Final Results
InterContinental Hotels Group PLC
20 February 2007
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 £3.0bn £2.9bn
Remaining hotels 25 £1.0bn
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 £501m £501m Nil
First £250m share Completed in 2004 £250m £250m Nil
buyback
£996m capital return Paid 8 July 2005 £996m £996m Nil
Second £250m share Completed in 2006 £250m £250m Nil
buyback
£497m special dividend Paid 22 June 2006 £497m £497m Nil
Third £250m share Underway £250m £219m £31m
buyback
£700m special dividend Quarter 2, 2007 £700m Nil £700m
£150m share buyback Yet to commence £150m Nil £150m
Total £3.59bn £2.71bn £0.88bn
Appendix 3: Financial headlines
Twelve months to 31 Dec £m Total Americas EMEA Asia Pacific Central
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 26 20 14 14 (5) (5) 17 11
operating profit
Regional overheads (64) (63) (32) (34) (20) (21) (12) (8)
Continuing operating profit pre 282 238 217 186 36 31 29 21
central overheads
Central overheads (81) (65) - - - - - - (81) (65)
Continuing operating profit 201 173 217 186 36 31 29 21 (81) (65)
Discontinued owned and leased 30 96 4 12 26 73 - 11 - -
operating profit
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 Constant Actual Constant Actual Constant Actual Constant
currency* currency** currency* currency** currency* currency* currency**
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(R) Hotels & Resorts, Crowne
Plaza(R) Hotels & Resorts, Holiday Inn(R) Hotels and Resorts, Holiday Inn
Express(R), Staybridge Suites(R), Candlewood Suites(R) and Hotel IndigoTM, and
also manages the world's largest hotel loyalty programme, Priority Club(R)
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 £3.0bn £2.9bn
Remaining owned and leased hotels 25 - £1.0bn
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 Returned to Still to be
date
return returned
£501m special dividend Paid December 2004 £501m £501m Nil
First £250m share buyback Completed in 2004 £250m £250m Nil
£996m capital return Paid July 2005 £996m £996m Nil
Second £250m share buyback Completed in 2006 £250m £250m Nil
£497m special dividend Paid June 2006 £497m £497m Nil
Third £250m share buyback Under way £250m £219m £31m
£700m special dividend Quarter 2 2007 £700m - £700m
£150m share buyback Yet to commence £150m - £150m
______ _____ ____
Total £3,594m £2,713m £881m
______ _____ ____
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
2006 2005 %
Summary Results £m £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 104.1p 95.2p 9.3
Adjusted 42.9p 38.2p 12.3
Adjusted - continuing operations 37.5p 22.5p 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
2006 2005 %
Total gross revenues $bn $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 Change Change
at 31 December 2006 Over 2005 2006 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 Change Change
at 31 December 2006 Over 2005 2006 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
2006 2005 %
Americas Results $m $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
12 months ended
31 December
Americas RevPAR movement on previous year 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 Change Change
at 31 December 2006 Over 2005 2006 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 Change Change
at 31 December 2006 Over 2005 2006 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
2006 2005 %
EMEA Results £m £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
12 months ended
31 December
EMEA RevPAR movement on previous year 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 Change Change
at 31 December 2006 Over 2005 2006 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 Change Change
at 31 December 2006 Over 2005 2006 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
2006 2005 %
Asia Pacific Results $m $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 Change Change
at 31 December 2006 Over 2005 2006 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 Change Change
at 31 December 2006 Over 2005 2006 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
2006 2005 %
Central Results £m £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
2006 2005
Net debt at 31 December £m £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
2006 2005
Facilities at 31 December £m £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
2006 2005
Interest risk profile of gross debt for major currencies % %
(including derivatives) at 31 December
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 Discontinued Continuing Discontinued
operations operations operations operations
Total Total
£m £m £m £m £m £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 (60) (4) (64) (57) (73) (130)
amortisation
Other operating income and 27 - 27 (22) - (22)
expenses (note 5)
____ ____ ____ ____ ____ ____
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, - 117 117 - 311 311
net of tax charge of £6m
(2005 £38m) (note 5)
____ _____ ____ ____ ____ ____
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 - - - - 19 19
interest
____ _____ ____ ____ ____ ____
Profit for the year 267 138 405 103 412 515
==== ===== ==== ==== ==== ====
Earnings per ordinary share
(note 8):
Basic 68.6p 35.5p 104.1p 19.8p 75.4p 95.2p
Diluted 66.9p 34.6p 101.5p 19.3p 73.8p 93.1p
Adjusted 37.5p 42.9p 22.5p 38.2p
Adjusted diluted 36.6p 41.8p 21.9p 37.3p
===== ===== ===== =====
Dividends per ordinary share
(note 7):
Paid:
Final 10.7p 10.0p
Interim 5.1p 4.6p
Special interim 118.0p -
Proposed:
Final 13.3p 10.7p
===== =====
InterContinental Hotels Group PLC
GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE
For the year ended 31 December 2006
2006 2005
£m £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 2005
£m £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 - (996)
June 2005
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 2005
£m £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.
Exchange rates
2.
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 Discontinued Continuing Discontinued
operations operations Total operations operations Total
£m £m £m £m £m £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 Discontinued Continuing Discontinued
operations operations Total operations operations Total
£m £m £m £m £m £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 2005
£m £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.
Tax
6.
2006 2005
Income Tax £m £m
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 2005
pence per pence per 2006 2005
share share £m £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 Continuing
operations Total 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 2005
millions 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
==== ====
Adjusted earnings per share - continuing 2006 2005
operations
£m £m
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 2005
£m £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 2005
£m £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 2005
£m £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 2005
£m £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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