INTERCONTINENTAL HOTELS GROUP PLC NEW

Trading and profitability improved in 2024 reflecting the continued growth in travel demand and our increase in net system size. Our efficient operating model resulted in Group adjusted free cash flowa of $655m during 2024 and net debta increased by $510m, after $1,063m of ordinary dividends and the share buyback. The Group’s business model is discussed in more detail on pages 22 to 27.

Looking forward, the Directors have determined that the three-year period to 31 December 2027 is an appropriate period to be covered by the viability statement. The Group’s annual financial planning process builds a three-year plan. This detailed plan takes into consideration the principal risks, the Group’s strategy and current and emerging market conditions. The plan then forms the basis for strategic actions taken across the business and is used as the basis for longer-range planning. The plan is reviewed annually by the Directors. Once approved, the plan is then cascaded to the business and used to set performance metrics and objectives. Performance against those metrics and objectives is regularly reviewed by the Directors.

There are a range of possible planning scenarios over the three-year period considered in this review due to macro uncertainties and geopolitical risks affecting markets in each of our regions. There is sustained uncertainty in the US and Europe as the pace of interest rate cuts may be slower than expected and inflation may rebound and impact travel demand. Other macroeconomic and geopolitical factors are also present heading into 2025, such as the real estate sector challenges in China, the continued tensions in the Middle East, conflict in Ukraine, and new US administration policy uncertainty. In assessing the viability of the Group, the Directors have reviewed a number of scenarios, weighting downside risks that would threaten the business model, future performance, solvency and liquidity of the Group more heavily than opportunities.

Viability scenarios and assumptions In performing the viability analysis, the Directors have considered a ‘Base Case’ which assumes that global RevPAR in 2025 to 2027 continues to grow in line with market expectations in each of our regions. The assumptions applied in the viability assessment are consistent with those used for Group planning purposes, the going concern assessment, for impairment testing and for reviewing recoverability of deferred tax assets (see further detail on page 197). The Directors have also reviewed a ‘Severe Downside Case’ which is based on a severe but plausible scenario equivalent to the market conditions experienced through the 2008/09 global financial crisis. This assumes that the performance during 2025 starts to worsen and then RevPAR decreases significantly by 17% in 2026 and increases by 5% in 2027.

Principal risks

The relative strength and resilience of the IHG business model to severe shocks has been proven by performance through the Covid-19 pandemic, with positive cash flows being generated through one of the most challenging periods of trading in the history of the industry. In assessing the viability of the Group, the Directors have considered the impact of the principal risks as outlined on pages 46 to 51. The discussion on those pages includes a description of why these risks are important to the achievement of our objectives and how the Group manages these risks.

We have considered which principal risks could have the most significant and direct impact to the viability of the Group during the three-year period of assessment and they are shown below, alongside the scenario that is used to model those risks.

most directly comparable line items within the Group Financial Statements can be found on pages 266 to 272.

Viability statement continued

We have considered the potential impact of the Severe Downside Case on our net system size growth. We do not believe a change in system size growth would have a material impact on the Group during the period under review.

We have also considered the principal risks that may impact the viability of the Group over a longer period; for example, the impact of climate related physical and transition risks. The physical and transition climate risks to which IHG is most exposed are discussed in the TCFD statement on pages 68 to 73. Physical risks are not considered material to the long-term viability of the Group, and transition risks present both opportunities and risks. Whilst some transition risks have been assessed as being potentially material to the Group over the next one to five years under a 1.5°C scenario, this scenario is not considered a likely outcome, leading to the probability of a material impact on the Group’s viability assessment through 31 December 2027 as low.

Funding

The Group’s $1,350m revolving credit facility was extended by one year in 2024 and now matures in 2029 (the bank facility).

There are two financial covenants in the bank facility – interest cover and leverage ratio. 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 below 4.0:1. In the event that a covenant test was failed whilst the bank facility was undrawn, the facility could be cancelled by the lenders but would not trigger a repayment demand on the bonds which threatened the viability of the Group. See note 23 to the Group Financial Statements for further details.

Viability assessment At 31 December 2024 the Group had cash and cash equivalents of $1,008m plus an undrawn bank facility of $1,350m. Under the Base Case and Severe Downside Case, the Group is forecast to generate positive free cash flow over the 2025–27 period. The principal risks that could be applicable have been considered and are able to be absorbed within the covenant requirements. Under the Severe Downside Case, there is headroom to the covenants over the 2025–27 period to absorb multiple additional risks; for example, additional RevPAR impacts and a widespread cybersecurity incident. The Directors reviewed a number of actions that could be taken if required to reduce discretionary spend, creating substantial additional headroom to the covenants. The Directors reviewed a reverse stress test scenario to determine what decrease in RevPAR would create a breach of the covenants and the cash reserves that would be available to the Group at that time. The Directors concluded that it was very unlikely that a single risk or combination of the risks considered could create the sustained RevPAR impact required to breach the covenants, except for a significant global event. None of the scenarios modelled indicates that a covenant amendment would be required but, in the event that it was, the Directors believe it is reasonable to expect that such an amendment could be obtained based on experience of negotiating the waivers and amendments during 2020. The Group also has alternative options to manage this risk, including raising additional funding in the capital markets. We continue to plan to maintain an investment-grade credit rating which provides good access to the debt capital markets.

In September 2024 the Group issued a seven-year€750m bond. During the assessment period there is a £300m bond maturing in August 2025, a £350m maturity in August 2026 and a€500m bond maturing in May 2027. It has been assumed that there is an annual bond issuance up to one year in advance of maturities.

Conclusion

The Directors have assessed the viability of the Group over the three-year period to 31 December 2027, taking account of the Group’s current position, the Group’s strategy and the principal risks documented in the Strategic Report. Based on this assessment, the Directors have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period to 31 December 2027.

See also our business model on pages 22 to 27, the going concern assessment on page 197 and the impact of the principal risks on pages 46 to 51.

For and on behalf of the Board

Chief Financial Officer