Holiday Inn 2003 Annual Report Download - page 34

32 InterContinental Hotels Group 200332 InterContinental Hotels Group 2003
ACCOUNTING POLICIES
BASIS OF PREPARATION
Separation transaction On 15 April 2003, following
shareholder and regulatory approval, Six Continents PLC
separated into two new listed groups, InterContinental Hotels
Group PLC (IHG) comprising the Hotels and Soft Drinks
businesses and Mitchells & Butlers plc (MAB) comprising the
Retail and Standard Commerical Property Developments
(SCPD) businesses. The mechanics of the Separation are
detailed below.
The legal structure of the transaction was such that Mitchells &
Butlers plc acquired 100% of the issued share capital of Six
Continents PLC following implementation of a Court approved
Scheme of Arrangement under Section 425 of the Companies
Act 1985. Shareholders of Six Continents PLC were allotted
one Mitchells & Butlers plc share and an entitlement to a cash
payment of 81p per share for each Six Continents PLC share
held. This resulted in the issue of 866,665,032 Mitchells &
Butlers plc ordinary shares of £4.20 each plus an undertaking
to pay £702m in cash.
On 12 April 2003, Six Continents PLC transferred the Retail and
SCPD businesses to Mitchells & Butlers plc for £1,744m and also
paid a dividend to Mitchells & Butlers plc of the same amount.
On 13 April 2003, the ordinary share capital of Mitchells &
Butlers plc was sub-divided and consolidated on a 50 to 59
basis which resulted in a reduction of the number of ordinary
shares in issue to 734,461,900 with each share having a
nominal value of £4.956.
On 15 April 2003, Mitchells & Butlers plc investment in Six
Continents PLC was revalued to its market value. On the same
day, the Court approved a reduction in the capital of Mitchells
& Butlers plc. An amount equivalent to the market value of Six
Continents PLC was returned to shareholders by the transfer of
Six Continents PLC to InterContinental Hotels Group PLC and
the issue by InterContinental Hotels Group PLC of ordinary
shares to the shareholders.
The Company issued 734,461,900 ordinary £1 shares, which
were recorded at nominal value. In accordance with Sections
131 and 133 of the Companies Act 1985, no premium was
recognised on the shares issued. On consolidation, the
difference between the nominal value of the Company’s shares
issued and the amount of the share capital, share premium
and capital redemption reserve of £1,164m at the date of
Separation has been credited to the merger reserve.
Merger accounting The consolidated financial statements have
been prepared in accordance with the principles of merger
accounting as applicable to group reorganisations as set out in
Financial Reporting Standard (FRS) 6 ‘Acquisitions and
Mergers’ as if the Group had been in existence throughout the
periods presented. The financial statements have been
prepared under merger accounting principles in order to
present a true and fair view of the Group’s results and financial
position, which has required the Group to utilise the overriding
requirement of Section 227(6) of the Companies Act 1985.
The true and fair override requirement has been utilised as the
Separation transaction has been 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 element equivalent to more than 10%
of the nominal value of the share element of the consideration.
Schedule 4A and FRS 6 require such transfers to be accounted
for using acquisition accounting principles which would have
resulted in the restatement at fair value of the assets and
liabilities acquired, the recognition of goodwill and the
consolidation of post acquisition results only. In the opinion of
the directors, as the rights of shareholders were not affected
by these internal company transfers, the financial statements
would fail to give a true and fair view of the Group’s results
and financial position if acquisition accounting had been used.
The effects of this departure cannot reasonably be quantified.
The consolidated financial statements are therefore presented
as if the Company had been the parent company of the Group
throughout the periods presented. The results of Mitchells &
Butlers plc have been included in discontinued operations for
all years up until the date of Separation.
BASIS OF ACCOUNTING
The financial statements are prepared under the historical cost
convention as modified by the revaluation of certain tangible
fixed assets. They have been drawn up to comply with applicable
accounting standards, including Urgent Issues Task Force
(UITF) Abstract 38 ‘Accounting for ESOP Trusts’.
Pension provisions previously included in debtors and
creditors: amounts falling due after one year have been
reclassified within other provisions for liabilities and charges.
Prior year comparatives have been restated. There has been
no overall impact on the Group’s net assets or profit and
loss account.
NEW ACCOUNTING POLICIES
UITF 38 ‘Accounting for ESOP Trusts’ was adopted for the first
time this period. UITF 38 requires that ESOP shares should be
deducted from shareholders’ funds rather than being shown
as an asset. This change in accounting policy has been
accounted for as a prior year adjustment and previously
reported figures have been restated accordingly. The effect
has been to decrease the Group’s net assets by £31m in
2002 with no impact on the profit and loss account.