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99.1
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Annual
Financial Report dated 28 02 2019
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2018
$m
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2017
$m
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2016
$m
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Total compensation of key management personnel
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Short-term employment benefits
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18.2
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21.3
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19.2
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Contributions to defined contribution pension plans
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0.5
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0.6
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0.8
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Equity compensation benefits
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13.0
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10.2
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7.4
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Termination benefits
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-
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1.9
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-
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31.7
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34.0
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27.4
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Associates
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Joint Ventures
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Total
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||||||
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2018
$m
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2017
$m
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2016
$m
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2018
$m
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2017
$m
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2016
$m
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2018
$m
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2017
$m
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2016
$m
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Revenue from associates and joint ventures
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9
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8
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5
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1
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1
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1
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10
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9
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6
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Loans to associates
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-
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-
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9
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-
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-
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-
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-
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-
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9
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Other amounts owed by associates and joint ventures
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1
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2
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1
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-
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-
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-
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1
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2
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1
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Amounts owed to associates and joint ventures
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2
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-
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-
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-
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-
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-
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2
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-
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-
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Risk description
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Initiatives to manage these risks
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Inherent threats to cybersecurity and information governance
continue to present risk to our operations. Customer
and other forms of sensitive data remain valuable to
various threat 'actors' (including organised criminals and
nation states), and increasing societal, regulatory and media
scrutiny of privacy arrangements mean that the potential impact of
data loss to IHG financially, reputationally or operationally
remains a dynamic risk factor.
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●
We continue to align efforts across multiple business teams to
manage the risk within tolerance, and appointed a dedicated Chief
Information Security Officer to facilitate this. We also monitor
and update our information security policies and practices to
respond to the risks we face, including those relating to evolving
privacy requirements, and our third-party hosted infrastructure,
systems and services. We have undertaken critical GDPR compliance
activity, and have a roadmap for other activities in 2019,
including policies, training and guidance. The nature of our
operating model means that significant amount of IHG's confidential
information assets are also held by or shared with third-party
suppliers and parties, and we review those risks as part of our
broader supply chain risk management arrangements.
●
We continue to evolve our monitoring capabilities in relation to
our technology environment and our broader security culture,
business process security and physical security. An external risk
assessment was concluded in 2018, which focused on industry
specific issues, our current capabilities and recent progress. Our
information security programme is supported and reviewed by
internal and external assurance activities, including our Internal
Audit and SOX teams and PCI assessments. Regular management
reporting uses a scorecard aligned with the NIST cyber security
framework, and enables tracking of key risk indicators and planned
initiatives. Our information security specialists have also been an
integral part of our acquisition activities during
2018.
●
We also recognise the need for an appropriate response to
incidents, by developing our incident management capability
and working closely with our insurers to review the adequacy
of protection for our risks as our cybersecurity and technology
environment evolves.
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Failure to deliver preferred brands and loyalty could impact our
competitive positioning, our growth ambitions and our reputation
with guests and owners. Competitor and intermediation activity
creates inherent risks and opportunities for the hospitality
industry and is relevant to the longer-term value of IHG's
franchised/managed proposition and our ability to deliver
returns to current and potential owners of our
various brands.
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Our organisational changes in 2018 have brought focus to make IHG a
stronger business partner and ensure we have appropriate business
models deployed in each region to meet our owners'
needs.
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This includes targeted market strategies for franchising (where
scale is important) and globally-led initiatives to increase the
pace of openings/ramp up of hotel performance and tackle key pain
points and systems across the hotel lifecycle and improve owner
experience with IHG.
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The evolution of our marketing organisation, loyalty programme and
enhancements to our brand portfolio described on page 20 is
key to managing these risks and taking the opportunities for
growth. Our marketing leadership has evolved during the year
with increased capability in category, brand and customer
insights; and the formation of a shared services organisation
for guest experience.
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Trading and performance of properties and brands (signings) are
reviewed as part of monthly business reviews. During 2018 this
included a proactive focus on licence expirations which will
continue into 2019.
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Leadership and talent risk is inherent to all businesses and
failure to effectively attract, develop and retain talent in key
areas could impact our ability to achieve growth ambitions and
execute effectively. Risks relating to our people underpin
many of our objectives. Capacity, capability, motivation,
clarity of role, accountability for leadership, and behaviour
are all significant aspects of this risk.
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●
Our approach to managing our people is outlined in detail on pages
22 to 25 and our annual business planning process includes a review
of workforce risks. IHG has the ability to manage the risk directly
in relation to IHG staff but relies on owners and third-party
suppliers to manage the risk in related activities.
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We consider workforce risks when designing business initiatives and
we prioritise delivery accordingly. Our Human Resources leaders
partner directly with other leadership teams across IHG, and have
supported and advised directly on our organisational changes during
2018 within transformation management meetings. Our Supply
Chain Risk Council also considers more indirect workforce risks
relating to our third-party relationships.
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Performance management systems have been enhanced and a talent
acquisition programme focuses our attraction strategy, recruiting,
and employer brand management.
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Several policies in our Code of Conduct (for example our Human
Rights Policy) relate to the management of our people, describing
our intolerance for inappropriate behaviours and appropriate
adherence to those helps manage our risk.
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Whilst the hotel sector is not subject to stringent industry
specific regulations, the global business regulatory and
contractual environment (for example relating to data privacy,
human rights including modern slavery, labour laws and financial
crime) and societal expectations are continuously evolving and
failure to ensure legal, regulatory and ethical compliance would
impact IHG operationally and reputationally. Regulators are also
moving to impose significant fines for non-compliance.
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Our dedicated ethics and compliance specialists define and oversee
IHG's global policy framework and Code of Conduct, (see page
22),and manage the compliance programmes for anti-bribery,
antitrust/competition law and sanctions. During 2018, there has
been focus to respond to the changing regulatory requirements
around privacy and data (including GDPR, China cybersecurity and
California privacy laws), and continuing compliance and contractual
responsibilities. We also continue to assess our broader role
in relation to, for example human rights and modern
slavery.
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The Ethics and Compliance team provides training to teams across
IHG and is informed of incidents that may involve a
potential breach of regulations to enable advice to be provided,
including on any reporting or notification requirements. The Code
of Conduct is increasingly requested from various
stakeholders seeking transparency and understanding of our
approach. It forms a key focal point for our risk management
activity.
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The Board receives regular reports on matters directly related to
our responsible business agenda, and there are also different
functions, (from corporate responsibility to procurement),
focused on supporting the business in relation to these matters.
Our Confidential Disclosure Channel allows confidential
reporting of ethical, social and environmental performance
issues (including those with regulatory implications).
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Failure to capitalise on innovation in booking technology and to
maintain and enhance the functionality and resilience of our
channel management and technology platforms (including those of
third-parties on which we rely directly or indirectly), and to
respond to changing guest and owner needs remains a dynamic risk
and opportunity to IHG's revenues and growth ambitions. This is
particularly important with the emergence of both evolutionary and
disruptive technologies and innovative uses of data to generate
value.
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Several changes to our organisational structure were implemented in
2018 to support our ability to meet the evolving (and accelerating)
technological needs of owners and guests. This includes the
integration of a single commercial and technology organisation
incorporating our sales, channels, revenue management and
technology capabilities, allowing us to maximise revenue delivery
and bring new products and services to market faster. Our new
global marketing organisation will work closely with commercial and
technology in relation to our in-hotel guest
experiences.
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We have also implemented the IHG Concerto platform during 2018 (see
case study on page 21) and continue to seek opportunities to align
systems to improve consistency and manage inherent delivery risks
between IHG and our owners. Our Guest Reservation System (GRS) is
hosted by a third-party vendor, Amadeus, in the cloud and supported
by infrastructure which serves to decrease the likelihood of
downtime. Availability of GRS and other key systems continues to be
monitored on a 24/7 basis by the Network Operations Centre. Metrics
are reported to Commercial and Technology leadership
on a frequent basis.
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Effective and appropriate leveraging of data which we have a right
to use is a key aspect of the interface between our marketing and
our commercial and technology activity. We take account of
regulatory and ethical factors as part of the decision making
processes in relation to marketing and technological initiatives.
We also rely on appropriate governance arrangements to mitigate
risks that the validity of data that we use is undermined by
cyber-attacks or operational failures. This risk is also impacted
by strategic and operational factors relating to the location and
structure of our assets - including use of third-parties and cloud
computing arrangements. Several policies which form part of our
Code of Conduct relate to this area of risk and adherence is
monitored appropriately.
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We have an established approach to System Development Lifecycle and
specific risks to delivery of the Global Reservations System have
been managed throughout the programme of implementation (including
those relating to technical delivery, business process testing and
operation readiness testing).
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IHG's ongoing agenda to accelerate growth
and strategic initiatives give rise to inherent risks,
for example as we transition systems, operating models and
processes. The changes which have been made to IHG's extended
enterprise raises inherent risk levels from third parties - for
example before, during and after structural sourcing changes. These
risks can include short-term disruption, reputational damage and
longer-term breakdown of
a commercial relationship.
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Our focus on accelerating growth has included structured review (by
senior management and the Board), of risks relating to offshoring
and outsourcing. We have formed a strategic sourcing and management
office to establish policies, support and advise on management
processes, and oversee governance arrangements for IHG's most
important suppliers.
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A new Supply Chain Risk Council also reviews risks and control
arrangements for IHG's direct supply base across both corporate
functions and hotel operations, for example where IHG has
agreements in place and/or interacts directly with suppliers,
including outsourced providers. Our legal teams review contracts
and provide advice on litigation, where required, and our insurance
programme also provides a degree of protection in the event of
supplier failure.
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Inability to realise value from our programme and project delivery
(including reinvestment initiatives and culture and process
changes) may result in failure to improve commercial performance,
financial loss and undermining of stakeholder confidence. Following
the organisational adjustments during 2018, there is an inherent
risk that changes we have made could be unsustainable or that we
are unable to achieve the return envisaged through reinvestment of
the savings into growth initiatives.
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Aspects of the risk relating to change have been managed explicitly
by a dedicated programme management team during 2018 and we have
implemented a framework for addressing risks within, and as a
result of, change initiatives across IHG.
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Oversight teams, including our finance experts, have evolved
governance and control frameworks to support key transformation
programmes, for example in our commercial and technology
operations. We also regularly review delegated approval authorities
and processes to enable decisions on investments to be made quickly
and efficiently with consideration of the risks
involved.
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Macro external factors such as political, economic,
environmental and societal could have a mass impact on our
ability to perform and grow.
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While these factors are mostly outside our direct control, we track
uncertainties which may impact the hospitality industry and which
need to be considered in our strategic and financial planning.
These types of risks are addressed in strategy setting (including
the review of our corporate responsibility approach, see page 68).
They are also addressed in the annual business planning process and
in regional risk management activities and reporting. We are
increasingly using formal and informal scenario planning to
anticipate the potential impact of these risks. The Board receives
regular updates on these types of factors so that possible
implications for IHG can be considered.
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Our in-house threat intelligence capability, supplemented by
third-party expertise and methodology, supports growth, hotel
operations and customer facing sales teams with planning and
response to macro factors, for example concerns relating to
terrorism or extreme weather events. Additionally, specific
elements of our risk management framework relate to these areas,
such as codes of conduct in relation to trade restrictions and the
environment.
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Failure to maintain an effective safety and security system and to
respond appropriately in the event of disruption or incidents
affecting our operations more broadly could result in an adverse
impact to IHG, such as reputational and/or financial damage and
undermining stakeholder confidence. This risk relates both to our
direct operations but also in relation to outsourced activities and
others with whom we collaborate and trade.
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The environment in which IHG develops and operates hotels continues
to evolve and impacts the safety and security risks faced by IHG.
Although these risks are assessed as stable overall, our
established management approach is subject to continuous
review and improvement to minimise the risk of an incident
relating to IHG's management damaging the Group's
reputation.
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Our design and engineering, hotel opening and operations teams work
together with our risk management experts to evaluate standards and
develop capability to respond to an incident via training,
advanced intelligence tracking and standard operating procedures,
and also deploy crisis management procedures where required for
less predictable events.
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A material breakdown in financial management and control systems
would lead to increased public scrutiny, regulatory investigation
and litigation. This risk includes our ongoing (and stable)
operational risks relating to our financial management and
control systems, and also the continuing expectations of IHG's
management decision making and financial judgements, in
response to evolving accounting standards and our own business
model and transactions.
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We continue to operate an established set of processes across our
financial control systems, which is verified through testing
relating to our Sarbanes-Oxley compliance responsibilities. See
pages 50 and 125 to 129 for details of our approach to taxation,
page 66 for details of our approach to internal financial
control, and pages 144 to 146 for specific details on financial
risk management policies. These processes and our financial
planning continue to evolve to reflect the changes in our
management structure and business targets.
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During 2018 we have established a centre of excellence for
financial planning and accounting to drive improved reporting,
accelerated decision making, process standardisation, automation
and talent alignment. Our Group insurance programmes are also
maintained to support financial stability.
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InterContinental Hotels Group PLC
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(Registrant)
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By:
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/s/ F.
Cuttell
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Name:
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F.
CUTTELL
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Title:
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ASSISTANT
COMPANY SECRETARY
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Date:
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28 02 2019
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