EX-99.1 2 dex991.htm FULL YEAR RESULTS TO 31 DECEMBER 2006 Full Year Results to 31 December 2006

Exhibit 99.1

20 February 2007

InterContinental Hotels Group PLC

Full Year Results to 31 December 2006

Headlines

 

  •  

Continuing revenue up 13% from £713m to £805m, up 13% at constant exchange rates.

 

  •  

Continuing operating profit up 16% from £173m to £201m, up 17% at constant exchange rates.

 

  •  

Operating profit of £258m, including other operating income and expenses of £27m.

 

  •  

Global constant currency RevPAR growth of 9.8%. Total gross revenue* from all hotels in IHG’s system up 9% to £8.3bn.

 

  •  

Franchised operating profit up 10% to £235m. Managed operating profit up 27% to £85m.

 

  •  

Adjusted continuing earnings per share up 67% from 22.5p to 37.5p. Basic earnings per share of 104.1p.

 

  •  

Further £850m return of funds announced, taking total returns to £3.6bn since March 2004.

 

  •  

Final dividend up 24% to 13.3p. Total dividend up 20% to 18.4p.

 

  •  

Room count up by 18,713 rooms to 556,246. Now expect to exceed 50,000-60,000 net rooms growth target.

 

  •  

Signings up 47% to 102,774 rooms. Development pipeline up by 49,479 rooms to 157,991 (1,241 hotels).

 

* 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.

All figures and movements unless otherwise noted are at actual exchange rates and before other operating income and expenses.

See appendix 3 for analysis of financial headlines. Constant exchange rate comparatives shown in appendix 4

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

“2006 was a successful year for IHG on all fronts. We outperformed the market and saw a record level of signings for IHG brands. We now expect to exceed our growth target of adding 50,000-60,000 rooms on a net and organic basis by the end of 2008. We have strengthened the business and are executing a clear strategy. We have made a good start to 2007 with the opening of InterContinental Los Angeles and the signing of our 125th hotel in China, the Crowne Plaza Sun Palace Beijing. We continue to be very positive about the Company’s prospects.”

Increase in development pipeline and rooms open

IHG continues to increase its development pipeline, and now expects to exceed its 50,000-60,000 net organic room additions target by the end of 2008 from the 30 June 2005 starting position of 537,675.

 

  •  

102,774 rooms were signed in the year; 61,673 in the Americas, 13,321 in EMEA and 27,780 in Asia Pacific.

 

  •  

157,991 rooms are now in the pipeline, up 49,479 (46%) since the start of the year, at 1,241 hotels.

 

 

•

  

IHG’s development activity in Asia Pacific continues to be successful. In Greater China 39 hotels, 16,445 rooms, were signed in the year, including 8 InterContinentals, 5 Crowne Plazas, 13 Holiday Inns and 13 Holiday Inn Expresses. The 125th hotel in China has now been signed in pursuit of IHG’s target of having 125 hotels in China open by the end of 2008. IHG also entered into a joint venture with ANA during 2006; 13 ANA owned hotels, 4,937 rooms, entered the IHG system during December, making IHG the largest international hotel operator in Japan.

IHG maintains its focus on enhancing the quality of its portfolio, in tandem with growth. In 2006:

 

  •  

42,841 rooms opened; 26,613 in the Americas, 4,823 in EMEA and 11,405 in Asia Pacific.

 

  •  

24,128 rooms exited; 18,310 in the Americas, 3,642 in EMEA and 2,176 in Asia Pacific.

 

  •  

The room count at the end of the year increased by 18,713 rooms to 556,246.

Disposals and returns of funds

In the year, the sale of 31 Continental European hotels was completed for £680m before transaction costs and $191m was received from the sale of Felcor shares. 28.4m shares were repurchased under IHG’s ongoing buyback programme at a cost of £258m. There were 356m shares outstanding at the end of the year, 366m on a fully diluted basis. IHG’s net debt at the period end was £134m including the $186m (£97m) finance lease on the InterContinental Boston. £850m further return of funds was announced today. £700m will be returned via a special dividend with share consolidation and £150m via a further share buyback programme.

IHG continues to own 25 hotels with a book value of £1bn. The InterContinental brand repositioning introduced in 2006 has accelerated the pace of signings and improved guest preference, and recent research confirms its strong growth potential. IHG will consider the need for continued ownership of each of its owned InterContinental hotels once additional brand representation has been identified in its market and financial results are at the right level to maximise value.

IHG’s strategy envisages a reduction in capital intensity and the return of surplus funds to shareholders. Capital investment in new hotel projects will be made where this creates value by accelerating the development of IHG’s brands. Such investment will be funded largely from the proceeds of hotel disposals with a view subsequently to recycling that capital into other projects.

 

Americas: strong performance across all brands

Revenue performance

RevPAR increased 9.2% with rate generating most of the increase. InterContinental, Crowne Plaza, Holiday Inn, Holiday Inn Express and Candlewood each outperformed their market segments, with RevPAR up 10.4%, 10.4%, 7.4%, 10.7% and 7.4% respectively. Staybridge Suites also showed continued growth, with a 7.1% increase. Holiday Inn’s fourth quarter RevPAR growth was lower, in line with the industry, due to the prior year comparable having benefited from Hurricane Katrina displacement.

Operating profit performance

Operating profit from continuing operations increased 18% from $339m to $399m. Continuing owned and leased hotel operating profit improved from $25m to $26m impacted, as expected, by a $6m loss from InterContinental Boston in its opening year. The underlying improvement of $7m was driven by increased occupancy and rate at the InterContinental Atlanta and InterContinental San Francisco, and increased rate at InterContinental New York. Managed hotels profit was up 39% to $50m, benefiting from improved trading in existing operations and retained management contracts on assets disposed. Franchised hotels profit increased 12% to $382m reflecting RevPAR growth of 9.2% and net room count growth of 4%.

EMEA: RevPAR growth accelerating

Revenue performance

RevPAR increased 12.1%, driven by increased occupancy and 8.5% rate growth. The Middle East continued to perform strongly, growing RevPAR by 19.0%. Continental Europe delivered a RevPAR increase of 9.0%, benefiting from continued improvement across the region, particularly in Germany and France. In the UK, Holiday Inn and Express by Holiday Inn performed in-line with the market segment, recording RevPAR growth of 6.3%.

Operating profit performance

Operating profit from continuing operations increased 16% from £31m to £36m. Continuing owned and leased hotel operations were flat at a loss of £5m. InterContinental Le Grand Paris continued to rebuild its business post refurbishment, delivering a 25.8% RevPAR increase. The refurbishment of InterContinental London Park Lane, which impacted 2006 profit versus 2004 by £18m, is largely complete; the hotel reopened in November 2006 and is expected to be fully operational by Spring 2007. Managed hotels profit was up 19% from £31m to £37m, as a result of improved trading and retained management contracts on assets disposed. Franchised hotels profit decreased from £26m to £24m with an underlying trading improvement outweighed by the non-recurrence of the £7m liquidated damages received in 2005.

Asia Pacific: strong growth

Revenue performance

IHG’s market leading positions in the region have led to further strong growth. RevPAR increased 10.2%, mainly driven by rate. InterContinental, Crowne Plaza and Holiday Inn all performed strongly, with RevPAR up 11.5%, 10.3% and 8.5% respectively. Greater China RevPAR increased 12.1%, driven by rate increases.

Operating profit performance

Operating profit from continuing operations increased 33% from $39m to $52m. Owned and leased hotel operating profit increased 55% to $31m as a result of excellent trading at InterContinental Hong Kong, driven by a 31.8% RevPAR increase. Managed hotels profit increased 34% to $39m, driven by good trading and retained management contracts on asset disposals.

Strengthening Operating System

IHG continues to demonstrate the strength of its revenue delivery to hotel owners through its reservation channels and loyalty programme, Priority Club Rewards:

 

  •  

$5.7bn of rooms revenue booked through IHG’s reservation channels, 44% of total rooms revenue, up from 41% in 2005.

 

  •  

$4.4bn of rooms revenue from Priority Club Rewards members, 34% of total rooms revenue, up from 32% in 2005.

 

  •  

Internet revenues increased from 14% to 16% of total rooms revenue, 86% of which was from IHG’s own websites.

Overheads and Tax

Asia Pacific regional overheads increased by £4m to £12m after continued infrastructure investment in China. This was balanced by reductions in the Americas and EMEA which left the aggregated regional overheads up £1m at £64m. As previously indicated, central overheads in the fourth quarter were higher than previous periods at £25m, bringing the total for the full year to £81m, an increase of £16m. This included investment in new global research designed to enable higher quality brand development and enhance IHG’s franchising capability going forward. Central overheads in 2007 are expected to increase in line with inflation.

The effective tax rate for 2006 was 24%. IHG’s tax rate is expected in the long term, as previously indicated, to trend upwards.

Appendix 1: Asset disposal programme detail

 

    

Number of

hotels

    Proceeds     Net book value  

Disposed since April 2003

    174    £ 3.0 bn   £ 2.9 bn

Remaining hotels

    25      £ 1.0 bn

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

Appendix 2: Return of funds programme as at 31 December 2006

 

     Timing    Total return     Returned     Still to be returned  

£501m special dividend

    Paid December 2004    £ 501 m   £ 501 m     Nil  

First £250m share buyback

    Completed in 2004    £ 250 m   £ 250 m     Nil  

£996m capital return

    Paid 8 July 2005    £ 996 m   £ 996 m     Nil  

Second £250m share buyback

    Completed in 2006    £ 250 m   £ 250 m     Nil  

£497m special dividend

    Paid 22 June 2006    £ 497 m   £ 497 m     Nil  

Third £250m share buyback

    Underway    £ 250 m   £ 219 m   £ 31 m

£700m special dividend

    Quarter 2, 2007    £ 700 m     Nil     £ 700 m

£150m share buyback

    Yet to commence    £ 150 m     Nil     £ 150 m

Total

       £ 3.59 bn   £ 2.71 bn   £ 0.88 bn

Appendix 3: Financial headlines

 

      Total     Americas     EMEA     Asia Pacific     Central  

Twelve months to 31 Dec £m

    2006     2005     2006     2005     2006     2005     2006     2005     2006     2005  

Franchised operating profit

    235     214     208     186     24     26     3     2      

Managed operating profit

    85     67     27     20     37     31     21     16      

Continuing owned and leased operating profit

    26     20     14     14     (5 )   (5 )   17     11      

Regional overheads

    (64 )   (63 )   (32 )   (34 )   (20 )   (21 )   (12 )   (8 )    

Continuing operating profit pre central overheads

    282     238     217     186     36     31     29     21      

Central overheads

    (81 )   (65 )   —       —       —       —       —       —       (81 )   (65 )

Continuing operating profit

    201     173     217     186     36     31     29     21     (81 )   (65 )

Discontinued owned and leased operating profit

    30     96     4     12     26     73     —       11     —       —    

Total operating profit

    231     269     221     198     62     104     29     32     (81 )   (65 )

Appendix 4: Constant currency continuing operating profits before other operating income and expenses.

 

     Americas     EMEA     Asia Pacific     Total***  
    

Actual

currency*

    

Constant

currency**

    

Actual

currency*

    

Constant

currency**

    

Actual

currency*

    

Constant

currency**

    

Actual

currency*

    

Constant

currency**

  

Growth

    17 %   17 %   16 %   15 %   38 %   38 %   16 %   17 %

 

Exchange rates

    USD:GBP    EUR:GBP

2006

    1.84    1.47

2005

    1.83    1.46

 

* Sterling actual currency
** Translated at constant 2005 exchange rates
*** After Central Overheads

Appendix 5: Investor information for 2006 final dividend

 

Ex-dividend Date:    21 March 2007
Record Date:    23 March 2007
Payment Date:    8 June 2007

Dividend

payment:

   

Ordinary shares 13.3p per share:

ADRs 25.9c per ADR

For further information, please contact:

 

Investor Relations (Paul Edgecliffe-Johnson; Heather Ward):

    +44 (0) 1753 410 176

Media Affairs (Leslie McGibbon):

    +44 (0) 1753 410 425
   +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 20 February at InterContinental London Park Lane, One Hamilton Place, Park Lane W1J 7QY. 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/prelims07. 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 7863 6164

US Q&A conference call

There will also be a conference call, primarily for US investors and analysts, at 10.00am (Eastern Standard Time) on 20 February with Andrew Cosslett (Chief Executive) and Richard Solomons (Finance Director). There will be an opportunity to ask questions.

 

International dial-in    +44 (0)1452 562716
US Toll Free    1866 832 0717
Conference ID:    7492790

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 7492790#

 

International dial-in    +44 (0)1452 550000
US Toll Free    1866 247 4222

Website

The full release and supplementary data will be available on our website from 7.00 am (London time) on Tuesday 20 February. The web address is www.ihg.com/prelims07

Note to Editors:

InterContinental Hotels Group PLC of the United Kingdom [LON:IHG, NYSE:IHG (ADRs)] is the world’s largest hotel group by number of rooms. InterContinental Hotels Group owns, manages, leases or franchises, through various subsidiaries, over 3,700 hotels and 556,000 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, Crowne Plaza® Hotels & Resorts, Holiday Inn® Hotels and Resorts, Holiday Inn Express®, Staybridge Suites®, Candlewood Suites® and Hotel IndigoTM, and also manages the world’s largest hotel loyalty programme, Priority Club® Rewards.

InterContinental Hotels Group 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 InterContinental Hotels Group, visit our online Press Office at www.ihg.com/media

OPERATING AND FINANCIAL REVIEW

This operating and financial review (OFR) provides a commentary on the performance of InterContinental Hotels Group PLC (the Group or IHG) for the financial year ended 31 December 2006.

BUSINESS OVERVIEW

Market and Competitive Environment

IHG operates in the global hotel market which has an estimated total room capacity of 18.8 million rooms. Room capacity has been growing at approximately 3% per annum over the last five years. The hotel market is geographically concentrated with 12 countries accounting for two-thirds of worldwide hotel room supply. The Group has a leadership position (top three by room numbers) in more of these markets than any other major hotel company.

The hotel market is, however, a fragmented market with the four largest companies controlling only 11% of the global hotel room supply and the 10 largest controlling less than 21%. The Group is the largest of these companies by room numbers with a 3% market share. The major competitors in this market include other large global hotel companies, smaller hotel companies and independent hotels.

Within the global market, a relatively low proportion of hotel rooms are branded (see figure 1), but there has been an increasing trend towards branded rooms. For example, Mintel, a market research company, estimates that the proportion of branded rooms in Europe has grown from 15% in 2000 to 25% in 2004. Larger branded companies are therefore gaining market share at the expense of smaller companies and independent hotels. IHG is well positioned to benefit from this trend. Hotel owners are increasingly recognising the benefits of working with a group such as IHG which can offer a portfolio of brands to suit the different real-estate opportunities an owner may have. Furthermore, hotel ownership is increasingly being separated from hotel operations, encouraging hotel owners to use third parties such as IHG to manage or franchise their hotels.

Figure 1

 

Percentage of branded hotel rooms by region

    2004

North America

    65%

South America

    20%

Europe

    25%

Middle East

    25%

East Asia

    25%

Source: Mintel (latest data available)

US market data indicates a steady increase in hotel industry revenues, broadly in line with Gross Domestic Product, with growth of approximately 1-1.5% per annum in real terms since 1967 driven by a number of underlying trends:

 

•  

change in demographics - as the population ages and becomes wealthier, increased leisure time and income encourages more travel and hotel visits;

 

•  

increase in travel volumes as low cost airlines grow rapidly;

 

•  

globalisation of trade and tourism;

 

•  

increase in affluence and freedom to travel within the Chinese middle class; and

 

•  

increase in the preference for branded hotels amongst consumers.

Potential negative trends include increased terrorism, environmental considerations and economic factors such as rising oil prices. Currently, however, there are no indications that demand is being significantly affected by these factors.

Supply growth in the industry is cyclical, averaging between zero and 5% per annum historically. The Group’s profit is partly protected from supply pressure due to its model of third party ownership of hotels under IHG management and franchise contracts.

Strategy

IHG owns, operates and franchises hotels, with its brands being represented in almost 100 countries and territories around the world. The strategy is to become the preferred hotel company for guests and owners by building the strongest operating system in the industry, focused on the biggest markets and segments where scale really counts. During 2006, IHG initiated a number of research projects, the results of which will strengthen the Group’s strategy with respect to brand development, franchising operations and growth opportunities.

The Group has four stated strategic priorities:

 

•  

brand performance - to operate a portfolio of brands attractive to both owners and guests that have clear market positions in relation to competitors;

 

•  

excellent hotel returns - to generate higher owner returns through revenue delivery and improved operating efficiency;

 

•  

market scale and knowledge - to accelerate profitable growth in the largest markets where the Group currently has scale; and

 

•  

aligned organisation - to create a more efficient organisation with strong core capabilities.

Executing the four strategic priorities is designed to achieve:

 

•  

organic growth of 50,000 to 60,000 net rooms by the end of 2008 (starting from 537,000 in June 2005), with specific growth targets for the InterContinental brand and the key Chinese market; and

 

•  

out-performance of total shareholder return against a competitor set.

Growth is planned to be attained predominantly from managing and franchising rather than owning hotels. Nearly 550,000 rooms operating under Group brands are managed or franchised. The managed and franchised model is attractive because it enables the Group to achieve its goals with limited capital investment. With a relatively fixed cost base, such growth yields high incremental margins for IHG, and is primarily how the Group has grown recently. For this reason, the Group has executed a disposal programme for most of its owned hotels, releasing capital and enabling returns of funds to shareholders.

A key characteristic of the managed and franchised business model on which the Group has focused is that it generates more cash than is required for investment in the business, with a high return on capital employed. Currently, 92% of continuing earnings before interest, tax and regional and central overheads is derived from managed and franchised operations.

The Group aims to deliver its growth targets through the strongest operating system in the industry which includes:

 

•  

a strong brand portfolio across the major markets, including two leading brands: InterContinental and Holiday Inn;

 

•  

market coverage - a presence in nearly 100 countries and territories;

 

•  

scale - 3,741 hotels, 556,246 rooms, 130 million guest stays per annum;

 

•  

IHG global reservation channels delivering $5.7bn of global system room revenue in 2006, $2.0bn from the internet;

 

•  

a loyalty programme, Priority Club Rewards, contributing $4.4bn of global system room revenue; and

 

•  

a strong web presence - holidayinn.com is the industry’s most visited site, with around 75 million total site visits per annum.

With a clear target for rooms growth and a number of brands with market premiums offering excellent returns for owners, the Group is well placed to execute its strategy and achieve its goals.

Business Relationships

IHG maintains effective business relationships across all aspects of it operations. However, the Group’s operations are not dependent upon any single customer, supplier or hotel owner due to the extent of its brands, market segments and geographical coverage. For example, the largest hotel owner controls less than 4% of the Group’s total room count.

To promote effective owner relationships, the Group’s management meets with owners of IHG branded hotels on a regular basis. In addition, IHG has an important relationship with the International Association of Holiday Inns

(IAHI). The IAHI is an independent worldwide association for owners of the Crowne Plaza, Holiday Inn, Holiday Inn Express, Hotel Indigo, Staybridge Suites and Candlewood Suites brands. IHG and the IAHI work together to support and facilitate the continued development of IHG’s brands and systems.

Many jurisdictions and countries regulate the offering of franchise agreements and recent trends indicate an increase in the number of countries adopting franchise legislation. As a significant percentage of the Group’s revenues are derived from franchise fees, the Group’s continued compliance with franchise legislation is important to the successful deployment of the Group’s strategy.

SIGNIFICANT DEVELOPMENTS

Investment with All Nippon Airways (ANA)

In December 2006, IHG invested £10m for a 75% stake in a hotel joint venture with ANA, IHG ANA Hotels Group Japan LLC (IHG ANA), increasing IHG’s portfolio in Japan from 12 hotels (3,686 rooms) to 25 hotels (8,623 rooms). As part of the transaction, ANA has signed 15 year management contracts with IHG ANA for its 13 owned and leased hotels (4,937 rooms).

Key Owned and Leased Assets

In November 2006, IHG reopened the InterContinental London Park Lane following the substantial completion of a major refurbishment and opened the newly built InterContinental Boston.

Asset Disposal Programme

During 2006, IHG achieved further progress with its asset disposal programme, including:

 

•  

the sale of 24 hotels in Continental Europe to a subsidiary of Westbridge Hospitality Fund LP for £240m, before transaction costs. IHG retained a 15 year franchise contract on each of the hotels; and

 

•  

the sale of seven European InterContinental hotels to Morgan Stanley Real Estate Funds (MSREF) for £440m, before transaction costs. IHG retained a 30 year management contract on each of the hotels, with two 10 year renewals at IHG’s discretion. The long-term contracts ensure continued representation of the InterContinental brand in key European markets.

These transactions support IHG’s continued strategy of growing its managed and franchised business whilst reducing asset ownership. Since April 2003, 174 hotels with a net book value of £2.9bn have been sold, generating aggregate proceeds of around £3.0bn. Of these 174 hotels, 156 have remained in the IHG system through either franchise or management agreements.

Figure 2

 

Asset disposal programme detail

   

Number of

hotels

    Proceeds    

Net book

value

  

Disposed since April 2003

    174    £ 3.0 bn   £ 2.9 bn

Remaining owned and leased hotels

    25      —       £ 1.0 bn

Return of Funds Programme

In the year, IHG paid a £497m special dividend, completed a second £250m share buyback and substantially completed a third £250m share buyback. Since April 2003, IHG has returned £2.7bn to shareholders.

On 20 February 2007, a further £850m return of funds was announced, comprising a £700m special dividend with share consolidation and a £150m share buyback.

Figure 3

 

Return of funds programme

   

Timing

    Total return     Returned to date     Still to be returned  

£501m special dividend

    Paid December 2004    £ 501 m   £ 501 m     Nil  

First £250m share buyback

    Completed in 2004    £ 250 m   £ 250 m     Nil  

£996m capital return

    Paid July 2005    £ 996 m   £ 996 m     Nil  

Second £250m share buyback

   

Completed in 2006

    £ 250 m   £ 250 m     Nil  

£497m special dividend

    Paid June 2006    £ 497 m   £ 497 m     Nil  

Third £250m share buyback

   

Under way

    £ 250 m   £ 219 m   £ 31 m

£700m special dividend

    Quarter 2 2007    £ 700 m     —       £ 700 m

£150m share buyback

    Yet to commence    £ 150 m     —       £ 150 m

Total

       £ 3,594 m   £ 2,713 m   £ 881 m

Management and Organisation

In 2006, there were no significant changes to the management and organisation of the Group. During the year, the Group focused on realising benefits from the prior year global realignment of functions, including Finance, Human Resources and Information Technology.

The following announcements relating to members of the Executive Committee were made during 2006:

 

•  

the appointment of Tom Conophy in January 2006 as Chief Information Officer (CIO), a new position created to develop the global technology strategy across IHG’s brands, leveraged by his 25 years of experience in the Information Technology (IT) industry; and

 

•  

the retirement of Richard Hartman, President, EMEA, effective from September 2007.

GROUP PERFORMANCE

 

     12 months ended 31 December  

Summary Results

    2006
£m		     2005
£m		     %
change		  

Revenue:

       

Americas

    433     384     12.8  

EMEA

    206     200     3.0  

Asia Pacific

    111     87     27.6  

Central

    55     42     31.0  
                  

Continuing operations

    805     713     12.9  

Discontinued operations

    155     1,197     (87.1 )
                  
   960     1,910     (49.7 )
                  

Operating profit:

       

Americas

    217     186     16.7  

EMEA

    36     31     16.1  

Asia Pacific

    29     21     38.1  

Central

    (81 )   (65 )   24.6  
                  

Continuing operations

    201     173     16.2  

Discontinued operations

    30     166     (81.9 )
                  

Operating profit before other operating income and expenses

    231     339     (31.9 )

Other operating income and expenses

    27     (22 )   —    
                  

Operating profit

    258     317     (18.6 )

Interest

    (11 )   (33 )   (66.7 )
                  

Profit before tax

    247     284     (13.0 )
                  

Analysed as:

       

Continuing operations

    217     127     70.9  

Discontinued operations

    30     157     (80.9 )
                  

Earnings per ordinary share:

       

Basic

    104.1 p   95.2 p   9.3  

Adjusted

    42.9 p   38.2 p   12.3  

Adjusted – continuing operations

    37.5 p   22.5 p   66.7  

Group Results

Revenue from continuing operations increased by 12.9% to £805m and continuing operating profit increased by 16.2% to £201m during the 12 months ended 31 December 2006. The growth was driven by a combination of strong industry fundamentals in all three of IHG’s regions, RevPAR premiums to market for most of IHG’s brands and continuing expansion in hotel and room count.

Including discontinued operations, total operating profit, before other operating income and expenses, decreased by 31.9% to £231m during 2006 as a result of asset disposals. Discontinued operations represent the results from operations that have been sold or are held for sale and where there is a co-ordinated plan to dispose of the operations under IHG’s asset disposal programme. In this OFR, discontinued operations include owned and leased hotels in the US, UK, Continental Europe and Asia Pacific that have been sold or placed on the market from 1 January 2005, and the Britvic Group, disposed of by way of an initial public offering in December 2005.

With the weighted average US dollar exchange rate to sterling being similar to the rate in 2005 (2006 $1.84: £1, 2005 $1.83: £1), growth rates for results expressed in US dollars were similar to those in sterling. Continuing operating profit before other operating income and expenses was $369m, ahead of 2005 by 16.8%. Including discontinued operations, operating profit before other income and expenses was $424m, 31.5% lower than 2005.

Total Gross Revenues

One measure of overall IHG hotel system performance is the growth in total gross revenue, with 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 9.4% from $13.9bn in 2005 to $15.2bn in 2006, with strong growth levels achieved across all major brands (see figure 4).

Figure 4

 

     12 months ended 31 December

Total gross revenues

    2006
$bn		    2005
$bn		    %
change

InterContinental

    3.0    2.7    11.1

Crowne Plaza

    2.3    2.0    15.0

Holiday Inn

    6.3    6.0    5.0

Holiday Inn Express

    3.0    2.6    15.4

Other brands

    0.6    0.6    —  
              

Total

    15.2    13.9    9.4
              

Global Room Count and Pipeline

During 2006, the IHG global system (the number of hotels and rooms which are owned, leased, managed or franchised by the Group) increased by 135 hotels (18,713 rooms). The growth was driven by continued expansion in the US and Greater China (which includes the People’s Republic of China, Hong Kong, Macau and Taiwan), together with the addition of IHG ANA (13 hotels, 4,937 rooms). Holiday Inn Express represented 71% of the net hotel growth, demonstrating strong market demand in the midscale, limited service sector. The net decline in the number of Holiday Inn hotels mainly reflects IHG’s continued strategy to reinvigorate the Holiday Inn brand through the removal of lower quality, non-brand conforming hotels in the US.

Figure 5

 

     Hotels     Rooms  

Global hotel and room count at 31 December

    2006   

Change

Over 2005

     2006   

Change

Over 2005

  

Analysed by brand:

           

InterContinental

    148    11     49,599    3,337  

Crowne Plaza

    275    40     75,632    10,228  

Holiday Inn

    1,395    (40 )   260,470    (7,346 )

Holiday Inn Express

    1,686    96     143,582    10,028  

Staybridge Suites

    97    10     10,953    1,038  

Candlewood Suites

    130    18     14,149    1,466  

Hotel Indigo

    6    3     893    396  

Other

    4    (3 )   968    (434 )
                      

Total

    3,741    135     556,246    18,713  
                      

Analysed by ownership type:

           

Owned and leased

    25    (30 )   8,460    (7,025 )

Managed

    512    8     125,214    3,965  

Franchised

    3,204    157     422,572    21,773  
                      

Total

    3,741    135     556,246    18,713  
                      

At the end of 2006, the IHG pipeline (contracts signed for hotels and rooms yet to enter the IHG global system) totalled 1,241 hotels (157,991 rooms). In the year, the hotel and room pipeline increased by over 40% as a result of record levels of signings across all regions.

Figure 6

 

     Hotels     Rooms  

Global pipeline at 31 December

    2006   

Change

Over 2005

     2006   

Change

Over 2005

  

Analysed by brand:

           

InterContinental

    36    9     13,211    3,858  

Crowne Plaza

    60    6     17,113    3,599  

Holiday Inn

    299    95     44,774    13,739  

Holiday Inn Express

    574    145     55,520    17,454  

Staybridge Suites

    120    41     12,605    4,410  

Candlewood Suites

    128    45     11,723    4,256  

Hotel Indigo

    24    16     3,045    2,163  
                      

Total

    1,241    357     157,991    49,479  
                      

Analysed by ownership type:

           

Owned and leased

    —      (2 )   —      (574 )

Managed

    139    41     41,648    13,843  

Franchised

    1,102    318     116,343    36,210  
                      

Total

    1,241    357     157,991    49,479  
                      

Reservation Systems and Loyalty Programme

IHG supports revenue delivery into its hotels through its global reservation channels and loyalty programme, Priority Club Rewards. In 2006, global system room revenue booked through IHG’s reservation channels increased by 21% to $5.7bn, and the proportion of IHG global system room revenue booked via IHG’s reservation channels increased from 41% to 44%.

The IHG internet channel continued to show strong growth, with global system room revenue booked via the internet increasing by 18% to $2.0bn, accounting for 16% of IHG global system room revenue (up from 14% in 2005).

Room revenue generated from Priority Club Rewards members (across all IHG channels) increased by 16% to $4.4bn and represented 34% of IHG global system room revenue (up from 32% in 2005).

AMERICAS

 

     12 months ended 31 December  

Americas Results

    2006
$m		     2005
$m		     %
change		  

Revenue:

       

Owned and leased

    211     195     8.2  

Managed

    143     118     21.2  

Franchised

    443     389     13.9  
                  

Continuing operations

    797     702     13.5  

Discontinued operations*

    55     111     (50.5 )
                  

Total $m

    852     813     4.8  
                  

Sterling equivalent £m

    463     445     4.0  
                  

Operating profit before other operating income and expenses:

       

Owned and leased

    26     25     4.0  

Managed

    50     36     38.9  

Franchised

    382     340     12.4  
                  
   458     401     14.2  

Regional overheads

    (59 )   (62 )   (4.8 )
                  

Continuing operations

    399     339     17.7  

Discontinued operations*

    8     23     (65.2 )
                  

Total $m

    407     362     12.4  
                  

Sterling equivalent £m

    221     198     11.6  
                  
* Discontinued operations are all owned and leased.

Revenue and operating profit from continuing operations increased by 13.5% to $797m and 17.7% to $399m respectively during 2006. Underlying trading performance across all ownership types was strong, although the pace of RevPAR growth achieved in the first half of the year was not maintained throughout the second half of the year.

Discontinued operations include the results of hotels sold during 2005 and 2006, together with four hotels currently on the market for disposal. Including discontinued operations, revenue grew 4.8% whilst operating profit increased by 12.4%.

Continuing owned and leased revenue increased by 8.2% to $211m. Owned and leased InterContinental branded hotels achieved RevPAR growth in excess of 12% over 2005, driven by gains in both daily rates and occupancy levels (see figure 7). The owned and leased results were impacted, as expected, by a $6m loss at the recently opened InterContinental Boston. Excluding this loss, the combined impact of RevPAR growth and operating efficiencies led to a 28% increase in operating profit from continuing owned and leased hotels.

Managed revenues increased by 21.2% to $143m during the year as a result of strong underlying trading, restructured management agreements, an increased number of hotels under management contracts and the full year benefit of contracts negotiated during 2005 as part of the hotel disposal programme. RevPAR growth in the managed hotels was strong across most brands (see figure 7). Holiday Inn growth levels were impacted during the fourth quarter by hotel refurbishments (nine of 28 hotels). Managed revenues include $80m (2005 $70m) from properties that are structured, for legal reasons, as operating leases but with the same characteristics as management contracts.

Managed operating profit increased by 38.9% to $50m including $9m (2005 $9m) from the managed properties held as operating leases and $3m from the receipt of business interruption proceeds following hurricane damage in 2005. As a consequence of the 2005 hurricane season, ongoing insurance costs increased significantly, reducing managed operating profit in 2006 by an incremental $3m.

Franchised revenue and operating profit increased by 13.9% to $443m and 12.4% to $382m respectively, driven by RevPAR growth of 9.2%, net room count growth of 4% and fees associated with record levels of signings. The RevPAR gains were achieved across all brands despite high prior year comparables (see figure 7). Holiday Inn Express and Crowne Plaza both reported double digit RevPAR growth, driven by higher daily rates.

Americas regional overheads were favourably impacted during the year by lower claims in the Company-funded employee healthcare programme.

Figure 7

 

Americas RevPAR movement on previous year

   

12 months ended

31 December 2006

  

Owned and leased (comparable):

   

InterContinental

    12.2 %

Managed (comparable):

   

InterContinental

    10.1 %

Crowne Plaza

    14.1 %

Holiday Inn

    4.7 %

Staybridge Suites

    8.8 %

Candlewood Suites

    9.9 %

Franchised (all hotels):

   

Crowne Plaza

    10.3 %

Holiday Inn

    7.6 %

Holiday Inn Express

    10.7 %

Figure 8

 

     Hotels     Rooms  

Americas hotel and room count at 31 December

    2006   

Change

Over 2005

     2006   

Change

Over 2005

  

Analysed by brand:

           

InterContinental

    49    4     16,525    1,197  

Crowne Plaza

    155    22     42,604    5,530  

Holiday Inn

    987    (40 )   186,067    (8,937 )

Holiday Inn Express

    1,506    81     123,718    7,908  

Staybridge Suites

    97    10     10,953    1,038  

Candlewood Suites

    130    18     14,149    1,466  

Hotel Indigo

    6    3     893    396  

Other

    —      (2 )   —      (295 )
                      

Total

    2,930    96     394,909    8,303  
                      

Analysed by ownership type:

           

Owned and leased

    13    1     4,679    428  

Managed

    189    (19 )   39,257    (6,063 )

Franchised

    2,728    114     350,973    13,938  
                      

Total

    2,930    96     394,909    8,303  
                      

Americas net hotel and room count grew by 96 hotels (8,303 rooms) to 2,930 hotels (394,909 rooms) (see figure 8). The net growth includes openings of 222 hotels (26,613 rooms) led by demand for Holiday Inn Express 128 hotels (11,155 rooms). Although the regions net growth was predominantly achieved in the US markets, Mexico represented over 10% of the expansion. The net growth also includes removals of 126 hotels (18,310 rooms), of which Holiday Inn hotels represented 56% (74% of rooms).

Figure 9

 

     Hotels     Rooms  

Americas pipeline at 31 December

    2006   

Change

Over 2005

     2006   

Change

Over 2005

  

Analysed by brand:

           

InterContinental

    6    (1 )   2,935    (770 )

Crowne Plaza

    24    1     5,839    1,227  

Holiday Inn

    212    59     26,566    7,525  

Holiday Inn Express

    503    114     43,550    10,587  

Staybridge Suites

    115    36     12,027    3,832  

Candlewood Suites

    128    45     11,723    4,256  

Hotel Indigo

    24    16     3,045    2,163  
                      

Total

    1,012    270     105,685    28,820  
                      

Analysed by ownership type:

           

Owned and leased

    —      (2 )   —      (574 )

Managed

    14    1     3,710    (231 )

Franchised

    998    271     101,975    29,625  
                      

Total

    1,012    270     105,685    28,820  
                      

The Americas pipeline continued to achieve record growth levels and totalled 1,012 hotels (105,685 rooms) at 31 December 2006. Signing levels outpaced prior year as demand for the new Holiday Inn prototype and Holiday Inn Express continued to accelerate throughout 2006. During the year 61,673 room signings were completed, compared to 49,765 room signings in 2005. This level of growth demonstrates strong demand for IHG brands and represents a key driver of future profitability.

EUROPE, MIDDLE EAST AND AFRICA (EMEA)

 

     12 months ended 31 December  

EMEA Results

   

2006

£m

    

2005

£m

     %
change		  

Revenue:

       

Owned and leased

    100     110     (9.1 )

Managed

    71     55     29.1  

Franchised

    35     35     —    
                  

Continuing operations

    206     200     3.0  

Discontinued operations*

    125     411     (69.6 )
                  

Total £m

    331     611     (45.8 )
                  

Dollar equivalent $m

    608     1,115     (45.5 )
                  

Operating profit before other operating income and expenses:

       

Owned and leased

    (5 )   (5 )   —    

Managed

    37     31     19.4  

Franchised

    24     26     (7.7 )
                  
   56     52     7.7  

Regional overheads

    (20 )   (21 )   (4.8 )
                  

Continuing operations

    36     31     16.1  

Discontinued operations*

    26     73     (64.4 )
                  

Total £m

    62     104     (40.4 )
                  

Dollar equivalent $m

    114     189     (39.7 )
                  
* Discontinued operations are all owned and leased.

Revenue from continuing operations of £206m was 3.0% ahead of 2005 whilst continuing operating profit before other income and expenses increased by 16.1% to £36m. Including discontinued operations, revenue and operating profit decreased by 45.8% and 40.4% respectively, reflecting the impact of hotels sold and converted to management and franchise contracts over the past two years.

In the owned and leased estate, continuing revenues declined by £10m to £100m as a result of the major refurbishment at the InterContinental London Park Lane. The hotel reopened in November 2006 following a 13 month closure and is expected to be fully operational by Spring 2007. Excluding the impact of the InterContinental London Park Lane in 2005 and 2006, the continuing owned and leased operating profit increased by £5m, driven by enhanced trading performance at the InterContinental Paris Le Grand where RevPAR growth was more than 25% over 2005.

Managed revenues and operating profit increased by 29.1% to £71m and 19.4% to £37m respectively. The growth was driven by the impact of management contracts negotiated in 2005 and 2006 as part of the hotel disposal programme in the UK and Europe, together with strong RevPAR growth in key regions including Continental Europe and the Middle East (see figure 10).

Franchised revenue of £35m was in line with 2005 revenues whilst operating profit decreased by £2m to £24m. The prior year included £7m in liquidated damages for the termination of franchise contracts in South Africa. Excluding the impact of this, franchised operating profit increased by 26.3% as a result of strong RevPAR growth across the UK and Continental Europe and increased room count, following the negotiation of franchise contracts in Continental Europe as part of the hotel disposal programme and further expansion in the region.

Figure 10

 

EMEA RevPAR movement on previous year

   

12 months ended

31 December 2006

  

Owned and leased (comparable):

   

InterContinental

    21.8 %

All ownership types*:

   

UK

    6.0 %

Continental Europe

    9.0 %

Middle East

    19.0 %

 

* Includes comparable owned, leased and managed hotels and all franchised hotels.

Figure 11

 

     Hotels     Rooms  

EMEA hotel and room count

at 31 December

    2006   

Change

Over 2005

     2006   

Change

Over 2005

  

Analysed by brand:

           

InterContinental

    66    1     21,423    (50 )

Crowne Plaza

    68    4     16,440    409  

Holiday Inn

    317    (3 )   50,628    (316 )

Holiday Inn Express

    172    11     18,109    1,138  
                      

Total

    623    13     106,600    1,181  
                      

Analysed by ownership type:

           

Owned and leased

    10    (31 )   3,088    (7,453 )

Managed

    174    (2 )   40,675    978  

Franchised

    439    46     62,837    7,656  
                      

Total

    623    13     106,600    1,181  
                      
Figure 12           
     Hotels     Rooms  

EMEA pipeline

at 31 December

    2006   

Change

Over 2005

     2006   

Change

Over 2005

  

Analysed by brand:

           

InterContinental

    10    1     2,549    170  

Crowne Plaza

    15    3     3,667    790  

Holiday Inn

    54    26     7,818    2,952  

Holiday Inn Express

    59    22     7,445    3,289  

Staybridge Suites

    5    5     578    578  
                      

Total

    143    57     22,057    7,779  
                      

Analysed by ownership type:

           

Managed

    39    10     7,689    1,194  

Franchised

    104    47     14,368    6,585  
                      

Total

    143    57     22,057    7,779  
                      

During 2006, EMEA hotel and room count grew by 13 hotels (1,181 rooms). The net growth included the opening of 31 hotels (4,823 rooms) and the removal of 18 hotels (3,642 rooms), including exits on a limited number of managed hotels, as agreed at the time of the UK portfolio disposal in May 2005.

The pipeline in EMEA increased by 57 hotels (7,779 rooms) to 143 hotels (22,057 rooms) (see figure 12). The growth includes 13,321 record level room signings, driven by demand for Holiday Inn and Holiday Inn Express in the UK, Continental Europe and South Africa, and for all brands in the Middle East and Russia.

ASIA PACIFIC

 

     12 months ended 31 December  

Asia Pacific Results

   

2006

$m

    

2005

$m

     %
change		  

Revenue:

       

Owned and leased

    131     108     21.3  

Managed

    65     45     44.4  

Franchised

    8     6     33.3  
                  

Continuing operations

    204     159     28.3  

Discontinued operations*

    —       98     —    
                  

Total $m

    204     257     (20.6 )
                  

Sterling equivalent £m

    111     141     (21.3 )
                  

Operating profit before other operating income and expenses:

       

Owned and leased

    31     20     55.0  

Managed

    39     29     34.5  

Franchised

    5     5     —    
                  
   75     54     38.9  

Regional overheads

    (23 )   (15 )   53.3  
                  

Continuing operations

    52     39     33.3  

Discontinued operations*

    —       20     —    
                  

Total $m

    52     59     (11.9 )
                  

Sterling equivalent £m

    29     32     (9.4 )
                  

 

* Discontinued operations are all owned and leased.

Revenue and operating profit from continuing operations increased by 28.3% to $204m and 33.3% to $52m respectively during 2006. Including discontinued operations, revenue and operating profit declined by 20.6% and 11.9% respectively, reflecting the sale of 10 owned and leased hotels in Australasia and Fiji during 2005.

Continuing owned and leased operating profit increased by 55.0% to $31m driven by trading at the InterContinental Hong Kong which achieved rate-led RevPAR growth of over 30.0%. The hotel also benefited from a rooms refurbishment programme and the prior year repositioning of its food and beverage operations.

The managed estate achieved revenue growth of 44.4% increasing from $45m to $65m due to the retention of management contracts on the 10 owned and leased hotels sold in 2005 combined with strong underlying trading in Greater China where comparable RevPAR increased by 12.1% over 2005.

Regional overheads increased by $8m to $23m. The increase reflects infrastructure and development costs including additional headcount, office facility and IT costs, associated with ongoing expansion in the region.

Figure 13

 

     Hotels     Rooms  

Asia Pacific hotel and room count

at 31 December

    2006   

Change

Over 2005

     2006   

Change

Over 2005

  

Analysed by brand:

           

InterContinental

    33    6     11,651    2,190  

Crowne Plaza

    52    14     16,588    4,289  

Holiday Inn

    91    3     23,775    1,907  

Holiday Inn Express

    8    4     1,755    982  

Other

    4    (1 )   968    (139 )
                      

Total

    188    26     54,737    9,229  
                      

Analysed by ownership type:

           

Owned and leased

    2    —       693    —    

Managed

    149    29     45,282    9,050  

Franchised

    37    (3 )   8,762    179  
                      

Total

    188    26     54,737    9,229  
                      
Figure 14           
     Hotels     Rooms  

Asia Pacific pipeline

at 31 December

    2006   

Change

Over 2005

     2006   

Change

Over 2005

  

Analysed by brand:

           

InterContinental

    20    9     7,727    4,458  

Crowne Plaza

    21    2     7,607    1,582  

Holiday Inn

    33    10     10,390    3,262  

Holiday Inn Express

    12    9     4,525    3,578  
                      

Total

    86    30     30,249    12,880  
                      

Analysed by ownership type:

           

Managed

    86    30     30,249    12,880  
                      

Total

    86    30     30,249    12,880  
                      

Net hotel and room count in Asia Pacific increased by 26 hotels (9,229 rooms) (see figure 13). The net growth includes 14 hotels (3,628 rooms) in Greater China reflecting continued expansion in one of IHG’s strategic markets, and 13 hotels (4,937 rooms) in Japan that joined the system as part of the IHG ANA transaction.

The pipeline in Asia Pacific increased by 30 hotels (12,880 rooms) to 86 hotels (30,249 rooms). The substantial growth indicates the demand for IHG’s brands in the Chinese market where signings of 16,445 rooms were more than double 2005 signings.

Central

 

     12 months ended 31 December

Central Results

    2006
£m		     2005
£m		     %
change

Revenue

    55     42     31.0

Gross central costs

    (136 )   (107 )   27.1
                

Net central costs £m

    (81 )   (65 )   24.6
                

Dollar equivalent $m

    (149 )   (118 )   26.3
                

Net central costs increased by £16m to £81m and included significant investment in new global research, designed to enable higher quality brand development and enhance IHG’s franchising capability, and also included increased IT infrastructure costs.

OTHER OPERATING INCOME AND EXPENSES

Other operating income and expenses of £27m includes the gain on the sale of the Group’s investment in FelCor Lodging Trust Inc.

Other operating income and expenses are treated as special items by reason of their size or incidence and are excluded from the calculation of adjusted earnings per share in order to provide a more meaningful comparison of performance.

NET FINANCING COSTS

Net financing costs totalled £11m in 2006 compared to £33m in 2005 primarily as a result of significantly lower average debt levels in the year (£92m in 2006 compared to £700m in 2005). Financing costs included £10m (2005 £5m) 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. The increase over 2005 costs arises from growth in the scheme membership and higher interest rates.

Financing costs in 2006 also included £4m in respect of the InterContinental Boston finance lease. Prior year costs included £9m in respect of the discontinued Soft Drinks operations.

TAXATION

The effective rate of tax on profit before tax, excluding the impact of special items, was 24%. By also excluding the impact of prior year items, which are included wholly within continuing operations, the equivalent tax rate would be 36%. This rate is higher than the UK statutory rate of 30% due mainly to overseas profits (predominantly in the US) being subject to statutory rates higher than the UK statutory rate, unrelieved losses and other disallowable expenses. The equivalent effective rates for 2005 were 29% and 38% respectively.

Taxation within special items totalled a credit of £94m (2005 £8m credit). This represented, primarily, the release of provisions which were special by reason of their size or incidence, relating to tax matters which were settled during the year, or in respect of which the statutory limitation period had expired. In 2006, taxation special items, in addition to such provision releases, included £12m for the recognition of a deferred tax asset in respect of tax losses.

Net tax paid in 2006 totalled £49m (2005 £91m) including £6m in respect of disposals.

GAIN ON DISPOSAL OF ASSETS

The gain on disposal of assets, net of related tax, totalled £117m in 2006 and primarily comprised the gain on the sale of seven InterContinental hotels to MSREF.

EARNINGS

Basic earnings per share in 2006 were 104.1p, compared with 95.2p in 2005. Adjusted earnings per share were 42.9p, against 38.2p in 2005. Adjusted continuing earnings per share were 37.5p, 66.7% up on last year.

DIVIDENDS

The Board has proposed a final dividend per share of 13.3p; with the interim dividend of 5.1p, the normal dividend for 2006 will total 18.4p.

SHARE PRICE AND MARKET CAPITALISATION

The IHG share price closed at 1262.0p on 31 December 2006, up from 839.5p on 31 December 2005. The market capitalisation of the Group at the year end was £4.5bn.

CASH FLOW

The net movement in cash and cash equivalents in the 12 months to 31 December 2006 was an outflow of £152m. This included net cash inflows from operating activities of £230m, net cash inflows from investing activities of £620m and net cash outflows from financing activities of £1,002m.

Proceeds from the disposal of hotels and other financial assets totalled £744m.

Capital expenditure totalled £124m and included a major refurbishment at the InterContinental London Park Lane and the completion of a rooms refurbishment programme at the InterContinental Hong Kong.

Cash outflows associated with shareholder returns during the year included a special dividend of £497m and share buybacks of £260m.

CAPITAL STRUCTURE AND LIQUIDITY MANAGEMENT

Net debt at 31 December 2006 was £134m (see figure 15). In November 2006, the InterContinental Boston opened; this hotel is operated under a finance lease and the lease commitment of £97m is therefore included within Group borrowings.

Gearing (net debt expressed as a percentage of shareholders’ equity) at 31 December 2006 was 20%.

Figure 15

 

Net debt at 31 December

    2006
£m		     2005
£m		  

Borrowings:

     

Sterling

    102     —    

US Dollar

    282     220  

Euro

    101     488  

Other

    48     71  

Cash and cash equivalents

    (403 )   (686 )
            
   130     93  

Excluding fair value of derivatives (net)

    4     (5 )
            

Total net debt

    134     88  
            

Average debt levels

    92     700  
            

Note: all shown after the effect of derivatives.

Figure 16

 

Facilities

at 31 December

    2006
£m		    2005
£m

Committed

    1,157    1,163

Uncommitted

    39    14
         

Total

    1,196    1,177
         

Medium and long-term borrowing requirements at 31 December 2006 were met through a £1.1bn Syndicated Bank Facility which matures in November 2009. Short-term borrowing requirements were principally met from drawings under committed and uncommitted bilateral loan facilities. At the year end, the Group had £944m of committed facilities available for drawing.

The Syndicated Bank Facility contains two financial covenants, interest cover and net debt/Earnings before Interest, Tax, Depreciation and Amortisation (EBITDA). The Group is in compliance with both covenants, neither of which is expected to represent a material restriction on funding or investment policy in the foreseeable future.

TREASURY MANAGEMENT

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.

The treasury function seeks to reduce the financial risk of the Group and manages liquidity to meet all foreseeable cash needs. One of the primary objectives of the Group’s treasury risk management policy is to mitigate the adverse impact of movements in interest rates and foreign exchange rates.

The US dollar is the predominant currency of the Group’s revenues and cashflows and movements in foreign exchange rates, particularly the US dollar and euro, can affect the Group’s reported profit, net assets and interest cover. To hedge this translation exposure, the Group matches the currency of its debt (either directly or via derivatives) to the currency of its net assets, whilst maximising the amount of US dollars borrowed. A general weakening of the US dollar (specifically a one cent rise in the sterling: US dollar rate) would have reduced the Group’s profit before tax for 2006 by an estimated £1m.

Foreign exchange transaction exposure is managed by the forward purchase or sale of foreign currencies or the use of currency options. Most significant exposures of the Group are in currencies that are freely convertible.

Interest rate exposure is managed within parameters that stipulate that fixed rate borrowings should normally account for no less than 25%, and no more than 75%, of net borrowings for each major currency. This is achieved through the use of interest rate swaps and options and forward rate agreements.

Figure 17

 

Interest risk profile of gross debt for major

currencies (including derivatives) at 31 December

   

2006

%

   

2005

%

At fixed rates

    53    36

At variable rates

    47    64

Credit risk on treasury transactions is minimised by operating a policy on the investment of surplus funds that generally restricts counterparties to those with an A credit rating or better, or those providing adequate security. Limits are set for individual counterparties. Most of the Group’s surplus funds are held in the UK or US and there are no material funds where repatriation is restricted as a result of foreign exchange regulations.

PENSIONS

The Group operates two main schemes, the InterContinental Hotels UK Pension Plan and the US-based InterContinental Hotels Pension Plan. Including the unfunded element of the Plans, the accounting deficits at 31 December 2006 were £29m and £33m respectively.

Following the 2006 actuarial review of the UK Pension Plan, the Company has agreed with the Plan Trustees to make a special contribution of £40m. The special contribution will be paid over three years with £20m in 2007 and £10m in each of 2008 and 2009. The defined benefit section of the UK Plan is generally closed to new members and the US Plan is closed to new members and pensionable service no longer accrues for current employee members.

INTERCONTINENTAL HOTELS GROUP PLC

GROUP INCOME STATEMENT

For the year ended 31 December 2006

 

     2006     2005  
     Continuing
operations
£m		     Discontinued
operations
£m		     Total
£m		     Continuing
operations
£m		     Discontinued
operations
£m		     Total
£m		  

Revenue (note 3)

    805     155     960     713     1,197     1,910  

Cost of sales

    (364 )   (121 )   (485 )   (333 )   (884 )   (1,217 )

Administrative expenses

    (180 )   —       (180 )   (150 )   (74 )   (224 )
                                    
   261     34     295     230     239     469  

Depreciation and amortisation

    (60 )   (4 )   (64 )   (57 )   (73 )   (130 )

Other operating income and expenses (note 5)

    27     —       27     (22 )   —       (22 )
                                    

Operating profit (note 4)

    228     30     258     151     166     317  

Financial income

    26     —       26     30     —       30  

Financial expenses

    (37 )   —       (37 )   (54 )   (9 )   (63 )
                                    

Profit before tax

    217     30     247     127     157     284  

Tax (note 6)

    50     (9 )   41     (24 )   (56 )   (80 )
                                    

Profit after tax

    267     21     288     103     101     204  

Gain on disposal of assets, net of tax charge of £6m (2005 £38m) (note 5)

    —       117     117     —       311     311  
                                    

Profit for the year

    267     138     405     103     412     515  
                                    

Attributable to:

             

Equity holders of the parent

    267     138     405     103     393     496  

Minority equity interest

    —       —       —       —       19     19  
                                    

Profit for the year

    267     138     405     103     412     515  
                                    

Earnings per ordinary share (note 8):

             

Basic

    68.6 p   35.5 p   104.1 p   19.8 p   75.4 p   95.2 p

Diluted

    66.9 p   34.6 p   101.5 p   19.3 p   73.8 p   93.1 p

Adjusted

    37.5 p     42.9 p   22.5 p     38.2 p

Adjusted diluted

    36.6 p     41.8 p   21.9 p     37.3 p
                            

Dividends per ordinary share (note 7):

             

Paid:

             

Final

        10.7 p       10.0 p

Interim

        5.1 p       4.6 p

Special interim

        118.0 p       —    

Proposed:

             

Final

        13.3 p       10.7 p
                    

INTERCONTINENTAL HOTELS GROUP PLC

GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE

For the year ended 31 December 2006

 

    

2006

£m

     2005
£m		  

Income and expense recognised directly in equity

     

Gains on valuation of available-for-sale assets

    16     31  

Gains on cash flow hedges

    1     1  

Exchange differences on retranslation of foreign operations

    (30 )   29  

Actuarial losses on defined benefit pension plans

    (2 )   (23 )
            
   (15 )   38  
            

Transfers to the income statement

     

On cash flow hedges

    (1 )   (6 )

On disposal of foreign operations

    4     2  

On disposal of available-for-sale assets

    (14 )   —    
            
   (11 )   (4 )
            

Tax

     

Tax on items above taken directly to or transferred from equity

    4     (1 )

Deferred tax related to share schemes recognised directly in equity

    26     8  
            
   30     7  
            

Net income recognised directly in equity

    4     41  

Profit for the year

    405     515  
            

Total recognised income and expense for the year

    409     556  
            

Attributable to:

     

Equity holders of the parent

    409     541  

Minority equity interest

    —       15  
            
   409     556  
            

INTERCONTINENTAL HOTELS GROUP PLC

GROUP CASH FLOW STATEMENT

For the year ended 31 December 2006

 

     2006
£m		     2005
£m		  

Profit for the year

    405     515  

Adjustments for:

     

Net financial expenses

    11     33  

Income tax (credit)/charge

    (41 )   80  

Gain on disposal of assets, net of tax

    (117 )   (311 )

Other operating income and expenses

    (27 )   22  

Depreciation and amortisation

    64     130  

Equity settled share-based cost, net of payments

    14     12  
            

Operating cash flow before movements in working capital

    309     481  

Increase in net working capital

    (21 )   (32 )

Employee benefit contributions, net of cost

    —       (26 )
            

Cash flow from operations

    288     423  

Interest paid

    (33 )   (59 )

Interest received

    24     29  

Tax paid

    (49 )   (91 )
            

Net cash from operating activities

    230     302  
            

Cash flow from investing activities

     

Purchases of property, plant and equipment - Hotels

    (87 )   (107 )

Purchases of intangible assets - Hotels

    (23 )   (19 )

Purchases of other financial assets - Hotels

    (8 )   (10 )

Acquisition of subsidiary, net of cash acquired

    (6 )   —    

Disposal of assets, net of cash disposed of - Hotels

    620     1,816  

Proceeds from other financial assets - Hotels

    124     10  

Purchases of property, plant and equipment - Soft Drinks

    —       (47 )

Disposal of business, net of cash disposed of - Soft Drinks

    —       220  
            

Net cash from investing activities

    620     1,863  
            

Cash flow from financing activities

     

Proceeds from the issue of share capital

    20     10  

Purchase of own shares

    (260 )   (207 )

Payment to shareholders as a result of the capital reorganisation on 27 June 2005

    —       (996 )

Purchase of own shares by employee share trusts

    (47 )   (29 )

Proceeds on release of own shares by employee share trusts

    19     16  

Dividends paid to shareholders

    (561 )   (81 )

Dividends paid to minority interests

    (1 )   (177 )

Decrease in borrowings

    (172 )   (442 )
            

Net cash from financing activities

    (1,002 )   (1,906 )
            

Net movement in cash and cash equivalents in the year

    (152 )   259  

Cash and cash equivalents at beginning of the year

    324     72  

Exchange rate effects

    7     (7 )
            

Cash and cash equivalents at end of the year

    179     324  
            

INTERCONTINENTAL HOTELS GROUP PLC

GROUP BALANCE SHEET

31 December 2006

 

     2006
£m		     2005
£m		  

ASSETS

     

Property, plant and equipment

    997     1,356  

Goodwill

    109     118  

Intangible assets

    154     120  

Investment in associates

    32     42  

Other financial assets

    96     113  
            

Total non-current assets

    1,388     1,749  
            

Inventories

    3     3  

Trade and other receivables

    237     252  

Current tax receivable

    23     22  

Cash and cash equivalents

    179     324  

Other financial assets

    13     106  
            

Total current assets

    455     707  

Non-current assets classified as held for sale

    50     279  
            

Total assets

    1,893     2,735  
            

LIABILITIES

     

Loans and other borrowings

    (10 )   (2 )

Trade and other payables

    (402 )   (468 )

Current tax payable

    (231 )   (324 )
            

Total current liabilities

    (643 )   (794 )
            

Loans and other borrowings

    (303 )   (410 )

Employee benefits

    (71 )   (76 )

Provisions and other payables

    (109 )   (107 )

Deferred tax payable

    (79 )   (210 )
            

Total non-current liabilities

    (562 )   (803 )

Liabilities classified as held for sale

    (2 )   (34 )
            

Total liabilities

    (1,207 )   (1,631 )
            

Net assets (note 11)

    686     1,104  
            

EQUITY

     

IHG shareholders’ equity

    678     1,084  

Minority equity interest

    8     20  
            

Total equity

    686     1,104  
            

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 2006 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.

Discontinued operations are those relating to hotels sold or those classified as held for sale when the results relate to a separate line of business, geographical area of operations, or where there is a co-ordinated plan to dispose of a separate line of business or geographical area of operations.

 

2. Exchange rates

The results of foreign operations have been translated into sterling at weighted average rates of exchange for the period. In the case of the US dollar, the translation rate is £1=$1.84 (2005 £1=$1.83). In the case of the euro, the translation rate is £1=€1.47 (2005 £1=€1.46).

Foreign currency denominated assets and liabilities have been translated into sterling at the rates of exchange on the balance sheet date. In the case of the US dollar, the translation rate is £1=$1.96 (2005 £1=$1.73). In the case of the euro, the translation rate is £1=€1.49 (2005 £1=€1.46).

 

3. Revenue

 

     2006    2005
    

Continuing

operations
£m

   

Discontinued

operations
£m

    Total
£m		   

Continuing

operations
£m

   

Discontinued

operations
£m

    Total
£m

Hotels

                  

Americas

    433    30    463    384    61    445

EMEA

    206    125    331    200    411    611

Asia Pacific

    111    —      111    87    54    141

Central

    55    —      55    42    —      42
                             
   805    155    960    713    526    1,239

Soft Drinks

    —      —      —      —      671    671
                             
   805    155    960    713    1,197    1,910
                             

4. Operating profit

 

     2006     2005  
    

Continuing

operations
£m

    

Discontinued

operations
£m

    Total
£m		    

Continuing

operations
£m

    

Discontinued

operations
£m

    Total
£m		  

Hotels

               

Americas

    217     4    221     186     12    198  

EMEA

    36     26    62     31     73    104  

Asia Pacific

    29     —      29     21     11    32  

Central

    (81 )   —      (81 )   (65 )   —      (65 )
                                  
   201     30    231     173     96    269  

Soft Drinks

    —       —      —       —       70    70  
                                  
   201     30    231     173     166    339  

Other operating income and expenses (note 5)

    27     —      27     (22 )   —      (22 )
                                  

Operating profit

    228     30    258     151     166    317  
                                  

5. Special items

 

     2006
£m		     2005
£m		  

Other operating income and expenses*

     

Gain on sale of investment (note a)

    25     —    

Reversal of previously recorded impairment (note b)

    2     —    

Impairment of property, plant and equipment (note c)

    —       (7 )

Restructuring costs (note d)

    —       (13 )

Property damage (note e)

    —       (9 )

Employee benefits curtailment gain (note f)

    —       7  
            
   27     (22 )
            

Tax*

     

Tax charge on other operating income and expenses

    (6 )   —    

Special tax credit (note g)

    100     8  
            
   94     8  
            

Gain on disposal of assets

     

Gain on disposal of assets

    123     349  

Tax charge

    (6 )   (38 )
            
   117     311  
            

 

* Relates to continuing operations.

The above items are treated as special by reason of their size or incidence (see note 8).

 

a. Gain on the sale of the Group’s investment in FelCor Lodging Trust, Inc.
b. Relates to the reversal of impairment in value of an associate investment.
c. Property, plant and equipment were written down by £7m in 2005 following an impairment review of the hotel estate.
d. Restructuring costs relate to the delivery of the further restructuring of the Hotels business.
e. Damage to properties resulting from fire and natural disasters.
f. A curtailment gain arose as a result of the sale of UK hotel properties.
g. Represents the release of provisions which are special by reason of their size or incidence relating to tax matters which have been settled or in respect of which the relevant statutory limitation period has expired, together with, in 2006, a credit in respect of previously unrecognised losses.

6. Tax

 

     2006
£m		     2005
£m		  

Income Tax

     

UK Corporation tax at 30% (2005 30%):

     

Current period

    16     11  

Benefit of tax reliefs on which no deferred tax previously recognised

    (10 )   —    

Adjustments in respect of prior periods

    (4 )   (6 )
            
   2     5  
            

Foreign tax:

     

Current period

    72     149  

Benefit of tax reliefs on which no deferred tax previously recognised

    (1 )   (2 )

Adjustments in respect of prior periods

    (94 )   (19 )
            
   (23 )   128  
            

Total current tax

    (21 )   133  
            

Deferred tax:

     

Origination and reversal of temporary differences

    27     (3 )

Changes in tax rates

    (4 )   (2 )

Adjustments to estimated recoverable deferred tax assets

    (13 )   1  

Adjustments in respect of prior periods

    (24 )   (11 )
            

Total deferred tax

    (14 )   (15 )
            

Total income tax on profit for the year

    (35 )   118  
            

Further analysed as tax relating to:

     

Profit before special items

    53     88  

Special items (note 5):

     

Other operating income and expenses

    6     —    

Special tax credit*

    (100 )   (8 )
            

Tax (credit)/ charge

    (41 )   80  

Gain on disposal of assets

    6     38  
            
   (35 )   118  
            

The tax (credit)/charge can be further analysed as relating to:

     

Profit on continuing operations

    (50 )   24  

Profit on discontinued operations

    9     56  

Gain on disposal of assets

    6     38  
            
   (35 )   118  
            

 

* Represents the release of provisions which are special by reason of their size or incidence relating to tax matters which have been settled or in respect of which the relevant statutory limitation period has expired, together with, in 2006, a credit in respect of previously unrecognised losses.

7. Dividends paid and proposed

 

    

2006

pence per

share

   

2005

pence per

share

   

2006

£m

   

2005

£m

Paid during the year:

            

Final (declared in previous year)

    10.7    10.0    46    61

Interim

    5.1    4.6    18    20

Special interim

    118.0    —      497    —  
                   
   133.8    14.6    561    81
                   

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

            

Final

    13.3    10.7    47    46
                   

The proposed final dividend is payable on the shares in issue at 23 March 2007.

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.

On 1 June 2006, shareholders approved a share capital consolidation on the basis of seven new ordinary shares for every eight existing ordinary shares, together with a special dividend of 118 pence per existing ordinary share. The overall effect of the transaction was that of a share repurchase at fair value, therefore no adjustment has been made to comparative data.

Adjusted earnings per ordinary share is disclosed in order to show performance undistorted by special items, to give a more meaningful comparison of the Group’s performance.

 

     2006    2005
    

Continuing

operations

    Total   

Continuing

operations

    Total

Basic earnings per share

            

Profit available for equity holders (£m)

    267    405    103    496

Basic weighted average number of ordinary shares (millions)

    389    389    521    521

Basic earnings per share (pence)

    68.6    104.1    19.8    95.2
                   

Diluted earnings per share

            

Profit available for equity holders (£m)

    267    405    103    496

Diluted weighted average number of ordinary shares (millions) (see below)

    399    399    533    533

Diluted earnings per share (pence)

    66.9    101.5    19.3    93.1
                   

 

    

2006

millions

    

2005

millions

  

Diluted weighted average number of ordinary shares is calculated as:

     

Basic weighted average number of ordinary shares

    389     521  

Dilutive potential ordinary shares – employee share options

    10     12  
            
   399     533  
            
    

2006

£m

    

2005

£m

  

Adjusted earnings per share – continuing operations

     

Profit available for equity holders

    267     103  

Less adjusting items (note 5):

     

Other operating income and expenses

    (27 )   22  

Tax on other operating income and expenses

    6     —    

Special tax credit

    (100 )   (8 )
            

Adjusted earnings

    146     117  

Basic weighted average number of ordinary shares (millions)

    389     521  

Adjusted earnings per share (pence)

    37.5     22.5  
            

9. Cash flows related to discontinued operations

 

     2006
£m		     2005
£m		  

Hotels

     

Operating profit before interest, depreciation and amortisation

    34     124  

Investing activities

    (8 )   (54 )

Financing activities

    (25 )   (16 )
            

Soft Drinks

     

Operating profit before interest, depreciation and amortisation

    —       115  

Investing activities

    —       (47 )

Financing activities

    —       162  
            

 

10. Net debt

 

     2006
£m		     2005
£m		  

Cash and cash equivalents

    179     324  

Loans and other borrowings – current

    (10 )   (2 )

Loans and other borrowings – non-current

    (303 )   (410 )
            
   (134 )   (88 )
            

Finance lease liability included above

    (97 )   —    
            

 

11. Net assets

 

     2006
£m		     2005
£m		  

Hotels

     

Americas

    390     369  

EMEA

    359     951  

Asia Pacific

    285     296  

Central

    73     88  
            
   1,107     1,704  
    

Net debt

    (134 )   (88 )

Unallocated assets and liabilities

    (287 )   (512 )
            
   686     1,104  
            

12. Statement of changes in IHG shareholders’ equity

 

     2006
£m		     2005
£m		  

At 1 January

    1,084     1,817  

Total recognised income and expense for the year

    409     541  

Equity dividends paid

    (561 )   (81 )

Issue of ordinary shares

    20     10  

Purchase of own shares

    (260 )   (207 )

Cash element of capital reorganisation

    —       (996 )

Movement in shares in employee share trusts and share schemes

    (14 )   —    
            

At 31 December

    678     1,084  
            

 

13. Capital commitments and contingencies

At 31 December 2006 amounts contracted for but not provided for in the financial statements for expenditure on property, plant and equipment was £24m (2005 £76m).

At 31 December 2006 the Group had contingent liabilities of £11m (2005 £20m), 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 £142m (2005 £134m). 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 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 financial loss to the Group.

 

14. Group financial statements

This preliminary statement of results was approved by the Board on 19 February 2007. It 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 2005 has been extracted from the IHG Annual Report and Financial Statements for that year as filed with the Registrar of Companies.

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.

This announcement of the preliminary results for the year ended 31 December 2006 contains certain forward-looking statements as defined under US legislation (Section 21E of the Securities Exchange Act of 1934) with respect to the financial condition, results of operations and business of InterContinental Hotels Group and certain plans and objectives of the Board of Directors of InterContinental Hotels Group with respect thereto. These forward-looking statements can be identified by the fact that they do not relate only 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. These statements are based on assumptions and assessments made by InterContinental Hotels Group’s management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate.

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, including, but not limited to: the risks involved with the Group’s reliance on the reputation of its brands and protection of intellectual property rights; the risks relating to identifying, securing and retaining management and franchise agreements; the effect of political and economic developments; the ability to recruit and retain key personnel; events that adversely impact domestic or international travel, including terrorist incidents and epidemics such as Severe Acute Respiratory Syndrome (SARS); the risks involved in the Group’s reliance upon its proprietary reservation systems and increased competition from third-party intermediaries who provide reservation infrastructure; the risks involved with the Group’s reliance on technologies and systems; the future balance between supply and demand for the Group’s hotels; the lack of selected development opportunities; the risk of litigation; risks associated with the Group’s ability to maintain adequate insurance; the Group’s ability to borrow and satisfy debt covenants; compliance with data privacy regulations; and the risks associated with funding the defined benefits under its pension plans.

The main factors that could affect the business and financial results are described in Item 3 Risk Factors in the Annual Report of InterContinental Hotels Group PLC on Form 20-F for the financial period ended 31 December 2005, or in any Annual Report of InterContinental Hotels Group PLC on Form 20-F for any subsequent year, filed with the US Securities and Exchange Commission.

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