Three weeks after 9/11 is a hell of a time to take on a new job in finance. And it’s a dreadful time to try to pull off a major corporate restructuring. When all this is happening in the hotel industry with its prospects possibly obliterated by an act of terrorism, it’s certainly a baptism of fire.

And so it was for Richard Solomons on 1 October 2001. Then a newly-appointed divisional finance director within Six Continents plc, Solomons had been given the task of heading up the demerger of the InterContinental Hotels and Britvic drinks business from the Bass pubs business. ‘It was great timing,’ he says. ‘We tore up the budget and started again.’

At that time, Solomons’ role was ‘to try to make sure we got the best possible terms in the demerger for the hotel business and, frankly, to try to keep all the hassles away from my operations colleagues so that they could get on with running the business,’ he says.

Solomons had previous experience in doing these sorts of deals, which clearly helped. Though he had been finance director of Britvic for just over two years, he had spent seven years in investment banking with Hill Samuel in London and New York after qualifying with KPMG.

But, as he admits, ‘From the inside it is always very different from advising from the outside. It is a very complex exercise. In hindsight, it was fun.’

But could it really have been that much fun at the time? Either way, the process was finally completed in April 2003 when IHG listed on the London and New York stock markets, at which point Solomons got the group finance director job.

Two years later, the company sold Britvic and became a pure hotel play ­ with almost no hotels. ‘We were changing the business model and going back to our core strengths,’ Solomons explains. The company divested itself of most of its bricks and mortar ­ about £3bn-worth. ‘We had 200 hotels when we demerged and now we are down to 18,’ he says. The IHG business model is now based on a combination of ownership, management and franchising ­ the last accounting for more than three quarters of the group’s hotel rooms last year. ‘It’s much more resilient, much less volatile than owning hotels because you are taking a share of revenue most of the time, as opposed to the whole P&L.’

From the 3,400 franchised hotels - trading under a number of brands including Holiday Inn, Holiday Inn Express, Crowne Plaza and InterContinental with around 450,000 rooms ­ IHG earns 5% of room revenue. It also charges hotels for services such as marketing, reservations and running Priority Club Rewards, its loyalty programme.

‘In total, those assessments come to more than $800m a year,’ he says (the company reports in sterling, but dollars feature a lot in the statistics Solomons cites). ‘They are off P&L because they are effectively funds we invest on behalf of the brand and the owners. So all of our marketing is paid for in that way.

‘We are generating sums getting on for $1bn a year from our system of hotels, which enables us to spend on marketing ­ internet, websites, frequency programme ­ in a way that a small brand or somebody not part of a big brand family just couldn’t compete with.’

IHG also manages 546 hotel properties, of which it takes a percentage of total revenue and a share of the profits. It only fully owns around 18 properties, including the InterContinental Park Lane. IHG, therefore, gets the commercial benefit of having almost 4,000 hotels and 600,000 rooms in its network, without the balance sheet burden of owning them all. So how big would the company be if it did own all its hotels?

‘It is a near-impossible calculation to do,’ says Solomons, but he points in the direction of some P&L information. ‘In the first quarter of this year, we talk about total gross revenue of £2.2bn; that is effectively the revenues on which we charge fees. Our reported revenue in the quarter was £226m.’

So the revenue that goes through the hotel network is around ten times as much as goes through IHG’s own accounts. The balance sheet of an ‘all-owned’ hotel business would be proportionately even bigger. With around 600,000 rooms, IHG would have a balance sheet laden with ‘tens of billions of pounds’ of hotels. As Solomons points out: ‘You couldn’t possibly build, manage, run, staff and maintain that number of hotels, so [franchising] enables you to drive at a scale way above what you ever could if you owned them.’

The franchise arrangement, therefore, gives IHG a stake in far more hotels than it could possibly afford, hence it has a balance sheet that is almost anorexic ­ net assets of just £49m ­ given the P&L it supports. Moreover, with the hotel disposal programme and the divestment of Britvic via an IPO, IHG has handed back £3.6bn in a series of special dividends, capital returns and buy-backs. ‘And that gave us control over what we do, which we needed,’ says Solomons.

IHG’s current major undertaking is the $1bn rebranding and relaunch of Holiday Inn, just $60m of which is being invested by IHG. ‘It was important for us to show our commitment to the brand,’ he says.

As FD, Solomons has all the traditional roles to play ­ reporting, tax, treasury, investor relations, strategy ­ but he also looks after ‘global owner relations’ which is particular to the hotel industry, hence he gets closely involved in things such as the Holiday Inn rebranding. ‘We always have the balance between investing for the future, managing costs and growing margins,’ he says. ‘We try to keep investing ahead of the curve on the front, while looking to drive efficiencies out of the back office.’

Overall, the credit crunch has not had much impact on IHG’s business. ‘I’m not saying it won’t, but the vast bulk of hotels coming through the pipeline, ie, the new contracts, are the smaller, mid-scale hotels in the US, or outside the US, that are not reliant upon Wall Street for financing,’ he says. ‘A local owner in the middle of America probably has a relationship with the local bank, and the loan facilities are in place. So about 70% of our total pipeline is financed right now. We’re not aware of any hotel that has fallen out of the pipeline because of the credit crunch. So, although we are absolutely not complacent, so far it has not really affected us.’

Not complacent, of course, but at least this time he’s not tearing up the budgets and starting again.

Richard Solomons’ CV

2003 to present
Finance director
INTERCONTINENTAL HOTELS GROUP

2001-2003
Executive vice-president and CFO
bass hotels & resorts

2000-2001
chief operating officer, the Americas
Bass plc

1999-2000
Senior vice-president, finance
bass hotels & resorts

1996-1999
Director of finance director then FD (1997)
britvic soft drinks ltd

1992-1996
Corporate finance manager, then senior corporate finance manager
BASS PLC

1985-1992
Corporate finance (London/New York)
HILL SAMUEL BANK

This is an abridged version of an article that originally appeared in the July/August edition of Financial Director