Holiday Inn 2005 Annual Report Download - page 4

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Strategy
The Group owns, operates and franchises hotels globally.
The strategy is to become the preferred hotel company for
guests and owners by building the strongest operating system
in the industry, focused on the biggest markets and segments
where scale really counts.
The Group has four stated strategic priorities:
• brand performance – to operate a portfolio of brands attractive
to both owners and guests that have clear market positions in
relation to competitors;
• excellent hotel returns – to generate higher owner returns
through revenue delivery and improved operating efficiency;
• market scale and knowledge – to accelerate profitable growth in
the largest markets where the Group currently has scale; and
• aligned organisation – to create a more efficient organisation
with strong core capabilities.
Executing the four strategic priorities is designed to achieve:
• organic growth of 50,000 to 60,000 net rooms by the end of 2008;
• out-performance of Total Shareholder Return (TSR) against
a competitor set; and
• improved Return on Capital Employed (ROCE).
Growth is expected to come predominantly from managing and
franchising rather than owning hotels. The managed and franchised
model is attractive because it enables the Group to achieve its
goals with limited capital. With a relatively fixed cost base, such
growth yields high incremental margins for IHG, and is primarily
how the Group has grown to date. For this reason, the Group has
executed a disposal programme of its owned hotels, releasing
capital and enabling returns of funds to shareholders.
The main characteristic of the managed and franchised business
model on which the Group has focused is that it generates surplus
cash, with high ROCE. Currently, 88% of continuing earnings before
interest, tax and regional and central overheads is derived from
managed and franchised operations and over 3,500 hotels operating
under Group brands are managed or franchised (see figure 2).
The Group aims to deliver its growth targets through the strongest
operating system in the industry which includes:
• a strong brand portfolio across the major markets, including
two iconic brands: InterContinental and Holiday Inn;
• market coverage – a presence in nearly 100 countries and
territories;
• hotel distribution – 3,606 hotels, 537,533 rooms, 126 million
guest stays per annum;
• IHG global reservation channels delivering over $4.8bn of
revenue in 2005, $1.7bn from the internet. IHG reservation
systems take over 22 million calls per annum;
• a loyalty programme, Priority Club Rewards, contributing $3.8bn
of system room revenue; and
• a strong web presence. holiday-inn.com is the industry’s most
visited site, with 75 million total site visits per annum.
With a clear target for rooms’ growth and many brands with
significant market premiums offering excellent returns for owners,
the Group is well placed to execute its strategy and achieve its goals.
600
500
400
300
200
100
0
FIGURE 2
Global room count by ownership type
Owned & leased Managed Franchised
2004 2005
Thousands
operating and financial review
2InterContinental Hotels Group 2005