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99.1
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Annual
Financial Report dated 28 February 2020
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2019
$m
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2018
$m
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2017
$m
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Total compensation of key management
personnel
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|
|
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Short-term
employment benefits
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15.8
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18.2
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21.3
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Contributions
to defined contribution pension plans
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0.5
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0.5
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0.6
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Equity
compensation benefits
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12.1
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13.0
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10.2
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Termination
benefits
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-
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-
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1.9
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28.4
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31.7
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34.0
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Associates
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Joint Ventures
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Total
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||||||
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2019
$m
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2018
$m
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2017
$m
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2019
$m
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2018
$m
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2017
$m
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2019
$m
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2018
$m
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2017
$m
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Revenue
from associates and joint ventures
|
10
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9
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8
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-
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1
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1
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10
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10
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9
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Other
amounts owed by associates and joint ventures
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3
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1
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2
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-
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-
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-
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3
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1
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2
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Amounts
owed to associates and joint ventures
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(4)
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(2)
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-
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-
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-
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-
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(4)
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(2)
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-
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Risk description
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Initiatives to manage these risks
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Inherent
threats to cybersecurity and information governance remain
significant and dynamic. We are aware of our responsibilities in
relation to a range of high-value assets (critical systems &
guest, employee and other sensitive data) which may be targeted by
various threat 'actors' (including organised criminals, third
parties and 'threat actor-employees'), and rapid evolution in
societal, regulatory and media scrutiny of privacy arrangements
mean that the potential impact of data loss to IHG financially,
reputationally or operationally remains a dynamic risk
factor.
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●
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Effective
and appropriate leveraging of data that we have a right to use is a
key aspect of the interface between our marketing and our
commercial and technology activity. We take account of regulatory
and ethical factors as part of the decision-making processes in
relation to marketing and technological initiatives, and we also
rely on appropriate governance and control arrangements to mitigate
risks that the validity of data that we use is undermined by
cyber-attacks or operational failures.
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●
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Our
2019 focus has been on progressing a Board-endorsed roadmap of the
highest priority and highest-value initiatives to build and
maintain core elements of our cybersecurity posture.
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●
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During
the year our Chief Information Security Officer has worked with
teams across IHG to increase sophistication in how we identify,
protect, detect, respond and recover in relation to cyber risks.
This has involved developments in our security governance and risk
tracking, including discussion and assessment of an approach to
high-value assets with the Executive Committee.
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●
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We have
continued to drive awareness of cybersecurity risk, including an
anti-phishing campaign which tested corporate employees on phishing
attacks. We also developed a cybersecurity incident response
playbook which is aligned with wider IHG resilience and incident
preparation protocols.
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●
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The
nature of our operating model means that significant amounts of
IHG's confidential information assets are also held by or shared
with third-party suppliers and owners, and we review those risks as
part of our broader supply chain risk management
arrangements.
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●
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Our
information security programme is supported and reviewed by
internal and external assurance activities, including our Internal
Audit and SOX teams and PCI assessments.
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●
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During
2019 we have reported regularly to the Board and the Executive
Committee on the information security roadmap using key risk
indicators to track trends in risk and mitigation initiatives. We
also continue to work closely with our insurers to review the
adequacy of protection for our risks and have assessed potential
cyber incident scenarios, including quantification of value at
risk, to better aid in risk-based discussions on remediation
investment against risk acceptance and available risk transfer
opportunities.
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Failure
to deliver preferred brands and loyalty could impact our
competitive positioning, our growth ambitions and our reputation
with guests and owners. Competitor and intermediation activity
creates inherent risks and opportunities for the hospitality
industry and is relevant to the longer-term value of IHG's
franchised/managed proposition and our ability to deliver returns
to current and potential owners of our various brands.
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●
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To
enable our growth ambitions, we need to continuously strengthen our
portfolio of brands to build an industry-leading offer which
delivers leading-edge guest preference, and competitive owner
returns. For a description of our brands and brand initiatives see
pages 14 to 17, and page 23.
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●
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We are
building the underlying capabilities to achieve our vision by:
strengthening our new brand development; enhancing our marketing
capability; refining our brand portfolio strategy; building
improved data analytics capabilities; and scaling the production
and efficiency of our global marketing assets.
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●
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During
2019, our Global Marketing team has continued to evolve an
operating framework to provide additional clarity and alignment on
prioritisation and focus areas. We have also implemented changes to
several ways of working between our global functions and regional
operations teams to drive commercial performance, supported by
learning events and engagement sessions.
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●
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We are
also executing a loyalty roadmap that includes tactical
improvements to drive short-term performance and foundational
levers to enable a longer-term step change to improve member
benefits, owner economics and programme technology. See page 20 for
more details on our 2019 initiatives.
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In a
fast growth environment, it is essential that we attract, develop
and retain leadership and talent and failure to do this could
impact our ability to achieve growth ambitions and execute
effectively. Our people are essential to delivering our objectives,
and our ability to develop talent is a key way we can deliver value
to our existing and potential owners of both managed and franchised
hotels. It is also essential that we retain key executive talent,
both at the corporate and hotel levels, in the face of attractive
roles and competitive rewards available in the global markets where
we operate and compete.
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●
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Our
approach to managing our people is outlined in detail on pages 28
to 31 and our annual business planning process includes a review of
workforce risks. We consider workforce risks when designing
business initiatives and we regularly review talent and succession
across the organisation. Our Human Resources team partners across
IHG, and performs regular reviews including in relation to the
diversity of our talent and competitiveness of our compensation and
benefits plan.
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●
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IHG has
the ability to manage the risk directly in relation to IHG
employees but relies on owners and third-party suppliers to manage
the risk in related activities. Our Procurement, Legal and Risk
teams also consider more indirect workforce risks relating to our
third-party relationships.
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●
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During
2019, we have continued to refine and streamline our performance
management systems and embed a common set of leadership behaviours
across IHG through employee participation in various virtual
learning summits.
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●
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Several
policies supporting our Code of Conduct (for example our Human
Rights Policy which is reviewed annually) relate to the management
of our people, describing our intolerance for inappropriate
behaviours, and appropriate adherence to those helps manage our
risk.
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●
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As our
business expands through mergers and acquisition, we also undertake
due diligence prior to transactions, and as part of integration
activities, to evaluate and adapt relevant people
practices.
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The
global business regulatory and contractual environment and societal
expectations continue to evolve. Failure to ensure legal,
regulatory and ethical compliance would impact IHG operationally
and reputationally. Regulators are moving to impose significant
fines for non-compliance, most notably in relation to privacy
obligations and data security, and there is increasing attention on
environmental, social and governance matters (for example relating
to consumer protection, human rights including modern slavery,
human trafficking and labour laws, and financial crime) from a
range of external stakeholders such as corporate sales clients,
investors and NGOs. With trading headwinds in some markets,
increased pressure can be placed on compliance programmes, and a
heightened risk of liabilities relating to our franchise model both
in relation to brand reputation issues as well as
litigation.
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●
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Our
global Ethics and Compliance team (E&C team) are focused on
ensuring IHG has a globally coordinated approach to material
ethical and compliance risks, taking into account the regulatory
environment, stakeholder expectations and IHG's commitment to a
culture of responsible business.
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●
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The
overarching framework for Ethics and Compliance is the IHG Code of
Conduct (Code), (see pages 26 and 27). In addition to the Code, the
E&C team manage the global compliance programmes for
Anti-Bribery and Corruption, Antitrust/Competition Law, Sanctions
and Human Rights.
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●
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A
number of processes and initiatives are used by the E&C team to
manage ethical and compliance risks. For example, IHG is a member
of Transparency International UK's Business Integrity Forum and
participates in its annual Corporate Anti-Corruption Benchmark. The
findings from the Benchmark assessment are utilised predominantly
by the E&C team to identify improvements to the design of the
IHG Anti-Bribery and Corruption programme.
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●
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The
E&C team are also responsible for, and have oversight of, the
owner legal due diligence process. This is designed to ensure that
risk-based due diligence is carried out on third-parties with whom
IHG enters into hotel relationships. This includes sanctions
monitoring, third-party screening and internal communications - for
example, an annual update is communicated to the Legal, Development
and Strategy teams and other relevant colleagues providing a
reminder of 'No Go' countries and sanctions issues that may
restrict IHG.
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●
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The
E&C team currently monitor training completions, gifts &
entertainment reporting and owner due diligence escalations. These
areas help demonstrate whether the design of the Ethics &
Compliance framework and core processes of the underlying
programmes are operating effectively. The E&C team monitor
activity of the Confidential Disclosure Channel and have regular
discussions with regional Legal teams to help identify emerging
issues. In addition, the E&C team receive informal
queries/escalation of issues via an Ethics and Compliance email
channel, which is publicised in training and awareness materials,
and directly from employees, for example in face-to-face training
sessions.
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●
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The
Board receives regular reports on the Confidential Reporting
Channel and matters directly related to our responsible business
agenda.
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Failure
to capitalise on innovation in booking technology and to maintain
and enhance the functionality and resilience of our channel
management and technology platforms (including those of
third-parties on which we rely directly or indirectly), and to
respond to changing guest and owner needs remains a dynamic risk to
IHG's revenues and growth ambitions. The pace of change in the
hospitality industry continues to accelerate and IHG must evolve to
effectively grow and compete in the marketplace. Technology is
crucial to our strategy as we face increasing competition from both
existing and new players in the travel space.
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●
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Our
comprehensive channels strategy is a key driver and enabler of
accelerated growth. We continue to seek opportunities to align and
innovate our channels and technology platforms (see page 21). Our
IHG Concerto™ platform is operating at all IHG hotels, and we
are continuing to add more capabilities to the platform to enhance
revenue delivery.
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●
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Our
Guest Reservation System (GRS) is hosted by a third-party vendor,
Amadeus, in the cloud and supported by infrastructure which serves
to decrease the likelihood of downtime. Availability of GRS and
other key systems continues to be monitored on a 24/7 basis by the
Network Operations Centre. Metrics are regularly reported to
Commercial and Technology leaders so they can monitor
performance.
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●
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As our
industry evolves, and with our acquisition of new brands, we have
continued to review the capabilities of our systems in relation to
market trends and expectations.
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●
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In
2019, we also introduced regional revenue forums to focus on
forecasting future business and determining integrated commercial
plans to address challenges.
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IHG's
continuing agenda to accelerate growth gives rise to inherent
risks, for example as we transition systems, operating models and
processes. The potential exists to impact commercial performance
and financial loss, and undermine stakeholder confidence. As we
move towards larger, more strategic outsourcing relationships for
business-critical services, inherent risk levels are also
raised.
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●
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The
progress of our Group-wide efficiency programme has been tracked by
the Board and Executive Committee, and the majority of our
centrally driven transformation activity has now transitioned to
Senior Leaders.
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●
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Following
the changes to our organisational structure in 2018, in 2019 we
conducted corporate-wide virtual learning summits and we maintain a
central digital hub for process and learning materials to enable
our employees to find details about processes, learning content and
key process owners.
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●
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Our
focus on accelerating growth has included review of risks relating
to offshoring and outsourcing by Senior Leaders and the Board. Our
Strategic Supplier Management Office has been established to manage
existing critical supplier relationships as well as new outsourcing
and/or business-critical relationships driving our strategic
objectives. Our legal teams review contracts and provide advice on
litigation, where required, and our insurance programme also
provides a degree of protection in the event of supplier
failure.
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●
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Oversight
teams, including our finance experts, have evolved governance and
control frameworks and we also regularly review delegated approval
authorities and processes to enable decisions on investments to be
made quickly and efficiently with consideration of the risks
involved. HR Business Partners continue to work with Senior Leaders
to identify and retain key individuals across the business, and
succession planning practices are in place to ensure continuity of
key initiatives and business operations.
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●
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During
2019 we reviewed our financial governance and controls relating to
the integration of our acquisitions. For example, the integration
of Six Senses into IHG's financial control environment has been
overseen by a dedicated governance committee.
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●
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We have
an established approach to System Development Lifecycle, and
specific risks to delivery of the Global Reservations System have
been managed throughout the programme of implementation (including
those relating to technical delivery, business process testing and
operation readiness testing).
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Macro
external factors such as political and economic disruption, the
emerging risk of infectious diseases, actual or threatened acts of
terrorism or war, natural or man-made disasters could have an
impact on our ability to perform and grow. Heightening of
macro-economic tensions could lead to a downturn impacting our
ability to grow.
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●
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While
these factors are mostly outside our direct control, we track
uncertainties which may impact the hospitality industry and which
need to be considered in our strategic and financial planning.
These types of risks are addressed in strategic review, including
our market participation choices, particularly in emerging and key
growth markets.
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●
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During
2019, many leadership teams have used formal and informal scenario
planning to anticipate the potential impact of these risks. The
Board and Executive Committee receive regular updates on these
types of factors from both operational and subject matter experts
so that possible implications for IHG can be
considered.
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●
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Our
in-house threat intelligence capability, supplemented by
third-party expertise and methodology, supports development, hotel
operations and customer-facing sales teams with planning and
response to macro factors, for example concerns relating to
terrorism, extreme weather events, or infectious diseases such as
Covid-19. We are also increasingly able to complement more
traditional sources with digital intelligence to anticipate
potential impacts on IHG's interests.
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As a
global business, we are conscious of greater focus from a wider
range of stakeholders on environmental and social mega-trends.
These include regulators and investor groups (such as the Task
Force on Climate-related Financial Disclosures (TCFD), and emerging
risks presented by climate change which have the potential to
impact performance and growth in key markets.
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●
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During
2019, our Corporate Responsibility team worked collaboratively with
teams across IHG (including Human Resources, Business Reputation
and Responsibility and Procurement) to consider the broader
environmental and social risks associated with our business. These
risks and opportunities are considered as an integral part of Board
strategy discussions in relation to our commitment to responsible
business. In 2019, this culminated with the approval of a
science-based target relating to carbon reduction.
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●
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As part
of our responsible business strategy refresh work, we are also
working with third-party experts to develop our responsible
business targets for post 2020 and have made a formal commitment to
implement the recommendations of the TCFD. In 2020 we will be
developing a disclosure roadmap for the coming years. More broadly
we recognise that continued collaboration across the wider industry
is required to collectively combat climate change. We are taking an
active role in this via our membership and active participation in
several industry bodies, including the International Tourism
Partnership (ITP) and the World Travel and Tourism Council
(WTTC).
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●
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Our
values and behaviours, underpinned by our Code of Conduct, inform
our decision-making at all levels. For example, specific elements
of our Code of Conduct define expectations for IHG employees in
relation to human rights and the environment. Our Supplier Code of
Conduct and Human Rights Policy have been updated during 2019 and
our Procurement, Legal and Risk teams monitor supply chain and
human rights risks, see pages 26 and 27.
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Failure
to maintain an effective safety and security system and to respond
appropriately in the event of disruption or incidents affecting our
operations more broadly could result in an adverse impact to IHG,
such as reputational and/or financial damage and undermining
confidence from our colleagues, guests, major sales accounts and
wider stakeholders. This risk relates both to our direct operations
in hotels and other locations where we have management
responsibility, and also to outsourced activities and others with
whom we collaborate and trade, including the owners of our
franchised hotels which operate as independent
businesses.
|
●
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The
environment in which IHG develops and operates hotels continues to
evolve and impacts the safety and security risks faced by IHG.
These risks are assessed as stable overall, but our approach is
reviewed continuously to ensure that it remains fit for purpose,
and able to anticipate and respond to the risk of an incident
damaging the Group's reputation.
|
●
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Our
design and engineering, hotel opening and operations teams work
together with our risk management experts to evaluate standards and
develop capability to respond to an incident via training,
intelligence tracking and standard operating procedures, and also
deploy crisis management procedures where required for less
predictable events.
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●
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For
example, the risks of epidemics such as Covid-19, earthquakes and
extreme weather events continue to pose a threat to IHG's
operations, and are managed through refresher training, advanced
monitoring and warning and standard operating
procedures.
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●
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In
relation to geopolitical and terrorism risks, we deploy external
industry benchmarking to allocate all pipeline and operational
hotels a threat category. The category definitions are designed to
guide hotels to make their own risk-based decisions on how to
mitigate local security threats. Categories are reviewed regularly
to adjust to the dynamic threat environment in which IHG develops
and operates hotels.
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●
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We
continue to monitor UK Government and Local Authority
investigations into the Grenfell tragedy. We will review our own
fire and safety requirements once any changes and/or
recommendations to building regulations and best practice are
published, and will work with owners and operators of IHG branded
hotels to provide appropriate support and guidance.
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●
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IHG has
also created a toolkit and resources for hotels to use to provide
guests with menu allergen information, making it easier for them to
identify ingredients they need to avoid.
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A
material breakdown in financial management and control systems
would lead to increased public scrutiny, regulatory investigation
and litigation. This risk includes our ongoing (and stable)
operational risks relating to our financial management and control
systems; the continuing expectations of IHG's management decision
making and financial judgements, in response to evolving accounting
standards, which have added complexity to our control
responsibilities; and our own business model and
transactions.
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●
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We
continue to operate an established set of processes across our
financial control systems, which is verified through testing
relating to our Sarbanes-Oxley compliance responsibilities. See
pages 73 and 160 to 163 for details of our approach to taxation,
page 73 for details of our approach to internal financial control,
and pages 182 to 185 for specific details on financial risk
management policies. These processes and our financial planning
continue to evolve to reflect the changes in our management
structure and business targets.
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●
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To
mitigate risks from adoption of the new accounting standard, IFRS
16 'Leases', existing controls were modified and new controls
added. Controls are revisited at least once a year for modification
or addition.
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●
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As our
hotel estate evolves and grows, we also adapt our approach to
financial control. Given the differences in the culture and ways of
working across our regions, we apply globally and/or regionally
consistent policies and procedures to manage the risks, such as
fraud and reporting risks, wherever possible.
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●
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Our
Group insurance programmes are also maintained to support financial
stability.
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Investor Relations (Sonya Ghobrial, Matthew
Kay)
:
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+44 (0)1895 512 176
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+44(0)7527 419 431
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Media Relations (Yasmin Diamond; Mark
Debenham)
:
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+44 (0)1895 512 097
|
+44(0)7527 424 046
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InterContinental Hotels Group PLC
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(Registrant)
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By:
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/s/ F.
Cuttell
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Name:
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F.
CUTTELL
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|
Title:
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ASSISTANT
COMPANY SECRETARY
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Date:
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28 February 2020
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