Preliminary Results for the year to 31 December 2017
|Financial summary1 & Headlines||Reported||Underlying2|
|Total Gross Revenue||$25,702m||$24,479m||5%||$25,942m||$24,479m||6%|
|Total dividend per share||104.0¢||94.0¢||11%|
- Net system size of 798k rooms, up 4.0% (highest organic growth since 2009); 48k rooms added, 17k removed.
- Room signings of 83k, (highest for nine years) takes the pipeline to 244k rooms. ~45% under construction.
- Global comparable RevPAR growth of 2.7%, with 4.0% in Q4.
1All figures before exceptional items unless otherwise noted.
2Excluding owned asset disposals, managed leases and significant liquidated damages at constant FY16 exchange rates (CER). Underlying adjusted EPS based on underlying EBIT, effective tax rate, and reported interest at actual exchange rates. See the Business Review for definition of non-GAAP measures and reconciliation to GAAP measures.
3Group result excluding owned & leased hotels, managed leases and significant liquidated damages.
4After exceptional items.
Keith Barr, Chief Executive of IHG, said:
“We delivered a strong performance in 2017, with RevPAR growth of 2.7% and net system size growth of 4.0%. This has driven an 8% increase in underlying operating profit and a 22% increase in underlying EPS, and underpins our decision to raise the total dividend by 11% for the year.
In recent years, we have built a powerful and effective enterprise which has supported our transition to being fully asset light, and driven strong performance across our 5,300 hotels. Today we are announcing a series of new initiatives that build on our well-established strategy and will drive an acceleration in our growth rate.
These initiatives are focused around redeploying and refocusing resources to leverage our scale; strengthening our loyalty programme; continuing to prioritise digital and technological innovation; enhancing our industry leading franchise proposition; strengthening our existing brands; and adding new brands where we see the greatest potential for growth.
We moved at pace to develop and roll-out the concept for our new mainstream brand, avid hotels. Since September we have signed 75 hotels, with the first due to open later this year and a global launch being planned. Building on this successful approach, we will launch a new upscale conversion brand in 2018, leveraging the power of our system to capture share of this significant premium priced market. We will also build out our development resource and capability in the sizeable global luxury segment, where we are looking to acquire small luxury brand(s) to incubate and grow.
In order for us to capitalise on the opportunities ahead, we are undertaking a comprehensive efficiency programme to realise ~$125m in annual savings for reinvestment to drive growth. This builds on our ongoing work to relentlessly manage costs, which has led to significant margin growth in recent years.
We remain positive in the outlook for the year ahead and we are confident that our ambitious plans will deliver a meaningful change in IHG’s growth and drive industry-leading net rooms growth over the medium term.”
Strategic update – making our model work harder to deliver medium-term industry-leading net rooms growth
- Build and leverage scale
- New organisational design will redeploy resources to leverage our scale better, and to accelerate our growth: a new regional structure, integrated commercial & technology organisation, and a new global marketing organisation.
- Strengthen loyalty programme
- Continue to innovate IHG Rewards Club to further differentiate our offering and to leverage loyalty partnerships.
- Enhance revenue delivery
- Prioritise digital and technological innovation to drive increased direct revenues e.g. Guest Reservation System.
- Evolve owner proposition
- Upweight owner support to accelerate growth; expand our industry-leading franchise offer for Greater China; and evolve the owner proposition and operating model for Kimpton Hotels & Restaurants to further accelerate growth.
- Optimise our preferred portfolio of brands for owners and guests
- Strengthen portfolio of existing brands; continued innovation to drive accelerated growth.
- Augment portfolio with new brands to match identified opportunities: grow avid hotels to a scale position; launch an upscale conversion brand in 2018; build out global luxury brand portfolio, development resource and capability.
- Superior returns for shareholders and owners: focus on driving long term, sustainable growth.
- Targeting ~$125m in annual savings, including system fund, by 2020 for reinvestment to drive growth.
- $200m exceptional cash costs to achieve the savings; $31m in 2017 with the majority of the remainder in 2018.
- Given this investment to drive growth, no additional capital return will be paid in calendar year 2018. IHG’s commitment to return surplus funds to shareholders remains unchanged.
- Ongoing disciplined approach to capital allocation; capex guidance of up to $350m gross per annum unchanged.
- Growth initiatives expected to maintain future fee margin progression broadly in line with long term average (~135bps per annum).
IHG’s New Strategic Initiatives
IHG has consistently executed its clearly defined strategy and has delivered market outperformance over the past 14 years, whilst returning some $13bn to shareholders. To ensure we continue to outperform, we are today announcing a series of strategic initiatives that will enable us to redirect resources and focus on areas where we can enhance our proven business model, to allow us to deliver industry leading net rooms growth.
a) Build and leverage scale
- IHG has designed a new organisational structure, effective 1 January 2018, which redeploys our resources to leverage our scale and to accelerate our growth. There are three main changes:
1. New regional operating structure
- Directing our focus and effort on those markets that matter most, whilst leveraging best practices.
- Americas and Greater China: remain largely unchanged, recognising their importance as IHG’s largest markets with a continued focus on driving profitable system size expansion.
- Americas Regional CEO: Elie Maalouf (US based).
- Greater China Regional CEO: Jolyon Bulley (China based).
- Europe, Middle East, Asia and Africa (EMEAA): new region combining what was previously Europe and AMEA.
- Leveraging scale across 72 countries to share best practice and upweight investment in those markets with highest growth potential.
- Operating as four geographically-focused business units, empowered to deliver locally, whilst leveraging IHG’s global systems and processes.
- Clear focus on driving accelerated growth aligned to the most valuable market opportunities.
- EMEAA Regional CEO: Kenneth Macpherson (UK based).
- Information on IHG’s regions:
|Market Size (rooms revenue)||~$190bn||~$50bn||~$200bn|
|Market Growth to 2025 (rooms revenue)1||~$90bn||~$30bn||~$120bn|
|% of market branded2||65%||58%||42%|
|IHGs share of total market||7%||4%||2%|
|IHGs share of active pipeline||13%||21%||7%|
|% of IHGs system||62%||13%||25%|
|% of IHGs pipeline||45%||29%||26%|
|% of IHGs profit||74%||6%||20%|
|Fee EBIT growth (2014-17)||18%||24%3||11%|
Note: Comparables for 2016 and 2017 reflecting (i) this new regional reporting structure, (ii) the impact of IFRS 15, and (iii) the merger of the managed and franchised and regional cost lines for each region will be provided on 17 April 2018. Paul Edgecliffe-Johnson, CFO, will host a session to discuss these changes at 9.30 GMT the same day. This will be held at Goldman Sachs, Rivercourt, 120 Fleet Street, London, EC4A 2BE. The event will also be webcast live.
2. Integrated Commercial and Technology organisation
- B2B Sales, booking channels, revenue management integrated with technology to maximise revenue delivery.
- Will enable us to increase the speed at which we deploy new products and services.
- Will result in improved efficiency through removal of duplication across functions.
- Chief Commercial & Technology Officer: Eric Pearson (US based).
3. Global Marketing organisation
- Brings together Brands, IHG Rewards Club and Marketing into one global function and strengthens our capabilities in these areas to drive agility and efficiency.
- Creation of three distinct brand categories: mainstream; upscale; and luxury, to improve performance and accelerate growth.
- Leverage shared services to maximise scale benefits and drive more effective marketing.
- Chief Marketing Officer: Claire Bennett (US based).
1Source: STR and IHG estimates; 2Source: STR; 3Excludes a small number of one-off items that contributed approximately $5m to EBIT in 2014 (as previously disclosed)
b) Strengthen Loyalty Programme
- IHG Rewards Club is well positioned as an industry leading loyalty programme:
- 11% increase in members in 2017, up 34% over three years.
- Delivers 42.5% of rooms revenues into our hotels (up 3.5%pts over three years).
- We have taken significant steps to enhance our loyalty offer in recent years:
- 2015: Launched Spire Elite, a new top tier status, which now delivers one-quarter of our loyalty revenue.
- 2016: Launched Your Rate by IHG Rewards Club, our exclusive member pricing initiative. Drove 3.4%pts uplift in direct channel growth and 2.0%pt uplift in retail segment growth in the 12 months after launch.
- 2017: Launched numerous major partnerships e.g. Amazon Kindle, Fuel Rewards, OpenTable and Grubhub.
- Looking ahead we will continue to innovate IHG Rewards Club to create a more personalised and differentiated offering and to further leverage loyalty partnerships.
c) Enhance revenue delivery
- IHG’s revenue delivery enterprise supports 5,300+ hotels across ~100 countries and delivers:
- 76% of room revenues (up 5%pts over three years).
- Digital (web and mobile revenue) is our largest channel and delivers 22% of room revenues, totalling $4.6bn; with mobile the fastest growing component, more than doubling its revenue over 3 years to >$2bn.
- We have piloted IHG Concerto into >225 hotels across all regions:
- Cloud based technology platform incorporating multiple capabilities into a seamless hotel management tool.
- Initial functionality is IHG’s new Guest Reservation System (developed in conjunction with Amadeus) and our proprietary revenue management solutions.
- In the future, it will comprise an entire suite of hotel solutions including property management, sales & catering and point of sale systems.
- On track to complete roll out end of 2018/beginning of 2019.
- We will continue to innovate in the digital and technology space, focusing on initiatives we can scale and which make a meaningful impact to our guests. Recent examples include:
- Mobile check-out: live in >3,000 US hotels. 90% of guests reported an improved checkout experience.
- Alipay Integration: IHG is the first hotel company to have Alipay fully integrated into its app; 70% of our hotels in Greater China can now take payment via Alipay from within the app.
- IHG Connect seamless Wi-Fi logon: Implemented or being installed in >3,000 hotels in the Americas and now scaling for global roll-out. Driving internet Guest Love uplifts of ~5%pts.
d) Evolve owner proposition
- IHG’s enterprise is designed to deliver an industry leading owner proposition; optimising owner returns is at the heart of our strategy:
- High value brands:
- Higher brand awareness and guest satisfaction, lower financing costs, scalable & flexible design solutions, turn-key procurement solutions for effective & efficient build out, design & engineering support.
- Efficient costs of operation:
- Leading operations support, hotel standard operating procedures, IHG Marketplace purchasing platform, industry leading suite of technology solutions, IHG Green Engage online sustainability tool.
- High quality revenue generation:
- Centrally negotiated OTA and travel agent commissions, higher proportion of direct revenues e.g. via Your Rate, online distribution and performance marketing, revenue management for hire, the power of IHG Rewards Club.
- High value brands:
- We are now enhancing and expanding this to unlock further growth:
- Increasing investment in development resources aligned to our focus markets.
- Increased owner support to facilitate faster hotel openings and enhanced owner relationships.
- Greater China: building on the success of Holiday Inn Express Franchise Plus, we have now extended our franchise offer to our Holiday Inn and Crowne Plaza brands in the region. Four agreements to date, including a return to IHG’s system for Holiday Inn Beijing Lido, which opened as our first ever hotel in Greater China in 1984.
- Kimpton Hotels & Restaurants: evolving the owner proposition and operating model to further accelerate growth.
e) Optimise our portfolio of brands for owners and guests
1. Strengthening our existing brands
We have restructured our brand organisation into categories to maximise synergies & efficiencies and to drive performance and we are innovating all of our brands to ensure they stay fresh and relevant and continue to drive growth:
- Mainstream; 551k rooms open (175k pipeline room), delivering $14bn rooms revenue in 2017:
- Holiday Inn: modern, high impact new guest room and public area design; new food & beverage solutions, new brand identity and global marketing campaigns.
- Holiday Inn Express: fresh new guest room design; complete overhaul of breakfast offering; new brand identity and global marketing campaigns.
- Candlewood Suites & Staybridge Suites: comprehensive update to interior design over the next 18 months, increased investment in extended stay marketing.
- Upscale: 129k rooms open (43k pipeline rooms), delivering $4bn rooms revenue in 2017:
- Crowne Plaza: $200m Accelerate programme underway in the Americas to strengthen the brand. Working to transform the guest experience globally with new design features such as Plaza Workspace and WorkLife Room, new service philosophy and new food and beverage standards.
- HUALUXE: the brand has been adapted and evolved to ensure it remains competitive, with less focus on food and beverage. With 7 hotels open and 21 in the pipeline, it is now well positioned for future growth.
- EVEN Hotels: expanding into new markets with the 1st signing of a multi-unit agreement to develop 10-15 hotels across Australia and New Zealand. Greater China brand debut with three signings in 2017.
- Hotel Indigo: expanding its footprint with highest openings for 5 years and accessing new neighbourhood locations, including the first signing for Japan and our fourth for London, located in Leicester Square.
- Luxury: 79k rooms open (20k pipeline rooms), delivering $4bn rooms revenue in 2017:
- InterContinental Hotels & Resorts: rolling out enhanced Club InterContinental Experience; new design style and visual identity guidelines; launched a luxury & lifestyle sales team dedicated to luxury B2B; multi-year global marketing campaign “Live the InterContinental Life” under way.
- Kimpton Hotels & Restaurants: driving global growth – record year for US openings, with 1.3k rooms added. Signings in Greater China and South East Asia, with several further deals in progress which will secure our presence for the brand in ten major markets around the world. Leveraging design and food and beverage best practices into IHG’s network; Kimpton Karma fully integrated into IHG Rewards Club.
2. Augment portfolio with new brands to match identified opportunities
We have grown our brand portfolio to 13 brands, totalling almost 800k rooms, with a further 244k rooms in the pipeline. We are focused on broadening our portfolio of brands with a highly targeted, insight-driven approach to create the optimum mix of brands for both our owners and guests. To do this, we take a rigorous approach to assessing and pursuing the potential for new brand opportunities:
- We aim to tap into high value segments which have significant growth potential.
- We ensure that the opportunity is very attractive for owners; and allows them to add material supply at high ROI.
- We ensure that IHG is advantaged to win in the identified space, and that we are able to drive superior revenue delivery, at a premium price point.
This approach has enabled us to identify new opportunities in each of our brand categories:
- ~$115bn global segment with ~$65bn growth potential to 2025.
- Owners with new build opportunities looking for a streamlined, lower labour cost operating model with low risk, attractive returns and low cost of investment.
- IHG is the clear global leader in the segment, with 16% of existing global market share and 26% of pipeline.
- We launched avid hotels in the US in September 2017 and the results to date are exceeding our expectations:
- 75 signings to date, with first hotel due to open in Oklahoma City in the third quarter of 2018.
- First signings announced in Canada and the brand is also being launched in Mexico.
- Global launch of the brand is now being planned.
- ~$40bn global segment with ~$20bn growth potential to 2025.
- Existing hotel owners looking for access to low cost, high demand revenue delivery systems.
- IHG is advantaged by its industry leading revenue management & reservation solutions, a strong B2B sales offer and powerful loyalty programme.
- We will be launching an upscale conversion brand in 2018; initially focussed on our EMEAA region.
- ~$60bn global segment with ~$35bn growth potential to 2025.
- Owners with existing hotels and new build opportunities looking for a superior product that generates sizeable returns per asset in a superior real estate location.
- We are creating a new “Luxury Division” to better leverage and enhance our heritage and expertise to redefine operational excellence in this segment.
- Significant number of owners wanting to partner with IHG on another luxury brand, at a higher price point.
- We will address this via the acquisition of small, asset light luxury brand(s) which we will incubate and grow.
2017 Results in Detail
Americas – Stronger US RevPAR performance; avid hotels’ momentum accelerates
Comparable RevPAR increased 1.6% (Q4: up 3.5%), driven by 1.2% rate growth. US RevPAR was up 1.2% in the year, with 3.0% growth in the fourth quarter, which included the ongoing benefit from demand in hurricane impacted areas and a small favourable impact from the reversal of calendar shifts from the previous quarter. In the fourth quarter, Canada benefitted from strong corporate and group demand with RevPAR growth of 8.9%; whilst Mexico grew 2.5%, impacted by the previous quarter’s earthquake.
Reported revenue increased 3% (CER 4%) and reported operating profit increased 2% (CER 3%), whilst underlying1 revenue and operating profit were up 4% and 3%, respectively.
Underlying1 franchise operating profit was up 1%, as incremental royalties from RevPAR and net rooms growth were partly offset by a delay in the recognition of an annual payroll tax credit, the impact of the previously disclosed Crowne Plaza Accelerate financial incentives, and the annualisation of our investment in the Americas development team.
Underlying1 managed operating profit was up 11%, but normalising for notional foreign exchange translation impacts in Venezuela, was up 2%. This was driven by 5% rooms growth and lower costs associated with our 20% interest in the InterContinental New York Barclay, offset by lower hotel termination fees and a small performance guarantee payment at one property.
Underlying1 owned revenue and operating profit increased 10% and 21% respectively due to North American inbound business to Holiday Inn Aruba and the ramp up of EVEN Hotels Brooklyn.
Regional overheads benefitted $2m year on year from lower than expected claims in our US healthcare programme (2017: $5m surplus, 2016: $3m surplus).
We opened 22k rooms (190 hotels), our highest level of hotel openings since 2010, with two thirds driven by our Holiday Inn Brand Family. As we continue to focus on a high-quality estate, we removed 12k rooms (86 hotels). We signed 37k rooms (365 hotels), including 16k Holiday Inn Express rooms, up 15% year on year. Momentum for avid hotels continues to be ahead of expectations, with 44 signings during 2017 and our first ground break in Oklahoma City which we expect to open in the third quarter of 2018. Since the end of 2017 we have signed a further 31 deals, including our first in Canada.
We continue to make progress with our $200m Crowne Plaza Accelerate investment plan to refresh the brand and enhance its performance. As previously disclosed, as part of this initiative we are providing financial incentives to owners that have successfully implemented the new brand hallmarks. These reduced fees by $2m in 2017, and in 2018 we expect the negative fee impact to total $7m (incremental $5m).
We expect to recognise the $4m payroll tax credit that was delayed from 2017, in early 2018 (this totalled $6m in 2016 and won’t be repeated past 2018).
We do not expect our US healthcare programme to be in a surplus position again in 2018, which will result in a $5m increase to regional costs year on year.
Europe – Double digit profit growth driven by strong UK RevPAR and recovery in terror impacted markets
Comparable RevPAR increased 6.3% (Q4: up 5.6%) driven by rate up 3.4%. UK RevPAR growth of 4.5% in the year was ahead of the industry, with strong growth in both the Provinces (up 4.6%) and London (up 4.3%). Fourth quarter RevPAR in London was down 1.7%, due to strong comparables and lower US inbound demand. In Germany, RevPAR grew by 2.1% in the year and 1.0% in the fourth quarter due to more normalised trade fair activity relative to 2016. Recovery in markets previously impacted by terror attacks led to RevPAR growth in the year of 7.1% in France and double digit growth in Belgium and Turkey. Strong demand in Southern European markets led to double digit growth in the year.
Reported revenue increased 6% (6% CER) and reported operating profit increased 15% (13% CER).
On an underlying1 basis, revenue increased 10% and operating profit increased 16%, driven by strong trading, 3.0% rooms growth and effective cost control to maintain overheads in line with the prior year.
We opened 5k rooms (26 hotels) and signed 9k rooms (59 hotels), including the 74-room Hotel Indigo Venice – Sant Elena. In Germany, we opened a record 2k rooms (11 hotels), and signed 4k rooms (19 hotels), a fourth consecutive record year.
AMEA – Double digit rooms’ growth; strong trading outside the Middle East
Comparable RevPAR increased 1.5% (Q4: up 2.6%), as occupancy gains of 1.7%pts offset rate declines of 0.9%. Outside of the Middle East, RevPAR was up 4.4%. In Australasia, RevPAR was up 5.8% benefitting from strong domestic travel, whilst South East Asia was up 5.5%, driven by international arrivals in Indonesia and Thailand. Trading conditions in the Middle East remained challenging, with RevPAR down 4.1%.
Total RevPAR declined 3.0% (Q4: down 4.5%) due to the increasing mix of new rooms opening in developing markets.
Reported revenue increased 3% (CER 5%) and reported operating profit increased by 6% (CER 10%).
On an underlying1 basis, revenue was up 5% and operating profit increased 12%, driven by 12.6% rooms growth and a 5% reduction in overheads.
We opened a record 11k rooms (26 hotels) in 2017. This included 3.5k rooms in Makkah, Saudi Arabia, the remaining proportion of the 5k room signing we announced in 2015, expected to generate ~$1m in annualised fees. We signed 13k rooms (63 hotels), including the rebranding of a portfolio of 14 properties (~2k rooms) in India to the Holiday Inn Express brand, and 1k rooms in Australia.
Greater China – Continued industry outperformance; record room openings
Comparable RevPAR increased 6.0% (Q4: up 7.3%) outperforming the Greater China market. In mainland China RevPAR was up 6.6% (Q4: up 6.7%), whilst Hong Kong and Macau were up 2.7% and 11.4%, respectively. RevPAR in mainland tier 1 cities increased 6.9%, benefitting from strong transient, corporate and meeting demand. Tier 2-4 cities benefitted from strong meeting demand and weak comparables in the second half of the year, as RevPAR grew 6.5%, principally driven by occupancy.
As we continued to increase our penetration in higher growth, lower RevPAR cities, full year total RevPAR was up 1.4%.
Reported revenue increased by 8% (CER 9%) and reported operating profit increased by 16% (CER 16%).
Underlying1 revenue increased by 9% and underlying operating profit increased by 16%, driven by strong trading in mainland China and 9% rooms growth as well as robust cost control as we continue to leverage the scale of the operational platform we have built in Greater China.
We opened 11k rooms (43 hotels), a record for the region, bringing total room count above the 100k rooms (>300 hotels) threshold for the first time. Holiday Inn Express also passed a significant milestone, with more than 100 hotels now open. Signings for the year totalled 24k rooms (118 hotels), our highest for the region in ten years.
We continue to see strong demand for our Franchise Plus offer for Holiday Inn Express, with full year signings of 54 hotels. In the fourth quarter, we expanded our franchise offering to include Crowne Plaza and Holiday Inn, and have seen strong owner demand, including the signing of the 433-room Holiday Inn Beijing Lido.
1 Excluding owned asset disposals, managed leases and significant liquidated damages at constant FY16 exchange rates (CER). See the Business Review for definition of non-GAAP measures and reconciliation to GAAP measures.
Highly cash generative business with disciplined approach to cost control and capital allocation
Fee margin growth through strategic cost management
- Group fee margin of 50.4%, increased 1.6%pts (1.4%pts CER) due to our ongoing relentless focus on cost management.
- Growth initiatives expected to maintain future fee margin progression broadly in line with long term average (~135bps per annum).
- Reported central overheads were reduced by $18m, ($15m CER); benefitting from an increase in central revenues and the impact of our cost management programme, including the initial benefits of our group reorganisation.
Strong free cash flow generation fuelling investment
- Free cash flow1 of $516m was broadly flat year on year, after adjusting for $95m received in 2016 on behalf of the system fund from the renegotiation of long term partnership agreements and $31m of exceptional cash costs in 2017 incurred in relation to the group wide efficiency programme (2016 free cash flow: $646m).
- Net capital expenditure1 of $227m (2016: $185m) with $342m gross (2016: $241m). This comprised: $115m maintenance capex and key money; $85m gross recyclable investments; and $142m system funded capital investments; offset by $79m net proceeds from asset recycling and a $36m system fund depreciation and amortisation inflow via working capital.
- Capex guidance unchanged at up to $350m gross, and $150m net, per annum into the medium term.
- $67m outflow relating to the initial system fund surplus spend down, driven by additional investment behind marketing, loyalty and technology. We expect to fully spend the remaining surplus in 2018; with $60m on marketing, loyalty and technology, and the balance included within the exceptional cash costs associated with the efficiency programme.
Efficient balance sheet provides flexibility
- Financial position remains robust, with an on-going commitment to an investment grade credit rating.
- Year-end net debt of $1,851m (including $231m finance lease on InterContinental Boston), up $345m on 2016 as strong free cash flow from operations was offset by: payment of the $404m special dividend in May and $189m in ordinary dividends; $227m net capital expenditure and $117m adverse impact from foreign exchange and other non-cash items. Net debt to EBITDA now stands at 2.1x (LTM).
Dividend growth demonstrates confidence in future growth prospects
- Proposed 10.9% increase in the final dividend to 71.0¢, taking the total dividend for the year up 10.6%, reflecting IHG’s confident outlook.
Cost benefits from the devaluation of sterling against the dollar were offset by revenue impacts of the strong dollar against a number of currencies, increasing reported profit for the year by $2m2.
Currency markets continue to be volatile; if the average exchange rate during January 2018 had existed throughout 2017, 2017 reported profit would have increased by a further $3m (with $2m of that in H1).
A full breakdown of constant currency vs. actual currency RevPAR by region is set out in Appendix 2.
Interest, tax and exceptional items
Net financial expenses of $85m were lower than in 2016 ($87m) due to the impact of the weaker pound on translation of sterling interest expense and a reduction in the average interest rate payable on bond debt following the 2016 refinancing, offset by higher average net debt levels in 2017.
- Effective rate for 2017 was 30% (2016: 30%). The impact of US tax reform is expected to have a mid-to-high single digit percentage point benefit on our Group effective tax rate from 2018 onwards, taking our effective tax rate to the mid to low 20s percentage point range.
- The 2018 full year cash tax rate is expected to be reduced to the high single digit percentage point range due to tax payments made on account in 2017. Although we may see some short-term volatility in the underlying cash tax rate thereafter, we expect the longer-term rate to more closely align with the Group P&L effective tax rate.
Exceptional operating items:
Before tax exceptional items total $4m (credit) and comprise: $73m gain on sale of our interest in Avendra; $15m charge related to the Kimpton integration, $18m of impairment charges related to the Barclay associate which owns InterContinental New York Barclay and $36m of IHG P&L costs incurred in relation to the group wide efficiency programme. The majority of the $116m exceptional tax credit relates to a $108m exceptional tax credit resulting from significant US tax reform, which will be realised in cash terms over a long period from 2018.
1 For definition of non-GAAP measures and reconciliation to GAAP measures see the Business Review.
2 Based on monthly average exchange rates each year with an additional adjustment removing the results from three properties in Venezuela.