* To buy 1-2 luxury brands to service higher price category
* To record one-off cash cost of $200 million over 2017, 2018
* Sees about $125 million in annual savings by 2020
* Stock biggest FTSE 100 faller on lack of special payout (Adds CEO, CFO, analyst comments, details, background, shares)
Feb 20 (Reuters) - InterContinental Hotels Group (IHG) announced plans to go more upmarket to tap customers willing to pay top prices, but disappointed investors by saying it won't pay out any additional capital to investors this year.
Chief Financial Officer Paul Edgecliffe-Johnson told journalists on Tuesday that the group is looking to buy one or two small luxury brands that do not have many physical hotels, as it did when it bought Kimpton Hotels for $430 million in 2014.
These brands would be more upscale than InterContinental hotels, allowing IHG to drive more revenue from the $40 billion global luxury hotels sector.
The group, which operates the Crowne Plaza and Holiday Inn brands as well, also announced plans to launch a franchised upscale brand this year, initially focused on Europe, the Middle East, Africa and Asia, which analysts said would allow IHG to compete with Marriott's Renaissance and Hilton's Doubletree outside the United States.
IHG's focus on business customers has helped it weather rising competition from online rental marketplace Airbnb, which has driven some hoteliers to merge, but Airbnb is now looking to attract more business travellers.
IHG says it will stay independent, betting on its strategy of growing via a cheaper fee model, where it franchises and manages hotels rather than owning them.
It said it will expand its Greater China franchise business, fitting in with investor expectations for greater emphasis on the booming Chinese market following the appointment of former China head Keith Barr as group CEO last July.
IHG's shares, however, fell as much as 5.4 percent to 4,443 pence, featuring at the bottom of London's FTSE 100 index, after it decided against a special payout.
The group has often offered surplus cash to investors and Morgan Stanley analysts, who have an "equal weight" rating and 4,600 pence target price on IHG's stock, said they had expected a $400 million buyback in 2018.
The group said it would record a cash cost of $200 million to help it achieve its target of making about $125 million in annual savings by 2020.
It also said it would build a new marketing team and combine its Europe and Middle East, Asia and Africa operations.
"We are confident that our ambitious plans will... drive industry-leading net rooms growth over the medium term," Barr said in a statement.
For 2018, Marriott and Hilton have forecast 5.5-6 percent and 6.5 percent net rooms growth respectively. IHG recorded 2017 net system growth of 4 percent, its highest organic growth since 2009.
Fourth-quarter revenue per available room grew 4 percent, faster than the 1.7 percent growth a year earlier. Full-year operating profit rose 7 percent to $759 million, above the $752.1 million company-compiled forecast. (Reporting by Esha Vaish in Bengaluru; Editing by Jason Neely and Susan Fenton)