BusinessCompany NewsProfile: Richard Solomons, FD of InterContinental Hotel Group

Profile: Richard Solomons, FD of InterContinental Hotel Group

Richard Solomons is masterminding Intercontinental Hotel Group's strategy of ownership, management and franchising

Richard Solomons, FD of Intercontinental Hotel Group

Richard Solomons, FD of InterContinental Hotel Group

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
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

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

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

Executive vice-president and CFO
bass hotels & resorts

chief operating officer, the Americas
Bass plc

Senior vice-president, finance
bass hotels & resorts

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

Corporate finance manager, then senior corporate finance manager

Corporate finance (London/New York)

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

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