Holiday Inn 2003 Annual Report Download

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ANNUAL REPORT AND
FINANCIAL STATEMENTS 2003

Table of contents

  • Page 1
    A N N U A L R E P O RT A N D F I N A N C I A L S TAT E M E N T S 2 0 0 3

  • Page 2
    ... 16 CORPORATE GOVERNANCE 19 REMUNERATION REPORT 28 FINANCIAL STATEMENTS 60 AUDITORS' REPORT 61 THREE YEAR REVIEW 64 GLOSSARY 65 SHAREHOLDER PROFILE Turnover EBITDA Operating profit GROUP Turnover EBITDA Operating profit Exceptional items Operating Non-operating Profit before tax Earnings per share...

  • Page 3
    OPERATING AND FINANCIAL REVIEW On 15 April 2003, following shareholder and regulatory approval, Six Continents PLC separated into two new groups, InterContinental Hotels Group PLC ('IHG'), comprising the Hotels and Soft Drinks businesses, and Mitchells & Butlers plc ('MAB'), comprising the Retail ...

  • Page 4
    ... businesses experienced varying trading conditions in the 12 months ended 31 December 2003. While the UK's exceptionally long summer saw the overall market for soft drinks rise 8%, continuing global insecurity, SARS, depressed economies and latterly exchange rate movements presented one of the hotel...

  • Page 5
    ... impacted by exchange rate movements. The decline of the US dollar against sterling by 9.7% from the first to fourth quarters resulted in sterling reported turnover in the Americas finishing the 12 months down 7.7% and Asia Pacific down 10.9%. Hotels pro forma operating profit before exceptional...

  • Page 6
    ... months, IHG launched sites for the French, German, Spanish, New Zealand, Australian and Chinese markets and additional sites are planned. The Priority Club Rewards programme continues to grow in importance to IHG, with membership increasing by 3.6 million to over 19 million members by December 2003...

  • Page 7
    ...months ended 31 December 2003, an increase of £7m on 2002. Owned and leased turnover grew by £7m with the reopening during the year of the refurbished InterContinental Le Grand Paris and the opening of the newly built Crowne Plaza Brussels Airport, Holiday Inn Paris Disney and three Express hotels...

  • Page 8
    ...top of the Paris market. The Holiday Inn Paris Disney opened giving representation at one of Europe's leading family leisure destinations and the Crowne Plaza Brussels Airport opened at the end of the year, giving the brand another defining asset at a major European airport. Operating profit before...

  • Page 9
    ...' award at the 2003 Asia Pacific Hotel Investment conference for securing the management of the new InterContinental Bangkok and a neighbouring hotel, to open as a Holiday Inn in 2005. CENTRAL Turnover: Owned and leased Managed Franchised 154 26 5 185 156 30 6 192 -1 -13 -17 -4 Operating profit...

  • Page 10
    ...volume growth in 2003 of 54% and 95% respectively. The business continued its focus on effective cost control, which contributed to an overall pro forma operating profit before exceptional items increase of 22% to £83m for the 12 months ended 31 December 2003. 8 InterContinental Hotels Group 2003

  • Page 11
    ... US dollar, lower average interest rates and lower average debt levels. The pro forma interest charge for the 12 months to 31 December 2003 was £39m. TA X AT I O N Earnings per share has been restated using the aggregate of the weighted average number of shares of InterContinental Hotels Group PLC...

  • Page 12
    ... policies were approved by the Board in November 2003. The treasury function does not operate as a profit centre. Treasury activities include the use of spot and forward foreign exchange instruments, currency options, currency swaps, interest rate swaps and options, and forward rate agreements...

  • Page 13
    ... material restriction on funding or investment policy in the foreseeable future. Subsequent to the year end the Group has announced its intention to commence an on-market share repurchase programme for £250m, representing approximately 6% of the issued share capital. The precise timing of purchases...

  • Page 14
    ...been independent for the 12 months ended 31 December 2003 and 2002, operating under the financing and taxation structure put in place at the time of the Separation. The unaudited pro forma financial information comprises the results of those businesses that form IHG following the Separation. Because...

  • Page 15
    ...LO S S AC C O U N T 12 months to 31 Dec 2003 £m 12 months to 31 Dec 2002 £m INTERCONTINENTALS HOTELS GROUP Turnover: Americas EMEA Asia Pacific Central Total Hotels Soft Drinks Total turnover Operating profit: Americas EMEA Asia Pacific Central Total Hotels Soft Drinks Total operating profit Net...

  • Page 16
    ... holding company for the Group on completion of the Separation of Six Continents PLC and the listing of IHG PLC's shares on 15 April 2003. Details of the terms for shareholders of the Separation, including the return of capital, are provided in the Investor Information section of the Annual Review...

  • Page 17
    ... the Hotels Group Share Incentive Plan nor the US Employee Stock Purchase Plan were operated during the period. S H A R E C A P I TA L The Board has agreed the adoption of a specific Code of Ethics for senior financial officers, consistent with the Company's existing guidelines for proper business...

  • Page 18
    ... risk to the fullest extent. The insurance market remains difficult both as to breadth and cost of coverage and in some cases external insurance is not available at all or not at an economic price. The Group regularly reviews both the type and amount of external insurance that it buys, bearing in...

  • Page 19
    ... is chaired by the Chief Executive, Richard North. It consists of the executive directors and senior executives from the Group and the regions and usually meets monthly. Its role is to consider and manage a range of important strategic and business issues facing the Group. It is responsible for...

  • Page 20
    ... the Group's Financial Controller, and comprising the Company Secretary and other senior executives, reports to the Chief Executive and the Finance Director, and to the Audit Committee. Its duties include ensuring that information required to be disclosed in reports pursuant to UK and US accounting...

  • Page 21
    ... and Jim Larson. The Executive Vice President Human Resources has direct access to the Chairman of the Committee. Messrs J Larson and House, who are Human Resource professionals and employees, have advised the Committee on all aspects of the Group's reward policies and structures. Towers Perrin Inc...

  • Page 22
    ... plans until the value of their holding equates to twice their basic salary or three times in the case of the Chief Executive. Bonuses are not pensionable. Executive share options The Committee believes that share ownership by executive directors and senior executives strengthens the link...

  • Page 23
    ... value of this award equated to 140% of salary. Benefits under the Performance Restricted Share Plan are not pensionable. 3 . 3 C O M PA N I E S U S E D F O R C O M PA R I S O N In assessing levels of pay and benefits, IHG compares the packages offered by different groups of comparator companies...

  • Page 24
    ... the policy is to seek to minimise any liability. Sir Ian Prosser continued as executive Chairman under the terms of his previous service agreement until his normal retirement age of 60 years on 5 July 2003. After that date, Sir Ian entered into a new service agreement as non-executive Chairman...

  • Page 25
    ....12.03 Market Market price price per per share at share at award vesting date** date Value based on share price at 31.12.03*** £ SHORT TERM DEFERRED INCENTIVE PLAN (STDIP) STDIP shares held at 15.4.03* Vesting date Award date STDIP shares held at 31.12.03 Vesting date Directors Richard North...

  • Page 26
    ... under the Six Continents Executive Pension Plan ('the SC Plan') up to 31 March 2003, and the executive section of the InterContinental Hotels UK Pension Plan ('the IC Plan') from 1 April 2003. In the cases of Richard North, Richard Solomons and Tim Clarke, they were also members of the unfunded Six...

  • Page 27
    ...was already funded and charged in previous accounts, and to allow for a 3% increase to his annual salary for pension purposes on 1 October 2001 and 2002. The transfer value shown in respect of Sir Ian as at 31 December 2003 is the figure at his date of retirement of 5 July 2003. The figures shown in...

  • Page 28
    ... on page 21. *** Sir Ian Prosser's award was pro-rated to reflect his actual service during the performance period following his retirement from the role of executive Chairman on 5 July 2003. Ordinary shares under option Equivalent value IHG Options rolled over following Separation+ 6 D I R E C TO...

  • Page 29
    ...held on 11 April 2003, shareholders received 50 IHG PLC and 50 Mitchells & Butlers plc shares plus 81p in cash per Six Continents PLC share. *** Held in the form of American Depositary Receipts. **** David Webster has indicated that he intends to purchase a further 5,000 shares in the Company at the...

  • Page 30
    ...** Restated to exclude all exceptional items for comparability with 2003 disclosures. No profit and loss account is presented for InterContinental Hotels Group PLC as permitted by Section 230 of the Companies Act 1985. Notes on pages 32 to 55 form an integral part of these financial statements. 28...

  • Page 31
    ... Issue of InterContinental Hotels Group PLC ordinary shares Net assets of MAB eliminated on separation MAB goodwill eliminated on separation Minority interest on transfer of pension prepayment Movement in shares in ESOP trusts Movement in goodwill - exchange differences* Net movement in shareholders...

  • Page 32
    ... MONTHS ENDED 31 DECEMBER 2003 note 12 £m £m 2002 12 months £m £m Operating activities Interest paid Costs associated with new facilities Premium on early settlement of debt Dividends paid to minority shareholders Interest received Returns on investments and servicing of finance UK corporation...

  • Page 33
    ... equity interests Net assets Capital and reserves Equity share capital Share premium account Revaluation reserve Merger reserve Other reserve Profit and loss account Equity shareholders' funds * Restated on the adoption of UITF 38 and the reclassification of pension provisions (see page 32). 18 19...

  • Page 34
    ... accounted for using merger accounting principles as applicable to group reorganisations, although it does not satisfy all the conditions required under Schedule 4A of the Companies Act 1985 and FRS 6. Mitchells & Butlers plc acquired Six Continents PLC for consideration that included a non-share...

  • Page 35
    ...on interest rate agreements is taken to the profit and loss account. Premiums payable on interest rate agreements are charged to the profit and loss account over the term of the relevant agreements. Currency swap agreements are retranslated at exchange rates ruling at the balance sheet date with the...

  • Page 36
    ...and actuarial data. S TO C K S The hotel loyalty programme, Priority Club Rewards, enables members to earn points during each stay at an InterContinental Hotels Group hotel and redeem the points at a later date for free accommodation or other benefits. The future redemption liability is included in...

  • Page 37
    ... Corporate £m £m Total Hotels £m Soft Drinks £m Total £m Discontinued** £m Total Group £m 15 months ended 31 December 2003* Turnover Operating profit before exceptional items Operating exceptional item Operating profit after operating exceptional item Non-operating exceptional items: Cost...

  • Page 38
    ... experience required to supply the service effectively. Cumulative fees for audit and non-audit services are presented to the Audit Committee on a quarterly basis for review. The Audit Committee is responsible for monitoring adherence to the pre-approval policy. 36 InterContinental Hotels Group 2003

  • Page 39
    ... in the United States; there is no material difference between the pension costs of, and contributions to, these schemes. On 1 April 2003, two new pension schemes were created for InterContinental Hotels Group PLC in the UK when Mitchells & Butlers Retail Limited became the sponsoring employer for...

  • Page 40
    ... the financial statements, the effects would have been as follows: 2003 15 months 2002 12 months Total £m Total £m Operating profit charge Current service cost Past service cost Total operating profit charge UK £m US £m 32 2 34 - - - 32 2 34 31 - 31 38 InterContinental Hotels Group 2003

  • Page 41
    ... (96) (20%) 31 Dec 2003 5 10% (1) (1%) (6) (6%) 37 9% (18) (3%) (102) (18%) (182) (17%) (23) (2%) (331) (23%) 30 Sept 2002 restated* Profit and Net loss account assets reserve £m £m Group net assets and reserves reconciliation As reported Less: SSAP 24 pension prepayment (net of tax of £14m...

  • Page 42
    ...' E M O LU M E N T S 2003 15 months £000 2002 12 months £000 Basic salaries, fees, performance payments and benefits* Long-term reward Gains on exercise of share options 6,068 1,338 69 3,417 - - More detailed information on the emoluments, pensions, option holdings and shareholdings for each...

  • Page 43
    2003 15 months Before exceptional Exceptional items items £m £m 2002 12 months 9 TA X O N P R O F I T O N O R D I N A RY AC T I V I T I E S Total £m Total £m Tax charge UK corporation tax at 30% (2002 30%): Current year Prior years Foreign tax: Current year Prior years Total current tax ...

  • Page 44
    ... per share 2003 15 months 2002 12 months £m £m Dividends on ordinary shares: Interim Six Continents PLC Proposed final Six Continents PLC Interim InterContinental Hotels Group PLC Proposed final InterContinental Hotels Group PLC The proposed final dividend is payable on the shares in issue at...

  • Page 45
    ...P E N D I T U R E 2003 15 months £m 2002 12 months £m Hotels Americas EMEA Asia Pacific Corporate Soft Drinks InterContinental Hotels Group PLC* Discontinued operations* * InterContinental Hotels Group PLC relates to continuing operations. Discontinued operations relate to Mitchells & Butlers plc...

  • Page 46
    ... At 31 December 2003 Net book value: At 31 December 2003 At 30 September 2002 On 31 December 2003, the Group acquired the Candlewood Suites brand name for a consideration of £10m, which is being written off over 20 years. 197 10 (15) 192 24 13 (3) 34 158 173 44 InterContinental Hotels Group 2003

  • Page 47
    ... estimated recoverable amount. The discount rate used for value in use calculations was 11.4%. Properties Properties, comprising land, buildings and certain fixtures, fittings and equipment, are included above at cost or valuation, less depreciation as required. The transitional rules of FRS 15 have...

  • Page 48
    ...51 875 3,951 7,641 Land and buildings Freehold Leasehold: unexpired term of more than 50 years unexpired term of 50 years or less Cost or valuation of properties comprises: 1999 valuation 1992 valuation Cost Cost or valuation Depreciation £m £m Net book value £m 30 Sept 2002 £m 2,109 825 70...

  • Page 49
    ...* Company 20 FIXED ASSET INVESTMENTS Investments Shares in Loans to and Group Group advances undertakings undertakings £m £m £m Total £m Cost: At 30 September 2002 Exchange adjustments Reclassification Additions Disposals and repayments At 31 December 2003 Provision for diminution in value...

  • Page 50
    ... of pension provisions (see page 32). Group 31 Dec 2003 £m 30 Sept 2002 £m Company 31 Dec 2003 £m 2 3 C R E D I TO R S : A M O U N T S FA L L I N G D U E W I T H I N O N E Y E A R Borrowings (see note 27) Trade creditors Corporate taxation Other taxation and social security Accrued charges...

  • Page 51
    ... hotels business and having expiry dates to 2008. Relates to unfunded post-retirement benefit plans (see note 5). Represents liabilities with varying expected utilisation dates. Group 31 Dec 2003 Within one year £m After one year £m Total £m Group 30 Sept 2002 Company 31 Dec 2003 After one year...

  • Page 52
    ... and forward rate agreements. The interest rate profile of the Group's material financial assets and liabilities, after taking account of the interest rate swap agreements and currency swap agreements, was: 31 Dec 2003 Interest at fixed rate Weighted average period for which rate is fixed (years...

  • Page 53
    ...: 30 Sept 2002 Principal Cap rate Swap rate Maturity US dollar swaption - interest payable US dollar cap - interest payable US$250m US$100m - 4.00% 3.47% - 2005 2005 Currency risk In order to manage currency risk, the Group enters into agreements for the forward purchase or sale of foreign...

  • Page 54
    ... number 4551528 on 2 October 2002 as a public limited company under the Companies Act 1985 with the name Hackplimco (No. 112) plc. On 17 January 2003, Hackplimco (No. 112) plc changed its name to InterContinental Hotels Group PLC. On 2 October 2002, the Company had an authorised share capital...

  • Page 55
    ... PLC was transferred to InterContinental Hotels Group PLC at fair market value, in exchange for the issue of 734m fully paid ordinary shares of £1 each, which were admitted to the Official List of the UK Listing Authority and admitted to trading on the London Stock Exchange on that date. In...

  • Page 56
    ... 2003 The Company profit and loss account reserve is wholly distributable. - - - 14 - - 14 - (25) 13 - 1 - (11) - - (5) - - 299 294 - (25) 8 14 1 299 297 The other reserve comprises £10.5m in respect of 2.2m InterContinental Hotels Group PLC ordinary shares held by employee share trusts...

  • Page 57
    ... Hotels Operating Corporation, incorporated and operates principally in the United States) InterContinental Hotels Group Services Company (formerly Six Continents Hotels Group Company) InterContinental Hotels Group (UK) Limited (formerly Six Continents Hotels (UK) Limited) Holiday Inn Limited...

  • Page 58
    ... for shareholders under UK GAAP and net income under US GAAP and between shareholders' funds under UK GAAP and shareholders' equity under US GAAP respectively. Pension costs The Group provides for the cost of retirement benefits based upon consistent percentages of employees' pensionable pay as...

  • Page 59
    ... for Stock Issue to Employees' and related interpretations. Under APB 25 these awards would be accounted for as variable plans and the charge would be based on the intrinsic value of the shares using the share price at the balance sheet date. Effective from the date of Separation, the Group adopted...

  • Page 60
    ...income in accordance with US GAAP to reflect the notional exercise of the weighted average number of dilutive ordinary share options outstanding during the period. The resulting weighted average number of ordinary shares is 733m (2002 734m). (b) (c) (d) (e) 58 InterContinental Hotels Group 2003

  • Page 61
    ... parent company Proposed dividend for minority shareholders Derivatives Creditors: amounts falling due after one year: Other creditors Borrowings Derivatives Provisions for liabilities and charges: Provisions Accrued pension cost Deferred taxation: on above adjustments methodology Minority share of...

  • Page 62
    ... than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed. Code specified for our review by the Listing Rules, and we report if it does not. We are not required to consider whether the Board's statements on internal control cover...

  • Page 63
    THREE YEAR REVIEW Pro forma* INTERCONTINENTAL HOTELS GROUP PLC GROUP PROFIT AND LOSS ACCOUNT Dec 2003 12 months £m Dec 2002 12 months £m Sept 2002** Sept 2001** 12 months 12 months £m £m Hotels Soft Drinks Turnover Hotels Soft Drinks Continuing operations before exceptional items Operating ...

  • Page 64
    ...YEAR REVIEW INTERCONTINENTAL HOTELS GROUP PLC GROUP CASH FLOW STATEMENT Pro forma* Dec 2003 12 months £m Dec 2003 15 months £m Sept 2002** Sept 2001** 12 months 12 months £m £m EBITDA*** Working capital movements Cost of fundamental reorganisation Operating exceptional expenditure Operating...

  • Page 65
    ... restated*** £m Fixed assets Stocks Debtors Investments Cash at bank and in hand Amounts due from MAB Short-term creditors Net current (liabilities)/assets Long-term creditors Provisions Minority interests Net assets Shareholders' funds Comprising: Hotels Soft Drinks Net operating assets Net debt...

  • Page 66
    ...-STAY HOTEL ROOM REVENUE ROYALTY RATE FORWARD RATE AGREEMENT SUBSIDIARY UNDERTAKING SYSTEM SIZE UNDERLYING UPSCALE HOTEL FRANCHISEE FRANCHISOR GEARING GOODWILL UK GAAP US GAAP WEIGHTED AVERAGE EXCHANGE RATE WORKING CAPITAL GROSS OPERATING MARGIN HEDGING HOLIDEX FEES INCOME-GENERATING UNIT...

  • Page 67
    ...Form 20-F for the financial year ended 30 September 2002, 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. Design and production: Corporate Edge www.corporateedge.com Print: Royle Corporate Print...

  • Page 68
    www.ihgplc.com INTERCONTINENTAL HOTELS GROUP PLC 67 Alma Road, Windsor Berkshire SL4 3HD T +44 (0) 1753 410 100 F +44 (0) 1753 410 101 BRITVIC SOFT DRINKS Britvic House, Broomfield Road Chelmsford, Essex CM1 1TU T +44 (0) 1245 261 871 F +44 (0) 1245 267 147