6-K 1 ihg200902176k.htm FULL YEAR RESULTS TO 31 DECEMBER 2008

SECURITIES AND EXCHANGE COMMISSION

 

Washington DC 20549

 

FORM 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 AND 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934

 

For 17 February, 2009

 

InterContinental Hotels Group PLC
(Registrant's name)

 

Broadwater Park, Denham, Buckinghamshire, UB9 5HJ, United Kingdom 
(Address of principal executive offices)

 

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

 

Form 20-F           Form 40-F

 

Indicate by check mark whether the registrant by furnishing the information contained in this form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

 

Yes           No

 

If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): Not applicable

 

 

 

     

 

 

 

      

 

 

 

      

 

 

 

      

 

 

 

      

InterContinental Hotels Group PLC

Full Year Results to 31 December 2008

 

Financial results      

2008

2007

% change

% change (CER)
     

Total

Excluding LDs1

Total

Excluding LDs1

Continuing revenue

$1,854m

$1,771m

5%

3%

4%

2%

Continuing operating profit

$535m

$474m

13%

6%

10%

4%

Total adjusted operating profit

$549m

$491m

12%

5%

9%

3%

Adjusted continuing EPS

117.8¢

93.8¢

26%

      

Adjusted total EPS

120.9¢

97.2¢

24%

      

Total basic EPS2

91.3¢

144.7¢

(37)%

      

Total DPS3

41.4¢

40.7¢

2%

      

Net debt

$1,273m

$1,659m

        

All figures are before exceptional items unless otherwise noted. See appendix 3 for analysis of financial headlines. Constant exchange rate comparatives shown in appendix 4. (% CER) = change in constant currency.

1 –excluding $33m of significant liquidated damages
2 –Total basic EPS after exceptional items

3 –The 2007 DPS excludes the 400¢ special interim dividend

Business headlines

o

34,757 net rooms (237 hotels) added taking total system size to 619,851 rooms (4,186 hotels), up 6%.

o

98,886 rooms signed, including 25,058 rooms (173 hotels) in the fourth quarter.

o

Global constant currency RevPAR growth of 0.9%. IHG brands outperformed in all major markets.

o

Strong free cash flow generation reduces net debt by $386m to $1.3bn. Long term debt facilities refinanced.

o

Final dividend maintained at 29.2¢, equivalent to 20.2p (+36%). Total dividend up 2% to 41.4¢.

o

Exceptional operating charge of $132m including $19m severance costs and $96m impairment charge.

Recent trading

o

Sharp deterioration in fourth quarter trading. Global constant currency RevPAR down 6.5% in Q4. IHG brands outperformed in each region.

o

January global constant currency RevPAR decline of -12.2%; -11.7% in Americas, -11.8% in EMEA and -14.8% in Asia Pacific. Forward bookings data shows no sign of improvement in levels of demand.

o

January signings of 1,713 rooms (13 hotels); January openings of 3,969 rooms (27 hotels).

Priorities

o

Open rooms. Currently 85,000 rooms under construction, around 50,000 scheduled to open in 2009.

o

Drive share. The $1bn marketing and reservations system fund has been reprioritised.

o

Holiday Inn relaunch. 350 hotels operating under the new standards; c.220 expected conversions in remainder of Q1 2009. Early results from the first relaunched hotels show a RevPAR uplift of 5% compared to a control group.

o

Reduce costs. Major initiative to reduce costs which will keep 2009 regional and central costs $30m below 2008 levels on a constant currency basis, whilst still investing to support growth.

Commenting on the results, Andrew Cosslett, Chief Executive of InterContinental Hotels Group PLC said:

“ We produced good results in 2008 and comfortably exceeded our three year target to add 50,000 to 60,000 net rooms by the end of 2008 - adding over 82,000 rooms. We opened 20% more rooms than in 2007 and signed almost 100,000 rooms into our pipeline.

“The $1 billion Holiday Inn relaunch is progressing well. We will have almost 600 hotels operating under the new standards by the end of the first quarter and are committed to completing the global programme by the end of 2010. The first relaunched hotels show a strong increase in revenue per available room which is a big motivation for other owners to convert.

“The trading environment is very tough. The sharp deterioration that we reported on last November has continued into 2009 and we see no signs of improvement at this stage. It has been clear for some time that 2009 will be a challenging year and we have taken action to prepare the business, including strict management of cash and a significant reduction in costs. The actions we have taken to move the business to an asset light model with strong brands, scale advantage and leading technology and reservation systems position us well to grow market share in the testing times ahead.”

Americas: RevPAR outperformance across all brands

Revenue performance

RevPAR declined (0.2)% in 2008 with rate growth of 3.6% offset by occupancy declines. In the fourth quarter the industry experienced a sharp deterioration in trading; IHG’s RevPAR declined 7.2% with modest rate growth offset by occupancy declines. In the year, IHG’s brands outperformed their market segments in the US. Continuing revenues grew 2% to $920m. Excluding a $13m liquidated damages receipt in the first quarter, continuing revenues grew 1%.

Operating profit performance

Operating profit from continuing operations increased 3% from $440m to $451m. Continuing owned and leased hotels profit increased $1m to $41m driven by RevPAR growth of 0.8% and an improved performance from the InterContinental San Francisco Mark Hopkins. Managed hotel profit was $51m. Excluding the $13m liquidated damages receipt managed hotel profit declined $3m due to a fall in occupancy rates and a small guarantee payment on a new hotel. Franchised hotels profit increased $1m to $426m driven by 5% growth in royalty fees offset by a $20m reduction in fees received for new signings, changes in hotel ownership and hotels leaving the system.

EMEA: Strong performance in the Middle East

Revenue performance

RevPAR increased 3.6% in the year, driven by strong rate growth of 5.4%; in line with the industry RevPAR performance deteriorated in the fourth quarter, declining 5.3%. Throughout the year the Middle East continued to perform strongly, raising RevPAR by 20.2%. IHG hotels in the UK outperformed the market growing RevPAR by 1.2%. Continuing revenues grew 5% to $518m driven by 36% growth in franchised revenues. Excluding the two liquidated damages receipts totalling $16m, continuing revenues grew 2%.

Operating profit performance
Operating profit from continuing operations increased 28% (25% CER) from $134m to $171m. Excluding the $16m liquidated damages receipts, continuing operating profit increased 16% (13% CER). Continuing owned and leased hotel operations increased $12m to $45m primarily due to the increased contribution from the InterContinental London Park Lane. Excluding a $9m liquidated damages receipt in the second quarter managed hotels profit declined $1m. Strong growth across the Middle East and Europe was offset by a reduced contribution from a portfolio of managed hotels in the UK. Franchised hotel profit increased from $58m to $75m driven by a $7m liquidated damages receipt in the third quarter and an 18% increase in royalty fee income.

Asia Pacific: Solid revenue and profit growth

Revenue performance

RevPAR increased 1.6%. Strong rate and occupancy growth in the first nine months of the year was partly offset by a 6.1% decline in RevPAR in the fourth quarter with most sub-regions impacted by the weaker global economy. Greater China RevPAR declined 14% in the fourth quarter due partly to the impact of supply increases in the major cities. Continuing revenues grew 12% (10% CER) to $290m driven by 10% growth in owned and leased revenues and 14% growth in managed revenues. Excluding a $4m liquidated damages receipt in the third quarter from one contract, franchised revenues were down $2m to $14m.

Operating profit performance
Operating profit from continuing operations grew 8% (13% CER) from $63m to $68m. Owned and leased hotels operating profit increased 19% to $43m. Managed hotels profit grew 20% to $55m. Franchised hotels profit increased 33% to $8m driven by a $4m liquidated damages receipt in the third quarter.

Strengthening Operating System

Revenue delivery to hotel owners through reservation channels and loyalty programmes continued to improve:

o

$7.6bn of rooms revenue, 48% of total rooms revenue, was booked through IHG's channels, up 10%.

o

$5.9bn of rooms revenue, 37% of total rooms revenue, was booked by Priority Club Rewards members, up 13%.

o

Priority Club Rewards members of 42m, up from 37m at the end of 2007.

o

Internet revenues increased from 17% to 20% of total rooms revenue, 86% from IHG’s own websites.

Cash flow and net debt

$641m of cash was generated from operating activities, up $176m on 2007. In addition $83m of cash was generated from disposals including the sale of the Holiday Inn Jamaica for $30m. Capital expenditure of $108m was $78m below 2007 levels. 9.2m shares were repurchased under IHG’s buyback programme at a cost of $139m. The completion of the remaining £30m of the £150m buyback program has been deferred.
This strong focus on cash generation and control of capital expenditure meant IHG’s net debt reduced to $1.3bn at the end of the year, down $386m. This net debt figure includes the $202m finance lease on the InterContinental Boston.
In May 2008 IHG refinanced $2.1bn of long term debt facilities. The new syndicated bank facility consists of two tranches, a $1.6bn 5 year revolving credit facility and a $0.5bn term loan with a 30 month maturity.

Overheads, Tax, Interest and Exceptional items

Regional overheads in the Americas and EMEA were broadly flat. In Asia Pacific, after a further $5m of the previously announced $10m investment to support the launch of the ANA Crowne Plaza brand in Japan and the non-recurrence of a $2m favourable legal settlement in 2007, regional overheads increased by $6m to support the rapid growth in the region. Central overheads decreased $8m to $155m due to the receipt of a $3m insurance settlement and the impact of weaker sterling.

The effective tax rate for 2008 is 23% (2007: 22%); the underlying rate before the impact of prior year items is 39% (2007: 36%). The reported tax rate may continue to vary year-on-year in the foreseeable future due to prior year settlements and other developments. The 2009 tax rate is currently expected to be in the mid to high 20’s. The interest charge for the year increased by $11m to $101m due to higher average net debt in the year as a result of the £709m special dividend payment in June 2007.

The $132m exceptional operating charge includes (i) $35m of the previously announced $60m cost to support the relaunch of the Holiday Inn brand; (ii) $19m severance costs related to the redundancies arising from a review of the Group’s cost base in light of the current economic climate; (iii) $96m impairment charge including $84m relating to goodwill and intangibles in the managed operations and $12m relating to the InterContinental Boston.

Appendix 1: Asset disposal programme detail

 

Number of owned hotels

Proceeds

Net book value

Disposed since April 2003

183

$5.5bn

$5.2bn

Remaining hotels

16

  

$1.7bn

For a full list please visit www.ihg.com/Investors
 

Appendix 2: Rooms

 

Americas

EMEA

Asia Pacific

Total

Openings

38,198

10,118

11,037

59,353

Removals

(20,567)

(2,971)

(1,058)

(24,596)

Net openings

17,631

7,147

9,979

34,757

Signings

60,402

13,348

25,136

98,886

Appendix 3: Financial headlines

Twelve months to 31 Dec $m

Total

Americas

EMEA

Asia Pacific

Central
 

200 8

200 7

200 8

200 7

200 8

200 7

200 8

200 7

200 8

200 7

Franchised operating profit

509

489

426

425

75

58

8

6

    

Managed operating profit

201

174

51

41

95

87

55

46

    

Continuing owned and leased operating profit

129

109

41

40

45

33

43

36

    

Regional overheads

(149)

(135)

(67)

(66)

(44)

(44)

(38)

(25)

    

Continuing operating profit pre central overheads

690

637

451

440

171

134

68

63

    

Central overheads

(155)

(163)

-

-

-

-

-

-

(155)

(163)

Continuing operating profit

535

474

451

440

171

134

68

63

(155)

(163)

Discontinued owned and leased operating profit

14

17

14

16

-

1

        

Total operating profit

549

491

465

456

171

135

68

63

(155)

(163)

Appendix 4: Constant currency continuing operating profit growth before exceptional items.

 

Americas

EMEA

Asia Pacific

Total***
 

Actual currency*

Constant currency**

Actual currency*

Constant currency**

Actual currency*

Constant
Currency**

Actual currency*

Constant currency**

Growth

3%

2%

28%

25%

8%

13%

13%

10%

Exchange rates

GBP:USD

EUR: USD

200 8

0.55

0.68

2007

0.50

0.73

* US dollar actual currency
** Translated at constant 2007 exchange rates
*** After Central Overheads

Appendix 5: Definition of total gross revenue

Total gross revenue is defined as total room revenue from franchised hotels and total hotel revenue from managed, owned and leased hotels. It is not revenue attributable to IHG, as it is derived mainly from hotels owned by third parties. The metric is highlighted as an indicator of the scale and reach of IHG’s brands.

Appendix 6: Investor information for 2008 final dividend

Ex-dividend Date: 25 March 2009

Record Date: 27 March 2009

Payment Date: 5 June 2009

Dividend payment: Ordinary shares 20.2p per share; ADRs 29.2c per share

For further information, please contact:

Investor Relations (Heather Wood; Catherine Dolton):

+44 (0) 1895 512 176

Media Affairs (Leslie McGibbon; Emma Corcoran):

+44 (0) 1895 512 425
 

+44 (0) 7808 094 471

High resolution images to accompany this announcement are available for the media to download free of charge from www.vismedia.co.uk . This includes profile shots of the key executives.

Presentation for Analysts and Shareholders

A presentation with Andrew Cosslett (Chief Executive) and Richard Solomons (Finance Director) will commence at 9.30am (London time) on 17 February at JPMorgan Cazenove, 20 Moorgate, London, EC2R 6DA. There will be an opportunity to ask questions. The presentation will conclude at approximately 10.30am (London time).

There will be a live audio webcast of the results presentation on the web address www.ihg.com/prelims09 . The archived webcast of the presentation is expected to be on this website later on the day of the results and will remain on it for the foreseeable future. There will also be a live dial-in facility

International dial-in

+44 (0)20 3037 9090

US Q&A conference call

There will also be a conference call, primarily for US investors and analysts, at 9.00am (Eastern Standard Time) on 17 February with Andrew Cosslett (Chief Executive) and Richard Solomons (Finance Director). There will be an opportunity to ask questions.

International dial-in

+44 (0)20 7019 0812

US Toll Free

877 818 6787

Conference ID:

HOTEL

A recording of the conference call will also be available for 7 days. To access this please dial the relevant number below and use the access number 1465

International dial-in

+44 (0)20 7970 8448

US Toll Free

877 774 3459

Website

The full release and supplementary data will be available on our website from 7.00 am (London time) on Tuesday 17 February. The web address is www.ihg.com/prelims09

To watch a video of Andy Cosslett reviewing our results visit our YouTube channel at www.youtube.com/ihgplc

Notes to Editors:

InterContinental Hotels Group (IHG) [LON:IHG, NYSE:IHG (ADRs)] is the world's largest hotel group by number of rooms. IHG owns, manages, leases or franchises, through various subsidiaries, over 4,150 hotels and almost 620,000 guest rooms in nearly 100 countries and territories around the world. The Group owns a portfolio of well recognised and respected hotel brands including InterContinental® Hotels & Resorts, Hotel Indigo® , Crowne Plaza® Hotels & Resorts, Holiday Inn® Hotels and Resorts, Holiday Inn Express® , Staybridge Suites® and Candlewood Suites® , and also manages the world's largest hotel loyalty programme, Priority Club® Rewards with 42 million members worldwide.

IHG has more than 1,700 hotels in its development pipeline, which will create 200,000 jobs worldwide over the next few years.

InterContinental Hotels Group PLC is the Group's holding company and is incorporated in Great Britain and registered in England and Wales.
 
IHG offers information and online reservations for all its hotel brands at www.ihg.com and information for the Priority Club Rewards programme at www.priorityclub.com . For the latest news from IHG, visit our online Press Office at www.ihg.com/media

Cautionary note regarding forward-looking statements

This announcement contains certain forward-looking statements as defined under US law (Section 21E of the Securities Exchange Act of 1934). These forward-looking statements can be identified by the fact that they do not relate to historical or current facts. Forward-looking statements often use words such as ‘anticipate’, ‘target’, ‘expect’, ‘estimate’, ‘intend’, ‘plan’, ‘goal’, ‘believe’ or other words of similar meaning. By their nature, forward-looking statements are inherently predictive, speculative and involve risk and uncertainty. There are a number of factors that could cause actual results and developments to differ materially from those expressed in or implied by, such forward-looking statements. Factors that could affect the business and the financial results are described in ‘Risk Factors’ in the InterContinental Hotels Group PLC Annual report on Form 20-F filed with the United States Securities and Exchange Commission.
 
 
 
 

This business review (BR) provides a commentary on the performance of InterContinental Hotels Group PLC (the Group or IHG) for the financial year ended 31 December 2008.

Group Performance
 

 

12 months ended 31 December
 

2008

2007

%

Group results

$m

$m

change
       

Revenue:

      
 

Americas

920

902

2.0
 

EMEA

518

492

5.3
 

Asia Pacific

290

260

11.5
 

Central

126

117

7.7
   

____

____

_____

Continuing operations

1,854

1,771

4.7
       

Discontinued operations

43

79

(45.6)
 

____

____

_____
 

1,897

1,850

2.5
 

____

____

_____

Operating profit:

      
 

Americas

451

440

2.5
 

EMEA

171

134

27.6
 

Asia Pacific

68

63

7.9
 

Central

(155)

(163)

4.9
   

____

____

_____

Continuing operations

535

474

12.9
       

Exceptional operating items

(132)

60

-
 

___

____

____

Operating profit

403

534

(24.5)
       

Discontinued operations

14

17

(17.6)
 

____

____

____
 

417

551

(24.3)
       

Net financial expenses

(101)

(90)

(12.2)
 

___

____

____

Profit before tax*

316

461

(31.5)
 

___

____

____

Analysed as:

      
 

Continuing operations

302

444

(32.0)
 

Discontinued operations

14

17

(17.6)
   

____

____

____

Earnings per ordinary share:

      
 

Basic

91.3¢

144.7¢

(36.9)
 

Adjusted

120.9¢

97.2¢

24.4
 

Adjusted - continuing operations

117.8¢

93.8¢

25.6

*

Profit before tax includes the results of discontinued operations.

Group results

On 30 May 2008, IHG announced its intention to change its reporting currency from sterling to US dollars reflecting the profile of its revenue and operating profit, which are primarily generated in US dollars or US dollar-linked currencies. This change was first introduced in the interim results for the six months to 30 June 2008, and these financial statements are IHG’s first annual financial statements to be presented in US dollars and all comparative information has been restated accordingly.
 
Revenue from continuing operations increased by 4.7% to $1,854m and continuing operating profit before exceptional items increased by 12.9% to $535m during the 12 months ended 31 December 2008. The growth in revenues was driven by RevPAR gains in EMEA and Asia Pacific, continued expansion in China and the Middle East and the first full year of trading at the re-opened InterContinental London Park Lane. Growth was achieved in all regions in the first three quarters of the year however, the worldwide financial crisis had a significant impact on results in the final quarter. In the fourth quarter, RevPAR declined sharply across the Group falling by 6.5% globally, although IHG’s brands continued to outperform their segments in all key markets. Strong revenue conversion led to a 2.1 percentage point increase in the continuing operating profit margin to 28.9%.
 
Included in these results is $33m of liquidated damages received by IHG in 2008 in respect of the settlement of two management contracts and two franchise contracts, including one portfolio franchise contract. Excluding these, revenue and operating profit before exceptional items from continuing operations increased by 2.8% and 5.9% respectively.
 
Including discontinued operations, total revenue increased by 2.5% to $1,897m whilst operating profit before exceptional items increased by 11.8% to $549m. Discontinued operations included the results of owned and leased hotels that have been disposed of since 1 January 2007, or those classified as held for sale as part of the asset disposal programme that commenced in 2003.
 
The weighted average US dollar exchange rate to sterling strengthened during 2008 (2008 $1=£0.55, 2007 $1=£0.50). Translated at constant currency, applying 2007 exchange rates, continuing revenue increased by 4.3% and continuing operating profit increased by 10.3%.
 

 

12 months ended 31 December
 

2008

2007

%

Total gross revenue

$bn

$bn

change
       

InterContinental

4.1

3.7

10.8

Crowne Plaza

3.2

2.8

14.3

Holiday Inn

6.8

6.7

1.5

Holiday Inn Express

3.9

3.5

11.4

Staybridge Suites

0.4

0.3

33.3

Candlewood Suites

0.3

0.3

-

Other brands

0.4

0.5

(20.0)
 

____

____

____

Total

19.1

17.8

7.3
 

____

____

____

Total gross revenue

One measure of overall IHG hotel system performance is the growth in total gross revenue, defined as total room revenue from franchised hotels and total hotel revenue from managed, owned and leased hotels. Total gross revenue is not revenue attributable to IHG, as it is derived mainly from hotels owned by third parties.
 
Total gross revenue increased by 7.3% from $17.8bn in 2007 to $19.1bn in 2008, with growth levels achieved across IHG’s key brands reflecting hotel performance and room growth. Translated at constant currency, total gross revenue increased by 6.2%.

 

Hotels

Rooms

Global hotel and room count
at 31 December

2008

Change
over 2007

2008

Change
over 2007

Analysed by brand:

        
 

InterContinental

159

10

54,736

3,974
 

Crowne Plaza

342

43

93,382

10,212
 

Holiday Inn

1,353

(28)

249,691

(7,008)
 

Holiday Inn Express

1,932

124

173,794

17,263
 

Staybridge Suites

152

30

16,644

3,178
 

Candlewood Suites

204

46

20,641

3,816
 

Hotel Indigo

22

11

2,702

1,201
 

Holiday Inn Club Vacations

1

1

2,412

2,412
 

Other

21

-

5,849

(291)
   

____

____

______

_____

Total

4,186

237

619,851

34,757
   

____

____

______

_____

Analysed by ownership type:

        
 

Owned and leased

16

(2)

5,644

(752)
 

Managed

585

46

148,240

13,357
 

Franchised

3,585

193

465,967

22,152
   

____

____

______

_____

Total

4,186

237

619,851

34,757
   

____

____

______

_____

Global hotel and room count

During 2008, the IHG global system (the number of hotels and rooms which are owned, leased, managed or franchised by the Group) increased by 237 hotels (34,757 rooms; 5.9%) to 4,186 hotels (619,851 rooms). Openings of 430 hotels (59,353 rooms) were driven, in particular, by continued expansion in the US, the UK, the Middle East and China.
 
As in recent years, system size growth was driven by brands in the midscale limited service and extended stay segments, with Holiday Inn Express representing over 50% of the total net movement (124 hotels, 17,263 rooms) and, Staybridge Suites and Candlewood Suites combined representing approximately 30% of total net hotel growth. The youngest brand in the IHG portfolio, Hotel Indigo, continues to grow, with 11 hotels (1,201 rooms) added during the year. In order to expand IHG’s global reach, brands established in the Americas have been transitioned to other regions, with the opening of Staybridge Suites hotels in Liverpool and Cairo, the opening of the Hotel Indigo London Paddington and the signing of a management contract for a Hotel Indigo in Shanghai. As a consequence of the continued drive to increase quality through the removal of non-brand conforming hotels, the Holiday Inn hotel and room count showed a net decline (28 hotels, 7,008 rooms). This strategy is further supported by the worldwide brand relaunch of the Holiday Inn brand family, which entails the consistent delivery of best-in-class service and physical quality in all Holiday Inn and Holiday Inn Express hotels. At the year end 274 hotels were open under the updated signage and brand standards.

 

Hotels

Rooms

Global pipeline
at 31 December

2008

Change
over 2007

2008

Change
over 2007

Analysed by brand:

        
 

InterContinental

71

9

21,884

1,871
 

Crowne Plaza

133

15

41,469

5,107
 

Holiday Inn

387

22

64,261

7,316
 

Holiday Inn Express

719

7

70,270

128
 

Staybridge Suites

166

9

18,109

959
 

Candlewood Suites

242

35

21,790

3,185
 

Hotel Indigo

56

4

7,212

647
 

Other

1

-

90

-
   

____

____

______

_____

Total

1,775

101

245,085

19,213
   

____

____

______

_____

Analysed by ownership type:

        
 

Owned and leased

1

1

185

185
 

Managed

300

53

87,941

16,127
 

Franchised

1,474

47

156,959

2,901
   

____

____

______

_____

Total

1,775

101

245,085

19,213
   

____

____

______

_____

 

Hotels

Rooms

Global pipeline signings

2008

Change
over 2007

2008

Change
over 2007
         

Total

693

(180)

98,886

(26,647)
 

____

____

_____

______

Global pipeline

At the end of 2008, the IHG pipeline totalled 1,775 hotels (245,085 rooms). The IHG pipeline represents hotels and rooms where a contract has been signed and the appropriate fees paid. Sometimes, a hotel will not open for reasons such as the financing being withdrawn. In the year, room signings across all regions of 98,886 rooms led to pipeline growth of 19,213 rooms. While signings were below the record level of 2007, the level of signings and pipeline growth demonstrates strong demand for IHG brands across all regions and represents a key driver of future profitability.

THE AMERICAS
 

 

12 months ended 31 December
 

2008

2007

%

Americas Results

$m

$m

change
       

Revenue:

      
 

Owned and leased

257

257

-
 

Managed

168

156

7.7
 

Franchised

495

489

1.2
   

____

____

_____

Continuing operations

920

902

2.0

Discontinued operations*

43

62

(30.6)
 

____

____

_____

Total

  

963

964

(0.1)
 

____

____

_____

Operating profit before exceptional items:

      
 

Owned and leased

41

40

2.5
 

Managed

51

41

24.4
 

Franchised

426

425

0.2
   

____

____

_____
 

518

506

2.4

Regional overheads

(67)

(66)

(1.5)
 

____

____

_____

Continuing operations

451

440

2.5

Discontinued operations*

14

16

(12.5)
 

____

____

_____

Total

  

465

456

2.0
 

____

____

_____

*

Discontinued operations are all owned and leased.

Americas Comparable RevPAR movement on previous year

12 months ended
31 December
2008
   

Owned and leased:

  
 

InterContinental

0.4%

Managed:

  
 

InterContinental

0.0%
 

Crowne Plaza

1.5%
 

Holiday Inn

5.4%
 

Staybridge Suites

2.1%
 

Candlewood Suites

(1.5)%

Franchised:

  
 

Crowne Plaza

(1.2)%
 

Holiday Inn

(1.9)%
 

Holiday Inn Express

0.6%

Americas results
Revenue and operating profit before exceptional items from continuing operations increased by 2.0% to $920m and 2.5% to $451m respectively. Including discontinued operations, revenue decreased by 0.1% whilst operating profit before exceptional items increased by 2.0%. Included in these results is the receipt of $13m liquidated damages for one management contract.
 
As a result of sharp falls in occupancy, RevPAR declined across all ownership types in the fourth quarter. In the full year, the region achieved RevPAR growth across the owned and managed estates, however RevPAR declined marginally across the franchised portfolio. In the US, for comparable hotels, all brands achieved premiums in RevPAR growth relative to their applicable market segment.

Continuing owned and leased revenue remained flat on 2007 at $257m. Operating profit increased by 2.5% to $41m. Underlying trading was driven by RevPAR growth of 0.8%, with RevPAR growth in the InterContinental brand of 0.4%. The results were positively impacted by trading at the InterContinental Mark Hopkins, San Francisco, driven by robust RevPAR growth. The InterContinental New York was affected by a downturn in the market as a result of the global financial crisis, adversely impacting revenue and operating profit at the hotel.
 
Managed revenues increased by 7.7% to $168m during the year, boosted by the receipt of $13m in liquidated damages for one hotel that had not commenced trading. Excluding these liquidated damages, managed revenues decreased by 0.6% to $155m. Growth remained strong in the Latin America region, where rate-led RevPAR growth exceeded 15%. Offsetting this was a fall in revenues from hotels in the US, driven by RevPAR declines in the fourth quarter.
 
Managed operating profit increased by 24.4% to $51m. The $10m increase in profit principally reflects the $13m receipt of liquidated damages. Excluding this receipt, the managed estate experienced a $3m fall in operating profit. While the performance in Latin America resulted in growth in operating profit, this was more than offset by a decline in operating profit in the US due to a fall in occupancy rates, and a small guarantee payment for a newly opened hotel. Additional revenue investment was made to support operational standards in the region. Total operating profit margin in the managed estate increased by 4.1 percentage points to 30.4%.
 
Results from managed operations include revenues of $88m (2007 $86m) and operating profit of $6m (2007 $6m) from properties that are structured, for legal reasons, as operating leases but with the same characteristics as management contracts. Excluding the results from these hotels and the $13m of liquidated damages, operating profit margin in the managed estate decreased by 2.2 percentage points to 47.8%.
 
Franchised revenue and operating profit increased by 1.2% to $495m and 0.2% to $426m respectively, compared to 2007. The increase was driven by increased royalty fees as a result of net room count growth of 4.6%. Fees associated with signings and conversions declined as a result of lower real estate activity due to the adverse impact of the global financial crisis and lower liquidated damages collected on hotels exiting the system.
 
Regional overheads were relatively flat on 2007.
 

 

Hotels

Rooms

Americas hotel and room count
at 31 December

2008

Change
over 2007

2008

Change
over 2007

Analysed by brand:

        
 

InterContinental

55

5

18,502

1,878
 

Crowne Plaza

187

15

51,124

3,231
 

Holiday Inn

920

(32)

168,777

(9,222)
 

Holiday Inn Express

1,722

107

146,024

11,473
 

Staybridge Suites

150

28

16,372

2,906
 

Candlewood Suites

204

46

20,641

3,816
 

Hotel Indigo

21

10

2,638

1,137
 

Holiday Inn Club Vacations

1

1

2,412

2,412
   

____

____

______

_____

Total

3,260

180

426,490

17,631
   

____

____

______

_____

Analysed by ownership type:

        
 

Owned and leased

10

(1)

3,505

(524)
 

Managed

199

6

40,915

1,219
 

Franchised

3,051

175

382,070

16,936
   

____

____

______

_____

Total

3,260

180

426,490

17,631
   

____

____

______

_____

Americas hotel and room count

The Americas hotel and room count grew by 180 hotels (17,631 rooms) to 3,260 hotels (426,490 rooms). The growth included openings of 332 hotels (38,198 rooms) including Holiday Inn Express openings of 170 hotels (15,547 rooms), representing 51% of all hotel openings in the Americas. A further addition to the system was the new Holiday Inn Club Vacations (1 hotel, 2,412 rooms) which gives IHG its first presence in the timeshare market. The franchised business model continues to grow in the region, with franchised hotels contributing over 97% of net growth. Net growth also included removals of 152 hotels (20,567 rooms), with Holiday Inn hotels representing 55% (74% of rooms) of removals as the Group continued its efforts to improve quality and reinvigorate the brand.
 

 

Hotels

Rooms

Americas pipeline
at 31 December

2008

Change
over 2007

2008

Change
over 2007

Analysed by brand:

        
 

InterContinental

7

(1)

2,293

(1,429)
 

Crowne Plaza

43

6

9,647

611
 

Holiday Inn

263

(2)

32,852

(177)
 

Holiday Inn Express

639

25

56,465

2,186
 

Staybridge Suites

154

7

16,678

757
 

Candlewood Suites

242

35

21,790

3,185
 

Hotel Indigo

55

3

7,032

467
   

____

____

______

_____

Total

1,403

73

146,757

5,600
   

____

____

______

_____

Analysed by ownership type:

        
 

Owned and leased

1

1

185

185
 

Managed

20

(1)

4,208

(753)
 

Franchised

1,382

73

142,364

6,168
   

____

____

______

_____

Total

1,403

73

146,757

5,600
   

____

____

______

_____

Americas pipeline

The Americas pipeline continued at record high growth levels and totalled 1,403 hotels (146,757 rooms) at 31 December 2008. During the year, 60,402 room signings were completed, compared with 75,279 room signings in 2007. Signings levels declined on the record level in 2007 as a result of lower real estate and construction activity amid the current economic outlook. Demand in the key midscale sector remained positive, representing 61% of hotel signings.

EUROPE, MIDDLE EAST AND AFRICA (EMEA)

 

12 months ended 31 December
 

2008

2007

%

EMEA results

$m

$m

change
       

Revenue:

      
 

Owned and leased

240

244

(1.6)
 

Managed

168

167

0.6
 

Franchised

110

81

35.8
   

____

____

_____

Continuing operations

518

492

5.3

Discontinued operations*

-

17

-
 

____

____

_____

Total

  

518

509

1.8
 

____

____

_____

Operating profit before exceptional items:

      
 

Owned and leased

45

33

36.4
 

Managed

95

87

9.2
 

Franchised

75

58

29.3
   

____

____

_____
 

215

178

20.8

Regional overheads

(44)

(44)

-
 

____

____

_____

Continuing operations

171

134

27.6

Discontinued operations*

-

1

-
 

____

____

_____

Total

  

171

135

26.7
 

____

____

_____

*

Discontinued operations are all owned and leased.

EMEA comparable RevPAR movement on previous year

12 months ended
31 December
2008
   

Owned and leased:

  
 

InterContinental

(7.8)%

All ownership types:

  
 

UK

1.2%
 

Continental Europe

1.6%
 

Middle East

20.2%

EMEA results

Revenue and operating profit before exceptional items from continuing operations increased by 5.3% to $518m and 27.6% to $171m respectively. Including discontinued operations, revenue increased by 1.8% whilst operating profit before exceptional items increased by 26.7%. Included in these results were liquidated damages of $9m relating to one management contract and $7m for a portfolio of franchised hotels settled during the year.
 
During the year, the region achieved RevPAR growth of 3.6% driven by gains across all brands operated under managed and franchise contracts. From a regional perspective, RevPAR growth in the Middle East was extremely strong at 20.2%, whilst smaller growth was experienced in Continental Europe. The region’s continuing operating profit margin increased by 5.8 percentage points to 33.0%. Excluding the two liquidated damages settlements, the margin on continuing operations grew 3.7 percentage points reflecting economies of scale in the managed business and strong revenue conversion at the InterContinental London Park Lane.
 
In the owned and leased estate, continuing revenue decreased by 1.6% to $240m as a result of the expiry of a hotel lease in Continental Europe. The InterContinental London Park Lane, which had its first full year of trading since re-opening after refurbishment in 2007, grew strongly in revenues to a market leading position (source: STR). The InterContinental Le Grand Paris experienced tougher trading conditions leading to a RevPAR decline at the hotel. Strong revenue conversion at the InterContinental London Park Lane contributed to the continuing owned and leased operating profit increase of $12m to $45m.
 

EMEA managed revenue increased by 0.6% to $168m and operating profit increased by 9.2% to $95m, driven by the receipt of $9m in liquidated damages relating to the renegotiation of a management contract, which remains in the system. Excluding these liquidated damages, revenue and operating profit declined 4.8% and 1.1% respectively in 2008, as a result of mixed trading conditions in the region. Growth in the Middle East continued through the addition of new rooms and strong RevPAR growth of 20.2%. Offsetting this was a reduced contribution from a portfolio of managed hotels in the UK. A reduction in the fees associated with signing hotels to the pipeline further impacted the operating profit in the region.
 
Franchised revenue and operating profit increased by 35.8% to $110m and 29.3% to $75m respectively. The growth was principally driven by room count expansion and RevPAR growth in Continental Europe, with Germany and Russia showing RevPAR growth of 3.9% and 8.6% respectively. The region further benefited from the receipt of $7m of liquidated damages relating to the removal of a portfolio of Holiday Inn Express hotels in the UK.
 
Regional overheads were in line with 2007, with a $2m increase in costs associated with the new head office offset through further efficiencies in sales and marketing activities.
 

Hotels

Rooms

EMEA hotel and room count
at 31 December

2008

Change
over 2007

2008

Change
over 2007

Analysed by brand:

        
 

InterContinental

64

2

20,836

824
 

Crowne Plaza

89

17

20,729

3,403
 

Holiday Inn

332

(3)

53,039

197
 

Holiday Inn Express

186

4

21,564

2,184
 

Staybridge Suites

2

2

272

272
 

Hotel Indigo

1

1

64

64
 

Other

1

1

203

203
   

____

____

______

_____

Total

675

24

116,707

7,147
   

____

____

______

_____

Analysed by ownership type:

        
 

Owned and leased

4

(1)

1,446

(228)
 

Managed

179

8

41,185

2,112
 

Franchised

492

17

74,076

5,263
   

____

____

______

_____

Total

675

24

116,707

7,147
   

____

____

______

_____

EMEA hotel and room count

During 2008, EMEA hotel and room count increased by 24 hotels (7,147 rooms) to 675 hotels (116,707 rooms). The net room growth included the opening of 10,118 rooms (62 hotels), up 27% on 2007 resulting from hotels entering the system after the high signing levels in 2006 and 2007, and the removal of 38 hotels (2,971 rooms), including the removal of a portfolio of franchised Holiday Inn Express hotels in the UK. System growth was led by openings in the UK of 21 hotels (2,460 rooms). Further significant growth occurred in the Middle East, with 11 hotel openings (2,767 rooms), compared to four hotel openings (1,013 rooms) in 2007. Holiday Inn Express was the largest contributor of room openings, adding over 36% of the region’s total. Two new brands were introduced to the region during the year with the opening of Staybridge Suites hotels in Liverpool and Cairo and the Hotel Indigo London Paddington which opened in December 2008.
 

 

Hotels

Rooms

EMEA pipeline
at 31 December

2008

Change
over 2007

2008

Change
over 2007

Analysed by brand:

        
 

InterContinental

28

4

7,062

1,102
 

Crowne Plaza

25

-

7,287

989
 

Holiday Inn

50

(1)

10,204

658
 

Holiday Inn Express

57

(19)

7,790

(1,976)
 

Staybridge Suites

12

2

1,431

202
 

Other

1

-

90

-
   

____

____

______

_____

Total

173

(14)

33,864

975
   

____

____

______

_____

Analysed by ownership type:

        
 

Managed

83

13

19,596

4,393
 

Franchised

90

(27)

14,268

(3,418)
   

____

____

______

_____

Total

173

(14)

33,864

975
   

____

____

______

_____

EMEA pipeline

The pipeline in EMEA decreased by 14 hotels, but increased by 975 rooms, to 173 hotels (33,864 rooms). The growth included 13,348 room signings, with continued strong demand for IHG brands in the Middle East, which accounted for 43% of the region’s room signings. Across the region, all brands recorded positive signing levels, with demand particularly focussed in the midscale sector which represented 46% of room signings. The demand for the extended stay brand, Staybridge Suites, continued with signings in line with 2007, reflecting confidence from IHG’s owners in the extended stay model imported from the Americas region.
 

ASIA PACIFIC

 

12 months ended 31 December
 

2008

2007

%

Asia Pacific results

$m

$m

change
       

Revenue:

      
 

Owned and leased

159

145

9.7
 

Managed

113

99

14.1
 

Franchised

18

16

12.5
   

____

____

_____

Total

  

290

260

11.5
 

____

____

_____

Operating profit before exceptional items:

      
 

Owned and leased

43

36

19.4
 

Managed

55

46

19.6
 

Franchised

8

6

33.3
   

____

____

_____
 

106

88

20.5

Regional overheads

(38)

(25)

(52.0)
 

____

____

_____

Total

  

68

63

7.9
 

____

____

_____

Asia Pacific comparable RevPAR movement on previous year

12 months ended
31 December
2008
   

Owned and leased:

  
 

InterContinental

7.2%

All ownership types:

  
 

Greater China

(1.6)%

Asia Pacific results

Asia Pacific revenue and operating profit before exceptional items increased by 11.5% to $290m and 7.9% to $68m respectively.
 
The region achieved strong RevPAR growth across all brands, with the strongest growth in the owned and leased portfolio, and continued its strategic expansion in China. Good profit growth was achieved, although the continuing operating profit margin declined by 0.8 percentage points to 23.4% as a result of further investment to support expansion.
 
In the owned and leased estate, revenue increased by 9.7% to $159m as RevPAR growth continued at the InterContinental Hong Kong despite a slowdown during the fourth quarter. The hotel’s revenue growth combined with profit margin gains drove the estate’s operating profit growth of 19.4% to $43m.
 

Managed revenue increased by 14.1% to $113m as a result of the increased room count in Greater China and comparable RevPAR growth of 10.7% in Beijing boosted by the Olympic period. Further strong growth occurred in South East Asia with RevPAR growth of 9.9% in the region, and the joint venture with All Nippon Airways (ANA) further increased revenues. Operating profit increased by 19.6% to $55m as revenue gains were partially offset by continued infrastructure investment in China and Southern Asia.
 
Franchised revenues increased from $16m to $18m driven by the receipt of $4m of liquidated damages relating to the settlement of one franchise contract in the region. Excluding this receipt, operating profit declined by $2m, primarily as a result of reduced fee income in India due to the removal of non-brand compliant hotels.
 
After a further $5m of the previously announced $10m investment to support the launch of the ANA Crowne Plaza brand in Japan and the non-recurrence of a $2m favourable legal settlement in 2007, Asia Pacific regional overheads increased by $6m to support the rapid growth in the region.

 

Hotels

Rooms

Asia Pacific hotel and room count
at 31 December

2008

Change
over 2007

2008

Change
over 2007

Analysed by brand:

        
 

InterContinental

40

3

15,398

1,272
 

Crowne Plaza

66

11

21,529

3,578
 

Holiday Inn

101

7

27,875

2,017
 

Holiday Inn Express

24

13

6,206

3,606
 

Other

20

(1)

5,646

(494)
   

____

____

______

_____

Total

251

33

76,654

9,979
   

____

____

______

_____

Analysed by ownership type:

        
 

Owned and leased

2

-

693

-
 

Managed

207

32

66,140

10,026
 

Franchised

42

1

9,821

(47)
   

____

____

______

_____

Total

251

33

76,654

9,979
   

____

____

______

_____

Asia Pacific hotel and room count

Asia Pacific hotel and room count increased by 33 hotels (9,979 rooms) to 251 hotels (76,654 rooms). The net growth included 31 hotels (9,806 rooms) in Greater China reflecting continued expansion in one of IHG’s strategic markets, including the opening of IHG’s 100th hotel in China, the Crowne Plaza Beijing Zhongguancun.
 

 

Hotels

Rooms

Asia Pacific pipeline
at 31 December

2008

Change
over 2007

2008

Change
over 2007

Analysed by brand:

        
 

InterContinental

36

6

12,529

2,198
 

Crowne Plaza

65

9

24,535

3,507
 

Holiday Inn

74

25

21,205

6,835
 

Holiday Inn Express

23

1

6,015

(82)
 

Hotel Indigo

1

1

180

180
   

____

____

______

_____

Total

199

42

64,464

12,638
   

____

____

______

_____

Analysed by ownership type:

        
 

Managed

197

41

64,137

12,487
 

Franchised

2

1

327

151
   

____

____

______

_____

Total

199

42

64,464

12,638
   

____

____

______

_____

Asia Pacific pipeline

The pipeline in Asia Pacific increased by 42 hotels (12,638 rooms) to 199 hotels (64,464 rooms). Pipeline growth was again centred on the Greater China market with 70% of the region’s room signings. There was also significant demand in India, where signings more than doubled compared to 2007. From a brand perspective, Holiday Inn was the largest contributor to signings, with 39% of the region’s room signings.

Central

 

12 months ended 31 December
 

2008

2007

%

Central results

$m

$m

change
       

Revenue

126

117

7.7

Gross central costs

(281)

(280)

(0.4)
 

____

____

_____

Net central costs

  

(155)

(163)

4.9
 

_____

____

_____

Central Results

During 2008, net central costs reduced by 4.9% from $163m to $155m due to the receipt of a favourable $3m insurance settlement and the impact of weaker sterling.

SYSTEM FUNDS

 

12 months ended 31 December
 

2008

2007

%

System fund results

$m

$m

change
       

Assessments

990

930

6.5
 

____

____

____

Hotels operated under IHG brands are, pursuant to terms within their contracts, subject to cash assessments for brand marketing, reservations systems and Priority Club membership stays. These assessments, typically based upon room revenue, are pooled within the system funds for the collective benefit of all hotels by brand or geography. The assessments are used for revenue generating activities including the costs of call centres, frequency program points, websites, sales teams, advertising and brand development and affiliate marketing programmes.
 
The Company acts on behalf of hotel owners with regard to the funds and all assessments are designated for specific purposes and result in no profit for the Group. Accordingly, the revenues, expenses and cash flows of the funds are not included in the Consolidated Income Statement or Consolidated Cash Flow Statement. The funds are planned to operate at break even with any short term timing surplus or deficit carried on IHG’s balance sheet within working capital. The Owner’s Association, the IAHI, endorses the budgeted spend of the funds and provides a governance overview of the operation of the funds.
 
In the year to 31 December 2008, system fund revenues increased by 6.5% to $990m primarily as a result of the growth in system size and affiliate marketing programmes.

OTHER FINANCIAL INFORMATION
 

Exceptional operating items

Exceptional operating costs of $132m consisted of:
 

·     

$35m in relation to the Holiday Inn relaunch;

·     

$19m of cost savings-related severance costs;

·     

$96m of non-cash asset impairment reflecting the poorer trading environment expected in 2009; and

·     

other items including gains on asset sales, which netted to an $18m credit

Exceptional operating items are treated as exceptional by reason of their size or nature and are excluded from the calculation of adjusted earnings per share in order to provide a more meaningful comparison of performance.
 

Net financial expenses

Net financial expenses increased from $90m in 2007 to $101m in 2008. Average net debt levels in 2008 were higher than 2007 primarily as a result of the payment of the special dividend of £709m in June 2007. Net debt levels remained stable in the first half of 2008, reducing slightly in the second half of the year.
 
Financing costs included $12m (2007 $21m) of interest costs associated with Priority Club Rewards where interest is charged on the accumulated balance of cash received in advance of the redemption points awarded. Financing costs in 2008 also included $18m (2007 $18m) in respect of the InterContinental Boston finance lease.
 

Taxation

The effective rate of tax on the combined profit from continuing and discontinued operations, excluding the impact of exceptional items, was 23% (2007 22%). By also excluding the impact of prior year items, which are included wholly within continuing operations, the equivalent tax rate would be 39% (2007 36%). This rate is higher than the UK statutory rate of 28% due mainly to certain overseas profits (particularly in the US) being subject to statutory rates higher than the UK statutory rate, unrelieved foreign taxes and disallowable expenses.
 
Taxation within exceptional items totalled a credit of $42m (2007 $60m) in respect of continuing operations. This represented, primarily, the release of exceptional provisions relating to tax matters which were settled during the year, or in respect of which the statutory limitation period had expired, together with tax relief on exceptional costs.

Net tax paid in 2008 totalled $2m (2007 $138m) including $3m (2007 $64m) in respect of disposals. Tax paid is lower than the current period income tax charge, primarily due to the receipt of refunds in respect of prior years, together with provisions for tax for which no payment of tax has currently been made.
 

Earnings per share

Basic earnings per share in 2008 was 91.3¢, compared with 144.7¢ in 2007. Adjusted earnings per share was 120.9¢, against 97.2¢ in 2007. Adjusted continuing earnings per share was 117.8¢, 25.6% up on last year.
 

Dividends

The Board has proposed a final dividend per share of 29.2¢ (20.2p). With the interim dividend per share of 12.2¢ (6.4p), the full year dividend per share for 2008 will total 41.4¢ (26.6p).
 

Share price and market capitalisation

The IHG share price closed at £5.62 on 31 December 2008, down from £8.84 on 31 December 2007. The market capitalisation of the Group at the year end was £1.6bn.
 

Cash flow

In response to the challenging economic environment the Group increased its focus on cash management during 2008. In the year, $641m of cash was generated from operating activities an increase of $176m on 2007. Overall, net debt decreased by $386m to $1,273m with the other key elements of the cash flow being:

 

proceeds from the disposal of hotels and equity investments of $86m;

·     

capital expenditure of $108m; and

·     

$139m returned to shareholders as part of the fourth share buyback programme.

As part of the focus on cash management the remaining £30m of the fourth £150m share buyback programme was deferred.

Capital structure and liquidity management

Net debt at 31 December 2008 was $1,273m and included $202m in respect of the finance lease commitment for the InterContinental Boston.

 

2008

2007*

Net debt at 31 December

$m

$m
     

Borrowings:

    
 

Sterling

152

553
 

US Dollar

889

882
 

Euro

224

243
 

Other

90

98

Cash

(82)

(117)
 

____

____

Net debt

1,273

1,659
 

____

____
     

Average debt levels

1,498

1,075
 

____

____

 

2008

2007

Facilities at 31 December

$m

$m
     

Committed

2,107

2,321

Uncommitted

25

50
 

____

____

Total

2,132

2,371
 

____

____

Interest risk profile of gross debt for major currencies

at 31 December

2008
%

2007
%
     

At fixed rates

53

45

At variable rates

47

55
     

*

Including the impact of currency swaps

In the second quarter, the Group successfully refinanced $2.1bn of long-term debt facilities. The new syndicated bank facility consists of two tranches, a $1.6bn five-year revolving credit facility and a $0.5bn term loan with a 30-month maturity. Terms are broadly unchanged from the previous facility.

Treasury policy is to manage financial risks that arise in relation to underlying business needs. The activities of the treasury function are carried out in accordance with Board approved policies and are subject to regular audit. The treasury function does not operate as a profit centre.
 

Return of funds programme

 

Timing

Total
return

Returned to date

Still to be
returned

£501m special dividend

Paid in December 2004

£501m

£501m

Nil

First £250m share buyback

Completed in 2004

£250m

£250m

Nil

£996m capital return

Paid in July 2005

£996m

£996m

Nil

Second £250m share buyback

Completed in 2006

£250m

£250m

Nil

£497m special dividend

Paid in June 2006

£497m

£497m

Nil

Third £250m share buyback

Completed in 2007

£250m

£250m

Nil

£709m special dividend

Paid in June 2007

£709m

£709m

Nil

£150m share buyback

Under way

£150m

£120m

£30m
   

______

_____

____

Total

  

£3,603m

£3,573m

£30m
   

______

_____

____

During the year, IHG returned $139m to shareholders through share buybacks, taking the total returned since March 2004 to more than £3.5bn. At IHG’s third quarter results announcement the deferral of the remaining £30m of the fourth share buyback programme was announced in order to preserve cash and maintain balance sheet strength.
 
The return of funds programme is denominated in sterling as all returns were announced prior to the change to US Dollar reporting.

InterContinental Hotels Group PLC
GROUP INCOME STATEMENT
For the year ended 31 December 2008

 

Year ended 31 December 2008

Year ended 31 December 2007
 

Before
exceptional
items

Exceptional
items
(note 5)

Total

Before
exceptional
items

Exceptional
items
(note 5)

Total
 

$m

$m

$m

$m

$m

$m

Continuing operations

            
             

Revenue (note 3)

1,854

-

1,854

1,771

-

1,771

Cost of sales

(823)

-

(823)

(825)

-

(825)

Administrative expenses

(400)

(59)

(459)

(377)

(14)

(391)

Other operating income and expenses

14

25

39

16

70

86
 

_____

____

____

____

____

____
 

645

(34)

611

585

56

641
             

Depreciation and amortisation

(110)

(2)

(112)

(111)

(2)

(113)

Impairment (note 5)

-

(96)

(96)

-

6

6
 

_____

____

____

____

____

____

Operating profit (note 4)

535

(132)

403

474

60

534
             

Financial income

12

-

12

18

-

18

Financial expenses

(113)

-

(113)

(108)

-

(108)
 

_____

____

____

____

____

____
             

Profit before tax

434

(132)

302

384

60

444
             

Tax (note 6)

(96)

42

(54)

(84)

60

(24)
 

_____

____

____

____

____

____

Profit for the year from continuing operations

338

(90)

248

300

120

420
             

Profit for the year from discontinued operations (note 7)

9

5

14

11

32

43
 

_____

____

____

____

____

____

Profit for the year attributable to the equity holders of the parent

347

(85)

262

311

152

463
 

====

====

====

====

====

====

Earnings per ordinary share
(note 8):

            

Continuing operations:

            
 

Basic

    

86.4¢

    

131.3¢
 

Diluted

    

83.8¢

    

127.7¢
 

Adjusted

117.8¢

    

93.8¢

    
 

Adjusted diluted

114.2¢

    

91.2¢

    

Total operations:

            
 

Basic

    

91.3¢

    

144.7¢
 

Diluted

    

88.5¢

    

140.7¢
 

Adjusted

120.9¢

    

97.2¢

    
 

Adjusted diluted

117.2¢

    

94.5¢

    

InterContinental Hotels Group PLC
GROUP STATEMENT of recognised income and expense
For the year ended 31 December 2008

 

2008

$m

2007
restated*

$m
     

Income and expense recognised directly in equity

    

(Losses)/gains on valuation of available-for-sale assets

(4)

8

Losses on cash flow hedges

(14)

(2)

Actuarial (losses)/gains on defined benefit pension plans, net of asset restriction

(50)

8

Exchange differences on retranslation of foreign operations

(57)

23
 

____

____
 

(125)

37
 

____

____

Transfers to the income statement

    

On cash flow hedges: financial expenses

2

(2)

On disposal of available-for-sale assets: other operating income and expenses

(17)

(20)
 

____

____
 

(15)

(22)
 

____

____

Tax

    

Tax on items above taken directly to or transferred from equity

22

11

Tax related to share schemes recognised directly in equity

2

(4)
 

____

____
 

24

7
 

____

____

Net (expense)/income recognised directly in equity

(116)

22
     

Profit for the year

262

463
 

____

____

Total recognised income and expense for the year attributable to the equity holders of the parent

146

485
 

====

====

*

Restated for IFRIC 14 (note 1).

InterContinental Hotels Group PLC
GROUP CASH FLOW STATEMENT
For the year ended 31 December 2008

 

2008

$m

2007

$m
     

Profit for the year

262

463

Adjustments for:

    
 

Net financial expenses

101

90
 

Income tax charge

59

30
 

Depreciation and amortisation

112

116
 

Impairment

96

(6)
 

Other exceptional operating items

34

(56)
 

Gain on disposal of assets, net of tax

(5)

(32)
 

Equity-settled share-based cost, net of payments

31

48
 

Other non-cash items

3

(4)
 

____

____

Operating cash flow before movements in working capital

693

649

Increase in net working capital

123

22

Retirement benefit contributions, net of cost

(27)

(66)

Cash flows relating to exceptional operating items

(49)

-
 

____

____

Cash flow from operations

740

605

Interest paid

(112)

(84)

Interest received

12

18

Tax received/(paid) on operating activities

1

(74)
 

____

____

Net cash from operating activities

641

465
 

____

____

Cash flow from investing activities

    

Purchases of property, plant and equipment

(53)

(114)

Purchases of intangible assets

(49)

(40)

Investment in associates and other financial assets

(6)

(32)

Disposal of assets, net of costs and cash disposed of

25

97

Proceeds from associates and other financial assets

61

114

Tax paid on disposals

(3)

(64)
 

____

____

Net cash from investing activities

(25)

(39)
 

____

____

Cash flow from financing activities

    

Proceeds from the issue of share capital

2

32

Purchase of own shares

(139)

(162)

Purchase of own shares by employee share trusts

(22)

(138)

Proceeds on release of own shares by employee share trusts

2

21

Dividends paid to shareholders

(118)

(1,524)

(Decrease)/increase in borrowings

(316)

1,108
 

____

____

Net cash from financing activities

(591)

(663)
 

____

____
     

Net movement in cash and cash equivalents in the year

25

(237)

Cash and cash equivalents at beginning of the year

105

351

Exchange rate effects

(48)

(9)
 

____

____

Cash and cash equivalents at end of the year

82

105
 

====

====

InterContinental Hotels Group PLC
GROUP BALANCE SHEET

31 December 2008

 

2008

$m

2007
restated*

$m

ASSETS

    

Property, plant and equipment

1,684

1,934

Goodwill

143

221

Intangible assets

302

335

Investment in associates

43

65

Retirement benefit assets

40

49

Other financial assets

152

188
 

____

____

Total non-current assets

2,364

2,792
 

____

____

Inventories

4

6

Trade and other receivables

412

472

Current tax receivable

36

109

Cash and cash equivalents

82

105

Other financial assets

10

18
 

____

____

Total current assets

544

710
     

Non-current assets classified as held for sale

210

115
 

____

____

Total assets

3,118

3,617
 

====

====

LIABILITIES

    

Loans and other borrowings

(21)

(16)

Trade and other payables

(746)

(784)

Current tax payable

(374)

(426)
 

____

____

Total current liabilities

(1,141)

(1,226)
 

____

____

Loans and other borrowings

(1,334)

(1,748)

Retirement benefit obligations

(129)

(112)

Trade and other payables

(392)

(279)

Deferred tax payable

(117)

(148)
 

____

____

Total non-current liabilities

(1,972)

(2,287)
     

Liabilities classified as held for sale

(4)

(6)
 

____

____

Total liabilities

(3,117)

(3,519)
 

====

====

Net assets (note 12)

1

98
 

====

====

EQUITY

    

Equity share capital

118

163

Capital redemption reserve

10

10

Shares held by employee share trusts

(49)

(83)

Other reserves

(2,890)

(2,918)

Unrealised gains and losses reserve

9

38

Currency translation reserve

172

233

Retained earnings

2,624

2,649
 

____

____

IHG shareholders’ equity (note 13)

(6)

92

Minority equity interest

7

6
 

____

____

Total equity

1

98
 

====

====

*

Restated for IFRIC 14 (note 1).

InterContinental Hotels Group plc
Notes to the financial statements

1.

Basis of preparation
 

The audited consolidated financial statements of InterContinental Hotels Group PLC (IHG) for the year ended 31 December 2008 have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 1985.

The consolidated financial statements are presented in US dollars following a management decision to change the reporting currency from sterling during the year. The change lowers the Group’s exposure to currency translation risks as its revenue and profits are now primarily generated in US dollars or US dollar linked currencies. All comparative information has been restated into US dollars.
 

The Group early adopted IFRIC 14 ‘IAS 19 – The limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction’ for the first time at 31 December 2007. IFRIC 14 provides guidance on assessing the limit in IAS 19 ‘Employee Benefits’ on the amount of the surplus that can be recognised as an asset. It also explains how the pension asset or liability may be affected by a statutory or contractual minimum funding requirement. The 31 December 2007 balance sheet has subsequently been amended to show the retirement benefit assets net of tax previously recorded within deferred tax payable. There is no change to previously reported net assets. There have been corresponding changes to the actuarial gains and related tax reported in the restated Group Statement of Recognised Income and Expense for the year ended 31 December 2007.

In all other respects, these preliminary financial statements have been prepared on a consistent basis using the accounting policies set out in the IHG Annual Report and Financial Statements for the year ended 31 December 2007.

2.

Exchange rates
 

The results of operations have been translated into US dollars at the average rates of exchange for the year. In the case of the pound sterling, the translation rate is $1= £0.55 (2007 $1=£0.50). In the case of the euro, the translation rate is $1 = €0.68 (2007 $1 = €0.73).
 

Assets and liabilities have been translated into US dollars at the rates of exchange on the balance sheet date. In the case of the pound sterling, the translation rate is $1=£0.69 (2007 $1 = £0.50). In the case of the euro, the translation rate is $1 = €0.71 (2007 $1 = €0.68).

3.

Revenue
   

2008

$m

2007

$m
 

Continuing operations:

    
    Americas

                      920

902

 
    EMEA

     518                          

492

 
    AsiaPacific

    290                          

260
    Central

126                          

117
   

____

____
   

1,854

1,771
       
 

Discontinued operations (note 7)

43

79
   

____

____
   

1,897

1,850
   

====

====

 

 

4.

Operating profit
   

2008

$m

2007

$m
 

Continuing operations:

    
   

Americas

451

440
   

EMEA

171

134
   

Asia Pacific

68

63
   

Central

(155)

(163)
   

____

____
   

535

474
   

Exceptional operating items (note 5)

(132)

60
   

____

____
   

403

534
       
 

Discontinued operations (note 7)

14

17
   

____

____
   

417

551
   

====

====

5.

Exceptional items

2008

$m

2007

$m
 

Continuing operations:

    
       
 

Exceptional operating items

    
 

Administrative expenses:

    
 

Holiday Inn brand relaunch (a)

(35)

-
 

Office reorganisations (b)

(5)

(14)
 

Severance costs (c)

(19)

(59)

 -      
(14)
   

 
   

 
 

Other operating income and expenses:

    
 

Gain on sale of associate investments

13

22
 

Gain on sale of other financial assets

14

36
 

Loss on disposal of hotels*

(2)

-
 

Office reorganisations (b)

    -  

25

12

70
   

 
   

 
 

Depreciation and amortisation:

    
 

Office reorganisations (b)

(2)

(2)
       
 

Impairment:

    
 

Property, plant and equipment (d)

(12)

6
 

Goodwill (e)

(63)

-
 

Intangible assets (f)

(21)

-
   

____

____
   

(96)

6
   

____

____
   

(132)

60
   

====

====
 

Tax

    
 

Tax on exceptional operating items

17

-
 

Exceptional tax credit (g)

25

60
   

____

____
   

42

60
   

====

====
 

Discontinued operations:

    
       
 

Gain on disposal of assets (note 7)

    
 

Gain on disposal of hotels**

-

40
 

Tax charge

     5

5

====

    (8)

32
====
   

 

 
   

 
   

 

 

*

Relates to hotels classified as continuing operations.
 

**

Relates to hotels classified as discontinued operations.
 

The above items are treated as exceptional by reason of their size or nature.
 

a)

Relates to costs incurred in support of the worldwide relaunch of the Holiday Inn brand family that was announced on 24 October 2007.
 

b)

Relates to further costs incurred on the relocation of the Group’s head office and the closure of its Aylesbury facility.
 

c)

Severance costs relate to redundancies arising from a review of the Group’s cost base in light of the current economic climate.
 

d)

Relates to a North American hotel and arises from year-end value in use calculations, taking into account the current economic climate. Estimated future cash flows have been discounted at 13.5%.
 

e)

Arises in respect of the Americas managed cash-generating unit and reflects revised fee expectations in light of the current economic climate. Estimated future cash flows have been discounted at 12.5%.
 

f)

Relates to the capitalised value of management contracts accounted for as intangible assets and arises from a revision to expected fee income. Estimated future cash flows have been discounted at 12.5% (previous valuation: 10.0%). The charge relates to the EMEA business segment.
 

g)

Relates to the release of provisions which are exceptional by reason of their size or nature relating to tax matters which have been settled or in respect of which the relevant statutory limitation period has expired.

6.

Tax
 

The effective tax rate on the combined profit from continuing and discontinued operations, excluding the impact of exceptional items (note 5), is 23% (2007 22%).

 

By also excluding the effect of prior year items, the equivalent effective tax rate is 39% (2007 36%). Prior year items have been treated as relating wholly to continuing operations.

   

2008

2008

2008

2007

2007

2007
 

Year ended 31 December

Profit

$m

Tax

$m

Tax
rate

Profit

$m

Tax

$m

Tax

rate
 

Before exceptional items

            
 

Continuing operations

434

(96)

  

384

(84)

  
 

Discontinued operations

14

(5)

  

17

(6)

  
   

____

____

  

____

____

  
   

448

(101)

23%

401

(90)

22%
 

Exceptional items

            
 

Continuing operations

(132)

42

  

60

60

  
 

Discontinued operations

-

5

  

40

(8)

  
   

____

____

  

____

____

  
   

316

(54)

  

501

(38)

  
   

====

====

  

====

====

  
 

Analysed as:

            
   

UK tax

  

(5)

    

(6)

  
   

Foreign tax

  

(49)

    

(32)

  
     

____

    

_____

  
     

(54)

    

(38)

  
     

====

    

====

  

7.

Discontinued operations
 

Discontinued operations are those relating to hotels sold or those classified as held for sale as part of the asset disposal programme that commenced in 2003. These disposals underpin IHG’s strategy of growing its managed and franchised business whilst reducing asset ownership.
 
The results of discontinued operations which have been included in the consolidated income statement are as follows:
   

2008

$m

2007

$m
       
 

Revenue

43

79
 

Cost of sales

(29)

(59)
   

____

____
   

14

20
 

Depreciation and amortisation

-

(3)
   

____

____
 

Operating profit

14

17
 

Tax

(5)

(6)
   

____

____
 

Profit after tax

9

11
       
 

Gain on disposal of assets, net of tax (note 5)

5

32
   

____

____
 

Profit for the year from discontinued operations

14

43
   

====

====

   

2008

cents per share

2007

cents per
share
 

Earnings per share from discontinued operations

    
 

Basic

4.9

13.4
 

Diluted

4.7

13.0
   

====

====

   

2008

$m

2007

$m
 

Cash flows attributable to discontinued operations

    
 

Operating profit before interest, depreciation and amortisation

14

20
 

Investing activities

-

(2)
   

____

____
   

14

18
   

====

====

 

The effect of discontinued operations on segmental results is shown in the Business Review.

8.

Earnings per ordinary share
 

Basic earnings per ordinary share is calculated by dividing the profit for the year available for IHG equity holders by the weighted average number of ordinary shares, excluding investment in own shares, in issue during the year.
 
Diluted earnings per ordinary share is calculated by adjusting basic earnings per ordinary share to reflect the notional exercise of the weighted average number of dilutive ordinary share options outstanding during the year.
 
Adjusted earnings per ordinary share is disclosed in order to show performance undistorted by exceptional items, to give a more meaningful comparison of the Group’s performance.

   

2008
Continuing
operations

2008
 
Total

2007
Continuing

operations

2007
 
Total
 

Basic earnings per share

        
 

Profit available for equity holders ($m)

248

262

420

463
 

Basic weighted average number of ordinary shares (millions)

287

287

320

320
 

Basic earnings per share (cents)

86.4

91.3

131.3

144.7
   

====

====

====

====
 

Diluted earnings per share

        
 

Profit available for equity holders ($m)

248

262

420

463
 

Diluted weighted average number of ordinary shares (millions)

296

296

329

329
 

Diluted earnings per share (cents)

83.8

88.5

127.7

140.7
   

====

====

====

====
 

Adjusted earnings per share

        
 

Profit available for equity holders ($m)

248

262

420

463
 

Adjusting items (note 5):

        
   

Exceptional operating items ($m)

132

132

(60)

(60)
   

Tax on exceptional operating items ($m)

(17)

(17)

-

-
   

Exceptional tax credit ($m)

(25)

(25)

(60)

(60)
   

Gain on disposal of assets, net of tax ($m)

-

(5)

-

(32)
   

____

____

____

____
 

Adjusted earnings ($m)

338

347

300

311
 

Basic weighted average number of ordinary shares (millions)

287

287

320

320
 

Adjusted earnings per share (cents)

117.8

120.9

93.8

97.2
   

====

====

====

====
 

Diluted weighted average number of ordinary shares (millions)

296

296

329

329
 

Adjusted diluted earnings per share (cents)

114.2

117.2

91.2

94.5
   

====

====

====

====

 

The diluted weighted average number of ordinary shares is calculated as:

2008
millions

2007
millions
       
 

Basic weighted average number of ordinary shares

287

320
 

Dilutive potential ordinary shares – employee share options

9

9
   

____

____
   

296

329
   

====

====

9.

Dividends
   

2008 cents per share

2007 cents per share

2008
$m

2007
$m
 

Paid during the year:

        
   

Final (declared in previous year)

29.2

25.9

86

92
   

Interim

12.2

11.5

32

35
   

Special interim

-

400.0

-

1,397
   

____

____

____

____
   

41.4

437.4

118

1,524
   

====

====

====

====
 

Proposed for approval at the Annual General Meeting (not recognised as a liability at 31 December):

        
   

Final

29.2

29.2

83

86
   

====

====

====

====

 

The proposed final dividend is payable on the shares in issue at 27 March 2009.

10.

Net debt
   

2008

$m

2007

$m
       
 

Cash and cash equivalents

82

105
 

Loans and other borrowings – current

(21)

(16)
 

Loans and other borrowings – non-current

(1,334)

(1,748)
   

____

____
 

Net debt

(1,273)

(1,659)
   

====

====
 

Finance lease liability included above

(202)

(200)
   

====

====

11.

Movement in net debt
   

2008

$m

2007

$m
       
 

Net increase/(decrease) in cash and cash equivalents

25

(237)
 

Add back cash flows in respect of other components of net debt:

    
   

Decrease/(increase) in borrowings

316

(1,108)
   

____

____
 

Decrease/(increase) in net debt arising from cash flows

341

(1,345)
       
 

Non-cash movements:

    
   

Finance lease liability

(2)

(18)
   

Exchange and other adjustments

47

(33)
   

____

____
 

Decrease/(increase) in net debt

386

(1,396)
 

Net debt at beginning of the year

(1,659)

(263)
   

____

____
 

Net debt at end of the year

(1,273)

(1,659)
   

====

====

12.

Net assets
   

2008

$m

2007
restated*

$m
       
 

Americas

598

780
 

EMEA

488

739
 

Asia Pacific

454

536
 

Central

189

167
   

____

____
   

1,729

2,222
       
 

Net debt

(1,273)

(1,659)
 

Unallocated assets and liabilities

(455)

(465)
   

____

____
   

1

98
   

====

====

 

*

Restated for IFRIC 14 (note 1).

13.

Statement of changes in IHG shareholders’ equity
   

2008

$m

2007

$m
       
 

At beginning of the year

92

1,330
       
 

Total recognised income and expense for the year

146

485
 

Equity dividends paid (note 9)

(118)

(1,524)
 

Issue of ordinary shares

2

32
 

Purchase of own shares

(139)

(162)
 

Movement in shares in employee share trusts

(22)

(117)
 

Equity settled share-based cost, net of payments

33

48
   

____

____
 

At end of the year

(6)

92
   

====

====

14.

Capital commitments and contingencies
 

At 31 December 2008, the amount contracted for but not provided for in the financial statements for expenditure on property, plant and equipment was $40m (2007 $20m).
 
At 31 December 2008, the Group had contingent liabilities of $12m (2007 $10m), mainly comprising guarantees given in the ordinary course of business.
 
In limited cases, the Group may provide performance guarantees to third-party owners to secure management contracts. The maximum exposure under such guarantees is $249m (2007 $243m). It is the view of the Directors that, other than to the extent that liabilities have been provided for in these financial statements, such guarantees are not expected to result in material financial loss to the Group.
 
The Group has given warranties in respect of the disposal of certain of its former subsidiaries and hotels. It is the view of the Directors that, other than to the extent that liabilities have been provided for in these financial statements, such warranties are not expected to result in material financial loss to the Group.

15.

Other commitments
 

In March and June 2007, the Company made the first two payments of £10m under the agreement to make special pension contributions of £40m to the UK pension plan. A further payment of £10m was made on 31 January 2008 and the final commitment of £10m has been met through the funding of an enhanced pension transfer arrangement in January 2009. The enhanced pension transfer arrangement will result in an exceptional income statement charge in the first quarter of 2009, estimated at $22m.

On 24 October 2007, the Group announced a worldwide relaunch of its Holiday Inn brand family. In support of this relaunch, IHG will make a non-recurring revenue investment of $60m which will be charged to the income statement as an exceptional item. $35m has been charged in 2008.

16.

Group financial statements
 

The preliminary statement of results was approved by the Board on 16 February 2009. The preliminary statement does not represent the full Group financial statements of InterContinental Hotels Group PLC and its subsidiaries which will be delivered to the Registrar of Companies in due course. The financial information for the year ended 31 December 2007 has been extracted from the IHG Annual Report and Financial Statements for that year, as filed with the Registrar of Companies, and converted to US dollars and restated as described in note 1.

 

Auditors’ review
 

The auditors, Ernst & Young LLP, have given an unqualified report under Section 235 of the Companies Act 1985, as amended, in respect of the full Group financial statements for both years referred to above.


 



 


 
 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

InterContinental Hotels Group PLC

(Registrant)

 

 

 

By:

/s/ C. Cox

Name:

C. COX

Title:

COMPANY SECRETARIAL OFFICER

 

 

 

Date:

17 February, 2009