $55 million. In 2011, the Group expects to make regular contributions to the UK pension plan of £5 million.
 
The most recent actuarial valuation of the InterContinental Hotels UK Pension Plan was carried out as of March 31, 2009 and showed a deficit of £129 million on a funding basis. Under the recovery plan agreed with the trustees, the Group aims to eliminate this deficit by March 2017 through additional Company contributions of up to £100 million and projected investment returns. The agreed additional contributions comprise three annual payments of £10 million; £10 million was paid in August 2010 and two further payments of £10 million are due on or before July 31, 2011 and 2012, together with further payments related to the disposal of hotels (7.5% of net sales proceeds) and growth in the Group’s EBITDA above specified targets. If required in 2017, a top-up payment will be made to bring the total additional contributions up to £100 million. The InterContinental Hotels UK Pension Plan is formally valued every three years and future valuations could lead to changes in the amounts payable beyond March 2012. In 2011, the Group expects to make additional contributions of £14 million under these arrangements with further amounts payable if there are any hotel disposals.
 
The US-based plans are closed to new members and pensionable service no longer accrues for current employee members. On an IAS 19 basis, at December 31, 2010 the plans had a combined deficit of $82 million. In 2011, the Group expects to make contributions to these plans of $10 million.
 
The Group is exposed to the funding risks in relation to the defined benefit sections of the InterContinental Hotels UK Pension Plan and the US-based InterContinental Hotels Pension Plan, as explained in “Item 3. Key information — Risk factors”.
 
ITEM 6.   DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
 
DIRECTORS AND SENIOR MANAGEMENT
 
Overall strategic direction of the Group is provided by the Board of directors, comprising executive and non-executive directors, and by members of the executive committee.


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The directors and officers of InterContinental Hotels Group PLC at March 25, 2011 were:
 
Directors
 
                     
        Initially
  Date of next
        appointed to
  reappointment
Name
 
Title
  the Board   by shareholders(1)
 
James Abrahamson
  Director     2010       2011  
Graham Allan(2)
  Director     2010       2011  
Andrew Cosslett
  Director and Chief Executive     2005       2011  
David Kappler(2)
  Director and Senior Independent Director     2004       2011  
Kirk Kinsell
  Director     2010       2011  
Ralph Kugler(2)
  Director     2003       2011  
Jennifer Laing(2)
  Director     2005       2011  
Jonathan Linen(2)
  Director     2005       2011  
Richard Solomons
  Director and Chief Financial Officer     2003       2011  
David Webster
  Director and Chairman     2003       2011  
Ying Yeh(2)
  Director     2007       2011  
 
 
(1) The new UK Corporate Governance Code recommends that all Directors of FTSE 350 companies submit themselves for election or re-election (as appropriate) by shareholders every year. Although IHG is not obliged to follow this recommendation until its Annual General Meeting in 2012, the Board has decided to submit the appointment of all its Directors for shareholder approval in 2011. Therefore, all Directors will retire and offer themselves for election or re-election at the next Annual General Meeting.
 
(2) Non-executive independent director.
 
Officers
 
             
        Initially appointed
Name
 
Title
  to position
 
Tom Conophy
  Executive Vice President and Chief Information Officer     2006  
Tracy Robbins
  Executive Vice President, Human Resources & Group Operations Support     2005  
Tom Seddon
  Executive Vice President and Chief Marketing Officer     2007  
George Turner
  Executive Vice President, General Counsel and Company Secretary     2009  
 
On March 16, 2011 the Company announced that Andrew Cosslett will step down as Chief Executive on June 30, 2011, and will be succeeded by Richard Solomons. A Director since 2003 and currently Chief Financial Officer and Head of Commercial Development, Richard Solomons will start in his new position as Chief Executive on July 1, 2011.
 
Directors and Officers
 
David Webster, Non-Executive Chairman
 
Appointed Deputy Chairman and Senior Independent Director of InterContinental Hotels Group PLC on the separation of Six Continents PLC in April 2003. Appointed Non-Executive Chairman on January 1, 2004. Also Non-Executive Chairman of Makinson Cowell Limited, a capital markets advisory firm, a Non-Executive Director of Amadeus IT Holding SA, a transaction processing and technology solutions company for the travel and tourism industry, a member of the Appeals Committee of the Panel on Takeovers and Mergers and a Director of Temple Bar Investment Trust PLC. Formerly Chairman of Safeway plc and a Non-Executive Director of Reed Elsevier PLC. Chairman of the Nomination Committee. Age 66.


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Andrew Cosslett, Chief Executive
 
Appointed Chief Executive in February 2005, joining the Group from Cadbury Schweppes plc where he was most recently President, Europe, Middle East & Africa. During his career at Cadbury Schweppes he held a variety of senior regional management and marketing roles in the UK and Asia Pacific. Also has over 11 years’ experience in brand marketing with Unilever. A member of the Executive Committee of the World Travel & Tourism Council and a member of the President’s Committee of the CBI. Andrew Cosslett will step down as Chief Executive on June 30, 2011. Age 55.
 
James Abrahamson, President, The Americas
 
Appointed a Director in August 2010. Has over 32 years’ experience in hotel operations, branding, development and franchise relations. Joined the Group as an Executive Committee member with responsibility for the Americas region in January 2009 from Global Hyatt Corporation, where he served as Head of Development, The Americas. Previously Senior Vice President, Hilton Hotels Corporation for 12 years. Responsible for the business development and performance of all the hotel brands and properties in the Americas’ region. Age 55.
 
Kirk Kinsell, President, EMEA
 
Appointed a Director in August 2010, retaining his responsibility for the EMEA region, which he had held as an Executive Committee member since September 2007. Has over 28 years’ experience in the hospitality industry, including senior franchise positions with Holiday Inn Corporation and ITT Sheraton, prior to joining the Group in 2002 as Senior Vice President, Chief Development Officer for the Americas region. Responsible for the business development and performance of all the hotel brands and properties in the EMEA region. Age 56.
 
Richard Solomons, Chief Financial Officer and Head of Commercial Development
 
Qualified as a chartered accountant in 1985, followed by seven years in investment banking, based in London and New York. Joined the Group in 1992 and held a variety of senior finance and operational roles. Appointed Finance Director of the Hotels business in October 2002 in anticipation of the separation of Six Continents PLC in April 2003. Responsible for corporate and regional finance, Group financial control, strategy, investor relations, tax, treasury, commercial development and procurement. Richard Solomons will be appointed Chief Executive on July 1, 2011. Age 49.
 
Graham Allan, Non-Executive Director
 
Appointed a Director in January 2010. Became Chief Executive Officer of Yum! Restaurants International, a subsidiary of Yum! Brands, Inc., in 2010 after serving as President since 2003. Previously Executive Vice President and Chief Operating Officer of Yum! Restaurants International in Europe. Has over 19 years’ experience in brand management, marketing, franchising and retail development. Age 55.
 
David Kappler, Senior Independent Non-Executive Director
 
Appointed a Director and Senior Independent Director in June 2004. A Non-Executive Director of Shire plc. A qualified accountant and formerly Chief Financial Officer of Cadbury Schweppes plc and Non-Executive Chairman of Premier Foods plc. Also served as a Non-Executive Director of Camelot Group plc and HMV Group plc. A member of the Trilantic Europe Advisory Council. Chairman of the Audit Committee. Age 64.
 
Ralph Kugler, Non-Executive Director
 
Appointed a Director in April 2003. Also Chairman of Byotrol plc, a hygiene technology company, a Non-Executive Director of Discovery Group Holdings Ltd, a PR services company, Board Adviser at Mars, Incorporated, the global consumer business, a Non-Executive Director of Spotless Holding SAS, a consumer products business, and Senior Advisor to 3i plc. Previously Director on the boards of Unilever PLC and Unilever N.V. until May 2008 with his last role as Global President, Unilever Home and Personal Care. Chairman of the Remuneration Committee. Age 55.


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Jennifer Laing, Non-Executive Director
 
Appointed a Director in August 2005. Was Associate Dean, External Relations at London Business School, until 2007. A Fellow of the Marketing Society and of the Institute of Practitioners in Advertising, has over 30 years’ experience in advertising including 16 years with Saatchi & Saatchi. Also a Non-Executive Director of Hudson Highland Group Inc., a US human resources company. Chairman of the Corporate Responsibility Committee. Age 64.
 
Jonathan Linen, Non-Executive Director
 
Appointed a Director in December 2005. Was formerly Vice Chairman of the American Express Company, having held a range of senior positions throughout his career of over 35 years with American Express. A Non-Executive Director of Yum! Brands, Inc. and of Modern Bank N.A., a US private banking company. Also serves on a number of US Councils and advisory boards. Age 67.
 
Ying Yeh, Non-Executive Director
 
Appointed a Director in December 2007. Vice President and Chairman, Greater China Region, Nalco Company, a water treatment and process improvement company. Previously Chairman and President, North Asia Region, President, Business Development, Asia Pacific Region and Vice President, Eastman Kodak Company. Also a Non-Executive Director of AB Volvo. Was, for 15 years, a diplomat with the US Foreign Service in Hong Kong and Beijing until 1997. Age 62.
 
Other members of the Executive Committee
 
Tom Conophy, Executive Vice President and Chief Information Officer
 
Has over 30 years’ experience in the IT industry, including management and development of new technology solutions within the travel and hospitality business. Joined the Group in February 2006 from Starwood Hotels & Resorts International where he held the position of Executive Vice President & Chief Technology Officer. Responsible for global technology, including IT systems and information management throughout the Group. Age 50.
 
Tracy Robbins, Executive Vice President, Human Resources & Group Operations Support
 
Has over 25 years’ experience in line and HR roles in service industries. Joined the Group in December 2005 from Compass Group PLC, a world leading food service company, where she was Group Human Resources Leadership & Development Director. Previously Group HR Director for Forte Hotels Group. Has global responsibility for talent management, leadership development, reward strategy, organizational capability and operations support. Age 47.
 
Tom Seddon, Executive Vice President and Chief Marketing Officer
 
Has over 18 years’ experience in sales and marketing in the hospitality industry, including with IHG’s predecessor parent companies from 1994 to 2004. Rejoined the Group in November 2007, from restaurant business SUBWAY® where he was responsible for worldwide sales and marketing activities. Has responsibility for worldwide brand management, reservations, e-commerce, global sales, relationship and distribution marketing and loyalty programs. Age 42.
 
George Turner, Executive Vice President, General Counsel and Company Secretary
 
Solicitor, qualified to private practice in 1995. After 12 years with Imperial Chemical Industries PLC, where he was most recently Deputy Company Secretary, he joined the Group in September 2008. Appointed Executive Vice President, General Counsel and Company Secretary in January 2009. Responsible for corporate governance, risk management, insurance, data privacy, internal audit, company secretariat, legal and corporate responsibility & public affairs. Age 40.


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There are no family relationships between any of the persons named above.
 
There are no arrangements or understandings with major shareholders, customers, suppliers or others, pursuant to which any person named above was selected as a director or member of senior management.
 
COMPENSATION
 
In fiscal 2010, the aggregate compensation (including pension contributions, bonus and awards under the long term incentive plans) of the directors and officers of the Company was $23.6 million. The aggregate amount set aside or accrued by the Company in fiscal 2010 to provide pension retirement or similar benefits for those individuals was $0.6 million. An amount of $9.4 million was charged in fiscal 2010 in respect of bonuses payable to them under performance related cash bonus schemes and long term incentive plans.
 
Note 3 of Notes to the Financial Statements sets out the individual compensation of the directors. The following are details of the Company’s principal share schemes, in which the directors of the Company participated during the period.
 
Annual Bonus Plan
 
The IHG Annual Bonus Plan (ABP), enables eligible employees, including Executive Directors, to receive all or part of their bonus in the form of shares together with, in certain cases, a matching award of free shares up to half the deferred amount. The bonus and any matching shares awarded are released on the third anniversary of the award date. The bonuses in 2007 were eligible for matching shares, all of which were released on the third anniversary of the award date. In 2007, participants could defer up to 100% of the total annual bonus, with the deferred amount being accounted for as a share-based payment. Under the terms of the 2008, 2009 and 2010 plans a fixed percentage of the bonus is awarded in the form of shares with no voluntary deferral and no matching shares.
 
The awards in all of the plans are conditional on the participants remaining in the employment of a participating company or leaving for a qualifying reason as set out in the plan rules. Participation in the ABP is at the discretion of the Remuneration Committee. The number of shares is calculated by dividing a specific percentage of the participant’s annual performance-related bonus by the middle market quoted prices on the three consecutive dealing days immediately preceding the date of grant. A number of executives participated in the plan during the year, however, no conditional rights over shares were awarded to participants.
 
Long Term Incentive Plan
 
The Long Term Incentive Plan (LTIP) allows Executive Directors and eligible employees to receive share awards, subject to the satisfaction of performance conditions, set by the Remuneration Committee, which are normally measured over a three year period. Awards are normally made annually and, except in exceptional circumstances, will not exceed three times salary for Executive Directors and four times salary in the case of other eligible employees. During 2010, conditional rights over 2,602,773 shares were awarded to employees under the plan. The plan provides for the grant of ‘nil cost options’ to participants as an alternative to conditional share awards.
 
Executive Share Option Plan
 
For options granted, the option price is not less than the market value of an ordinary share, or the nominal value if higher. The market value is the quoted price on the business day preceding the date of grant, or the average of the middle market quoted prices on the three consecutive dealing days immediately preceding the date of grant. A performance condition has to be met before options can be exercised. The performance condition is set by the Remuneration Committee. The plan was not operated during 2010 and no options were granted in the year under the plan. The latest date that any options may be exercised is April 4, 2015.
 
Options and Ordinary Shares held by Directors
 
Details of the directors’ interests in the Company’s shares are set out on page 62 and pages F-46 to F-48.


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BOARD PRACTICES
 
Contracts of Service
 
The Remuneration Committee’s policy is for Executive Directors to have rolling contracts with a notice period of 12 months. All new appointments are intended to have 12-month notice periods. However, on occasion, to complete an external recruitment successfully, a longer initial notice period reducing to 12 months may be used.
 
Andrew Cosslett, James Abrahamson, Kirk Kinsell and Richard Solomons have service agreements with a notice period of 12 months.
 
David Webster’s appointment as Non-executive Chairman, effective from January 1, 2004, is subject to six months’ notice.
 
Non-executive director, Ralph Kugler signed a letter of appointment effective from the listing of IHG in April 2003. This was renewed, effective from completion of the capital reorganization of the Company and the listing of new IHG shares on June 27, 2005. David Kappler signed a letter of appointment effective from his date of original appointment to the Board on June 21, 2004. This was also renewed, effective from June 27, 2005. Jennifer Laing and Jonathan Linen signed letters of appointment effective from their appointment dates, respectively August 25, 2005 and December 1, 2005. Ying Yeh signed a letter of appointment effective from her appointment date of December 1, 2007. Graham Allan signed a letter of appointment effective from his appointment date of January 1, 2010.
 
Directors’ Contracts
 
                 
    Contract
   
    effective
  Unexpired term/
Directors
  date   notice period
 
Andrew Cosslett
    February 3, 2005       3 months  
James Abrahamson
    August 1, 2010       12 months  
Kirk Kinsell
    August 1, 2010       12 months  
Richard Solomons
    April 15, 2003       12 months  
 
Each of Andrew Cosslett and Richard Solomons signed a letter of appointment, effective from completion of the capital reorganization of the Company and the listing of new IHG shares on June 27, 2005. The terms of each appointment were as set out in each executive director’s original service agreement.
 
On March 16, 2011 the Company announced that Andrew Cosslett will step down as Chief Executive on June 30, 2011, and will be succeeded by Richard Solomons.
 
Richard Solomons signed a contract on March 16, 2011 relating to his employment as Chief Executive, effective from July 1, 2011.
 
See Note 3 of the Notes to the Consolidated Financial Statements for details of directors’ service contracts.
 
Payments on Termination
 
No provisions for compensation for termination following change of control, or for liquidated damages of any kind, are included in the current directors’ contracts. In the event of any early termination of an executive director’s contract the policy is to seek to minimize any liability.
 
Upon retirement, and under certain other specified circumstances on termination of his employment, a director will become eligible to receive benefit from his participation in a Company pension plan. See Note 3 of Notes to the Consolidated Financial Statements for details of directors’ pension entitlements at December 31, 2010.
 
Committees
 
Each Committee of the Board has written terms of reference which are approved by the Board and which are subject to review each year.


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Executive Committee
 
The Executive Committee is chaired by the Chief Executive. It consists of the executive directors and the most senior executives from the Group and usually meets monthly. Its role is to consider and manage a range of important strategic and business issues facing the Group. It is responsible for monitoring the performance of the business. It is authorized to approve capital and revenue investment within levels agreed by the Board. It reviews and recommends to the Board the most significant investment proposals.
 
Audit Committee
 
The Audit Committee is chaired by David Kappler who has significant recent and relevant financial experience and is the Committee’s financial expert. During 2010, the other Committee members were Graham Allan, Ralph Kugler and Jennifer Laing. All Audit Committee members are independent.
 
The Audit Committee’s principal responsibilities are to:
 
  •  review the Group’s public statements on internal control, risk management and corporate governance compliance prior to their consideration by the Board;
 
  •  review the Group’s processes for detecting and addressing fraud, misconduct and control weaknesses and to consider the response to any such occurrence, including overseeing the process enabling the anonymous submission of concerns;
 
  •  review reports from management, internal audit and external audit concerning the effectiveness of internal control, financial reporting and risk management processes;
 
  •  review with management and the external auditor any financial statements required under UK or US legislation before submission to the Board;
 
  •  establish, review and maintain the role and effectiveness of the internal audit function, including overseeing the appointment of the Head of Global Internal Audit;
 
  •  assume responsibility for the appointment, compensation, resignation, dismissal and the overseeing of the external auditor, including review of the external audit, its cost and effectiveness;
 
  •  pre-approve non-audit work to be carried out by the external auditor and the fees to be paid for that work, along with the monitoring of the external auditor’s independence; and
 
  •  oversee the Group’s Code of Ethics and Business Conduct and associated procedures for monitoring adherence.
 
The Audit Committee discharges its responsibilities through a series of Committee meetings during the year at which detailed reports are presented for review. The Audit Committee commissions reports, either from external advisers, the Head of Global Internal Audit, or Group management, after consideration of the major risks to the Group or in response to developing issues. The Chief Financial Officer attends its meetings as do the external auditor and the Head of Global Internal Audit, both of whom have the opportunity to meet privately with the Audit Committee, in the absence of Group management, at the conclusion of each meeting.
 
All proposals for the provision of non-audit services by the external auditor are pre-approved by the Audit Committee or its delegated member, the overriding consideration being to ensure that the provision of non-audit services does not impact the external auditor’s independence and objectivity.
 
Remuneration Committee
 
The Remuneration Committee, chaired by Ralph Kugler, also comprises the following Non-Executive, directors: David Kappler, Jonathan Linen and Ying Yeh. The Remuneration Committee agrees, on behalf of the Board, all aspects of the remuneration of the Executive Directors and the Executive Committee members, and agrees the strategy, direction and policy for the remuneration of senior executives who have a significant influence over the Company’s ability to meet its strategic objectives.
 
Nomination Committee
 
The Nomination Committee comprises the Chairman of the Board and all the Non-Executive Directors. It is chaired by the Chairman of the Board except when matters relating to this position are to be discussed, in which case


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it is chaired by an independent Non-Executive Director. The Committee leads the process for Board appointments and nominates candidates for approval by the Board. The balance of skills, experience, independence and knowledge of Board members is evaluated in order to define the requirements for a particular appointment. The Committee generally engages external consultants to advise on candidates for Board appointments and appointments are made on merit, against objective criteria, including ability to commit time, and with due regard for the benefits of diversity, including gender. The Committee also has responsibility for succession planning and assists in identifying and developing the role of the Senior Independent Director.
 
During 2010 the Committee discussed succession planning for both the Executive Committee and the Board of Directors, considered and recommended new Executive Director appointments, which have now been implemented, and considered the appointment of an additional Non-Executive Director.
 
Corporate Responsibility Committee
 
The Corporate Responsibility Committee, chaired by Jennifer Laing, was established in February 2009. The other Committee member during 2010 was Ralph Kugler. Graham Allan joined the Committee in January 2011. Meetings are regularly attended by other members of the Board and Executive Committee. The Corporate Responsibility Committee ensures that the Company has in place the right policies, management and measurement systems to enable it to deliver against its strategy.
 
Disclosure Committee
 
The Disclosure Committee, chaired by the Group’s Financial Controller, and comprising the Company Secretary and other senior executives, reports to the Chief Executive, the Chief Financial Officer and to the Audit Committee. Its duties include ensuring that information required to be disclosed in reports pursuant to UK and US accounting, statutory or listing requirements, fairly represents the Group’s position in all material respects.
 
General Purposes Committee
 
The General Purposes Committee comprises any one Executive Committee member together with a senior officer from an agreed and restricted list of senior executives. It is always chaired by an Executive Committee member. It attends to business of a routine nature and to the administration of matters, the principles of which have been agreed previously by the Board or an appropriate Committee.
 
A description of the significant ways in which the Company’s actual corporate governance practices differ from the New York Stock Exchange corporate governance requirements followed by US companies can be found on page 82.


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EMPLOYEES
 
The Group directly employed an average of 7,858 people worldwide in the year ended December 31, 2010. Of these, 96% were employed on a full-time basis and 4% were employed on a part-time basis.
 
The table below analyzes the distribution of the average number of employees for the last three fiscal periods by division and by geographic region.
 
                                         
    Americas   EMEA   Asia Pacific   Central   Total
 
2010
    3,309       1,795       1,517       1,237       7,858  
                                         
2009
    3,229       1,712       1,410       1,205       7,556  
                                         
2008
    3,384       1,824       1,470       1,271       7,949  
                                         
 
The costs of the above employees are borne by the Group. In addition, the Group employs 4,489 (2009 4,561, 2008 4,353) people who work in managed hotels or directly on behalf of the System Fund and whose costs of $282 million (2009 $267 million, 2008 $272 million) are borne by those hotels or by the Fund.
 
Under EU law, many employees of Group companies are now covered by the Working Time Regulations which came into force in the United Kingdom on