Holiday Inn 2003 Annual Report Download - page 3

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1
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 and Standard Commercial Property Development businesses
(‘the Separation’). The Separation was accounted for under the
principles of merger accounting which apply in the context of such
group reconstructions. This Operating and Financial Review (‘OFR’)
focuses on the performance of the continuing operations of the
businesses following the Separation.
CHANGE IN ACCOUNTING REFERENCE DATE
In order to bring its reporting timetable in line with the majority
of comparable European and US hotel companies, IHG has
changed its financial year end from 30 September to
31 December. The statutory financial period covered by
these financial statements is therefore the 15 months ended
31 December 2003. During this period, IHG made two interim
results announcements as at 31 March 2003 and
30 September 2003. To assist shareholders, IHG is including
in these financial statements an unaudited pro forma profit and
loss account for the 12 months ended 31 December 2003 and
unaudited pro forma comparatives for the 12 months ended
31 December 2002. This Operating and Financial Review
principally comments on pro forma results for the 12 months
ended 31 December 2003, as this will be the relevant period
going forward.
OVERALL GROUP RESULTS FOR THE 15 MONTHS ENDED
31 DECEMBER 2003
Following the Separation, IHG embarked on a clear strategy to
significantly improve its return on capital and free cash flow by
focusing on revenue out performance, reducing overheads and
lowering capital intensity. As part of this strategy IHG has
undertaken a fundamental reorganisation of its Hotels
business. Management in the regions now concentrate on
the key revenue and profit drivers of the regional businesses,
whilst key global functions have been centralised to maximise
the benefits of our scale and drive process efficiencies.
As a result of these changes, the historical segmental
analysis in the OFR has been restated to reflect the new
organisational structure. Group turnover for the 15 months
ended 31 December 2003 was £3,483m (£3,615m for the
12 months ended 30 September 2002).
Profit on ordinary activities before interest and exceptional
items for the 15 months ended 31 December 2003 was £483m
(£618m for the 12 months ended 30 September 2002).
Exceptional items after tax totalled £336m and included an
operating exceptional item of £51m and non-operating
exceptional items totalling £213m. Details of the exceptional
items are outlined in Exceptional Items below.
Group net cash flow for the 15 months ended 31 December
2003 was an outflow of £22m (outflow of £305m for the
12 months ended 30 September 2002). Cash flow from operations
for the 15 months ended 31 December 2003 was £795m, up
£75m (10.4%) from the 12 months ended 30 September 2002.
Increased non-operating outflows during the 15 months
included a £136m premium on the early settlement of debt
and £66m of Separation costs. Offsetting these were a £173m
reduction of investment in tangible fixed assets and a £131m
increase in proceeds from the sale of tangible fixed assets.
Basic earnings per share for the 15 months ended
31 December 2003 was 2.6p (62.5p for the 12 months ended
30 September 2002). Adjusted earnings per share, after
eliminating the distorting effect of exceptional items, was
48.4p for the 15 months ended 31 December 2003 (51.4p for
the 12 months ended 30 September 2002). Dividends for the
15 months ended 31 December 2003 were 21.15p per share.
In conjunction with the Separation, the Group reorganised its
debt financing. As a result, the majority of the Group’s existing
debt was repaid and new facilities put in place for IHG.
Subsequently, IHG issued a €600m bond.
Subsequent to year end the Group has announced its intention
to commence an on-market share repurchase programme.
Details are outlined in Treasury Management below.