Holiday Inn 2003 Annual Report Download - page 12

The Board has proposed a final dividend of 9.45p per share,
bringing the total dividend since Separation to 13.5p per share
in line with the amount detailed in the Listing Particulars
February 2003.
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 internal audit. Following
the Separation, a thorough review of treasury policy was
conducted. The review concluded that, in general, the existing
treasury policies were appropriate to manage the financial
risks faced by the Group and that only relatively minor policy
changes were required. Revised treasury 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.
One of the primary objectives of the Group’s treasury risk
management policy is to protect the financial covenant ratios
in its loan documentation against the adverse impact of
movements in interest rates and foreign exchange rates.
Movements in foreign exchange rates, particularly the US dollar
and euro, can affect the Group’s reported profit, net assets,
gearing and interest cover. To hedge this translation exposure
as far as is reasonably practical, borrowings are taken out in
foreign currencies (either directly or via currency swaps),
which broadly match those in which the Group’s major net
assets are denominated. The interest on these borrowings
hedges foreign currency denominated income streams. During
the 15 months to 31 December 2003, the interest on US dollar
borrowings hedged around 50% of the profit generated in
US dollars, while interest on euro borrowings hedged around
86% of profit generated in euro and related currencies.
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
fixed rate debt, interest rate swaps and options (such as caps)
and forward rate agreements – figure 5 shows the position at
31 December 2003.
Based on the period end net debt position set out in figure 6
and given the underlying maturity profile of investments,
borrowings and hedging instruments at that date, a one
percentage point rise in US dollar interest rates or a similar
rise in euro rates, would increase the net interest charge by
approximately £4m in each case. A similar movement in
OPERATING AND FINANCIAL REVIEW
10 InterContinental Hotels Group 2003
FIGURE 5
31 Dec 30 Sept
INTEREST RISK PROFILE 2003 2002
OF GROSS DEBT %%
At fixed rates 56 34
At variable rates 44 66
FIGURE 6
31 Dec 30 Sept
2003 2002
NET DEBT £m £m
Borrowings:
Sterling 24 532
US dollar 952 1,953
Euro 772 811
Australian dollar 77 104
Hong Kong dollar 84 215
Other 26 17
Cash and current asset investments (1,366) (2,455)
Total 569 1,177
Note: all shown after the effect of currency swaps.
FIGURE 7
31 Dec 30 Sept
2003 2002
FACILITIES £m £m
Committed 962 1,628
Uncommitted 80 155
Total 1,042 1,783