Holiday Inn 2015 Annual Report Download - page 14

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We predominantly franchise our brands to, and
manage hotels on behalf of, third-party hotel owners.
Our asset-light strategy enables us to grow our business
while generating high returns on invested capital.
We franchise and manage hotels depending
largely on market maturity, owner preference
and, in certain cases, the particular brand.
For example, in the US, a mature market,
we operate a largely franchised business.
By contrast, in Greater China, an emerging
market, we operate a predominantly
managed business where we are responsible
for operating hotels on behalf of our
third-party hotel owners. The business
model is adapted by market as necessary.
In a few instances, we also own hotels through
recyclable investments in order to drive the
growth of our brands and to expand our
Third-party hotel owners pay:
(i) fees to IHG in relation to the licensing
of our brands and, if applicable, hotel
management services; and
IHG revenue and the System Fund
(ii) assessments and contributions (other
than for Kimpton and InterContinental) which
are collected by IHG for specific use within
the System Fund.
Profit from fee revenues
• After operating costs of sale, our fee
margin by business model is as follows:
Franchised 85.2%
Managed 58.2%
Owned and leased 19.5%
• Not all of our costs can be allocated directly to
revenue streams and these are shown as regional
or central infrastructure costs
IHG revenue
This comprises:
• Fee revenue: in 2015, 67% of our
revenue came from franchise
and management fees:
— Franchise fees = RevPAR
x rooms x royalty rate
— Management fees = fee
% of total hotels revenue
plus % of profit
• All revenue from owned
and leased hotels
• Central revenue (principally
technology fee income – see
page 46)
Fee-based margins: 2015: 46.3%
System Fund
2015: $1.6bn
• Assessments and contributions
paid by hotels
• Proceeds from the sale
of IHG Rewards Club points
• No profit or loss for IHG –
managed by IHG for the benefit
of hotels within the IHG System
See page 47 for more information
Total Gross Revenue
This comprises:
• Franchised hotels =
total rooms revenue
• Managed hotels =
total hotels revenue
• Owned and leased hotels =
total hotels revenue
(Only owned and leased hotel
revenue is directly attributed
to IHG)
For examples of how we
have deployed the System
Fund in 2015 to support
our strategic priorities,
please see ‘Our Winning
Model in action:
executing our strategy’
on page 19.
Marketing and sales
activity
IHG Rewards Club
loyalty programme
Global distribution
systems
For definitions in this section,
please refer to the Glossary
on pages 176 and 177.
Business model
Hotel
ownership
IHG capital
intensity Employeesa
Brand ownership,
marketing and
distribution
Franchised Third party Low Third party
IHG
Managed Third party Low IHG and
third party
Owned and leased IHG High IHG
a For information on who are our employees, see page 153.
presence in priority markets. The key
differences between our three main models
are summarised below.
12 IHG Annual Report and Form 20-F 2015