Intercontinental Hotels Group is responsible for some 4,300 properties in more than 100 countries, which burdens it with significant logistical challenges -- challenges that it conquers through a combination of technology, local knowledge and global banking partners.
Richard Solomons, IHG's chief financial officer, manages the company's $1.8 billion in revenue. He said one of his team's biggest headaches is moving so-called trapped cash -- capital that cannot be pulled out of a particular corporate entity or country, often because of structural or regulatory issues -- to a centralised account.
But trapped cash is a fact of life at any global businesses, an activity Solomons leaves largely to his treasury team. Instead, he has been focused on a multi-billion dollar programme to extract cash from the company to return to shareholders and reinvest in IHG's brands.
Since 2003, when IHG demerged from Six Continents, the company has sold some $5 billion worth of assets, mostly hotel properties. The proceeds from those sales were returned to shareholders, and the elimination of a large portfolio of self-owned hotels allowed IHG's management to focus on its core business of operating hotels under its Intercontinental, Holiday Inn, and five other brands. This has earned it the description: "an asset-light hotel brand operator", in a recent Citi research report.
"What we've done is go back to our roots of basically branding and operating hotels for third-party owners," said Solomons. "This is where we feel our expertise lies." As part of this homecoming, the company re-engineered its cash management to become more efficient.
Extracting cash
According to Solomons, this process involved maximising banking relationships (which it has with global financial houses such as Citi, HSBC and J.P. Morgan), implementing a new cash management system and communicating throughout the company that it needed to focus on "minimising [daily] cash balances" and using IHG's scale to make the liquidity work for them.
"The big change is actually thinking about [cash] solutions from the top down," he explained. "What our treasury team has been doing is thinking about what's right for the group as a whole -- how we maximise the cash and minimise trapped cash."
Rethinking its cash management strategy alone was not enough for IHG. During the past 18 months, the company has had to respond to a global decline in demand and make a significant reinvestment in its Holiday Inn brand. In fact, Solomons visited Hong Kong to discuss the group's refresh of the venerable brand, a nearly $1.1 billion project (property owners shouldered the bulk of this cost) that involved updates to all 3,300 Holiday Inns worldwide. Additionally, IHG is opening more than one hotel a day and has some 200,000 new rooms in the pipeline.
Benchmarking has been used to pull cash out of the business to fund these reinvestment and expansion projects. "When you run as many hotels as we do, you can benchmark very effectively," said Solomons. "We have quite a sophisticated financial reporting database with both financial and operations numbers. An individual hotel controller can go into the system and pull-out the four or five most comparable hotels in the world and look at specific cost and financial parameters to see where they are."
He explained that from these reports, controllers can see exactly how much cash they should keep overnight in their hotel and how much should be pooled into group accounts.
Solomons referenced IHG's self-owned properties as an example of benchmarking. "We own the Intercontinentals in Hong Kong, New York, London, Paris and Boston, and we took those big five and we did a very specific benchmarking exercise right through the P&L [profit and loss account]," he said. "What we've seen is some significant savings of multiple hundreds-of-thousands-of-dollars pulled out of each of the hotels simply through looking at best practices across the properties."
"We found that one of the hotels had double the cost of linens than the others," continued Solomons. "It may sound small but when you think that a hotel may have 500 rooms and if it's full, multiply that across a year then you're talking about significant dollars."
He said benchmarking has allowed the group to win back a significant portion of the revenue lost as a result of lower demand this year.
"Benchmarking is as much an art as a science," said Solomons. "Every hotel and every region is different, so it's quite a skill for the finance guys to take the data out of those benchmark reports and turn it into actions."
In addition to the skill, technology has played a big part in the success of IHG's benchmarking exercise. A robust company intranet allows employees to access various reports and daily updates on financial performance and helps Solomons and his team disseminate their cash management mantra globally. Solomons even has a blog.
"The finance homepage of the IHG intranet is one of the most visited," he said. "We use the intranet a lot to share information and communicate across the world."
No shame
Benchmarking is a relatively generic treasury solution. Any company with more than one location -- be it a factory, hotel property or representative office -- can compare costs and look for best practices. Indeed, Philip Morris International expounded the benefits of sharing best practices between offices in this column just a few months ago.
When asked what other finance executives could learn from his experience as CFO, Solomons said: "There's only so much you can do by looking inwardly at what you do yourself. We spend a lot of time looking in at ourselves and driving best practice in the company, but in order to become one of the best companies in the world even we have to look out at the best players."
"Never be afraid of learning and stealing with pride from other companies who have done it before you and done it better," he concluded.
Whether it was learning from internal practices or looking outside, IHG has very successfully transformed itself into a leading brand operator. Citi research considers its business model one of the best in the sector.
As parting words, Solomons added: "You can't predict what kind of economic environment we're going to be in but the job of treasury is to make sure the business is never hobbled because you don't have the financial strength to do what you need to do."
This article first appeared in the Cash Management Supplement that was published together with the November issue of FinanceAsia magazine.
