Holiday Inn 2008 Annual Report Download - page 9

BUSINESS REVIEW
Business review 7
IHG global room count by ownership type
at 31 December 2008
IHG continuing operating profit* by ownership type
for the year ended 31 December 2008
* Before regional and central overheads, exceptional items,
interest and tax.
Owned and leased
Managed
Franchised
Owned and leased
Managed
Franchised
IHG’s future growth will be achieved predominantly through managing and franchising rather than owning hotels. Approximately
614,000 rooms operating under Group brands are managed or franchised and 5,600 are owned and leased.
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. A further advantage is the reduced volatility of the fee-based income stream, compared with
ownership of assets.
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 85% of continuing earnings before regional and central overheads, exceptional items,
interest and tax is derived from managed and franchised operations.
Operating model
Business relationships
IHG has major relationships with hotel owners and indirect
relationships with suppliers.
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.
IHG’s relationships with its suppliers will be changing as we place
significant emphasis on revised procurement processes during
2009, partly in response to the macroeconomic environment.
We see significant opportunities for improving effectiveness and
efficiency of our buying and sourcing arrangements and will be
working with suppliers to realise these benefits.
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 2008
on the relaunch of the Holiday Inn and Holiday Inn Express brands
and our response to the economic downturn. Additionally, IHG and
the IAHI are 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. This could be either
positive in terms of opening up new markets such as China, or negative
in terms of increased liability for IHG in franchised properties.
OWNED
AND LEASED
MANAGED
FRANCHISED
IHG
IHG
IHG
IHG
IHG
IHG
IHG
IHG usually supplies
general manager
as a minimum
third party
IHG
third party
third party
high
low/none
none
all revenue
fee % of total
revenue plus
% of profit
fee % of
rooms revenue
BRAND MARKETING AND
DISTRIBUTION STAFF OWNERSHIP IHG CAPITAL IHG REVENUE