Holiday Inn 2007 Annual Report Download - page 10

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8IHG Annual Report and Financial Statements 2007
Business review continued
Global room count by ownership type at 31 December 2007
Continuing operating profit* by ownership type at 31 December 2007
IHG’s future growth will be achieved predominantly by managing
and franchising rather than owning hotels. Approximately 580,000
rooms operating under Group brands are managed or franchised.
The managed and franchised fee-based model is attractive because
it enables the Group to achieve its goals with limited capital
investment at an accelerated pace.
For this reason, the Group has executed a disposal programme
for most of its owned hotels, releasing capital and enabling the
return of funds to shareholders as well as targeted investment
in the business.
A key characteristic of the managed and franchised business is
that it generates more cash than is required for investment in the
business, with a high return on capital employed. Currently 86%
of continuing earnings before regional and central overheads,
exceptional items, interest and tax is derived from managed
and franchised operations.
Business relationships
IHG 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, IHG’s largest third-party hotel owner controls less
than 4% of the Group’s total room count.
To promote effective owner relationships, the Group’s
management meets with owners on a regular basis. In addition,
IHG has an important relationship with the IAHI – The Owners’
Association. The IAHI is an independent worldwide association
for owners of the Crowne Plaza, Holiday Inn, Holiday Inn Express,
Hotel Indigo, Staybridge Suites and Candlewood Suites brands.
IHG and the IAHI work together
to support and facilitate the continued development of IHG’s
brands and systems, with specific emphasis during 2007 on the
relaunch of the Holiday Inn brand family. Additionally, IHG and
the IAHI began working together to develop and facilitate key
Corporate Responsibility (CR) initiatives within the IHG brands.
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.
Operating model
* Before regional and central overheads, exceptional items, interest and tax.