Holiday Inn 2004 Annual Report Download

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Annual report and financial statements 2004

Table of contents

  • Page 1
    Annual report and financial statements 2004

  • Page 2
    ... Remuneration report 38 Financial statements - Group profit and loss account - Statement of total recognised Group gains and losses - Note of historical Group profits and losses - Reconciliation of movement in shareholders' funds - Group cash flow statement - Balance sheets 42 Accounting policies 45...

  • Page 3
    ...IHG turnover for the 12 months ended 31 December 2004 was £2,204m compared with £2,161m for the 12 months ended 31 December 2003. In the Hotels business all regions reported revenue and profit growth in US dollar terms as the hotel industry showed some recovery from the impact of global insecurity...

  • Page 4
    ... Hotels Group 2004 Operating and financial review 12 months ended 31 Dec 2004 Audited £m 31 Dec 2003* Unaudited £m Actual currency change % Constant currency change % 15 months ended 31 Dec 2003 Audited £m Summary Results Turnover: Hotels Soft Drinks IHG MAB Total Operating profit before non...

  • Page 5
    ... the sale of 121 hotels with proceeds of approximately £1.75bn and has on the market a further 16 hotels with a net book value of £0.4bn. RETURN OF FUNDS In March 2004 IHG announced an on-market share repurchase programme for £250m. By 20 December 2004 the programme was completed with, in total...

  • Page 6
    ... to US dollar exchange rate. Expressed in US dollars, turnover grew by 13.0% with particularly strong growth in the United Kingdom, the Middle East and Asia Pacific. Hotels operating profit before exceptional items was £251m, an increase of 25.5% on the pro forma figure for the 12 months ended 31...

  • Page 7
    ... Priority Club Rewards members was 18.0% higher than in 2003 and represented 30% of IHG total system room revenue. FIGURE 1 Hotels Rooms 2004 Change over 2003 Total system size at 31 December 2004 Analysed by brand: InterContinental Crowne Plaza Holiday Inn Holiday Inn Express Staybridge Suites...

  • Page 8
    ...is the franchised business, with 2,550 hotels and 333,157 rooms. Operating profit increased from $279m in 2003 to $304m in 2004, a 9.0% increase. All brands posted strong revenue per available room (RevPAR) growth over 2003, with Holiday Inn 5.0% up, Holiday Inn Express 7.1% up, Crowne Plaza 4.5% up...

  • Page 9
    ... awards for 2004. During the year, a number of UK hotels were sold, including the Crowne Plaza Manchester Midland, Holiday Inn Teeside, Holiday Inn Sheffield West, Holiday Inn Crawley and the Holiday Inn Preston. 12 months ended 31 Dec 2004 £m 31 Dec 2003 £m Change % EMEA Results Turnover: Owned...

  • Page 10
    ... 11.1 105.3 75.0 FIGURE 6 Hotels Rooms 2004 Change over 2003 Asia Pacific system size at 31 December 2004 Analysed by brand: InterContinental Crowne Plaza Holiday Inn Holiday Inn Express Other brands Total Analysed by ownership type: Owned and leased Managed Franchised Total Analysed by geography...

  • Page 11
    ... was 4.5%. Including regional costs charged directly to income streams, total gross overheads were 2.0% below 2003 levels when compared at constant exchange rates. SOFT DRINKS Strategy In March 2004, Soft Drinks secured a new long-term Exclusive Bottling Agreement (EBA) with PepsiCo Inc. This...

  • Page 12
    ...debt levels and the weaker US dollar. The exceptional interest charge totalled £11m as analysed in Exceptional Items. TAXATION The tax charge on ordinary activities excluding exceptional items was 16% for 2004. The equivalent effective rate for the IHG Group excluding MAB was 24% for the 15 months...

  • Page 13
    ... and options and forward rate agreements. Based on the year end net debt position (figure 8), and given the underlying maturity profile of investments, borrowings and hedging instruments at that date, a one percentage point rise in US dollar interest rates would increase the net interest charge by...

  • Page 14
    ... first set of audited financial statements in line with International Financial Reporting Standards (IFRS) for the year ending 31 December 2005. This will require an opening balance sheet to be prepared under IFRS as at 1 January 2004, and a full profit and loss account, balance sheet and cash flow...

  • Page 15
    InterContinental Hotels Group 2004 13 12 months ended 31 Dec 2004 Audited £m 31 Dec 2003* Unaudited £m PROFIT AND LOSS ACCOUNT Turnover - continuing operations Cost of sales Gross operating profit Administrative expenses Operating profit Net interest charge Profit on ordinary activities before ...

  • Page 16
    ...first set of audited financial statements in line with International Financial Reporting Standards ('IFRS') for the year ending 31 December 2005. This will require an opening balance sheet to be prepared under IFRS as at 1 January 2004, and a full profit and loss account, balance sheet and cash flow...

  • Page 17
    .... Under IAS 39 and UK GAAP, finance charges including issue costs are charged to the profit and loss account using an effective interest rate method. Finance costs not settled in the period are included within the outstanding loan balance. Derivative financial instruments and hedging Under IFRS...

  • Page 18
    ...LEASES Operating lease rentals are charged to the profit and loss account on a straight line basis over the term of the lease. PENSIONS Defined contribution plans Payments to defined contribution schemes are charged to the profit and loss account as they fall due. Defined benefit plans Any excess or...

  • Page 19
    ... period of the equity instrument, based on the Group's best estimate of the number of shares that will vest. Fair value is based on option pricing models and the terms and conditions of the option schemes. PROPOSED DIVIDEND Dividends of £81m (2003 £86m) were proposed before the balance sheet date.

  • Page 20
    ... the Group's balance sheet. Under IFRS, the cost of providing defined benefit retirement benefits is recognised over the service life of scheme members. This cost is calculated by an independent qualified actuary, based on estimates of long-term rates of return on scheme assets and discount rates on...

  • Page 21
    ... Minority available for interest shareholders £m £m As reported under UK GAAP Remove goodwill amortisation Pension accounting adjustments Share-based payment adjustments Impairment of previously revalued assets Depreciation adjustment of held for sale assets Adjustment to provision for loss on...

  • Page 22
    20 InterContinental Hotels Group 2004 International financial reporting information Reconciliation of UK GAAP balance sheet to IFRS balance sheet at 1 January 2004 Non current assets £m Current assets £m Current liabilities £m Non current liabilities £m Minority interests £m Net assets £m ...

  • Page 23
    ... the Company's financial position, results of operations and cash flows in accordance with IFRS. OPINION In our opinion, the preliminary IFRS financial statements for the year ended 31 December 2004 have been prepared, in all material respects, in accordance with the basis set out in the accounting...

  • Page 24
    ... to support Investors in People (IIP). A number of UK and European hotels have accreditation against the rigorous IIP standard set for communicating goals and objectives to employees and for ensuring that they are given the skills required to deliver business strategies. HEALTH AND SAFETY The Group...

  • Page 25
    ... to environmental, community and ethical matters and to developing its people is described more fully in the Annual Review and Summary Financial Statement. IHG's Corporate Social Responsibility policies are published on the Company's website. CHARITABLE DONATIONS IHG continues to support community...

  • Page 26
    ... of the monitoring processes set out above to support the Board's annual statement on internal control; and • reports from the external auditor. The Board has conducted a review of the effectiveness of the system of internal control during the year ended 31 December 2004, taking account of any...

  • Page 27
    ... process. It is intended that a comprehensive evaluation will take place annually. The following were directors of the Company during the year: Position Date of original appointment Directors' biographical details are set out on page 27 of the Annual Review and Summary Financial Statement 2004...

  • Page 28
    ... on 21 June 2004. David Kappler is now the Company's Senior Independent Director. His responsibilities include being available to liaise with shareholders who have issues to raise. He meets at least annually with non-executive and executive directors, without the Chairman present, to review the...

  • Page 29
    ... provides an opportunity to discuss, using publicly available information, the progress of the business, its performance, plans and objectives. The Chairman, the Senior Independent Director and other non-executive directors are available to meet with major shareholders to understand their issues and...

  • Page 30
    ... accountant and until April 2004 was Chief Financial Officer of Cadbury Schweppes plc. He also chairs the Audit Committees of two other UK public limited companies. The Committee's principal responsibilities are to: • review the Company's public statements on internal control and corporate...

  • Page 31
    ... UK investor guidelines. However, given the global nature of the Hotels business, an appropriate balance needs to be drawn in the design of relevant remuneration packages between domestic and international expectations. 3.2 The main components The Group has performance-related reward policies...

  • Page 32
    ... on the salary levels for similar jobs in groups of comparable companies. Internal relativities and salary levels in the wider employment market are also taken into account. In addition, benefits are provided to executive directors in accordance with the policy applying to other executives in their...

  • Page 33
    .... Benefits under the Performance Restricted Share Plan are not pensionable. During the year, IHG has remained within its headroom limits for the issue of new shares under share incentive schemes. As at 31 December 2004, the Company's position under the Association of British Insurers' guidelines...

  • Page 34
    ...Group International Savings & Retirement Plan. The Company is considering its detailed response to the new pension regime resulting from the Finance Act 2004 and applying from April 2006. Currently, the pension arrangements for UK-based executive directors and other senior employees provide benefits...

  • Page 35
    ... in the Short Term Deferred Incentive Plan for the 2005 performance year. Any award will be made in cash and pro-rated to 30 September 2005. Emoluments for Stevan Porter include £10,731 that were chargeable to UK income tax. Fees paid to David Webster represent £41,667 per month payable to...

  • Page 36
    ...the performance measure relates to both the Company's total shareholder return against a group of 10 other comparator companies and growth in return on capital employed. Richard North's awards were pro-rated to reflect his contractual service during the applicable performance periods. In the case of...

  • Page 37
    ... Executive Share Option Plan were granted on 1 April 2004 at an option price of 494.17p. These options are exercisable between April 2007 and April 2014, subject to the achievement of the performance condition. Option prices range from 308.48p to 593.29p per IHG PLC share. The closing market value...

  • Page 38
    ... children. b) Early retirement rights After leaving the service of the relevant company, the member has the right to draw his accrued pension at any time after his 50th birthday, subject to a discount for early payment. c) Pension increases All pensions (in excess of Guaranteed Minimum Pensions...

  • Page 39
    ... Hotels Group PLC £1 ordinary shares prior to the share consolidation effective from 13 December 2004. For every 28 existing InterContinental Hotels Group PLC shares held on 10 December 2004, shareholders received 25 new ordinary shares of 112p each. Held in the form of American Depositary Receipts...

  • Page 40
    ... Group 2004 Financial statements GROUP PROFIT AND LOSS ACCOUNT 2004 12 months Before exceptional items £m Before exceptional items restated* £m 2003 15 months Exceptional items restated* £m for the 12 months ended 31 December 2004 note 2 Exceptional items £m Total £m Total £m Turnover...

  • Page 41
    InterContinental Hotels Group 2004 39 STATEMENT OF TOTAL RECOGNISED GROUP GAINS AND LOSSES 2004 12 months £m 2003 15 months £m for the 12 months ended 31 December 2004 Earnings available for shareholders Reversal of previous revaluation gains due to impairment Exchange differences* Goodwill ...

  • Page 42
    ... months ended 31 December 2004 note 12 £m £m 2003 15 months £m £m Operating activities Interest paid Costs associated with new facilities Premium on early settlement of debt Dividends paid to minority shareholders Interest received Returns on investments and servicing of finance UK corporation...

  • Page 43
    ... Hotels Group 2004 41 BALANCE SHEETS Group 31 Dec 2004 £m 31 Dec 2003 £m Company 31 Dec 2004 £m 31 Dec 2003 £m 31 December 2004 note Fixed assets Intangible assets Tangible assets Investments Current assets Stocks Debtors analysed as: Amounts falling due within one year Amounts falling...

  • Page 44
    ...on interest rate agreements is taken to the profit and loss account. Premiums payable on interest rate agreements are charged to the profit and loss account over the term of the relevant agreements. Currency swap agreements are retranslated at exchange rates ruling at the balance sheet date with the...

  • Page 45
    ... loss account and the payments made to the pension plans are treated as either prepayments or other provisions for liabilities and charges in the balance sheet. The additional disclosures required by the transitional arrangements of FRS 17 'Retirement Benefits' are given in note 5 to the financial...

  • Page 46
    ... Group 2004 Accounting policies Soft Drinks - sales (excluding VAT and similar taxes) of goods and services, net of discounts, provided in the normal course of business. Revenue is recognised when sales are made. LOYALTY PROGRAMME The hotel loyalty programme, Priority Club Rewards, enables members...

  • Page 47
    ... Pacific £m Central £m Total Hotels £m Soft Drinks £m Total £m Discontinued†£m Total Group £m 12 months ended 31 December 2004* Turnover Operating profit before exceptional items Operating exceptional items Operating profit Non-operating exceptional items: Provision for loss on disposal...

  • Page 48
    ... the 28 weeks ended 12 April. 2004 12 months Total £m 2003 15 months Continuing Discontinued operations operations* £m £m Total £m 3 OPERATING PROFIT Operating profit is stated after charging: Staff costs Depreciation of tangible fixed assets Impairment of tangible fixed assets Amortisation...

  • Page 49
    InterContinental Hotels Group 2004 47 4 STAFF Costs: Wages and salaries Social security costs Pensions (see note 5) 2004 12 months £m 2003 15 months £m 570 66 23 659 2004 12 months 884 96 33 1,013 2003 15 months Average number of employees, including part-time employees Hotels Soft Drinks ...

  • Page 50
    ... and expected rate of return were: 31 Dec 2004 Long-term rate of return expected % 31 Dec 2003 Long-term rate of return expected % 30 Sept 2002 Long-term rate of return expected % UK Schemes Equities Bonds Other Total market value of assets Value £m Value £m Value £m 8.0 4.9 8.0 272 173...

  • Page 51
    ... on pension scheme liabilities Net expense UK £m US £m 27 (27) - 4 (6) (2) 2004 12 months 31 (33) (2) 54 (61) (7) 2003 15 months Items recognised in the Statement of Total Recognised Group Gains and Losses (STRGL) Actuarial loss: Actual return less expected return on pension scheme assets...

  • Page 52
    50 InterContinental Hotels Group 2004 Notes to the financial statements 6 DIRECTORS' EMOLUMENTS Basic salaries, fees, performance payments and benefits* Long-term reward Gains on exercise of share options 2004 12 months £000 2003 15 months £000 3,426 553 - 6,068 1,338 69 More detailed ...

  • Page 53
    ... 15 months restated* 9 TAX ON PROFIT ON ORDINARY ACTIVITIES Tax charge UK corporation tax at 30% (2003 30%): Current year Prior years Foreign tax: Current year Prior years Total current tax Deferred tax: Origination and reversal of timing differences Adjustments to estimated recoverable deferred...

  • Page 54
    52 InterContinental Hotels Group 2004 Notes to the financial statements 2004 12 months Before exceptional items % 2003 15 months restated* Total % Total % 9 TAX ON PROFIT ON ORDINARY ACTIVITIES (CONTINUED) Tax reconciliation UK corporation tax standard rate Permanent differences Capital ...

  • Page 55
    ... Hotels Group 2004 53 11 EARNINGS PER ORDINARY SHARE Basic earnings per ordinary share is calculated by dividing the earnings available for shareholders of £299m (2003 £19m) by 710m (2003 733m), being the weighted average number of ordinary shares, excluding investment in own shares, in issue...

  • Page 56
    ... Hotels Group 2004 Notes to the financial statements Cash and overdrafts Cash at bank and in hand £m Liquid resources Current asset investments £m Financing Other borrowings due within one year £m Other borrowings due after one year £m 13 NET DEBT At 31 December 2003 Net cash...

  • Page 57
    ..., short-term investments and, in 2003, currency swaps. 31 Dec 2004 Total £m Net operating £m 31 Dec 2003 Total £m Net operating £m 17 ASSETS Hotels Americas EMEA Asia Pacific Soft Drinks Non-operating assets: Current asset investments Cash at bank and in hand Corporate taxation Non-operating...

  • Page 58
    ... fixed assets have been written down in total by £48m following an impairment review of the hotel estate. The impairment has been measured by reference to the value of income-generating units, using either the higher of value in use or estimated recoverable amount. The discount rates used for value...

  • Page 59
    InterContinental Hotels Group 2004 57 19 TANGIBLE FIXED ASSETS (CONTINUED) Historical cost The comparable amounts under the historical cost convention for properties would be: Group 31 Dec 2004 £m 31 Dec 2003 £m Cost Depreciation Net book value Land and buildings £m Fixtures, fittings and ...

  • Page 60
    ... listed investments are listed on a recognised investment exchange. Group 31 Dec 2004 £m 31 Dec 2003 £m 21 STOCKS Raw materials Finished stocks Consumable stores 9 23 10 42 9 21 14 44 Group 31 Dec 2004 Total After one year £m 31 Dec 2003 Total £m After one year £m Company 22 DEBTORS Trade...

  • Page 61
    ... TAXATION At 31 December 2003 Exchange and other adjustments Disposals Profit and loss account At 31 December 2004 Group 31 Dec 2004 £m Group £m 314 1 (3) (64) 248 Analysed as tax on timing differences related to: Fixed assets Deferred gains on loan notes Losses Pension prepayment Other 31 Dec...

  • Page 62
    ...to onerous fixed lease contracts acquired with the InterContinental hotels business and having expiry dates to 2008. d Relates to unfunded post-retirement benefit plans (see note 5). Group 31 Dec 2004 Within one year £m After one year £m Total £m 31 Dec 2003 Total £m Company 31 Dec 2004 Within...

  • Page 63
    ... at fixed rate Weighted average period for which rate is fixed (years) 31 December 2004 Net debt £m Currency swap agreements £m Principal Total £m At variable rate* £m At fixed rate £m Weighted average rate % Current asset investments and cash at bank and in hand: Sterling US dollar Other...

  • Page 64
    ... Hotels Group 2004 Notes to the financial statements 29 FINANCIAL INSTRUMENTS (CONTINUED) Interest at fixed rate Weighted average period for which rate is fixed (years) 31 December 2003 Net debt £m Currency swap agreements £m Principal Total £m At variable rate* £m At fixed rate...

  • Page 65
    ...) (1) (573) The fair values of listed fixed asset investments and borrowings are based on market prices at the year end. Other assets and liabilities have been fair valued by discounting expected future cash flows to present value. Hedges The Group's unrecognised gains and losses for the period on...

  • Page 66
    ... be put to shareholders at the Annual General Meeting on 1 June 2005. 31 RESERVES - EQUITY INTERESTS Group At 31 December 2003 Share premium account £m Revaluation reserve £m Capital redemption reserve £m Merger reserve £m Other reserve £m Profit and loss account £m Total £m 14 258...

  • Page 67
    ... against Group reserves. Total £m 2,353 - 2,353 (17) (110) (127) 2,336 (110) 2,226 33 PARENT COMPANY Profit on ordinary activities after taxation dealt with in the financial statements of the Company amounts to £817m (2003 £399m). 34 FINANCIAL COMMITMENTS The Group has annual commitments...

  • Page 68
    ... PLC (note a) Hotels InterContinental Hotels Limited InterContinental Hotels Group Operating Corporation (incorporated and operates principally in the United States) InterContinental Hotels Group Services Company InterContinental Hotels Group (UK) Limited Holiday Inn Limited Soft Drinks Britannia...

  • Page 69
    InterContinental Hotels Group 2004 67 US GAAP information DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES The Group financial statements are prepared in accordance with accounting principles generally accepted in the United Kingdom (UK GAAP) which ...

  • Page 70
    ...variable plans and the charge would be based on the intrinsic value of the shares using the share price at the balance sheet date. Effective from the date of Separation, the Group adopted the preferable fair value recognition provisions of FAS 123 'Accounting for Stock-Based Compensation'. The Group...

  • Page 71
    ...or estimated fair value, less estimated costs to sell. Depreciation is no longer charged. DISCONTINUED OPERATIONS Under UK GAAP, operations are classified as discontinued when the sale or termination of operations is completed by the balance sheet date, or before approval of the financial statements...

  • Page 72
    ... the weighted average number of ordinary shares in issue during the period. Each American Depositary Share represents one ordinary share. d Calculated by adjusting basic net income/(loss) in accordance with US GAAP of £321m profit to reflect both the future compensation on share-based payments and...

  • Page 73
    ... Provisions for liabilities and charges: Provisions Accrued pension cost Deferred taxation: on above adjustments methodology Minority share of above adjustments Shareholders' equity in accordance with US GAAP a Translated at the rate of exchange ruling at the balance sheet date of £1 = $1.93 (2003...

  • Page 74
    ...and the Group as at the end of the financial year and of the profit or loss for the financial year. Following discussions with the auditors, the directors consider that in preparing the financial statements on pages 38 to 66 inclusive, the Company has used appropriate accounting policies, applied in...

  • Page 75
    ... FRC Code specified for our review by the Listing Rules of the Financial Services Authority and we report if it does not. We are not required to consider whether the Board's statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the Group's corporate...

  • Page 76
    74 InterContinental Hotels Group 2004 Four year review Pro forma* InterContinental Hotels Group PLC Group Profit and Loss Account Dec 2004 12 months £m Dec 2003 12 months £m Dec 2002 12 months £m Sept 2002†12 months £m Sept 2001†12 months £m Hotels Soft Drinks Turnover Hotels Soft ...

  • Page 77
    ... Hotels Group PLC Group Balance Sheet 31 Dec 2004 £m 31 Dec 2003 £m Pro forma* 31 Dec 2002 £m 30 Sept 2002†£m 30 Sept 2001†£m Fixed assets Stocks Debtors Investments Cash at bank and in hand Amounts due from MAB Short-term creditors Net current (liabilities)/assets Long-term...

  • Page 78
    ... a hotel on behalf of the hotel owner. the value attributed to a listed company by multiplying its share price by the number of shares in issue. a hotel in the three/four star category, e.g. Holiday Inn, Holiday Inn Express. cash expended on fixed assets, less cash received from selling fixed assets...

  • Page 79
    ... Annual Report and Financial Statements 2004 contain certain forward-looking statements as defined under US legislation (Section 21E of the Securities Exchange Act of 1934) with respect to the financial condition, results of operations and business of InterContinental Hotels Group and certain plans...

  • Page 80
    www.ihgplc.com INTERCONTINENTAL HOTELS GROUP PLC 67 Alma Road Windsor Berkshire SL4 3HD T +44 (0) 1753 410 100 F +44 (0) 1753 410 101 BRITVIC SOFT DRINKS LIMITED Britvic House Broomfield Road Chelmsford Essex CM1 1TU T +44 (0) 1245 261 871 F +44 (0) 1245 267 147