InterContinental Hotels Group plc (IHG) is a British multinational FTSE-100 company headquartered in the UK. It is the largest of its kind in the world, measured by the number of rooms (with 687,000 as of December 2013). It has almost 4,700 hotels operating under some of the world’s most recognisable brands located in more than 100 countries and territories worldwide. IHG was incorporated in 2003 as the culmination of a number of mergers and acquisitions over many years. The oldest line in the family tree can be traced back to 1777, as part of the British Bass Brewery concern. IHG reported revenues of $1.9 billion in 2013, generating a net income of $374m.
From Argentina to Zambia, the chances of finding restful slumber in an IHG hotel are pretty high. The company is the largest hotels group in the world and owns some of the most recognisable hospitality industry brands on the planet including InterContinental, Crowne Plaza, Holiday Inn and Holiday Inn Express. However, real estate is not part of its strategy; by far the bulk of the business comes from its franchise operation, accounting for 3,977 hotels, with a further 711 managed by the company but separately owned, with less than ten under direct ownership.
As might be expected with a business spread far and wide, treasury operations play a vital role in maintaining the group’s day-to-day financial momentum.
The UK-based role of Treasury Manager is one that Belgian-born Bert Heirbaut has been working towards since joining the firm back in 2004 as Credit Collections Supervisor. Having realised at an early age that he had an aptitude for numerical analysis as well as the celebrated linguistic skills of a native of the low-countries, he studied modern languages and business administration at university before embarking on an early career located in the port of Antwerp as a Cost Price Accountant for Belgian logistics firm, Hessenatie. But having moved on as a Senior Collector covering Northern Europe, it was his language skills that brought him to England as Accounts Receivable Team Leader for EDS, a role he held for a couple of years before IHG offered him the collections role, the firm having moved its Business Service Centre from Brussels to the UK (the operational side of the Service Team has since moved to India).
“It’s all about understanding and planning so we can move forward as a group rather than getting frustrated on your own. It is team work,”
Having risen up through the ranks, first as a Cash Management Specialist, as a link between the service centre and the group treasury team, then as a Treasury Analyst, he now reports directly to the Group Treasurer as part of a six-strong front office treasury team. This department operates as an in-house bank for the group, with responsibility for the likes of pooling arrangements, bank balances, funding and surplus cash investments and redemptions, FX and credit analysis. The treasury team is also home to a separate Treasury Manager for the Americas, given the importance to IHG of cash management on the ground in that market. A Director of Treasury Projects rounds out the team, a role that is currently overseeing IHG’s SWIFT implementation plans (which amongst other benefits will help it rationalise its banking relationships from a cash management perspective).
Over the years the emphasis has shifted towards cash management as the whole business has assumed a leaner ‘asset light’ model, with little in the way of a real estate portfolio on its books (a profile subsequently adopted by many of its competitors). With the change to this strategic model having largely taken place prior to the onset of the economic crisis, IHG went into the worst of times, already a lean operation. The breadth of knowledge and professionalism of its staff has contributed significantly to its well-being in a very competitive market and whilst Heirbaut takes on much of the operational treasury function he also continues his responsibilities as the Treasury Manager with a Treasury Analyst and a Treasury Dealer under his guidance.
The treasury function also assumes much of the work required to keep up to speed with regulatory change in current and new jurisdictions covered by the group. The group’s recent opening of a managed contract hotel in Nigeria has seen it set up a new subsidiary in the country; Heirbaut’s office now needs to keep abreast of regulatory issues that could impact treasury, such as any exchange rules and currency controls.
Keeping both eyes wide open
Maintaining a broad remit is something that Heirbaut has carried with him from the start of his career. The path he has taken has exposed him to a variety of functions and he believes this has benefitted his time at IHG, being able to understand the roots of the day-to-day operational and regulatory processes that underpin cash management and treasury in general, and indeed the impact upon and needs of his colleagues who fulfil those roles.
This level of awareness is encouraged by IHG: of the six individuals in treasury, four have risen up from its service centre. Not only does such awareness help to secure the buy-in of people at the sharp end, says Heirbaut, but it also shows that IHG supports its employees and that it is beneficial to have people who understand detailed processes and can build on that experience “to make changes for the better”.
Heirbaut still gets involved in daily operations including executing FX deals. “Senior professionals need to understand what the impact of their decisions is downstream; it is important to go back to the floor to keep in touch with what is happening there,” he explains.
That level of involvement extends upstream too. All major treasury projects that impact upon the group, such as the SWIFT implementation, are necessarily scrutinised by the Board and if there is any significant capital outlay the Capital Committee will need to be involved. Heirbaut says a good relationship exists with the CFO and with the legal team which tends to mean “surprises” are few and far between. “People are very much aware of what is happening so it is just a matter of finding the time and getting the priority right.”
Knowing how other professionals’ time is likely to be absorbed, and when they are most under pressure, ensures that the relationship is kept on an even keel. “It’s all about understanding and planning so we can move forward as a group rather than getting frustrated on your own. It is team work,” says Heirbaut, adding that this was never more important than during the financial crisis.
“Senior professionals need to understand what the impact of their decisions is downstream; it is important to go back to the floor to keep in touch with what is happening there.”
That said, the instability of the markets since 2008 has been managed to a degree by IHG’s pre-crisis ‘asset-light’ restructuring programme. With franchisees and managed estates taking on the real estate element of the business and assuming that risk, IHG was (and is) free to concentrate on providing the framework for the model’s success.
IHG has historically adopted a “conservative” approach to risk. Interest rates on debt currently are 100% fixed, taking advantage of the current low interest rate environment. “There are no surprises,” comments Heirbaut.
In terms of managing FX volatility, IHG reports in USD and the majority of its operating profit is denominated in USD (about 2,500 hotels in the group are based in the US) or USD-pegged currencies, so FX translation exposures have historically not been a material risk. From a transactional FX perspective, IHG has sold 191 hotels since demerger in 2003 for a total of $6.2 billion. IHG hedged the proceeds whenever required. The group also returned over $9.5 billion, including $1.6 billion ordinary dividends, to shareholders in its ten-year existence as a standalone hotel company announcing dividends in USD whilst paying the majority in GBP, and again IHG’s treasury ensured this risk was managed appropriately.
“There is always something new happening – banks providing new products, new regulations coming in – you just have to keep your finger on the pulse, work out what it means for the company and then apply solutions for the better.”
Counterparty risk has received a bigger focus since the economic downturn. With money market fund regulations currently “up in the air” and Basel III liquidity ratios limiting bank appetite for short-term deposits, treasury had to revisit its exposure policy. As a result, IHG has a new two-level approach to counterparty risk mitigation. Firstly, treasury can invest on a sliding scale with its relationship banks according to their external rating (it already apportions share of the corporate wallet according to commitment to IHG’s syndicated facility). Secondly, Heirbaut applies six different risk measures to these banks: tier one capital; long- and short-term rating; market capitalisation; share-price volatility; and CDS levels. “We are now monitoring our counterparties on a day-to-day basis and the six measures work as a traffic light,” he says. A breach of each measure gives a ‘red light’ and depending on how many are triggered may see closer investigation of the bank, cessation of trading or, as a final measure, the closing out of all trades.
The hospitality industry is also subject to unpredictable global elements such as weather, travel trends, natural disasters and political upheaval. “Because of the diversification of our location – we are in just over 100 different countries and territories – there is always somewhere where there might be an issue and as a company we are always concerned about those jurisdictions in terms of the impact on revenues,” says Heirbaut. But because of its diversification of location it also has something of a natural hedge against such impacts because as one territory falls another rises, acting as a counterbalance. The same effect applies in terms of seasonality; it is always peak season somewhere!
Alongside day-to-day treasury ops and monitoring constant regulatory change (and implementing IHG’s treasury response) the team is also about half way through the group’s three-to-five year cash management roadmap. Inter-company processes are one item on the agenda with plans afoot to facilitate payments-on-behalf-of (POBO) and receivables-on-behalf-of (ROBO) solutions. These are particularly relevant for tackling the regulatory diversity and complexity of the Asian markets because they help consolidate transactions and underlying cash flows in a single bank account structure. All these projects will have the knock-on effect of streamlining and rationalising bank accounts and relationships.
The thrill of the new
The constant quest for improvement, whether incremental or entirely new, is one of the most enjoyable aspects of the job for Heirbaut. “There is always something new happening – banks providing new products, new regulations coming in – you just have to keep your finger on the pulse, work out what it means for the company and then apply solutions for the better.”
“The hospitality industry is also subject to unpredictable global elements such as weather, travel trends, natural disasters and political upheaval.”
Heirbaut says he is very happy in his role and enjoys the challenge and the freedom it offers. The pleasure he derives from making new international contacts keeps him motivated and seeking out new opportunities. For anyone seeking a career in treasury he advises them to be inquisitive and to keep on top of the changes. “Once you are in the role, make sure you understand your business and all the processes in detail, and keep talking to people; there is always someone who knows the answer. Use your relationships with the banks because they have a lot of product specialists. It’s all about finding the right people, asking the right questions and understanding the impact.”
As part of a major global hospitality group with hotels in some of the finest locations anywhere, Heirbaut has but one destination in mind when the offer of an all-expenses paid trip comes through: he’ll be in Brazil watching Belgium win the 2014 FIFA World Cup. “Even treasurers have dreams!”