INTERCONTINENTAL HOTELS GROUP PLC ANALYSIS 1

FINANCIAL ANALYSIS: INTERCONTINENTAL HOTELS GROUP

Mai Sadek

HOSP-2130 Hospitality Industry Accounting

College of DuPage

Professor Margulis

December 4, 2017
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FINANCIAL ANALYSIS: INTERCONTINENTAL HOTELS GROUP

The Intercontinental Hotels Group is a conglomerate multinational hotel company, that is

headquartered in Denham, United Kingdom. They have become world leaders in the hospitality

industry, making a strong presence in the luxury brand market with the first Intercontinental

hotel established in Belem, Brazil in 1949. They have since then expanded aggressively with a

total 5,272 hotels and 785,544 rooms available worldwide. They currently have 12 brands of

hotels that target markets for the masses as well as many different niche market segments.

Intercontinental Hotels Groups brand portfolio includes the Staybridge Suites, EVEN hotels, the

HUALUXE hotels, the Crowne Plaza, and the many brands of the Holiday Inn.

History

William Bass was a British native who opened his first pub in the late 1700s. The Bass

family eventually became the largest brewery and pub owners in the United Kingdom. Limited

by government regulations meant to prevent monopolies, the ambitious Bass family discovered

more attractive opportunities in the hotel industry. They decided to invest in the hospitality

industry and in 1988, they acquired the international division of the Holiday Inn hotels as well as

the newly opened U.S based Crowne Plaza hotels. Crowne Plaza was designed as an upscale

hotel brand that aims to serve the business and convention market segments. In 1990, they

purchased the North American division of the Holiday Inn hotels, and in 1991 they launched the

Holiday Inn Express, a midscale limited-service hotel. This focus on midscale accommodations

quickly became the foundation for their success in the hotel industry. In 1997, they expanded

their market reach and launched the Staybridge Suites, an upscale extended stay hotel brand in

North America. Due to the success in North America they proceeded to open Staybridge Suites

in the United Kingdom in 2005. Bass acquired the Intercontinental Hotels and Resorts brand in
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1998 after it proved to be successful as the worlds first luxury brand hotel. At this point Bass

decided to divest from his previous business ventures, and sold all rights to the Bass Brewers for

$2.3 billion in 2000. He then acquired the Southern Pacific Hotels Corporation and the Bristol

Hotels and Resorts management company. They came to be the leading hotel company in Asia

Pacific. In 2003, Bass reorganized and established the Intercontinental Hotels Group as a

standalone company. IHG refocused their efforts on hotels with the opening of the Candlewood

Suites, a midscale extended stay brand. They subsequently started their quest into the boutique

hotel market and in 2004 launched the Hotel Indigo. In 2007, they announced a $1 billion

relaunch of their Holiday Inn brands and opened the Holiday Inn Resorts with a focus on family

vacations. They entered the timeshare market in 2008, with the launch of Holiday Inn Club

Vacations.

Present

The Intercontinental Hotels Group launched two niche brands in 2012, the HUALUXE

and EVEN hotel brands. The EVEN brand hotels, currently with 6 open hotels in North America

and 10 more in the pipeline around the world, has a focus on wellness and fulfilling the demand

for healthier travel. The HUALUXE hotels, currently with 6 open hotels and 21 in the pipeline

all in the greater china region, is aimed to serve consumers of emerging Asian business markets.

Within emerging markets increasing size of the middle class has driven demand for luxury

accommodations. In 2015, they added Kimpton hotels to further strengthen their boutique

segment creating the worlds largest boutique hotel business. The steady numbers across the last

five years revenue reports indicate the success of the companys new brands. The annual report

also indicated a steady return on dividends to shareholders reporting a total of $1.5 billion paid in

May 2016. They keep their investors well informed with up to date financial information by
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having access to all interactive videos and links on their corporate website for updated stock

information.

Future.

Intercontinental Hotels Group is focused on rapid expansion to appeal to a large number

of niche customer bases. To capitalize on their growth opportunities, Intercontinental Hotels

Group plans to further expand into the Asian market. China is one of the largest emerging

economies in the world. Currently, Intercontinental Hotels Group has 21 HUALUXE hotels in

the pipeline in the Greater China region. The success of their already open hotels is due to the

deep knowledge and incorporation of Chinese traditions and values that business people in china

are struggling to keep in their everyday life. The 4 brand hallmarks they use to execute this is

Chinese etiquette, status recognition, rejuvenation from nature, and premium business resources

and facilities. Each has specific aspects of Chinese culture that ensure an excellent quality of

service and tradition. This kind of market and service and helped award the Intercontinental

Hotels Group with the Top Employers China 2017 certification by the Top Employers Institute.

Along with many others including the Aon Global Best Employer by Aon Hewitt, and the

InterContinental Hotels & Resorts was named Australasias Leading Hotel Brand, Asia's

Leading Business Hotel Brand and Asia's Leading Luxury Business Hotel Brand by the 2017

World Travel Awards This is some of the many employer awards and most influential hotels

awards they have achieved and 20 being awarded in 2016 alone. CEO Richard Solomons named

one of Glassdoors 25 Highest Rated CEOs in the UK as part of its annual Employees Choice

Awards. Another reason they are projecting to be more successful is their strong intent to reduce

their carbon footprint and water usage per occupied room with the IHG Green Engage System.
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With this system through the years 2013-2016 they avoided costs of $67.4 million. They have

also cut down on electricity uses with innovative ideas, such as the air conditioning system in

their Intercontinental Bora Bora resorts that produces cool air using the sea water instead of

electricity. This, along with many other environmentally conscious efforts around the world has

awarded them with a LEED (Leadership in Energy and Environmental Design) volume

precertification. IHG has become the first hotel company to receive this award for an existing

hotels program, further cementing its place as an industry leader in the field of sustainability.

This makes them attractive to investors because it shows they have motivation to be better and

continue their role as leaders in the industry. IHG has also been advancing in the technological

sector, starting in 2017 they have made progress with the development of our new Guest

Reservation System (GRS), IHG has a rich history of innovation, and the new GRS will provide

an industry-leading cloud-based booking platform that offers guests a more personalized

experience and allows hotels to manage and sell rooms in a more powerful way. This has

increased digital revenue by approximately eight percent driven by mobile, which delivered

$1.6 billion in revenue. Their award-winning mobile app is a key driver in bringing in more

traffic to their website than a desktop. To shareholders this shows more direct bookings

delivering more low-cost revenue. Another thing to note in their annual report for 2015 they

showed a spike in net income compared to the years before, this could be due to their asset-light

strategy concluding in 2015. Nearly $5 billion of the total returns has come from IHGs

underlying operations, which is an indication of their cash generative business model and ability

to deliver sustained growth.

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Should you invest. The luxury hotel segment has high entry barriers as few players

possess the reputation and the capital to establish a presence. In terms of the Asian markets, they

have shown growth and high levels of prosperity against western markets recovering from the

housing crisis this indicates less risk and more confidence in the decision to expand into Asian

markets. IHG also shows great promise to its shareholders by paying dividends annually and

showed that in 2015 their final dividend resulted in an eleven percent increase. IHGs debt to

equity shows some fluctuations but more times it shows they have more equity than debt which

is a good sign for investors. Return on equity shows the company might actually be making more

money than what shareholders are investing, which could mean high potential for success for the

future. The companys return on assets shows promise to shareholders because they are earning

more money with less investments. Their receivables turnover ratio over the last five years

shows a consistency of Intercontinental Hotels Group collecting their debts on an average of 5.4

times every pay period. This is also a promising financial number to shareholders when deciding

on investing. However, the current ratio for Intercontinental Hotels Group shows on average

over the last five years that it is below one which means it has more debt than it can cover if it is

due. This is important for shareholders to take in consideration, but it does not necessarily mean

the company is on the path to bankruptcy. Along with previously mentioned ratios and analysis

of the collected data, I would conclude that the I hotels group shows promise financially and I

would consider investing.

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Figures

Figure 1 figure2

figure 3
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Figure 1. net income for the last five years, shows spike in 2015 could be due to their low-assets

strategy.

Figure 2. shows net operating cash flow

Figure 3. shows the increase in percentage in dividends payed to shareholders. Cents per share.

References

https://www.ihgplc.com/

http://quotes.wsj.com/IHG/financials

http://www.hoteliermiddleeast.com/32326-new-ihg-dubai-hotel-to-be-100-powered-by-solar-

energy/