Holiday Inn 2008 Annual Report Download - page 20

18 IHG Annual Report and Financial Statements 2008
Business review continued
Other financial information
Exceptional operating items
Exceptional operating costs of $132m consisted of:
•$35m in relation to the Holiday Inn relaunch;
• $19m of cost savings-related severance costs;
• $96m of non-cash asset impairment reflecting the poorer
trading environment expected in 2009; and
• other items including gains on asset sales, which netted
to an $18m credit.
Exceptional operating items are treated as exceptional 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 $90m in 2007 to $101m
in 2008. Average net debt levels in 2008 were higher than 2007
primarily as a result of the payment of the special dividend of
£709m in June 2007. Net debt levels remained stable in the first
half of 2008, reducing slightly in the second half of the year.
Financing costs included $12m (2007 $21m) 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 2008 also included
$18m (2007 $18m) in respect of the InterContinental Boston
finance lease.
Taxation
The effective rate of tax on the combined profit from continuing and
discontinued operations, excluding the impact of exceptional items,
was 23% (2007 22%). By also excluding the impact of prior year
items, which are included wholly within continuing operations, the
equivalent tax rate would be 39% (2007 36%). This rate is higher
than the UK statutory rate of 28% due mainly to certain overseas
profits (particularly in the US) being subject to statutory rates
higher than the UK statutory rate, unrelieved foreign taxes and
disallowable expenses.
Taxation within exceptional items totalled a credit of $42m
(2007 $60m) 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, together with tax relief
on exceptional costs.
Net tax paid in 2008 totalled $2m (2007 $138m) including $3m
(2007 $64m) in respect of disposals. Tax paid is lower than the
current period income tax charge, primarily due to the receipt of
refunds in respect of prior years, together with provisions for tax
for which no payment of tax has currently been made.
Earnings per share
Basic earnings per share in 2008 was 91.3¢, compared with 144.7¢
in 2007. Adjusted earnings per share was 120.9¢, against 97.2¢ in
2007. Adjusted continuing earnings per share was 117.8¢, 25.6%
up on last year.
Dividends
The Board has proposed a final dividend per share of 29.2¢ (20.2p).
With the interim dividend per share of 12.2¢ (6.4p), the full-year
dividend per share for 2008 will total 41.4¢ (26.6p).
Share price and market capitalisation
The IHG share price closed at £5.62 on 31 December 2008, down
from £8.84 on 31 December 2007. The market capitalisation of the
Group at the year end was £1.6bn.
Cash flow
In response to the challenging economic environment the Group
increased its focus on cash management during 2008. In the year,
$641m of cash was generated from operating activities, an increase
of $176m on 2007. Overall, net debt decreased by $386m to
$1,273m with the other key elements of the cash flow being:
• proceeds from the disposal of hotels and investments of $86m;
• capital expenditure of $108m; and
• $139m returned to shareholders as part of the fourth share
buyback programme.
As part of the focus on cash management the remaining £30m of
the fourth £150m share buyback programme has been deferred.