Revenue recognition
Revenue arises from the sale of goods and provision of services where these activities give rise to economic benefits received and receivable by the Group on its own account and result in increases in equity.
Revenue is derived from the following sources: franchise fees; management fees; owned and leased properties and other revenues which are ancillary to the Group’s operations, including technology fee income.
Revenue is recorded (excluding VAT and similar taxes) net of discounts.
The following is a description of the composition of revenues of the Group.
Franchise fees
Received in connection with the licence of the Group’s brand names, usually under long-term contracts with the hotel owner. The Group charges franchise royalty fees as a percentage of hotel rooms revenue and recognises the fees as the hotel revenues occur.
Management fees
Earned from hotels managed by the Group, usually under long-term contracts with the hotel owner. Management fees include a base fee, generally a percentage of hotel revenue, which is recognised as the hotel revenues occur and an incentive fee, generally based on the hotel’s annual profitability or cash flows, which is recognised over time when it is considered probable that the related performance criteria will be met.
Owned and leased
Primarily derived from hotel operations, including the rental of rooms and food and beverage sales from owned and leased hotels operated under the Group’s brand names. Revenue is recognised when rooms are occupied and food and beverages are sold.
Franchise fees and management fees include liquidated damages received from the early termination of contracts.
Other revenues are recognised when earned in accordance with the terms of the contract.