Holiday Inn 2007 Annual Report Download - page 22

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20 IHG Annual Report and Financial Statements 2007
Business review continued
Other financial information
Exceptional operating items
Exceptional operating items of £30m included an £18m gain
on the sale of financial assets and an £11m gain on the sale
of associate investments.
Exceptional operating items are treated as exceptional items
by reason of their size or nature and are excluded from the
calculation of adjusted earnings per share in order to provide
a more meaningful comparison of performance.
Net financial expenses
Net financial expenses increased from £11m in 2006 to £45m
in 2007, as a result of higher debt levels following payment
of the £709m special dividend in June 2007.
Financing costs included £10m (2006 £10m) 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. Financing costs in 2007 also included
£9m (2006 £4m) in respect of the InterContinental Boston
finance lease.
Taxation
The effective rate of tax on profit before tax, excluding the impact
of exceptional items, was 22% (2006 24%). By also excluding
the impact of prior year items, which are included wholly within
continuing operations, the equivalent tax rate would be 36%
(2006 36%). This rate is higher than the UK statutory rate of
30% due mainly to certain overseas profits (particularly in the US)
being subject to statutory rates higher than the UK statutory rate
and disallowable expenses.
Taxation within exceptional items totalled a credit of £30m
(2006 £94m credit) in respect of continuing operations. This
represented, primarily, the release of exceptional provisions
relating to tax matters which were settled during the year, or
in respect of which the statutory limitation period had expired.
In 2006, taxation exceptional 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 2007 totalled £69m (2006 £49m) including £32m
(2006 £6m) in respect of disposals.
Earnings per share
Basic earnings per share in 2007 were 72.2p, compared with 104.1p
in 2006. Adjusted earnings per share were 48.4p, against 42.9p in
2006.
Adjusted continuing earnings per share were 46.9p, 23.4% up
on last year.
Dividends
The Board has proposed a final dividend per share of 14.9p;
with the interim dividend per share of 5.7p, the normal dividend
per share for 2007 will total 20.6p.
Share price and market capitalisation
The IHG share price closed at 884.0p on 31 December 2007, down
from 1262.0p on 31 December 2006. The market capitalisation of
the Group at the year end was £2.6bn.
Cash flow
The net movement in cash and cash equivalents in the 12 months
to 31 December 2007 was an outflow of £131m. This included net
cash inflows from operating activities of £232m, net cash
overflows from investing activities of £19m and net cash outflows
from financing activities of £344m.
Key components of investing and financing activities included:
• proceeds from the disposal of hotels and equity investments
totalled £106m;
• capital expenditure totalled £93m and included the completion
of the major refurbishment at the InterContinental London
Park Lane and the renovation works at the InterContinental
Hong Kong;
• cash outflows associated with shareholder returns during the
year included a special dividend of £709m and share buybacks
of £81m; and
• increased borrowings of £553m.
IHG’s cash flow strategy has focused on reducing capital
intensity and returning surplus funds to shareholders. Capital
investment in new 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 and minority
shareholding disposals, with the objective of subsequently
recycling that capital into other projects.
Capital structure and liquidity management
Net debt at 31 December 2007 was £825m and included £100m
in respect of the finance lease commitment for the
InterContinental Boston.
2007 2006
Net debt at 31 December £m £m
Borrowings (including derivatives):
Sterling 275 102
US dollar 439 282
Euro 121 101
Other 48 48
Cash (including derivatives) (58) (403)
825 130
Excluding fair value of derivatives (net) –4
Net debt 825 134
Average debt levels 536 92
2007 2006
Facilities at 31 December £m £m
Committed 1,154 1,157
Uncommitted 25 39
Total 1,179 1,196
Interest risk profile of net
debt for major currencies (including 2007 2006
derivatives) at 31 December %%
At fixed rates 45 57
At variable rates 55 43