Holiday Inn 2015 Annual Report Download - page 49

System Fund assessments
12 months ended 31 December
2015
$m
2014
$m
2015 vs
2014 %
change
2013
$m
2014 vs
2013 %
change
Assessment fees and
contributions received
from hotels
1,351 1,271 6.3 1,154 10.1
Proceeds from sale
ofIHG RewardsClub
points
222 196 13.3 153 28.1
Total 1,573 1,467 7.2 1,307 12.2
In addition to franchise or management fees, hotels within the IHG
System pay assessments and contributions (other than for Kimpton
and InterContinental) which are collected by IHG for specific use within
the System Fund. The System Fund also receives proceeds from the
sale of IHG Rewards Club points. The System Fund is managed for
the benefit of hotels in the IHG System with the objective of driving
revenues for the hotels.
The System Fund is used to pay for marketing, the IHG Rewards Club
loyalty programme and the Guest Reservation System. The operation
of the System Fund does not result in a profit or loss for the Group
and consequently the revenues and expenses of the System Fund
are not included in the Group Income Statement.
Highlights for the year ended 31 December 2015
In the year to 31 December 2015, System Fund income increased
by 7.2% to $1,573m primarily as a result of a 6.3% increase in
assessment fees and contributions from hotels resulting from
increased hotel room revenues, reflecting increases in RevPAR and
IHG System size. Continued strong performance in co-branded credit
card schemes drove the 13.3% increase in proceeds from the sale of
IHG Rewards Club points.
Highlights for the year ended 31 December 2014
In the year to 31 December 2014, System Fund income increased
by 12.2% to $1,467m, primarily as a result of a 10.1% increase in
assessment fees and contributions from hotels resulting from
increased hotel room revenues, reflecting increases in RevPAR and
IHG System size. Continued strong performance in co-branded credit
card schemes drove the 28.1% increase in proceeds from the sale
of IHG Rewards Club points.
Exceptional operating items
Exceptional operating items totalled a net gain of $819m. The
gain included $871m related primarily to the profit on sale of
InterContinental Paris – Le Grand and InterContinental Hong Kong,
and $9m related to the sale of an associate investment. Exceptional
charges included $6m reorganisation costs relating to the completion
of a project to implement more efficient processes and procedures in
the Global Technology function; $5m corporate development costs;
$10m Kimpton integration costs; and $36m impairment charges
relating to two hotels in The Americas and an associate investment in
the AMEA region. See note 5 to the Group Financial Statements which
provides further detail.
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 $7m to $87m, reflecting the
issue of £300m 3.75% public bonds in August 2015, that were used
to refinance the bridging loan used to acquire Kimpton.
Financing costs included $2m (2014: $2m) of interest costs associated
with 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 2015 also included $20m (2014: $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 30% (2014: 31%). Excluding the impact of
prior-year items, the equivalent tax rate would be 36% (2014: 35%).
This rate is higher than the average UK statutory rate of 20.25%
(2014: 21.5%), 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 $8m (2014: $29m).
In 2015, the charge comprised $56m relating to the disposal of
InterContinental Hong Kong and InterContinental Paris – Le Grand,
a credit of $21m in respect of the 2014 disposal of an 80% interest in
InterContinental New York Barclay reflecting the judgement that state
tax law changes would now apply to the deferred gain and credits of
$27m for current and deferred tax relief on other operating exceptional
items of current and prior years. In 2014, the charge comprised $56m
relating to the disposal of an 80% interest in InterContinental New York
Barclay, offset by a credit of $27m relating to a restructuring of the UK
hotel portfolio and other reorganisation costs.
Net tax paid in 2015 totalled $110m (2014: $136m) including $1m
(2014: $nil) in respect of disposals. Tax paid represents an effective
rate of 8% (2014: 23%) on total profits and is lower than the effective
income statement tax rate of 30% (2014: 31%), primarily due to
exceptional accounting gains taxable on a deferred basis, without
which the equivalent effective rate would be 20%. The remaining
difference is 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.
System Fund Other financial information
47
IHG Annual Report and Form 20-F 2015
STRATEGIC REPORT GOVERNANCE GROUP FINANCIAL STATEMENTS ADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS