IHG internal Analysis 1190075 2103949661 PDF

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Coursework Header Sheet

220924-625

Course

FINA1035: Strategic Financial Mgt

Course School/Level

B/UG

Coursework

Report

Assessment Weight

45.00%

Dr.Muhammad Aiman

Submission Deadline

Tutor

Coursework is receipted on the understanding that it is the student's own work and that it has not, in whole or part, been presented elsewhere for assessment. Where material has been used from other sources it has been properly acknowledged in accordance with the University's Regulations regarding Cheating and Plagiarism.

000652920

Tutor's comments

04/12/2020

Grade Awarded___________

For Office Use Only__________

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Date _______________ 0006529208

Strategic Financial Management Report: IHG (Intercontinental Hotel Group)

Part 1: Internal Analysis By Bhaalminder Singh Word Count: 2751 Tutor: Dr.Muhammad Aiman

page Introduction…………………………………………………………………………………………………………. current issues …………………………………………………………………………………………… Geographical locations and SBU ………………………………………………………………… financial analysis…………………………………………………………………………………………………… profitability analysis……………………………………………………………………………………… efficiency ratios…………………………………………………………………………………………... liquidity ratios………………………………………………………………………………………………. solvency ratios……………………………………………………………………………………………… cash flow analysis………………………………………………………………………………………. investors perspectives………………………………………………………………………………… key performances indicators (2015-2019) …………………………………………………….. segmentation analysis (2015-2019) …………………………………………………………….. competitor analysis……………………………………………………………………………………. operations…………………………………………………………………………………………………………… business model…………………………………………………………………………………………... value chain………………………………………………………………………………………………… primary activities………………………………………………………………………………………. strength and weakness…………………………………………………………………………….. HRM analysis………………………………………………………………………………………………………………. references…………………………………………………………………………………………………………………….

Pages 2 2 -3 3 3 3-4 5 5 6 6 6-7 7-8 8-10 10 11 11-12 12 12-13 13 14 14-16

Introduction IHG (intercontinental hotel; group) was initially founded as brass brewery ,traced back 1717,was founded in 2003 initially from splitting from its parent company,6 continentals into 2 companies in which whereby its intended brewery business being sold to Mitchell and butlers PLC, leaving the company to focus solely on its hotel industry, the company also has variousness brand, including world famous Holiday Inn which was ( founded by Kemmons Wilson in 1952 and was famous in 60s and 70s till its collapsed ever since the company was renamed to holiday cooperation prior to Kemmons Wilsons resignation) today the company boasts around 5900 hotels 883,0001 rooms around the world, company is facing substantial challenges from COVID-19 19 pandemic ,in which the company undergoes liquidation $2 billion of loan1, in which $1.35 billion was taken from revolving credit facilities (RCF), extended in maturity up to 18 months while the balance taken as an initiative from the UK government COVID-19 Corporate Financing Facility (CCFF) which also entails to IHG boards decision to differed its dividends payments ,being announce in previous year,in ensuring business says afloat as going concerned amid from the pandemic in covering losses incurred that sees decline of occupancy global (REVPER) 52% and 75%2 in in first 2 quarters of 2020.

Current issues   

Poor security systems and data management services regarding with compliances with applicable federal and state data Ongoing litigation cases in regards with InterContinental Pension Withdrawal. The company ongoing liquidations problems and efforts in retaining staffs and shareholders returns arise from uncertain times

Geographical locations and SBU’s

SBU’s Franchising business activities Managed owned business Leasing business

Geographical Segments US, and EMEAA Greater China region EMEA

Financial analysis

Profitability analysis -gross profit margin has increased between the years 2015 to 2016 by 7.42% and this rise of results is entirely accompanied with the shareholders sentiments on profitability, however the growth remains close to unchanged over the years 2017 and experiences tremendous growth during the years 2018 and 2019 in which whereby approximately 24.05% and 7.90% respectively which is entirely due to  



Substantial costs efficiency techniques implemented in the regions of AMEA and Greater China management’s efficient ability in managing substantial costs being implemented in various regions primarily in the regions of EMEAA and Greater China suggesting that there’s lower operational costs in this region 3 Due to some substantial improvisation in its hotels management wise accompanied with low staff’s turnover

-Operating profit margin has increased marginally by 3.52% to 43.05% in the years span 2016 and 2017 4 perspective wise, the group did experience significant loss 4.96% Forbes explain why IHG, which includes Intercontinental, Holiday Inn, Crowne Plaza and Kimpton, has switched to a 24 hour cancellation policy which lead to substantial rise of costs .coupled with the implementation of new us tax reforms and substantial costs incurred in transitioning to the standards5 ,but however the company did experiences a slight, if not significant growth in the following years 2017 and 2018 respectively whereby the operating margin grew from 38.08% to 45.69% which is due to the substantial segmentation growth primarily from Greater china ,the fall on operating costs a by 43.6% In years 2015 and 2016 respectively suggested a substantial rise of creditors accompanied by the inability of its respective management in backtracking its debtors amount which entail lead to its substantial amount constituting to receivables aging lists. And accompanied by rise up to 13.48% from subsequent 3 years, suggesting a proactive measurement being undertaken in maintaining its operational costs

GP margin movements (%)

2016

2017

2018

2019

NP margins movements (%) net profit marrgin(5)

120 100 80 60 40 20 0 2015

100 80 60 40 20 0 2015

2016

years span

2017

2018

2019

years span

3) see the appendices of financial information and calculations of these companies, stated in calculations of these companies

4) this is drop however did maintain substaintial rise of industry average, hence showing good converting of sales into profits which is much based on its reporting period 5) sources: https://www.forbes.com/sites/michaelgoldstein/2017/08/07/as-ihg-says-me-too-tocancellation-penalties-how-travelers-can-fight-back/?sh=3cdd45776666\

Efficiency ratio -debtors’ collection turnover period: has increased from 94 days in year 2015 to 100 days in the year 2016 and increased substantially rise up to 65 in days during years span 2017-2019 which is accompanied by increased in debtors aging list in which whereby the management face substantial failure in backtracking in receivables collection turnover.

-creditors payable turnover period: has increased exponentially by 261 days between the years of 2015(94 days) to 2017(112 days),with longest behind being held on 2017(459 days),which is deemed to be contributed by the companies lack of awareness in managing business wise as going concern ,couple with substantial rise of bad debts arise with the obligations undue from its large network of suppliers, however the ratios steadily improved on the years 2018(382 days) and 2019(262 days) this demonstrated the companies proactive in mitigating its short term obligations which is accompanied by the its management policies in reducing its reliance’s on its debts obligations6

-Inventory turnover period: remained consistent over the course of 5 years span



The core reasonings behind such amount is entirely due to the absences on stocks amount, primarily on in food and beverages and toiletry items, as these items is being replaced in time to time as efforts in maintaining customers quality standards.

Liquidity ratio -current ratio: sees a significant decline by 0.48 times in years 2015 and 2016 respectively,2017 saw a decreased to 0.64 times which is entirely due company’s capital structure wise in regards with companies policy ,however the ratios shows substantial improvements in the years of 2018(1.00 times) and 2019(1.15 times) which is generally being contributed by substantial changes in the capital structure in which whereby it ensures that company is not entirely dependent on its long term obligations6 as it provides new alternate to oversee its capital structure with the likes of undertaking light assets model accompanied which substantially lead to better projections, way ahead than its the average industry projections (1.0) -Quick ratio: the projection of quick ratios is somewhat similar as the current ratio, the amounts experiences decline from year 2015(1.17) to years 2016(0.69), and quick ratios projections experiences slight decline by 7% from the years 2016 to 2017, however, it experiences subsequent increase by 44.34% in the years 2018 and 2019 which all but certain, that the current quick ratio indicated good financial health ,in which whereby exceed the industrial average (1.0 times). Solvency ratios Gearing ratios-have been increasing from 91.32% in the years 2015 to 96.48%-year 2017, however experiences significant decrease of 39.16%in year 2017 to 57.32% I year 2019, and the these are consistently placed above the industrial averages -interest cover plummeted from the years 2015(16.22) to years 2017(7.98) which is entirely being reflected from the managements consistent intake on debts instruments ,however the values being increase in year 2018 to (5.44 ) which whereby is facilitated by managements dependency on its debts instruments, the interest cover however shows and increase to (7.69 times) in year 2019 which is whereby signifies improvements of company in paying its interests on time.

Cash flow analysis -cash flow projections shows a decline form $1098 million to year 2017 $58 million in which whereby funds is being channelize in meeting its substantial short term obligations and accrued liabilities, however the cash flow projections steadily improved in the year 2018 whereby the company gain substantial amount of $600milion in years 2018,which whereby such significant amount is arise from due to the disposals6 of sales intercontinental hotel in Hong Kong to Supreme key limited in which the company will retain 37 years of management contract with the Hong Kong Consortium firm. The cash flow however decreases on the year 2019 to $108 million .

_____________________________________

6 )sources: Reuters IHG agrees $938 million sale of InterContinental Hong Kong https://www.reuters.com/article/us-intercontinental-asset-sale-idUSKCN0PK0U220150710

investors ratio the market price of share has increase exponentially by 38.51% for years $ 43.55 2015 to $ 70.60 2018 which is contributed by the companies readily expansions throughout the US and Greater China region, together with the company’s policy in managing the consistent rise of its dividend has lead the investors confidences towards the company’s prospects in the near future, the earnings per share (EPS) experiences tremendous growth by 42.73% from the years 2015 172.7 cents to the years 2018 to 289.1 cents which is significantly above than Hilton hotels group, and this is entirely being reflected by the companies substantial expansions in variousness parts of world with companies continues policies in shareholder returns wise has lead substantial rise of shareholders confidences on the companies continues projection, and the amounts has steadily increasing by 4.14% in the year 2019 to 301.6 cents.

However, the dividend cover has shown some good signs whereby the company experiences some massive jump from 2.97 in year 2015 to 3.7 in years 2018. This is entirely due to companies greater management capital structure wise whereby the companies are dependent on the use light owned assets and the management have some lesser reliance’s on the debt structure and obligations ,however the dividend cover did experience a slump to 3.1 in the year 2019 In which whereby the results well placed above the industrial average but this projections however doesn’t take consideration7 on imminent cancellation of dividends made by the group in the year 2020 amid from uncertainly arise due to the COVID-19 pandemic which whereby affects the business performances significantly .

P/E projections charts againts IA 30 25 20 15 10 5 0 2015

2016 P/E projections

2017

2018

2019

P/E Projection (IA)

_______________________________________________________________________________________________________

7) see ihg cancellation of its dividend policy https://www.investorschronicle.co.uk/companynews/2020/03/20/ihg-cancels-dividend-and-cuts-executive-pay/

Key Performances indicators (KPI’S being set on 2015)

Kpi (target)

2013(actual)

Kpi being achieved?

Fees margin

1.6%

No

Employment engagement survey awards

2.6%

NO

Participation of people in IHG academy (target being set on (30,00040,000)

1,215

NO

Carbon reduction of guests’ rooms as part of green engage policy

Reduction of carbon footprint to 10.00KgCO2 ea.

NO

Segmentation analysis for 2020 for the year 2020

IHG face substantial losses amid from COVID-19 ,as the comparable REVPER have decreased to $47.6 and $71.2 in respective quarters8 driven by the low level of occupancy amounting to 41%,reportable revenue for America region has decreased by 50% to $ 262 million in and exchange rate loses from constant rate exchange(CER) by 49%9,the reportable operating profit has reduced up 56% to $153 million in which most of these losses incurred in CER(constant exchange rate). whereas for EMEAA region, the revenue per availability room (REVPAR) decreased by 54% in the second quarter10 in which whereby sees substantial decline of occupancy rate to 90% which arise from government mandated decisions in measurements to curb COVID-19 11, in UK regions ,the REVPAR was down to 67% with travel restrictions being imposed on both local and foreign tourists, the middle east region was down to 46% which is entirely being impacted by reliance of travel posed by the political disputes ,while the REVPAR of Australia and Japan was down to 48% and 46% respectively ,while comparable REVPAR in Greater China amounted to be at 36% with occupancy rate is down to 50% comparable level 12.

Following from this substantial loss incurred in maintaining segmentation regions across the country’s region, have led the entity to undertake liquidation fund $2 billion funds13 in efforts on sustaining its business operations across the respective segmentation regions In which whereby $1.35 billion funds is obtain from revolving credit funds(RCF) whereby maturity period is extended to 18 months while receiving $ 600 million in which could maximize up to $740milion under UK Government Cooperate Financing (U.G.C.F) to managed its business and recovery attempts in regulating the business operations in which the was lost initially due to the pandemic.

The following are the segmentation reports of IHG Group(2015-2019) In millions $

2015

2916

2017

2018

2019

955

993

1025

1051

1040

REVENUE U.S

EUROPE (EUROPE AND AMEA 2018 onwards)

265

227

241

AMEA

241

237

244

GREATER CHINA

207

117

CENTRAL REGION

135

141

569

723

126

143

135

148

170

185

*with effect of 1 January 2018,IHG group have amended its respective accounting treatments in attempts of transitioning towards new standards such as IFRS 9(financial Instruments),IFRIC 23(uncertainties surrounding environmental tax laws),and amendments of Lease from IAS 17 to IFRS 16 lead to internal reorganizations resulted into formation of new operational segments whereby group operational segments is categorized into 3 segments such as Greater China, Europe and Africa, Asia and middle east and Greater China segment and its managed by its respective chief

operational profit ($milions)

executive directors across the regions.

operational profit by regions 1000 800 600 400 200 0 -200 -400

2015

2016

2017

years AMERICA CHINA

ERUOPE CENTRAL

AMEA

SEGMENTS

Sales growth

Sales growth

2018(%)

2019(%)

AMERICA

2.47%

-5.43%

EMEAA

57.64%

21.40%

GREATER

11.89%

(5.59%

CHINA

____________________ 8) see stock exchange announcement https://www.ihgplc.com/-/media/ihg/files/results/2020/h12020/stock-exchange-announcement.pdf 9) see IHG Hotels April – June 2020 Performance Update https://loyaltylobby.com/2020/06/30/ihg-hotelsapril-june-2020-performance-update 10 see Holiday Inn hotel group revenue falls as Covid-19 keeps people at home https://www.theguardian.com/business/2020/oct/23/holiday-inn-hotel-group-sees-revenue-fall-as-covid-19keeps-people-at-home 11) Updated projections of COVID-19 in the EU/EEA and the UK https://www.ecdc.europa.eu/en/publications-data/covid19-updated-projections-november-2020 12) see IHG's Greater China RevPAR drops 62% in half year https://www.chinatravelnews.com/article/139812

13) see international IHG hotel groups performances published by stock exchange https://www.ihgplc.com/-/media/ihg/files/results/2020/q12020/q1-2020-stock-exchange-announcement.pdf

Competitor analysis segment Competitors

Vs Intercontinental hotel groups (IHG)

Hilton hotel group

Hilton hotel to rolled out 1,000 hotels in

mainland china in which whereby makes up to 4.5% of global revenue Hyatt hotel group

Plans to open up102 new hotels In Greater China in which whereby heading its production phase which lead entities establishment of 100 hotels in the pipeline in year 2020, and plans to launch its first localized Chinese hotel UrCove in attracting local middle-class people which were left unappreciated which would prose treat to Hualuxe in years to come

company

Region

Revenue ($m)

Ihg hotels

Greater china

$135 million

Hyatt hotel group

U.S region

$200 million

Operations analysis

The fundamentals Business model of IHG builds on 3 pillars:

Owned, leased and managed leased hotels

Franchising

Managed hotels

S u p p o r t a c t i v i t i e s

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