Strategic Report

2

4

6

8

10

12

14

16

18

20

22

23

26

26

27

30

31

34

37

40

Governance

48

49

49

50

52

54

55

55

56

57

60

61

62

64

Group Financial Statements

84

90

91

98

106

Additional Information

156

160

164

173

181

182

184

186

188

Definition System

Hotels/rooms operating under
our franchise and management
agreements, together with IHG
owned and leased hotels/rooms.

OUR SCALE

We predominantly franchise our brands to, and manage hotels on behalf of, third-party hotel owners; our focus is therefore on building preferred brands and strong revenue delivery systems.

Total hotels (rooms) in the IHG System

5,174

(767,135)

2015: 5,032 (744,368)

Franchised hotels (rooms)

4,321

(542,650)

2015: 4,219 (530,748)

Managed hotels (rooms)

845

(222,073)

2015: 806 (211,403)

Owned and leased hotels (rooms)

8

(2,412)

2015: 7 (2,217)

Total hotels (rooms) in the pipeline

1,470

(230,076)

2015: 1,330 (213,916)

 KEY HIGHLIGHTS

 Gross revenue delivered through mobile bookings

  $1.6bn

 The launch of

 Your Rate

 by IHG^® Rewards Club

 Total hotel signings

 516

 The highest number since 2008

increased our attractiveness to Chinese travellers through a deal with China’s leading third-party online payment solutions company, Alipay, to offer their services across our hotels and online platforms worldwide, and we made important progress with the development of our new Guest Reservation System (GRS), which remains on track to begin roll-out in 2017. 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 personalised experience and allows hotels to manage and sell rooms in a more powerful way.

Kimpton Seafire Resort + Spa, Grand Cayman,

the first Kimpton hotel outside of the US, which opened in 2016

Our digital business is one of the ways in which we build meaningful lifetime relationships with our guests. This involves us using new technologies and data to deliver truly relevant experiences – be it more targeted marketing, or through enhanced arrival information that empowers our hotels to create a more personal stay. Mobile check-out and our wifi offer, IHG Connect, are all also making important contributions in this area. All these programmes will continue to expand across our hotels in 2017.

Combining this commercial strength with our unique brand propositions and outstanding colleagues forms the bedrock of creating Great Hotels Guests Love, which we deliver through providing True Hospitality for everyone. This important commitment connects us all at IHG and centres on our passion to make everyone feel welcome and cared for, recognised and respected – be it guests, owners, partners, colleagues or those in the communities in which we work.

Our responsible business credentials

We have made excellent progress with our two corporate responsibility programmes, IHG^® Academy and the IHG Green Engage™ system. IHG Academy has been building hospitality skills in local communities for more than a decade and, in 2016, we introduced 11,985 new participants to programmes in 75 countries, while our group-wide sustainability programme, the IHG Green Engage system, is helping drive real improvements in how our hotels responsibly manage things such as water, carbon and waste.

We reached another significant milestone with the launch of the IHG^® Foundation in February 2016. The IHG Foundation builds on the positive impact of our corporate responsibility initiatives, and allows us to make a deeper, more lasting change in communities beyond

our hotels around the world, and across areas including disaster relief and environmental protection. In 2016, the Foundation made 34 grants to 25 organisations, including donations to the Sichuan Province Foundation for Poverty Alleviation in China, and it supported communities affected by disasters such as flooding in France and earthquakes in Japan and Ecuador.

Awards

External recognition is the best measure of our progress and, in 2016, IHG won over 200 awards. This is an outstanding achievement. I am particularly proud of the many employer awards, including winning Best Employer Brand in the UK at the Personnel Today Awards, and being named on Atlanta’s Best Places to Work list by the Atlanta Business Chronicle. IHG was also named Britain’s most admired company in the leisure and hotels sector by Management Today, and 8th in their list of all UK companies. Our brands also picked up many coveted awards. Crowne Plaza was voted best Upscale Hotel Brand in North America by Business Travel News, up from 8th in 2015, and InterContinental Hotels & Resorts was named the World’s Leading Hotel Brand at the World Travel Awards. The Flyer Travel Awards named HUALUXE Hotels and Resorts Best New Hotel Brand in China and Holiday Inn was voted the Best Mid-Range Hotel Brand in China at the TTG China

Travel Awards for the sixth consecutive year, while Condé Nast also named the Kimpton RiverPlace Hotel in Portland, Oregon, US one of the world’s top hotels.

Strengthened position

It was a busy year, and both our industry and the world is changing at pace. This brings both challenges and opportunities and I remain confident that, by executing our winning strategy and leveraging the strength of our business model, we will continue to deliver sustainable, organic growth into the future.

We head into 2017 in a position of strength, and I would once again like to thank all our owners for their support and for the trust they place in us. Our owners are crucial to our performance, and we place the utmost importance on our relationship with them. I would also like to thank our talented, passionate and energetic colleagues, who bring our brands to life and remain IHG’s greatest competitive advantage.

Richard Solomons

Chief Executive Officer

Definition Guest stay occasion

We broadly segment the market into nine globally relevant categories that align to the different occasions for which guests might travel, such as for family time or for a romantic getaway. By understanding these guest stay occasions, we are able to deliver a differentiated brand experience that better meets our guests’ expectations.

Holiday Inn^® Hotels & Resorts:

Joy of travel for all

We believe the joy of travel is for everyone. We pride ourselves on delivering an affordable, enjoyable hotel experience where guests are always welcomed warmly. We opened the doors of our first hotel in 1952, and since then we have been making travel a more enjoyable experience for all.

Guest stay occasions: family time, mixing business with pleasure, social identity^b.

Holiday Inn Express^® Hotels:

Simple, smart travel

We keep it simple and smart. As IHG’s largest hotel brand, we’re the clear choice for the increasing number of travellers who need a simple, engaging place to rest, recharge and get a little work done. We offer everything guests need, and provide more where it matters most.

Guest stay occasion: rest and go.

Staybridge Suites Hotels^®:

Feel at ease when you stay with us

As an extended-stay brand, we make sure every space features a sense of community, comfort and convenience, so guests can feel at home while on the road. Staybridge Suites is ideal for upscale business and leisure travellers who want to enjoy the best of home and hotel.

Guest stay occasion: business productivity.

Holiday Inn Club Vacations^®:

The joy of lifetime vacations

Our owners are part of a community of people who understand the importance of family and investing in a lifetime of invaluable memories. All of our properties offer spacious villa accommodation for families in top leisure destinations, and access to world-class attractions such as mountain adventures, championship golf courses and serene beaches.

Guest stay occasion: family time.

Holiday Inn Resort^®:

The joy of family holidays

We want all families to experience the joy of great holidays together. In some of the world’s most desirable locations – on the beach, by the theme park, next to the golf course, our resorts offer a wide variety of activities and comforts, from kids’ clubs and signature swimming pools, to informal restaurants and quiet, fireside lounges.

Guest stay occasion: family time.

Candlewood Suites Hotels^®:

Your home base

We offer a more casual kind of longer stay, where you will always feel at home, at your best and really productive while on the road. All of our locations throughout The Americas are easily accessible, and we are always opening new hotels, so guests can book a spacious suite whenever and wherever it works for them.

Guest stay occasion: business productivity.

^a US only

^b China/India only

Definition System Fund or Fund

assessment fees and contributions collected from hotels within the IHG System which fund specifically marketing, the IHG Rewards Club loyalty programme and the Guest Reservation System.

For further information on our strategy,

go to www.ihgplc.com/about-us under Our strategy.

RISK TREND

How the external environment for each principal

risk has changed over the past year:

RISK IMPACT

How each principal risk links to our strategic priorities:

Disciplined Execution

Responsible Business

•  Each of the brands in our portfolio is designed, and continues to evolve, to meet specific guest needs and occasions, through distinct and complementary brand propositions informed by guest research and insights – see pages 10 and 11.

•  We continue to innovate and evolve our hotel-room and public-space designs to ensure we deliver differentiated, relevant guest experiences. In 2016, we introduced several new design initiatives across our Holiday Inn and Holiday Inn Express brands – see pages 17, 31 and 34.

•  We manage brand consistency through the entire hotel life cycle, supported by clear contractual terms, new hotel opening processes, brand standard requirements and compliance processes. Tools, training and guidance assist owners and those working at our hotels to deliver brand consistency.

•  For further information on our brand-strengthening initiatives this year, see pages 16 and 17.

•  We have a comprehensive, global people strategy in place, which includes a talent leadership programme, both in hotels and at a corporate level.

•  The talent development programme also reflects our culture and values. Our leadership framework, support tools, and training and development programmes help our people grow their careers – see page 19.

•  Our HR strategy manages specific training programmes globally, catering to specific talent needs in local markets, such as in Greater China.

•  We proactively manage succession planning at all levels and consider the diversity (more broadly than gender) of our people and leadership – see page 61.

•  We recognise that technological advances, the growth of intermediaries and the sharing economy, and changing guest expectations mean that we must continually invest in, and improve, our technological systems to build lifetime relationships with our guests. Our focus is on encouraging guests to use direct booking channels. However, recognising that some travellers use intermediaries, we seek to secure improved terms with those intermediaries for our hotels.

•  This year, we extended our Your Rate by IHG Rewards Club loyalty benefit (see page 16) to further markets, allowing more guests to get the best hotel rates by booking directly through IHG’s booking channels.

•  We remain on track to roll out our new Guest Reservation System (see page 17) in 2017, providing easier booking interfaces for both guests and hotels, enhanced digital functionality and easier technology upgrades to better meet guest needs.

•  We have a multi-award-winning mobile app, which has been downloaded over seven million times since launching. Consistent with our philosophy and focus, our app includes the most advanced loyalty functionality across the industry.

•  Our franchise and managed owner offer includes tools, hotel solutions, revenue delivery systems, operational support and guidance to allow us to support our hotels and maintain relationships with owners throughout the hotel lifecycle.

•  We carefully monitor net System size growth, and focus on contract renewals and renegotiations, to ensure that our owners receive the best value with IHG franchise and management agreements.

•  Through the IHG Owners Association, we work with our owners to understand their key priorities and perspectives, for example, in respect of the use of the System Fund (described on page 43).

•  In 2016, we reviewed and enhanced the hotel budget guidance process to provide owners with better information.

•  We manage this risk by promoting a strong safety culture through our values and attitudes, our ‘Winning Ways’ (see pages 18 and 19) and a strong governance system.

•  In 2016, we enhanced oversight through the development of a Safe Hotel Advisory Group comprising risk and standards measurement.

•  We continuously monitor and refresh our brand safety standards where necessary, and work with our hotels to ensure that brand safety standards are met throughout the hotel lifecycle across our entire portfolio.

•  Our operational safety and security teams have extensive subject matter expertise and experience, and provide support to line management to equip them to plan for, and respond to, incidents across all of our regions.

The KPIs are organised around the framework of our strategy – our Winning Model and Targeted Portfolio – underpinned by Disciplined Execution and doing business responsibly.

KPIs

2016 status

2017 specific priorities

WINNING MODEL AND TARGETED PORTFOLIO

Net rooms supply

Net total number of rooms in the IHG System.

Growth in underlying fee revenues^b

Group revenue excluding revenue from owned and leased hotels, managed leases and significant liquidated damages.

87%

of open rooms are in priority markets

89%

of pipeline rooms are in priority markets

75,812

rooms signings

• Continue to accelerate growth in our 10 priority markets (such as Germany – see page 30) and key city locations in order to achieve further scale benefits.

• Support the expansion of Holiday Inn Express’ Franchise Plus programme in Greater China (see page 30 for details) and the development of Kimpton outside the US.

• Continue to drive strong rooms supply growth, whilst ensuring that we maintain a high level of guest satisfaction across our entire portfolio of hotels with removals from the System.

Total gross revenue from hotels in IHG’s System^b

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

System contribution to revenue

The percentage of room revenue delivered through IHG’s direct and indirect systems and channels.

$4.3bn

digital revenues delivered in 2016, up by 8%on 2015

49%

of hotels adopting IHG’s revenue management service

• Continue to drive adoption and impact of our revenue management tools, systems and processes amongst our owners.

• Keep our focus on driving a greater revenue contribution from IHG Rewards Club members (see page 16).

• Our new Guest Reservation System (see page 17) is on track to begin roll-out in 2017.

• Continue to expand the language capabilities of our online channels and call centres across all regions.

• Drive greater food and beverage revenue, and support brand preference, by introducing new food and beverage concepts for our hotels to adopt.

    LINK BETWEEN KPIS AND DIRECTORS’ REMUNERATION

KPIs that could have an impact on the performance measures

for 2016 remuneration plans:

KPIs

2016 status

2017 specific priorities

DISCIPLINED EXECUTION

Fee margins^a

Operating profit as a percentage of revenue, excluding revenue and operating profit from owned and leased hotels, managed leases and significant liquidated damages.

3.3ppt

growth in fee margin in 2016

•  Leverage our increasing scale in operations and systems to drive economies of scale across our portfolio of brands.

•   Continue to strengthen our delivery capabilities to ensure that critical in-hotel initiatives are embedded on time and on target.

Employee Engagement survey scores

Average of our biannual Employee Engagement survey, completed by employees and those who work in our managed hotels (excluding our joint ventures).

1.4ppt

increase in Employee Engagement scores in 2016

•  Continue to develop our ‘Winning Culture’ (see page 19), in particular encouraging our employees to have more regular and open performance conversations, and on embedding performance-management processes.

•  Drive adoption of improvements to our human resources systems to further our ability to develop and retain talent.

DOING BUSINESS RESPONSIBLY

Number of people participating in IHG^® Academy programmes

2,145

IHG Academy programmes across 75 countries

•  Continue to provide skills and improved employability to people through IHG Academy (see page 18), ensuring a positive impact for local people, our owners and IHG.

•  Continue to drive quality growth in the programme, including by increasing engagement with our franchise hotels and enabling the transfer of talent between regions.

Carbon footprint per occupied room

7.4%

reduction in carbon footprint per occupied room (to 31.21 kgCO_²e), from 2013 –2016, on a 2012 baseline across our entire estate

•   Continue to reduce our carbon footprint across our entire estate.

•  Continue to drive quality use of the IHG Green Engage system across our entire estate.

Water use per occupied room in water-stressed areas

7.9%^c

reduction in water use per occupied room (by 0.06m³), from 2013 – 2016, on a 2012 baseline in water-stressed areas

•  Continue to reduce water use across our entire estate, with a particular focus on hotels in water-stressed areas.

•  Implement initiatives at hotel level to improve water stewardship and enable further reductions in water use.

For full disclosure of our carbon and water data, please see

www.ihgplc.com/responsible-business under Our performance.

With the exception of RevPAR, these are financial measures that are either not defined under IFRS or are adjusted IFRS figures and are therefore described as Non-GAAP measures.

Group results

ACCOUNTING PRINCIPLES

The Group results are prepared under International Financial Reporting Standards (IFRS). The application of IFRS requires management to make judgements, estimates and assumptions, and those considered critical to the preparation of the Group results are set out on page 103 of the Group Financial Statements.

The Group discloses certain financial information both including and excluding exceptional items. For comparability of the periods presented, some of the performance indicators in this Performance review are calculated after eliminating these exceptional items. Such indicators are prefixed with ‘adjusted’. An analysis of exceptional items is included in note 5 on page 112 of the Group Financial Statements.

2016

$m

2015

$m

2014

$m

£

0.74

£

0.65

£

0.61

Analysed by brand

Total

Analysed by ownership type

Total

Group hotel and room count

Total number of hotels

5,174

Total number of rooms

767,135

During 2016, the global IHG System (the number of hotels and rooms which are franchised, managed, owned or leased by the Group) increased by 142 hotels (22,767 rooms) to 5,174 hotels (767,135 rooms). Openings of 258 hotels (40,134 rooms) were 5.5% lower than in 2015.

Openings in The Americas included 128 hotels (15,680 rooms) in the Holiday Inn brand family. 29 hotels (7,938 rooms) were opened in Greater China in 2016, with the Europe and AMEA regions contributing openings of 24 hotels (4,188 rooms) and 17 hotels (4,473 rooms) respectively. 116 hotels (17,367 rooms) left the IHG System in 2016, a decrease from the previous year (143 hotels, 21,679 rooms).

Change

over 2015

Change

over 2015

Analysed by ownership type

Group pipeline

Total number of hotels in the pipeline

1,470

Total number of rooms in the pipeline

230,076

At the end of 2016, the global pipeline totalled 1,470 hotels (230,076 rooms), an increase of 140 hotels (16,160 rooms) on 31 December 2015. The IHG pipeline represents hotels where a contract has been signed and the appropriate fees paid. Approximately 90% of the closing pipeline at 31 December 2016 is in our 10 priority markets.

Group signings increased from 474 hotels in 2015 to 516 hotels whilst rooms decreased from 78,438 rooms to 75,812 rooms in 2016 due to the signing of one large hotel in the Middle East (5,154 rooms) in 2015. This included 328 hotels (47,842 rooms) signed for the Holiday Inn brand family, 28.2% of which were contributed by Greater China (63 hotels, 13,472 rooms).

Active management of the pipeline to remove deals that have become dormant or no longer viable reduced the pipeline by 118 hotels (19,518 rooms), compared to 108 hotels (17,004 rooms) in 2015.

Change

over 2015

Change

over 2015

Analysed by ownership type

        2016

$m

    2015

$m

    2016 vs 2015 %

change

        2014

$m

    2015 vs 2014 %

change