InterContinental Hotels Regulatory News (IHG)

This announcement contains inside information

IHG PLC - Full Year Results to 31 December 2021

1 Definitions for non-GAAP measures can be found in the 'Use of non-GAAP measures' section, along with reconciliations of these measures to the most directly comparable line items within the Financial Statements.

2 Percentage change shown unless not meaningful, such as where a positive balance in the latest period is comparable to a negative or zero balance in the prior period.

"Trading improved significantly in 2021, with RevPAR getting closer to pre-pandemic levels as the year went on, profitability and cash flow rebounding strongly, and signings accelerating in Q4. Working hand in hand, our colleagues and hotel owners have once again shown incredible efforts to navigate the ebbs and flows of recovery. As vaccination rates rise and restrictions are lifted around the world, we are seeing the demand for travel increase. While there may be unexpected challenges ahead, we are confident in our ability to respond and adapt to what consumers and owners need as we position IHG for strong future growth.

Through our strategic priorities, we continue to build a better, stronger company for guests and owners. Our commitment to maintaining a high-quality estate and investing in operations, service and new designs is driving the success of our established brands. The addition of attractive new brands in multiple segments has opened up further growth opportunities globally. Our loyalty programme will be transformed this year, alongside important enhancements to our digital channels and experiences, and we are committed to ensuring that as we grow around the world, we do so in the right way through our Journey to Tomorrow plan and joining campaigns such as Race to Zero.

Recognising the scale of our ambitions and the strengths and efficiencies of our distribution and technology platforms, owner interest in our brands continues to increase. Development activity was well ahead of 2020, with 437 hotel signings contributing to a global pipeline that represents more than 30% of today's system size.

With the strong financial improvements delivered in 2021, including more than doubling our operating profit from reportable segments and substantially reducing our net debt, the Board is pleased to be recommending the reinstatement of a dividend. The signs are encouraging that we are nearing the end of the pandemic, and we are confident in the strength of IHG's enterprise, market positioning and ability to drive attractive levels of long-term, sustainable growth."

For further information, please contact:

For the purposes of the Market Abuse Regulation, the person responsible for arranging the release of this announcement is Nicolette Henfrey, EVP, General Counsel & Company Secretary.

Presentation for analysts and shareholders:

A conference call and webcast presented by Keith Barr, Chief Executive Officer, and Paul Edgecliffe-Johnson, Chief Financial Officer and Group Head of Strategy, will commence at 9:30am (London time) on 22 February 2022 and can be accessed at www.ihgplc.com/en/investors/results-and-presentations or directly on https://www.investis-live.com/ihg/61f4103a5acd270d004e5aed/tyyt.

For analysts and shareholders wishing to ask questions, please use the dial-in details below which will have a Q&A facility:

An archived webcast of the presentation is expected to be available later on the day of the results and will remain on it for the foreseeable future, accessed at www.ihgplc.com/en/investors/results-and-presentations. An audio replay will also be available for 7 days using the following details:

Website:

The full release and supplementary data will be available on our website from 7:00am (London time) on 22 February. The web address is www.ihgplc.com/en/investors/results-and-presentations.

About IHG Hotels & Resorts:

IHG Hotels & Resorts [LON:IHG, NYSE:IHG (ADRs)] is a global hospitality company, with a purpose to provide True Hospitality for Good.

With a family of 17 hotel brands and IHG Rewards, one of the world's largest hotel loyalty programmes, IHG has nearly 6,000 open hotels in more than 100 countries, and a further 1,800 in the development pipeline.

- Luxury & Lifestyle: Six Senses Hotels Resorts Spas, Regent Hotels & Resorts, InterContinental Hotels & Resorts, Vignette Collection, Kimpton Hotels & Restaurants, Hotel Indigo

- Premium: voco hotels, HUALUXE Hotels & Resorts, Crowne Plaza Hotels & Resorts, EVEN Hotels 

- Essentials: Holiday Inn Hotels & Resorts, Holiday Inn Express, avid hotels

- Suites: Atwell Suites, Staybridge Suites, Holiday Inn Club Vacations, Candlewood Suites 

InterContinental Hotels Group PLC is the Group's holding company and is incorporated and registered in England and Wales. Approximately 325,000 people work across IHG's hotels and corporate offices globally.

Visit us online for more about our hotels and reservations and IHG Rewards. For our latest news, visit our Newsroom and follow us on LinkedIn, Facebook and Twitter.

Cautionary note regarding forward-looking statements:

This announcement contains certain forward-looking statements as defined under United States law (Section 21E of the Securities Exchange Act of 1934) and otherwise. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use words such as 'anticipate', 'target', 'expect', 'estimate', 'intend', 'plan', 'goal', 'believe' or other words of similar meaning. These statements are based on assumptions and assessments made by InterContinental Hotels Group PLC's management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate. By their nature, forward-looking statements are inherently predictive, speculative and involve risk and uncertainty. There are a number of factors that could cause actual results and developments to differ materially from those expressed in or implied by, such forward-looking statements. The main factors that could affect the business and the financial results are described in the 'Risk Factors' section in the current InterContinental Hotels Group PLC's Annual report and Form 20-F filed with the United States Securities and Exchange Commission.

The long-term attractiveness of our markets and their future growth potential are considered to be unchanged by the Covid-19 pandemic. The pre-existing industry tailwinds, such as a growing global population, rising middle classes, the increasing desire for travel and new experiences, and the human need to physically interact and collaborate, give confidence as drivers of continued growth. The Travel & Tourism sector contributed almost $9 trillion or 10% to the world's GDP in 2019. The sector outpaced global economic growth each year for a decade. Over that period, the hotel industry saw consistent growth in RevPAR and the expansion of branded market share, benefitting from consumer trends and the strength of global brands and enterprise systems such as those of IHG.

The industry is expected to return to robust levels of growth in new-build supply over the longer term, which is in addition to the RevPAR growth driven by the existing hotel room inventory. We also anticipate that further increases in consumer focus on trusted brands, technology platforms and booking flexibility should favour leading brands such as IHG's with both owners and guests.

2021 has already demonstrated a strong recovery from the significant demand suppression that our industry incurred in 2020 as a result of the pandemic. A rapid return in demand has been led by removals of travel restrictions, vaccinations, and a revival of economic activity. This return has been quickest in domestic leisure, whilst essential business demand had already proved resilient. Discretionary business travel, group bookings and international trips have also more recently shown encouraging signs of recovery.

We understand the shifting trends and are responding and adapting. The pandemic may lead to some structural changes for our industry, such as an element of technology replacing certain kinds of business travel. However, we are already seeing clear signs of business demand returning. There will also be other trends, including a greater use of hotels to facilitate a global shift to increasingly flexible working arrangements. These further support a view that overall demand levels could be little changed.

We therefore anticipate the attractive industry fundamentals to be fully restored in the longer term, even though a volatile demand environment may still continue in the short term whilst temporary travel restrictions prevail. Supporting this, according to Oxford Economics, global hotel room nights consumed grew at a CAGR of just under 5% in the decade through to 2019, and are expected to be back above 2019 levels by 2023, and to resume growing at a similar CAGR of just under 5% in their forecasts through to 2030. Furthermore, the latest industry forecasts by STR and CBRE, providers of hospitality industry analytics, expect US industry RevPAR to return to 2019 levels by the end of 2023.

IHG's weighting towards essential business and domestic leisure travel has driven resilience relative to the wider industry during the Covid pandemic. The midscale segments, which represent ~70% of our system size and includes our market-leading Holiday Inn Express brand, have historically been impacted less and recovered faster than other segments in economic downturns. Our business is also weighted towards non-urban markets that are less reliant on international inbound travel (~95% of our US business is domestic driven) and less reliant on large group meetings and events. These weightings supported IHG's ability to outperform the wider industry during the pandemic. Our asset light, fee-based, predominantly franchised model has also delivered resilience in terms of cash flow and profitability.

As we look to future growth, in addition to the attractive RevPAR growth characteristics of our overall industry, IHG expects to be able to gain further market share. This will be driven by the expansion of our estate, leveraging our scale efficiencies and investing in our brands, technology and loyalty programmes. Our system size growth will in part be driven by increased conversion activity (either from independently branded hotels or other real estate), as well as an ongoing level of new-build development, reflecting lenders' recognition of the strength and value of IHG's enterprise system and reputation for generating attractive investment returns. Our ambition is to deliver industry-leading net rooms growth. Whilst 2020 and 2021 saw IHG's net system size remain broadly flat, we are confident of reverting back to pre-pandemic levels, with IHG's net system growth being 4.8% in 2018 and 5.6% in 2019.

Our ability to expand the Group's fee margins will increase our profitability, additive to the long-term attractive levels of growth in RevPAR and net system size, which drive IHG's fee revenue. The benefit of scale advantages and efficiencies, along with brands and markets becoming more mature, saw fee margins expand on average by over a 100bps a year over the decade through to 2019, to reach 54.1% that year. Our progress on sustainable cost reductions in 2021 will also support increased margins. In the Americas region, given the strong recovery of demand in the US and our particular weighting to the franchise model in this market, margins in 2021 are already ahead of 2019.

As an asset-light business, we focus on growing our fee revenues and fee margins, with limited requirements for capital. This enables us to grow our business whilst generating high returns on invested capital. Our track record of strong cash generation has also enabled IHG to enhance earnings growth through our approach of returning excess capital to shareholders.

Our asset-light business model is highly cash generative through the cycle and enables us to invest in our brands and strengthen our enterprise. We have a disciplined approach to capital allocation which ensures that the business is appropriately invested in, whilst looking to maintain an efficient and conservative balance sheet.

IHG has a strong track record of paying shareholders a sustainably growing ordinary dividend, and additionally returning surplus funds to shareholders when these are not required to invest in the business for optimising growth and long-term shareholder value creation. Since demerger in 2003, IHG has returned some $13.6bn to shareholders, $2.4bn through ordinary dividends and $11.2bn via additional returns.

In 2020, in response to the onset of Covid and as part of our actions to preserve cash in order to maintain substantial liquidity and support our conservative balance sheet approach, IHG's Board withdrew its recommendation of a final dividend in respect of 2019, a payment of which would have had a cash outflow of ~$150m in the first half of 2020.

Since then, trading has improved significantly in 2021, leading to profitability rebounding, accompanied by strong cash flow and a reduction in net debt. The Board's perspectives on the uses of cash generated by the business are unchanged: ensuring the business is appropriately invested in to optimise growth, funding a sustainably growing dividend, and then returning excess funds to shareholders, whilst maintaining our leverage ratio within a range of 2.5‑3.0x net debt:adjusted EBITDA. This ratio was 3.0x at 31 December 2021.

The Board is therefore proposing a final dividend of 85.9¢ in respect of 2021, an amount equivalent to the withdrawn final payment in respect of 2019. No interim dividend was paid in respect of 2021. Going forward, dividend payments will be reflective of IHG's prior approach to sustainably grow the ordinary dividend whilst targeting a level of leverage that maintains an investment grade credit rating, and ensuring careful consideration of our responsibilities to all stakeholders. The Board will also continue to actively assess the opportunity for any surplus capital to be additionally returned through special dividends or share buybacks.

The ex-dividend date is Thursday 31 March 2022 and the Record date is Friday 1 April. Subject to shareholder approval at the AGM on Friday 6 May, the dividend will be paid on Tuesday 17 May.

The long-term attractiveness of IHG's brands and the markets we operate in have supported increased opening and signings activity in 2021:

System and pipeline summary of movements in 2021 and total closing position (rooms):

The regional performance reviews provide further detail of the system and pipeline by region, and further analysis by brand and by ownership type.

1. Build loved and trusted brands

Across our portfolio, we continue to move at pace to introduce new brands, take recent brand additions to scale, and invest in the further growth of our established brands through an ongoing focus on design, service and quality.

Launch of Vignette Collection

Launched in August 2021, our collection brand, Vignette Collection, complements our existing Luxury & Lifestyle brands, whilst also offering a different price point to our upscale conversion brand voco. Six Vignette properties have already been secured, the first of which was open by the end of the year. Owners that join the collection will gain access to our world class revenue delivery systems, technology platforms, loyalty offering, operational expertise and procurement savings, without high upfront costs or any compromise on their hotel's distinctive identity. Accelerating IHG's growth, we expect to attract more than 100 properties over the next decade.

The upscale and luxury segments currently represent 32% of our system size and 42% of our pipeline. These market segments were worth over $100bn in rooms revenue globally in 2019, and over 40% or around 1.5 million rooms are currently independent. Owners of independent hotels and small chains are increasingly attracted by the opportunity to benefit from the scale, expertise and investment of a global system, illustrated by conversions as a proportion of our total signings growing since 2019.

Completion of the Holiday Inn and Crowne Plaza review

Holiday Inn and Crowne Plaza are two powerful global brands. In 2021, 68 new hotels were opened, whilst 84 signings grew their combined pipeline to 340 hotels, equivalent to over 20% growth on the current system of 1,594 properties.

To protect their significant future growth prospects, in 2021 we completed a review to address the consistency and quality of the hotel estate, reflective of the expectations of IHG, our owners and guests. In total, 151 hotels were removed from the Holiday Inn and Crowne Plaza estates. The reduction of 34.3k rooms represented 10% of the combined estate for these two brands at the start of the year, or 3.9% of our global system size. In addition, as part of the review, a further 83 hotels in the Americas and EMEAA regions have committed to improvement plans or scopes of work, reflecting significant investment by owners. Through the outcomes of the review, together with other property improvements and new openings over the last four years, this will result in two-thirds of the Americas Holiday Inn estate having been updated recently, and three-quarters of the Crowne Plaza estate.

Completion of the review will lead the future removal rate for these brands to align more with the remainder of the estate, which averaged 1.6% a year between 2016 and 2019. Given the prior elevated levels of removals of Holiday Inn and Crowne Plaza hotels, the removal rate of the overall IHG estate averaged 2.2% over these years.

Other notable developments in 2021 included:

· Strengthening our IHG Hotels & Resorts masterbrand. New masterbrand marketing approach adopted to increase reach and enhance perception among consumers of IHG's brands across Luxury & Lifestyle, Premium, Essentials and Suites. This drove uplifts in brand awareness and brand preference metrics.

· Increased conversion activity. Achieved 21 signings for voco, taking it to 69 openings and signings across 25 countries since launch in 2018. The addition of resort destinations and all-suites properties demonstrate the brand's flexibility. Conversions represented 13 of voco's signings in 2021, with a further 83 conversion signings across our other brands, including several multi-brand portfolio deals that reflect the increased breadth of IHG's offering.

· Driving avid and Atwell Suites to scale. Our avid brand has already become the second largest contributor to system growth, with a doubling of the number of hotels open to 48, a further 164 in the pipeline and the brand outperforming peers in guest satisfaction. Our first Atwell Suites property is set to open in Miami in the coming weeks, and the accelerated signings pace in 2021 resulted in a pipeline of 23 hotels.

· Growing momentum behind Six Senses and Regent. Six Senses has grown to 21 open properties and a pipeline of 33, which combined represents an increase of more than 50% in its presence since acquisition in 2019. Regent now has seven open properties and a further eight in the pipeline, with strong international owner interest that will be supported by the opening of the flagship Regent Hong Kong later in 2022.

· More market debuts. Kimpton's growth to 75 hotels included its first in France, and its pipeline of 35 includes market debuts in Mainland China and Australia this year. Hotel Indigo has reached 130 properties in over 20 countries, and with focused work on accelerating the speed to open for the brand, a record year of openings is expected for 2022. Our extended stay brands, Candlewood Suites and Staybridge Suites, continued to be among the strongest RevPAR performers in our portfolio, with recent signings for Staybridge including its first hotels in France, Spain and India.

· Holiday Inn Express well-positioned for further growth. In its 30th year, Holiday Inn Express reached 3,000 properties globally and now has a pipeline of 645 hotels, representing 26% of its current system size. The brand achieved a leading share of signings in its chain scale in the US, whilst a first opening in Japan extended its presence to 50 countries.

· InterContinental Hotels & Resorts celebrates its 75th Diamond Anniversary year. Maintaining its position as a global leader in luxury, our InterContinental estate grew to 204 hotels, with 23 signings, including 15 in EMEAA, increasing its global pipeline to 79 properties. Our work on contemporising and future proofing the brand continues, and guest satisfaction scores saw another year of outperformance against its brand peers.

2. Customer centric in all we do

Delivering True Hospitality means creating seamless and tailored guest experiences that generate increased demand, and ensuring that as we deliver those things, we do so with efficient operations and high returns in mind for our owners.

Transforming loyalty

Our IHG Rewards loyalty programme is critical to our business and future growth. Our more than 100 million loyalty members are responsible for around half of all room nights globally each year, stay in our hotels more often, and spend 20% more than non-members. They are also 9x more likely to book direct, which is our most profitable channel.

In 2021, highlights in the development of our loyalty proposition included:

As announced in January 2022, we will be relaunching a transformed IHG Rewards programme this year, designed to offer more rewarding member tiers and points value; provide richer benefits and exceptional choice, especially for our elite members; and attract more next generation travellers. This will be brought to life by a re-energised frontline culture to deliver great member experiences, supported by new tools, training and incentives.

The first phase was announced in January and goes live in March. This creates a new, simplified tier structure based upon nights and points qualification, with more bonus points awarded across the new Silver Elite, Gold Elite and Platinum Elite tiers, and maintaining our industry-leading bonus points for the Diamond Elite tier, our most loyal customers. The programme is designed to maximise return on investment for our hotel owners, and will continue to be self-funded through the System Fund. Greater efficiency will be enabled by member choice, with costs incurred for only the benefits that individual member values most. Cost will be reduced for all hotels through eliminating some previous welcome amenities and enrolling stay assessments, which creates capacity to invest in the new higher-value benefits.

To be announced in the coming months will be further phases which will bring new, customer-preferred benefits, and to enable unique options to personalise and put the member in control, supported by the next generation of our IHG mobile app.

Other customer centric developments in the year included:

· Supporting owners with operational challenges

· Driving more demand to our hotels. IHG has created increasingly tailored marketing campaigns and promotions, supported by new resources and services within our Revenue Management for Hire (RMH) programme that helps hotels quickly identify and act on revenue opportunities using business intelligence and data. Key demographics of returning demand within specific leisure travel categories have been targeted with real-time search/location campaigns, and corporate travellers with tailored 'Welcome Back to Business' campaigns. IHG's award-winning dedicated SME programme, IHG Business Edge, increased enrolled accounts by 44% to over 57,000, gaining share.

· Improving rate negotiations for our owners. Delivered revenue improvements and faster responses for owners using IHG's award-winning centralised RFP processes (CRFP), with 2,200 hotels now using the service. The process to roll over corporate rates has also been successful, with high adoption and corporate customers also embracing IHG's strategic pricing model which transitions from static to dynamic rates and helps shift market share of corporate account volumes to IHG.

· Updating guest room and public space designs. Ongoing programmes across brands further enhance the guest experience and drive stronger returns for owners. These include our Formula Blue concept for Holiday Inn Express adopted in over 1,200 hotels in the Americas since its introduction in 2014, with an enhanced '2.0' iteration further reducing the cost-per-key for owners across furniture, fixtures and equipment (FF&E) by approximately 10%. Other 'next-gen' formats and refurbishments are being widely applied across Holiday Inn, Candlewood Suites and Staybridge Suites.

· Evolving the stay experience. Food and beverage options have been reintroduced for guests, whilst new solutions for group events were added to our award-winning Meet with Confidence programme. These, in combination with all our other developments and initiatives, supported IHG's Guest Satisfaction Index (GSI) continuing to improve during 2021 and achieving scores of 100 or better for each of our brands, reflecting outperformance against peers.

3. Create digital advantage

Our digital-first approach enables seamless experiences across the guest journey, drives direct bookings, creates efficiencies, and delivers the right data, insights, technology and platforms to drive performance for owners.

Developments in the year included:

· Enabling attribute pricing and the selection of stay enhancements. Around 95% of hotels have now completed detailed room inventory assessments to prepare for attribute pricing on our industry-leading Guest Reservation System (GRS), which will allow guests to choose specific room characteristics when booking their stay and seamlessly add additional non-room stay enhancements. These, together with other booking flow improvements, enable guests to fully tailor their trip, and owners to generate maximum value from their hotel's unique attributes.

· Simple room rates. To improve the booking experience for guests we have simplified room rates and focused on achieving consistency across all channels, as we look to encourage booking direct and drive low-cost revenue for our owners. In January 2022, we also moved to centralise our wholesale distribution.

· Enhancing customer service. AI voice-activated platforms used to answer and route customer calls is helping increase both satisfaction scores and higher average daily rates on bookings, whilst a digital concierge chatbot has also been introduced on IHG.com and the IHG mobile app to further assist customer bookings and communication. Further streamlining the digital guest experience, digital arrivals has now expanded to nearly 4,000 properties.

· Next generation IHG mobile app under development and piloting. With full roll out planned in 2022, our next‑gen App, using data insights and new designs, will provide a richer customer experience, enable personal and timely marketing offers, and allow us to introduce new features, fast, including enabling new benefits as part of the transformed loyalty offer. The enhancements are expected to increase direct bookings and loyalty engagement for our owners and drive incremental spend during stays.

4. Care for our people, communities and planet

Central to our priority to care for our people, communities and planet, and our purpose of True Hospitality for Good, is our 2030 Journey to Tomorrow plan, which launched in 2021 with a series of ambitious commitments.

Developments in 2021 included:

· Carbon & energy

· Diversity, equity & inclusion (DE&I)

· Human rights. Requirements related to mitigating migrant worker risks in our hotels were developed in the year, alongside a continued assessment of our supply chain risks and approach to the due diligence of suppliers.

· Communities. More than 40,000 colleagues volunteered to help more than 350,000 people during IHG's Giving for Good month. The IHG Academy programme expanded with the IHG Skills Academy, a free global virtual learning platform that breaks down barriers to education and training. IHG also continued to support its many charity partners responding to natural disasters around the world.

· Water. Work continued on water stewardship projects in Shenzhen, China, and Hayman Island, Australia, in partnership with the Alliance for Water Stewardship.

· Waste. Bathroom bulk amenities solutions were secured for all IHG hotel brands and markets, with the switch reducing our plastic usage by an estimated 850 tonnes in the Americas region alone. Negotiated through IHG Procurement, these bulk products also provide hotels with cost savings of 10-30%. A global food waste training module was developed for our hotels ahead of rollout in 2022.

INCOME STATEMENT SUMMARY

a Definitions for non-GAAP measures can be found in the 'Use of non-GAAP measures' section along with reconciliations of these measures to the most directly comparable line items within the Group Financial Statements.

b Percentage change considered not meaningful, such as where a positive balance in the latest period is comparable to a negative or zero balance in the prior period.

c Adjusted earnings as used within adjusted earnings per share, a non-GAAP measure.

Revenue

Trading improved significantly during the year, with Group comparable RevPARa getting closer to pre-pandemic levels. More travel demand returned as vaccines rolled out, government-mandated restrictions eased and economic activity started to rebuild. Through the summer months many markets, including the US and UK, saw significant improvements, driven by domestic leisure travel. Whilst the ability of travellers to freely move between and within countries continued to vary significantly, the second half of the year saw a gradual further improvement in overall trading conditions.

Group comparable RevPARa declined 34% in the first quarter, then grew 151% in the second quarter, 66% in the third quarter, 71% in the fourth quarter and 46% in the full year. When compared to the pre-pandemic levels of 2019, Group comparable RevPARa declined 51% in the first quarter, 36% in the second quarter, 21% in the third quarter, 17% in the fourth quarter and 30% in the full year.

Our other key driver of revenue, net system size, decreased by 0.6% year-on-year to 880.3k rooms, impacted by 34.3k Holiday Inn and Crowne Plaza removals as we concluded our quality review of these brands.

During the year ended 31 December 2021, total revenue increased by $513m (21.4%) to $2,907m, including a $48m reduction in cost reimbursement revenue. Revenue from reportable segmentsb increased by $398m (40.1%) to $1,390m, driven by the improved trading conditions. Underlying revenueb increased by $387m to $1,373m, with underlying fee revenueb increasing by $314m. Owned, leased and managed lease revenue increased by $68m.

Operating profit and margin

Operating profit improved by $647m from a loss of $153m to a profit of $494m, including a $241m net reduction in operating exceptional items, a $91m improvement in the System Fund result, from a $102m deficit to an $11m deficit, and a $36m decrease in the charge for expected credit losses on corporate trade receivables.

Operating profit from reportable segmentsb increased by $315m (143.8%) to $534m, driven by improved demand and the delivery of sustainable fee business cost savings. Underlying operating profitb increased $308m to $531m.

Fee marginb increased by 15.5 percentage points to 49.6%, benefitting from the improvement in trading and focussed cost management.

The impact of the movement in average USD exchange rates for 2021 netted to a nil impact on operating profit from reportable segmentsb.

If the average exchange rate during January 2022 had existed throughout 2021, the 2021 operating profit from reportable segments would have been $5m higher.

System Fund

The Group operates a System Fund to collect and administer cash assessments from hotel owners for the specific purpose of use in marketing, reservations, and the hotel loyalty programme, IHG Rewards. The System Fund also benefits from proceeds from the sale of loyalty points under third-party co-branding arrangements. The Fund is not managed to generate a profit or loss for IHG over the longer term, although an in-year surplus or deficit can arise, but is managed for the benefit of hotels in the IHG System with the objective of driving revenues for the hotels.

In the year to 31 December 2021, System Fund revenues increased $163m (21%) to $928m, primarily driven by the recovery in travel demand yielding higher assessment revenues.

The System Fund income statement deficit reduced by $91m to $11m, primarily due to the rebound in travel demand and associated assessment income, partially offset by the reversal of temporary savings realised in 2020.

Reimbursement of costs

Cost reimbursement revenue represents reimbursements of expenses incurred on behalf of managed and franchised properties and relates, predominantly, to payroll costs at managed properties where we are the employer. As we record cost reimbursements based upon costs incurred with no added mark up, this revenue and related expenses have no impact on either our operating profit or net profit for the year.

In the year to 31 December 2021, reimbursable revenue decreased by $48m (7.5%) to $589m. The reduction reflects the impact of the prior year termination of the SVC portfolio in the Americas estate, meaning the overall scale of reimbursements fell.

a Comparable RevPAR includes the impact of hotels temporarily closed as a result of Covid-19.

b Definitions for non-GAAP measures can be found in the 'Use of non-GAAP measures' section along with reconciliations of these measures to the most directly comparable line items within the Group Financial Statements.

Operating exceptional items

Operating exceptional items totalled $29m, comprising the $25m provisionally agreed costs to settle two commercial disputes in the Americas and EMEAA, and the reversal of a $4m fair value gain recorded in 2020 on the put option over part of the Group's investment in the InterContinental Barclay hotel.

Further information on exceptional items can be found in note 5 to the preliminary Group Financial Statements.

Net financial expenses

Net financial expenses decreased by $1m to $139m. Adjusted interesta, which excludes exceptional finance expenses, and adds back interest relating to the System Fund, increased by $12m to an expense of $142m. The increase in adjusted interesta was primarily driven by increased average bond debt.

Fair value gains on contingent purchase consideration

Contingent purchase consideration arose on the acquisitions of Regent, the UK portfolio and Six Senses. The net gain of $6m (2020: $13m) primarily arises from the conditions related to the Six Senses contingent purchase consideration no longer being met. The total contingent purchase consideration liability at 31 December 2021 is $73m (2020: $79m).

Taxation

The effective rate of tax on profit before exceptional items and System Funda was 31% (2020: 38%); this was lower than 2020 largely due to the improved profit base. In May 2021, a change to the UK rate of Corporation Tax was enacted which led to a $30m credit; $26m was recorded as an exceptional credit within the Income Statement and $4m within the Statement of Other Comprehensive Income. A net credit of $3m arose on other accounting exceptional items (2020: $52m). Further information on tax within exceptional items can be found in note 5 to the preliminary Group Financial Statements. Net tax paid in 2021 totalled $86m (2020: $41m) and included refunds in the US of $15m (2020: $24m). No more significant refunds are expected.

IHG pursues an approach to tax that is consistent with its business strategy and its overall business conduct principles. The approach seeks to ensure full compliance with all tax filing, payment and reporting obligations on the basis of communicative and transparent relationships with tax authorities. The IHG Audit Committee reviews IHG's approach to tax annually, including consideration of the Group's current tax profile.

Further information on tax can be found in note 6 to the preliminary Group Financial Statements.

Earnings per share

The Group's basic earnings per ordinary share is 145.4¢ (2020: basic loss per ordinary share: 142.9¢). Adjusted earnings per ordinary sharea increased by 115.7¢ to 147.0¢.

Dividends

The Board is proposing a final dividend of 85.9¢ in respect of 2021, an amount equivalent to the withdrawn final payment in respect of 2019. No interim dividend was paid in respect of 2021. Going forward, dividend payments will be reflective of IHG's prior approach to sustainably grow the ordinary dividend, whilst targeting a level of leverage that maintains an investment grade credit rating and ensuring careful consideration of our responsibilities to all stakeholders. The Board will also continue to actively assess the opportunity for any surplus capital to be additionally returned through special dividends or share buybacks.

The ex-dividend date is Thursday 31 March 2022 and the Record date is Friday 1 April. The corresponding dividend amount in Pence Sterling per ordinary share will be announced on 27 April 2022, calculated based on the average of the market exchange rates for the three working days commencing 22 April 2022. Subject to shareholder approval at the AGM on Friday 6 May, the dividend will be paid on Tuesday 17 May.

a Definitions for non-GAAP measures can be found in the 'Use of non-GAAP measures' section along with reconciliations of these measures to the most directly comparable line items within the Group Financial Statements.

CASH FLOW SUMMARY

a Definitions for non-GAAP measures can be found in the 'Use of non-GAAP measures' section along with reconciliations of these measures to the most directly comparable line items within the Group Financial Statements.

b 2020 Excludes $48m related to trade deposits and loans which were recognised as exceptional items.

Cash from operating activities

Net cash from operating activities totalled $636m for the year ended 31 December 2021, an increase of $499m on the previous year, primarily reflecting the increase in operating profit and improvement in working capital (see below) and other adjustments.

Cash flow from operations is the principal source of cash used to fund the ongoing operating expenses, interest payments, maintenance capital expenditure and normal dividend payments of the Group.

Cash from investing activities

Net cash outflows from investing activities decreased by $49m to $12m, driven by $44m net proceeds from the sale of three hotels in the Americas region. There was an overall decrease in purchases of property, plant and equipment and intangible assets of $24m. Deferred consideration paid of $13m related to the acquisition of the Regent brand (2020: $nil). The Group had committed contractual capital expenditure of $17m at 31 December 2021 (2020: $19m).

Cash used in financing activities

Net cash outflows from financing activities totalled $860m (2020: $1,354m inflow). This was primarily due to the repayment of the £600m commercial paper under the UK Covid Corporate Financing Facility (CCFF).

Adjusted free cash flow

Adjusted free cash flowa was an inflow of $571m, an increase of $542m on 2020, driven by an improvement in operating profit from reportable segmentsa partially offset by related tax payments, coupled with a $137m improvement in working capital as explained below. Exceptional cash costs of $12m decreased by $75m due to lower restructuring expenses and the timing of litigation payments.

Working capital

On the Group statement of financial position, trade and other receivables increased by $60m, from $514m to $574m, primarily due to the significant increase in RevPAR in the fourth quarter compared to 2020. Trade and other payables increased by $108m, from $560m to $668m, primarily due to an increase in bonus accruals compared to prior year. Deferred revenue increased by $44m, from $1,569m to $1,613m, reflecting an increase in the future redeemable points balance related to the loyalty programme.

Net and gross capital expenditure

Net capital expenditurea was a $50m inflow (2020: $67m outflow) and gross capital expenditure was $100m (2020: $148m). Gross capital expenditure comprised: $76m maintenance capex and key money; $5m gross recyclable investments; and $19m System Fund capital investments. Net capital expenditure includes the offset from $58m net disposal proceeds and $91m System Fund depreciation and amortisationb. Our capex guidance is unchanged at around $150m net per annum and up to $350m gross into the medium term.

Net debt

At 31 December 2021, net debta was $1,881m, after favourable foreign exchange and other non-cash adjustments of $24m, and compared to $2,529m at 31 December 2020.

Sources of liquidity

As at 31 December 2021 the Group had total liquidity of $2,655m (31 December 2020: $2,925m), comprising $1,350m of undrawn bank facilities and $1,305m of cash and cash equivalents (net of overdrafts and restricted cash). The reduction in total liquidity from December 2020 is due to the repayment of the £600m CCFF in March 2021, largely offset by the net cash flow before other net debt movements of $592mc.

The Group currently has $2,786m of sterling and euro bonds outstanding. The current bonds mature in November 2022 (£173m), October 2024 (€500m), August 2025 (£300m), August 2026 (£350m), May 2027 (€500m) and October 2028 (£400m). There are currency swaps in place on both the euro bonds, fixing the October 2024 bond at £454m and the May 2027 bond at £436m.

The Group currently has a senior unsecured long-term credit rating of BBB- from Standard and Poor's. In the event this rating was downgraded below BBB- there would be an additional step-up of 125bps payable on the bonds which would result in an additional interest cost of approximately $35m per year.

a. Definitions for non-GAAP measures can be found in the 'Use of non-GAAP measures' section along with reconciliations of these measures to the most directly comparable line items within the Group Financial Statements.

b. Excluding $3m depreciation of right-of-use assets.

c. As shown in Cash Flow Summary on page 4.

The $1,275m revolving syndicated bank facility (the Syndicated Facility) and the $75m revolving bilateral facility (the Bilateral Facility) mature in September 2023. The facilities were undrawn at 31 December 2021. The Syndicated and Bilateral Facilities contain the same terms and two financial covenants: interest cover and a leverage ratio. Covenants are monitored on a 'frozen GAAP' basis excluding the impact of IFRS 16 and are tested at half year and full year on a trailing 12-month basis. The interest cover covenant requires a ratio of Covenant EBITDA to Covenant interest payable above 3.5:1 and the leverage ratio requires Covenant net debt to Covenant EBITDA of below 3.5:1. Covenant EBITDA is calculated (on a frozen GAAP basis) as operating profit before exceptional items, depreciation and amortisation and System Fund revenues and expenses.

These covenants have been amended for test dates in 2022. A minimum liquidity covenant of $400m has been introduced which will be tested at each test date up to and including 31 December 2022. The amended leverage ratio and interest cover covenant test levels for the facilities are as follows:

At 31 December 2021 the leverage ratio was 3.0x and the interest cover ratio was 4.5x. See note 10 in the preliminary Group Financial Statements for further information.

The Group is in compliance with all of the applicable financial covenants in its loan documents, none of which are expected to present a material restriction on funding in the near future.

In the Group's opinion, the available facilities are sufficient for the Group's present liquidity requirements. However, the Group continues to assess its liquidity position and financing options and will take further actions as necessary.

The Group has taken certain actions during 2021 regarding the discontinuation of LIBOR. The Group's main exposure to LIBOR is the underlying reference rate in the Syndicated and Bilateral Facilities. The terms of these agreements will need to be renegotiated to address the discontinuation of LIBOR. The replacement of LIBOR with alternative reference rates is not expected to have a material impact on the Group at this stage.

The Group had net liabilities of $1,474m at 31 December 2021 ($1,849m at 31 December 2020).

Total gross revenue

Total gross revenuea provides a measure of the overall strength of the Group's brands. It comprises total rooms revenue from franchised hotels and total hotel revenue from managed, owned, leased and managed lease hotels and excludes revenue from the System Fund and reimbursement of costs. Other than owned, leased and managed lease hotels, total gross revenue is not revenue attributable to IHG as it is derived from hotels owned by third parties.

Total gross revenue in IHG's system increased by 42.8% (40.5% increase at constant currency) to $19.4bn (70% of 2019 levels), driven by the improvement in trading conditions in many markets, particularly through the second half of 2021.

a. Definitions for non-GAAP measures can be found in the 'Use of non-GAAP measures' section along with reconciliations of these measures to the most directly comparable line items within the Group Financial Statements.

b. Year-on-year percentage movement calculated from source figures to provide better illustration of relative impact of Covid-19 on brands and on fee business and owned, leased and managed lease hotels.

RevPARa movement summary

RevPARa movement at constant exchange rates (CER) vs. actual exchange rates (AER)

Monthly RevPARa (CER)

a. RevPAR is presented on a comparable basis, comprising groupings of hotels that have traded in all months in both years being compared. Comparable hotel groupings will be different for comparisons between 2021 vs 2019, 2021 vs 2020 and 2020 vs 2019. See 'Use of non-GAAP measures' section for further information on the definition of RevPAR.

a. Includes 41 Holiday Inn Resort properties (10,454 rooms) and 28 Holiday Inn Club Vacations properties (8,679 rooms) (2020: 47 Holiday Inn Resort properties (11,446 rooms) and 28 Holiday Inn Club Vacations properties (8,679 rooms)).

b. Includes three open hotels that will be re-branded to voco and one open hotel that will be re-branded to Vignette Collection.

a. Includes 35 Holiday Inn Resort properties (8,219 rooms) (2020: 34 Holiday Inn Resort properties (7,251 rooms)).

b. Includes four Vignette Collection pipeline hotels.

Net system size declined by 0.6% year-on-year. 43,958 rooms (291 hotels) were opened in the year, 11.6% higher than in 2020. 264 hotels (49,667 rooms) left the IHG system in 2021, including 151 Holiday Inn and Crowne Plaza hotels (34,345 rooms) as we concluded our review of these brands. In 2020, 224 hotels (36,919 rooms) left the IHG system, of which 102 hotels (16,655 rooms) related to the termination of the SVC portfolio in the Americas estate.

At the end of 2021, the global pipeline totalled 270,960 rooms (1,797 hotels), a 0.4% decrease of 1,097 rooms (18 hotels), as the increase in signings was more than offset by the strong openings pace out of the pipeline and a normal level of terminations from the pipeline. The IHG pipeline represents hotels where a contract has been signed and the appropriate fees paid.

Group signings increased from 360 hotels in 2020 to 437 hotels, and rooms increased from 56,146 in 2020 to 68,870 rooms, growth of 22.7%. Signings in 2021 included 205 hotels (31,169 rooms) signed for the Holiday Inn Brand Family, almost half of which were contributed by Greater China (89 hotels, 16,260 rooms). Conversions represented 22% of Group signings in 2021, including six for our newest brand, Vignette Collection.

Comparable RevPARb was up 54.0% vs 2020 (down 19.8% vs 2019). The pick-up in demand that began in March continued through the year, benefitting from improved domestic leisure demand, particularly in non-urban and resort locations, as well as an improvement in business demand. Q4 RevPARb was up 79.6% vs 2020 (down 6.5% vs 2019) with occupancy of 60% (down five percentage points relative to 2019 with rate 1% higher than 2019 levels). US Q4 RevPARb was down 4.6% vs 2019 with particular strength during December where RevPAR was up 2.2% vs 2019. Across our US franchised estate, which is weighted to domestic demand in upper midscale hotels, Q4 RevPARb declined by 2% vs 2019. The US managed estate, weighted to upscale and luxury hotels in urban locations, declined by 23% vs 2019.

Revenue from the reportable segmenta increased by $262m (51%) to $774m (a decrease of $266m vs 2019). Operating profit increased by $359m to $537m driven by the increase in revenue and a $96m decrease in operating exceptional charges. Operating profit from the reportable segmenta increased by $263m (89%) to $559m (a decrease of $141m vs 2019).

Fee business revenuea increased by $234m (51%) to $691m. Fee business operating profita increased by $245m (76%) to $568m, benefitting from the improvement in demand, along with the delivery of sustainable fee business cost savings. Operating profit from the reportable segment also included the benefit of $11m payroll tax credits, which relates to the Group corporate office presence in certain countries.

Owned, leased and managed lease revenue increased by $28m to $83m, with comparable RevPARb up 91.6% (down 41.0% vs 2019) leading to an owned, leased and managed leased operating loss of $9m compared to a $27m loss in the prior year. Excluding the results of three owned EVEN hotels which were disposed and retained under franchise contracts in November 2021, and the impact of one leased hotel that exited in December 2020, revenue increased by $34m and operating profit improved by $14m.

a. Definitions for non-GAAP measures can be found in the 'Use of non-GAAP measures' section along with reconciliations of these measures to the most directly comparable line items within the Group Financial Statements.

b. Comparable RevPAR and occupancy include the impact of hotels temporarily closed as a result of Covid-19.

a. Includes 19 Holiday Inn Resort properties (5,334 rooms) and 28 Holiday Inn Club Vacations properties (8,679 rooms) (2020: 22 Holiday Inn Resort properties (6,003 rooms) and 28 Holiday Inn Club Vacations properties (8,679 rooms)).

b. Includes one open hotel that will be re-branded to voco.