Holiday Inn 2013 Annual Report Download - page 53

Exceptional operating items
Exceptional operating items totalled a net profit of $5m.
Exceptional gains included $166m from the sale of the
InterContinental London Park Lane on 1 May 2013 and $6m
in relation to the sale of a hotel by an associate in The Americas.
Exceptional charges included $147m arising from the buy-in of
the Group’s UK funded pension benefit obligations with the insurer,
Rothesay Life, on 15 August 2013, $10m relating to an agreed
settlement in respect of a commercial claim and $10m relating to
costs incurred in support of the worldwide rebranding of IHG
Rewards Club.
Exceptional operating items are treated as exceptional by reason
oftheir size or nature and are excluded from the calculation of
adjusted earnings per ordinary share in order to provide a more
meaningful comparison of performance.
Net financial expenses
Net financial expenses increased by $19m to $73m reflecting
an increase in average net debt levels and the issuance of
the 10-year £400m public bond in November 2012 with a coupon
of 3.875%.
Financing costs included $2m (2012 $2m) of interest costs
associated with the IHG Rewards Club where interest is charged
onthe accumulated balance of cash received in advance of the
redemption of points awarded. Financing costs in 2013 also
included $19m (2012 $19m) in respect of the InterContinental
Boston financelease.
Taxation
The effective rate of tax on operating profit excluding the impact
of exceptional items was 29% (2012 27%). Excluding the impact of
prior year items, the equivalent tax rate would be 32% (2012 30%).
This rate is higher than the average UK statutory rate of 23.25%
(2012 24.5%) 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 charge of $51m (2012
credit of $142m). In 2013 the charge comprised $6m relating to the
exceptional operating items and $64m consequent upon the disposal
of the InterContinental London Park Lane, offset by a credit of $19m
relating to an internal restructuring. In 2012 this represented,
primarily, the recognition of $104m of deferred tax assets whose
value had become more certain as a result of a change in law and
the resolution of prior period tax matters, together with the
associated release of $37m of provisions.
Net tax paid in 2013 totalled $97m (2012 $122m) including $5m
paid (2012 $3m) in respect of disposals. Tax paid represents an
effective rate of 16% (2012 22%) on total profits and is lower than
the effective income statement tax rate of 29% primarily due to the
impact of deferred taxes (including the realisation of assets such
as tax losses), the receipt of refunds in respect of prior years and
provisions for tax for which no payment of tax has currently
beenmade.
IHG pursues a tax strategy that is consistent with its business
strategy and its overall business conduct principles. This strategy
seeks to ensure full compliance with all tax filing, payment and
reporting obligations on the basis of communicative and transparent
relationships with tax authorities. Policies and procedures related to
tax risk management are subject to regular review and update and
are approved by the Board.
Tax liabilities or refunds may differ from those anticipated,
in particular as a result of changes in tax law, changes in the
interpretation of tax law, or clarification of uncertainties in the
application of tax law. Procedures to minimise risk include the
preparation of thorough tax risk assessments for all transactions
carrying tax risk and, where appropriate, material tax uncertainties
are discussed and resolved with tax authorities in advance.
IHG’s contribution to the jurisdictions in which it operates includes
asignificant contribution in the form of taxes borne and collected,
including taxes on its revenues and profits and in respect of the
employment its business generates.
IHG earns approximately 65% of its revenues in the form of
franchise, management or similar fees, with almost 90% of IHG
branded hotels being franchised. In jurisdictions in which IHG does
franchise business, the prevailing tax law will generally provide
for IHG to be taxed in the form of local withholding taxes based on
a percentage of fees rather than based on profits. Costs to support
the franchise business are normally incurred regionally or globally
and therefore profits for an individual franchise jurisdiction cannot
be separately determined.
Earnings per ordinary share
Basic earnings per ordinary share in 2013 was 140.9¢, compared
with 187.1¢ in 2012. Adjusted earnings per ordinary share was
158.3¢, against 139.0¢ in 2012.
Dividends
The Board has proposed a final dividend per ordinary share of
47.0¢ (28.1p). With the interim dividend per ordinary share of
23.0¢ (15.1p), the full-year dividend per ordinary share for 2013
will total 70.0¢ (43.2p), an increase of 9% over 2012. On 4 October
2013, a special dividend of 133.0¢ (87.1p) per ordinary share
amounting to $355m was paid to shareholders.
Share price and market capitalisation
The IHG share price closed at £20.13 on 31 December 2013,
up from £17.07 on 31 December 2012. The market capitalisation
of the Group at the year end was £5.4bn.
Strategic Report 51
OVERVIEW STRATEGIC REPORT GOVERNANCE
GROUP FINANCIAL STATEMENTS
PARENT COMPANY FINANCIAL STATEMENTS ADDITIONAL INFORMATION
Other financial
information