10th Mar 2005 07:02
InterContinental Hotels Group PLC10 March 2005 10 March 2005 InterContinental Hotels Group PLC Fourth Quarter and Full Year Results to 31 December 2004 Fourth Quarter 12 months 31 Dec 31 Dec % % 31 Dec 31 Dec % % 2004 2003 2004 2003 change change change change proforma (actual (constant proforma (actual (constant currency) currency) £m currency) currency) £m £m £m Hotels - Turnover 386 392 (1.5)% 3.2% 1,498 1,487 0.7% 5.9% - EBITDA 98 88 11.4% 17.8% 401 357 12.3% 20.4% - Operating profit 62 49 26.5% 36.9% 251 200 25.5% 36.1% Soft Drinks - Turnover 154 157 (1.9)% - 706 674 4.7% - - EBITDA 25 27 (7.4)% - 128 124 3.2% - - Operating profit 14 17 (17.6)% - 80 83 (3.6)% - Group - Turnover 540 549 (1.6)% 1.7% 2,204 2,161 2.0% 5.6% - EBITDA 123 115 7.0% 13.2% 529 481 10.0% 16.0% - Operating profit 76 66 15.2% 22.9% 331 283 17.0% 24.5% - Profit before tax 69 59 16.9% - 309 244 26.6% - Earnings per share (pence) - Basic (6.7) * - - 42.1 * - - - Adjusted 8.5 5.2 63.5% - 32.5 20.8 56.3% - Note 1: EBITDA, operating profit, profit before tax and adjusted earnings pershare are stated before exceptional items. * Not stated as no direct comparables Note 2: 2004 £:$ exchange rate of 1.82; fourth quarter £:$ exchange rate of 1.84 Strong results for 2004 and further strategic progress towards managed & franchised business model • Strong results with Hotels operating profit up 26% (36% in constant currency) to £251m in the year and 27% (37% in constant currency) to £62m in the fourth quarter, as recovery continued in the US, the UK and Asia Pacific: - Adjusted earnings per share increased by 56% to 32.5p in the year and by 63.5% to 8.5p in the fourth quarter. - Final dividend raised by 6%, to 10.0p per share from 9.45p in 2003. • Continued strengthening of brand value proposition to franchisees and owners: - RevPAR outperformance in many segments, with strength in the UK and in US InterContinental and Crowne Plaza. - Further brand innovation programmes successfully introduced. - Rooms revenue delivered through reservation channels and Priority Club Rewards up 23% and 18% respectively. - 16% pipeline growth to 82,900 rooms, the largest of any major hotel company. • Asset sale programme progressing well with c. £750m sold or under contract already, at prices slightly ahead of net book value, including majority of US portfolio. Significant majority of sales converted to management contracts. Furthermore: - Sale of 73 UK hotels for a price of £1bn before transaction costs, with attractive management contracts; net asset value of £1.02bn (see separate announcement today). • To date £767m of funds returned to shareholders, of £1bn announced: - Further £1bn return of funds announced today (see separate announcement). David Webster, Chairman, InterContinental Hotels Group PLC commented on results for the year and trading:"These results show strong trading for last year and the outlook for 2005 is positive. Our excellent portfolio of brandscontinues to out perform the market in many key locations. The agreed sale of our UK portfolio announced today for£1billion and the promise of a return of a further £1billion to shareholders demonstrates we are firmly on track withour strategy. I am delighted to welcome Andrew Cosslett, our new Chief Executive and I look forward to the businesscontinuing to move ahead strongly." Andrew Cosslett, recently joined Chief Executive, InterContinental Hotels Group PLC, commented:"I am delighted to have joined a great business with a world class family of brands. We continue to deliver on ourstrategy of focusing on managing and franchising as the latest asset sale and conversion today shows. I look forward toworking with my colleagues as we build our position as the leading hotel brand owner in this exciting growth industry." Trading and Operating Overview: continued strong performance • Group operating profit up 17%; adjusted earnings per share up 56% aided by the low tax charge and the ongoing benefit of the share buyback programme. • Hotels operating profit up 26%; 36% on a constant currency basis: - Americas operating profit up 13% from $262m to $296m, driven by continued strong RevPAR gains in New York and 9% profit growth in franchise business; sterling profit up 1% after the impact of the weaker US dollar. Our upscale brands performed well with InterContinental and Crowne Plaza gaining share and Crowne Plaza adding more new hotels this year than at any time in the last 5 years. Holiday Inn and Express continued to maintain both market share and a solid RevPAR premium to their segments. - EMEA operating profit up 29% from £92m to £119m, driven by market share gains in the UK, the ongoing recovery of the Le Grand InterContinental, Paris and growth across all business models. As previously disclosed, performance was helped by high levels of liquidated damages of £4m in the first half of 2004. - Asia Pacific operating profit up 105% from $19m to $39m, driven by the strong performance in China and of the InterContinental Hong Kong versus weak comparables of the SARS-affected 2003. Operating profit has now recovered to 2002 levels. - Total 2004 overheads (including regional and central costs) flat on 2003 at constant currency, in line with forecast. • More than 24,000 rooms were added to our system globally in the year demonstrating the continued attraction of our brands to owners. After IHG-initiated action against non-performing owners or low quality hotels, system size reduced by a net 2,000 rooms. • Global hotel pipeline growth of 16% from 71,200 rooms at 31 December 2003 to 82,900 at 31 December 2004; now the largest of any major hotel company. • Rooms revenue generated for hotels in IHG's system through reservation channels up 23% from $3.3 bn to $4.0bn, strengthening brand and value proposition to franchisees and owners: - 38% of total rooms revenue now generated through reservation channels versus 35% in 2003. - Internet bookings up 44%, to $1.4bn. Web delivery through IHG's own sites increased to 81% from 77% in 2003; internet revenue now represents 13% of total system revenue for IHG (10% in 2003). • Revenue generated for IHG hotels by Priority Club Rewards members up 18% year on year from $2.7bn to $3.2bn: - 30% of system rooms revenue now generated by Priority Club Rewards members versus 29% in 2003. - 23.7 million members, up 23% year on year, and the largest of any hotel loyalty programme. • Effective P&L tax rate for 2004 of 16% and cash tax rate of 11%. P&L and cash tax rates for 2005 expected to be materially higher (c. 30%) as the disposal programme continues and a higher share of profits are earned in the US. • Capital expenditure remained under tight control with full year 2004 spend (actual and deferred) for Hotels of £225m (£187m cash spend) against forecast of £250m and 2003 spend of £299m. 2005 hotels capital expenditure is expected to be c. £220m, excluding £38m deferred 2004 spend, but including the significant renovation and relaunch of the InterContinental London. This project is expected to have a c. £10m impact on operating profit in 2005. Strategic overview: continued progress on brands, sales of assets and conversion to management contracts and return offunds • Further brand innovation programmes successfully introduced (e.g. Crowne Plaza Sleep Advantage, Holiday Inn Nickelodeon). Launch of Hotel Indigo brand with 1 open and 3 now in pipeline. Global roll out of Express by Holiday Inn brand continues, with launch in China. • Continued asset sales with associated management and franchise contracts: - Approximately £750m of assets sold or under contract, at values slightly ahead of net book value, including majority of US portfolio in two transactions with HPT and Strategic Hotels Corporation. - Sale of substantially all of the UK estate agreed with LRG Acquisition Limited (a consortium consisting of Lehman Brothers Real Estate Partners, Government of Singapore and Realstar Asset Management) for £1bn. Continuing brand distribution secured on significant majority of hotels with conversion to management contracts for 20 years duration and 2 extension options of 5 years each. Expected management fees from these contracts are expected to be in the order of £12m in the first full year, with additional performance related fees to follow in the future. - The remaining £360m of hotel assets on the market include £85m in the Americas and the InterContinental Paris which is progressing well. - In total, more than £1.75bn of hotels sold of more than £2.1bn announced for disposal with contracts retained on 88% of hotels sold. • Ongoing commitment to returning funds to shareholders, with £767m returned to date: - Initial £250m share buyback announced March 2004 is now complete, with 45.6m shares repurchased at an average price per share of 548p. - Special dividend of £501m paid 17 December 2004. - Second buyback programme of £250m has commenced with 2.5m shares purchased to date for £16.5m at an average price per share of 647p. - Further £1bn return of funds announced today. Details of a capital restructuring and the proposed method of returning funds will be contained in a circular to be sent to shareholders in due course. Subject to receipt of shareholder approval, completion of disposal transactions and there being no material adverse change in market conditions it is planned to complete the capital restructuring by the end of June 2005 and to return funds to shareholders as soon as practicable thereafter. - With £2bn committed to be returned, IHG has now delivered to shareholders funds equivalent to 80% of the market capitalisation at Separation in April 2003. - Final dividend raised by 6%, to 10.0p per share from 9.45p in 2003. • IFRS reporting will take effect from our 2005 Q1 results announcement and details of expected changes will be included in the presentations accompanying this release, including 2004 quarterly results in IFRS format. A conference call for Q&A on this issue will be held on 11 March 2005 (details below). Britvic: turnover up 5%; market share gains; profits affected by investment in the business and poor weather • Turnover up 5% from £674m to £706m for the full year with volume up 2%, a strong performance against an exceptional 2003 result. Gains in volume and value share in carbonates, adult and fruit drinks, with J2O and Fruit Shoot performing particularly well. J2O now largest and fastest growing adult soft drink and Fruit Shoot number one children's fruit drink in take-home market. • Operating profit down 4% for the year, while fourth quarter profit was down to £14m from £17m in 2003. The profit performance was impacted by continued investment in existing and new brand extensions, investment in IT and business infrastructure of more than £5m, pension costs in the fourth quarter, and the poorer weather in 2004 (management estimate that the exceptional weather in 2003 enhanced profits by £5m in that year). Underlying profit growth remains strong at more than 10% p.a. from 2002 - 2004. • 2005 has started positively with volume increases over the previous year; several key initiatives in place to drive profit growth in 2005 including new brand initiatives for Tango and Robinsons and tight cost controls. • Capital expenditure in 2004 was £70m, in line with forecast, including the acquisition of Ben Shaw's water business and significant investment in systems and business processes. Capital expenditure is expected to reduce to £50-60m in 2005. Hotels Current Trading • Encouraging performance in US: - Express, Holiday Inn showing rate growth; Crowne Plaza RevPAR growing strongly driven by strong meeting segment performance; InterContinental strong in key cities (e.g. New York). • UK and London showing strong RevPAR growth, driven by corporate segment. • Continued weakness in some Continental European markets (e.g. France, Benelux); Germany showing positive signs. • IHG's powerful position in the Middle East continues to deliver positive results. • InterContinental Hong Kong had a good start to the year with double-digit RevPAR growth; mainland China also strong. • Booking lead times remain short but forward bookings well up on 2004. For further information, please contact: Investor Relations (Gavin Flynn, Paul Edgecliffe-Johnson): +44 (0) 1753 410 176 +44 (0) 7808 098 972 Media Enquiries (Leslie McGibbon): +44 (0) 1753 410 425 +44 (0) 7808 094 471 Presentation for Analysts and Shareholders A presentation with David Webster (Chairman), Andrew Cosslett (Chief Executive)and Richard Solomons (Finance Director) will commence at 9.30 am (London time)on 10 March 2005 at Crowne Plaza London - The City. There will be an opportunityto ask questions. The presentation will conclude at approximately 10.30 am(London time). Presentation for Media A presentation with David Webster, Andrew Cosslett and Richard Solomons willcommence at 11.30 am (London time) on 10 March 2005 at Crowne Plaza London - TheCity. There will be an opportunity to ask questions. The presentation willconclude at approximately 12.15 pm (London time). Webcast There will be a live audio webcast of the results presentation on the webaddress http://www.ihgplc.com/prelims05. The webcast of the presentation isexpected to be on this website later on the day of the results and will remainthere for the foreseeable future. Q&A Call There will be a call, primarily for US investors and analysts, at 2.30pm (Londontime) on 10 March 2005 with David Webster and Richard Solomons available toanswer questions on the results. International dial-in +44 (0)1452 562716 UK dial-in 0800 073 8967 USA dial-in 1866 832 0717 IFRS Call There will be a call at 9.00am (London time) on 11 March 2005 with RichardSolomons and Ralph Wheeler (Financial Controller) available to answer questionson the impact on IHG's financial reporting of IFRS. International dial-in +44 (0)1452 562716UK dial-in 0800 073 8967USA dial-in 1866 832 0717 Website The full release and supplementary data will be available on our website from7.00 am (London time) on 10 March 2005. The web address is http://www.ihgplc.com/investors/announcements.asp Appendix 1: Selected RevPAR performance (comparable, year on year change) Oct Nov Dec Q4 Jan 2004 (Jan-Dec) AmericasIC O&L 6.2% 1.4% 8.0% 5.1% 7.7% 8.1%CP North America 10.6% 5.3% 6.1% 7.5% 6.2% 7.9%HI North America 6.5% 5.1% 5.4% 5.8% 6.6% 5.3%Express North America 8.3% 10.8% 8.1% 9.1% 9.6% 7.3% EMEAIC O&L 2.3% 7.6% 8.0% 6.1% 4.7% 1.0%HI UK Regions (4.3%) 7.7% 2.5% 1.7% 4.5% 4.7%HI UK London 8.2% 12.1% 9.1% 9.8% 13.4% 16.0% Asia PacificIC O&L 15.0% 31.6% 27.4% 24.0% 52.7% 46.7% Appendix 2: Disposal detail Total hotels disposed or for sale: 137 hotels, £2.1bn (being net book value plusproceeds on assets sold) Sold to date: 121 hotels (23,000 rooms), sale proceeds of £1.75bn Currently on market: 16 hotels, net book value of £360m; 2004 EBIT ofapproximately £12m; EBITDA of £24m: 5 hotels in the Americas, net book value £85m; 2004 EBIT of approximately nil;EBITDA of £6m; Comprising: InterContinental San Francisco; 4 others 11 hotels in EMEA, net book value £275m; 2004 EBIT of approximately £12m; EBITDAof £18m: Comprising: InterContinental Paris, Crowne Plaza Brussels , 4 others in Europe,InterContinental Edinburgh, 4 others in UK & Ireland Appendix 3: Assets sold since previous quarterly announcement not disclosedseparately: Holiday Inn Swansea Holiday Inn Plymouth In total 2 assets with proceeds of £7m and associated Revenue of £5m, EBITDA of£1m and EBIT of £1m Appendix 4: Investor information for 2004 final dividend Ex-dividend Date: 30 March 2005 Record Date: 1 April 2005 Payment Date: 3 June 2005 Note to Editors: InterContinental Hotels Group PLC of the United Kingdom (LON:IHG, NYSE:IHG(ADRs)) is the world's most global hotel company and the largest by number ofrooms. InterContinental Hotels Group owns, manages, leases or franchises,through various subsidiaries, more than 3,500 hotels and 534,000 guest rooms innearly 100 countries and territories around the world. The Group owns aportfolio of well recognised and respected hotel brands includingInterContinental(R) Hotels & Resorts, Crowne Plaza(R) Hotels & Resorts, HolidayInn(R) Hotels and Resorts, Holiday Inn Express(R), Staybridge Suites(R),Candlewood Suites(R) and Hotel IndigoTM, and also manages the world's largesthotel loyalty programme, Priority Club(R) Rewards, with more than 23 millionmembers worldwide. In addition to this, InterContinental Hotels Group has acontrolling interest in Britvic, the second largest soft drinks manufacturer inthe UK. InterContinental Hotels Group offers information and online reservations for allits hotel brands at www.ichotelsgroup.com and information for the Priority ClubRewards programme at www.priorityclub.com. For the latest news from InterContinental Hotels Group, visit our online PressOffice at www.ihgplc.com/media. Cautionary note regarding forward-looking statements This announcement contains certain forward-looking statements as defined underUS law (Section 21E of the Securities Exchange Act of 1934). Theseforward-looking statements can be identified by the fact that they do not relateto historical or current facts. Forward-looking statements often use words suchas ' target', 'expect', 'intend', 'believe' or other words of similar meaning.By their nature, forward-looking statements are inherently predictive,speculative and involve risk and uncertainty. There are a number of factors thatcould cause actual results and developments to differ materially from thoseexpressed in or implied by such forward-looking statements. Factors that couldaffect the business and the financial results are described in "Risk Factors" inthe InterContinental Hotels Group PLC Annual Report on Form 20-F filed with theUnited States Securities and Exchange Commission. OPERATING AND FINANCIAL REVIEW On 15 April 2003, following shareholder and regulatory approval, Six ContinentsPLC separated into two new groups, InterContinental Hotels Group PLC (IHG)comprising the Hotels and Soft Drinks businesses, and Mitchells & Butlers plc(MAB), comprising the Retail and Standard Commercial Property Developmentbusinesses (the Separation). This operating and financial review provides a commentary on the performance ofthe Hotels and Soft Drinks businesses of InterContinental Hotels Group PLC (theGroup) for the financial year ended 31 December 2004. To assist shareholders,unaudited pro forma comparatives for the 12 months ended 31 December 2003 areprovided. In 2003, in order to bring its financial reporting timetable into line withother major European and US hotel companies, IHG changed its financial year endfrom 30 September to 31 December. The statutory financial period covered bythese financial statements is therefore the 12 months ended 31 December 2004,with comparatives for the 15 months ended 31 December 2003. The comparativesinclude the results of MAB up until the Separation. GROUP RESULTS 12 months ended Actual Constant 15 monthsSummary Results 31 Dec 2004 31 Dec 2003* currency currency ended Audited Unaudited change change 31 Dec 2003 Audited £m £m % % £m Turnover: Hotels 1,498 1,487 0.7 5.9 1,870 Soft Drinks 706 674 4.7 4.7 820 ____ ____ ____ IHG 2,204 2,161 2.0 5.6 2,690MAB - - - - 793 ____ ____ _____Total 2,204 2,161 2.0 5.6 3,483 ____ ____ _____Operating profit beforenon-operating exceptionalitems: Hotels 251 200 25.5 36.1 251 Soft Drinks 80 83 (3.6) (3.6) 95 Operating exceptional (19) - - - (51) items - Hotels ____ ____ ____ IHG 312 283 10.2 17.0 295MAB - 137Total 312 283 10.2 17.0 432 ____ ____ _____EBITDA** 529 481 10.0 16.0 786 ____ ____ _____Earnings per share (pence): Basic 42.1p - - - 2.6p Adjusted** 32.5p 20.8p 56.3 - ***39.1p * The results for the 12 months ended 31 December 2003 are unaudited pro formafigures. ** Earnings before interest, tax, depreciation and amortisation (EBITDA) andAdjusting earnings per share exclude all exceptional items. *** Restated to show exceptional tax credits on a basis consistent with 2004. 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 USdollar terms as the hotel industry showed some recovery from the impact ofglobal insecurity, Severe Acute Respiratory Syndrome (SARS) and depressed travelexperienced in 2003. The relative strength of sterling against the US dollar(weighted average US dollar exchange rate to sterling for the year was $1.82against $1.63 for 2003) converted a 13.0% growth in Hotels turnover expressed inUS dollars to a 0.7% growth when expressed in sterling. If currency exchangerates had been the same in 2003 as in the 12 months ended 31 December 2004,Hotels turnover growth would have been 5.9%. Soft Drinks turnover increased by 4.7% despite the summer of 2004 experiencingpoorer weather than the very favourable summer conditions of 2003. This growthwas boosted by 2004 including an extra week's trading, 2004 being a 53 weekfinancial year for Soft Drinks. IHG operating profit before exceptional items was £331m compared with £283m forthe 12 months ended 31 December 2003. Hotels operating profit increased by25.5% to £251m while Soft Drinks fell by £3m to £80m. Exceptional items after tax netted to income of £68m and included an operatingexceptional charge before tax of £19m and a non-operating exceptional chargebefore tax of £80m. Further details are given in Exceptional Items below. Basic earnings per share for the 12 months ended 31 December 2004 was 42.1p(2.6p for the 15 months ended 31 December 2003). Adjusted earnings per share,after excluding the distorting effect of exceptional items, was 32.5p for theyear, compared with 20.8p pro forma adjusted earnings per share for the 12months ended 31 December 2003. Dividends for 2004 totalled 86.3p including a72p special dividend paid in December 2004. In addition to the specialdividend, in the 12 months ended 31 December 2004, IHG repurchased 46.4 millionshares at a cost of £255m. GROUP STRATEGY The Group continued to follow the clear strategy established on Separation. Thekey priorities of this strategy are: • to strengthen the core business through focus on brand differentiation and system delivery; • to grow the managed and franchised fee-income business in key markets; • to develop the organisation and its people; • to continue the asset disposal programme; and • to return funds to shareholders. Specific activities in 2004 are discussed below under Asset Disposals, Return ofFunds, Reorganisation and Refinancing of Group Debt. ASSET DISPOSALS During 2004, IHG continued the asset disposal programme commenced in 2003.Since Separation in April 2003, 121 hotels were sold for total proceeds ofapproximately £1.75bn. On 17 December 2004, IHG announced the sale of 13 hotels, with 3,946 rooms inthe United States, Puerto Rico and Canada, to Hospitality Properties Trust(HPT). Net proceeds totalled $425m, before transaction costs, equivalent to netbook value. The transaction is expected to complete in the first quarter of2005. IHG will continue to manage the hotels under a 25 year managementcontract with HPT. IHG has two consecutive options to extend the contracts for15 years each, giving a total potential contract length of up to 55 years. On 28 February 2005, IHG announced the acquisition by Strategic Hotel Capital,Inc. of 85% interests in two hotels in the United States. IHG will receiveapproximately $287m in cash before transaction costs, based upon a total valuefor both hotels of $303.5m, $12m in excess of net book value. This transactionis expected to complete in the first half of 2005. IHG will continue to managethese hotels under a 20 year management contract with three options to extendfor a further 10 years each. Of the 20 hotels in the Americas that were placed on the market in July 2004,five remain unsold. Progress on the disposal plans for these hotels is atvarying stages. On 10 March 2005, IHG announced the sale of 73 hotels in the United Kingdom toLRG Acquisition Limited, a consortium comprising Lehman Brothers Real EstatePartners, GIC Real Estate and Realstar Asset Management. Proceeds totalled£1.0bn before transaction costs, £22m below net book value. This transaction isexpected to complete in the second quarter of 2005. IHG will continue to manage63 of these hotels under a 20 year management contract with two consecutiveoptions to extend the contract for a further five years each. The remaining tenhotels will be under a temporary management agreement with IHG. With the transactions above, and other smaller transactions since Separation inApril 2003, IHG has sold or announced the sale of 121 hotels with proceeds ofapproximately £1.75bn and has on the market a further 16 hotels with a net bookvalue 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, 45.6 millionshares repurchased at an average price of 548p per share. In September 2004 IHG announced a further £750m return of funds to shareholders. A special dividend of £501m was paid to shareholders on 17 December 2004,followed by an associated share consolidation. A further £250m share repurchaseprogramme commenced in December 2004, and by 31 December 2004 a further 0.8million shares had been repurchased at an average price per share of 651p (total£5m). By 10 March 2005, a total of 2.5 million shares had been repurchasedunder the second repurchase programme at an average price per share of 647p(total £16m). Following the announcement of the sale of 73 hotels in the United Kingdom, IHGintends to return a further £1bn to shareholders. This will require a capitalrestructuring to enable the release of funds arising from the receipt ofdisposal proceeds, which will be contained in a circular to shareholders in duecourse. Subject to receipt of shareholder approval, completion of disposaltransactions and there being no material adverse change in market conditions, itis planned to complete the restructuring by the end of June 2005 and to returnfunds to shareholders as soon as practicable thereafter. REORGANISATION A fundamental review of the organisation of IHG was completed early in 2003. ByDecember 2004 the planned changes had been implemented. It was originallyanticipated that the reorganisation would deliver annualised savings by December2004 of $100m against the budgeted 2003 base. Actual savings against the 2003base, delivered by the end of December 2004, were estimated to be $120m. HOTELS 12 months ended 3 months endedHotels Results 31 Dec 31 Dec Change 31 Mar 30 June 30 Sept 31 Dec 2004 2003* % 2004 2004 2004 2004 £m £m £m £m £m £m Turnover: Americas 495 525 (5.7) 115 131 125 124 EMEA 829 807 2.7 190 214 212 213 Asia Pacific 134 114 17.5 33 31 31 39 Central 40 41 (2.4) 10 11 9 10 ____ ____ ____ ____ ____ ____ ____ 1,498 1,487 0.7 348 387 377 386 ____ ____ ____ ____ ____ ____ ____Operating profit beforeexceptional items: Americas 163 161 1.2 32 48 46 37 EMEA 119 92 29.3 16 34 34 35 Asia Pacific 21 12 75.0 6 3 5 7 Central (52) (65) (20.0) (10) (16) (9) (17) ____ ____ ____ ____ ____ ____ ____ 251 200 25.5 44 69 76 62 ____ ____ _____ ____ ____ ____ ____ 3 months ended*Hotels Results 31 Mar 30 June 30 Sept 31 Dec 2003 2003 2003 2003 £m £m £m £m Turnover: Americas 127 139 133 126 EMEA 175 198 217 217 Asia Pacific 29 19 28 38 Central 10 11 9 11 ____ ____ ____ ____ 341 367 387 392 ____ ____ ____ ____Operating profit beforeexceptional items: Americas 32 50 47 32 EMEA 13 19 36 24 Asia Pacific 4 (3) 3 8 Central (20) (20) (10) (15) ____ ____ ____ ____ 29 46 76 49 ____ ____ ____ ____ * Pro forma unaudited results Performance Following a difficult 2003 which saw the lead-up to and outbreak of war in Iraq,SARS, and depressed global travel, the global hotel industry experienced somerecovery in 2004. IHG experienced significantly improved performance in NorthAmerica, Asia Pacific and the United Kingdom although parts of ContinentalEurope continued to be weak. Hotels turnover increased by 0.7% in sterling terms but this was impacted by thesterling to US dollar exchange rate. Expressed in US dollars, turnover grew byover 13.0% with particularly strong growth in the United Kingdom, the MiddleEast 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 December 2003. Again, therewas significant overall growth in US dollar terms in Europe, Middle East andAfrica (EMEA) (up by 45%) and Asia Pacific (up by 105%). At constant currencyexchange rates, Hotels operating profit before exceptional items increased by36%. Scale The number of hotels in the IHG system increased by a net 20 hotels during 2004whilst the number of rooms fell by 2,116. This was a result of the continuingtrend of adding Holiday Inn Express hotels to the system (a net increase of 57hotels with 5,737 rooms), whilst Holiday Inns continued to leave the systemprimarily as a result of IHG initiated action against poor owners or qualityissues. During 2004 a net 45 Holiday Inns with 8,982 rooms left the system, ofwhich 35 hotels with 7,889 rooms were in the Americas. The trend in hotel room additions is encouraging and the focus remains ondriving net growth in the total system. At the gross level, 188 hotels with24,138 rooms were added to the system during 2004, and the pipeline of hotelssigned and waiting to enter the system at 31 December 2004 was 673 hotels with82,897 rooms, up from 544 hotels with 71,226 rooms a year previously. Reservation Systems and Priority Club Rewards IHG continued to leverage its global reservation systems and global loyaltyprogramme. In 2004, over $4.0bn of room revenue was delivered through IHG'sreservation channels, a 23% increase on 2003, and this represented 38% of totalsystem rooms revenue, an increase of 2.2 percentage points on the previous 12months. Internet channel bookings increased, with revenue growth over 2003 of 44%.Approximately 13% of total IHG system room revenue is sold via the internet, anincreasing proportion is now booked on IHG websites (81% in 2004 against 77% in2003). IHG made significant progress during 2004 in establishing standards for workingwith third-party intermediaries - on-line travel distributors - who sell orre-sell IHG hotel rooms via their internet sites. Under the IHG standard,certified distributors are required to respect IHG's trademarks, ensurereservations are guaranteed through an automated and common confirmationprocess, and clearly present fees to customers. By the end of 2004, IHG hadcertified over 200 third-party distributors including Travelocity, TravelocityBusiness and Priceline. IHG's loyalty programme, Priority Club Rewards, continued to grow with 23.7million members at 31 December 2004, an increase of 23% on the previous year.Revenue generated from Priority Club Rewards members was 18.0% higher than in2003 and represented 30% of IHG total system room revenue. Americas Americas Results 12 months ended 31 Dec 31 Dec Change 2004 2003 % $m $mTurnover: Owned and leased 490 481 1.9 Managed 55 46 19.6 Franchised 357 327 9.2 ____ ____ ____ 902 854 5.6 ____ ____ ____Operating profit before exceptionalitems: Owned and leased 39 32 21.9 Managed 12 7 71.4 Franchised 304 279 9.0 ____ ____ ____ 355 318 11.6Regional overheads (59) (56) 5.4 ____ ____ ____Total $m 296 262 13.0 ____ ____ ____ Sterling equivalent £m 163 161 1.2 The largest profit generating stream in the Americas is the franchised business,with 2,550 hotels and 333,157 rooms. Operating profit increased from $279m in2003 to $304m in 2004, a 9.0% increase. All brands posted strong revenue peravailable room (RevPAR) growth over 2003, with Holiday Inn 5.0% up, Holiday InnExpress 7.1% up, Crowne Plaza 4.5% up and Staybridge Suites 11.3% up. In the owned and leased estate, strong growth in trading particularly at theInterContinental hotels in New York and Chicago, resulted in operating profitgrowth of $7m to $39m in 2004. Comparable owned and leased RevPAR saw stronggrowth in 2003; InterContinental was up by 8.1%, Crowne Plaza by 6.9% andHoliday Inn by 5.6%. In April 2004 the InterContinental Central Park (New York)was sold, and in November 2004 the InterContinental Buckhead, Atlanta, a newlybuilt hotel, was opened. Managed operating profit increased from $7m in 2003 to $12m in 2004 with allbrands experiencing strong RevPAR growth on 2003. The manager-ownerrelationship with HPT strengthened during the year as agreement was reached forHPT to purchase a further 13 hotels from IHG with long-term contracts for IHG tomanage the hotels under IHG brands. Following completion of this transaction,119 hotels owned by HPT are managed by IHG. Americas RevPAR movement on previous year 12 months ended 31 Dec 2004 InterContinental Owned and leased (comparable) 8.1%Holiday Inn Franchised 5.0%Holiday Inn Express Franchised 7.1% Americas regional overheads increased marginally, principally as a result ofspecific strategic initiatives and bonus payments. Total Americas operating profit was $296m, a13.0% increase on the pro formaoperating profit for the 12 months ended 31 December 2003 of $262m. Theweakness of the US dollar to sterling meant that in sterling terms, Americasoperating profit was £163m, 1.2% up on 2003. Europe, Middle East and Africa (EMEA) EMEA Results 12 months ended 31 Dec 31 Dec Change 2004 2003 % £m £mTurnover: Owned and leased 759 746 1.7 Managed 43 38 13.2 Franchised 27 23 17.4 ____ ____ ____ 829 807 2.7 ____ ____ ____Operating profit before exceptionalitems: Owned and leased 97 77 26.0 Managed 24 19 26.3 Franchised 21 18 16.7 ____ ____ ____ 142 114 24.6Regional overheads (23) (22) 4.5 ____ ____ ____Total £m 119 92 29.3 ____ ____ ____ Dollar equivalent $m 216 149 45.0 Turnover for EMEA for 2004 was £829m, £22m higher than for the 12 months ended31 December 2003. Owned and leased turnover grew by £13m despite the loss of£42m turnover compared to 2003 as a result of hotels being sold. Trading conditions across the region varied; UK hotels experienced strong growthin RevPAR throughout the year and the performance in the Middle East and Africabusiness was strong. Continental Europe was more mixed with Paris in particularslower to recover from the adverse conditions in 2003. EMEA RevPAR movement on previous year (comparable) 12 months ended 31 Dec 2004 InterContinental Owned and leased 1.0%Crowne Plaza Owned and leased 4.9%Holiday Inn UK London 16.0%Holiday Inn UK Region 4.7% In the owned and leased estate, RevPAR in the United Kingdom Holiday Inn estatecontinued to grow over previous periods. For the year Holiday Inn UK RevPAR wasup by 8.0% over 2003. London hotels in particular experienced strong growth inRevPAR over 2003 (up by 16.0%) as they were slower to recover than the UKregional hotels which had seen some recovery from mid-2003. Holiday Inn UKregional hotel RevPAR was up by 4.7%. InterContinental owned and leased RevPAR on a comparable basis was 1.0% up on2003. InterContinental owned and leased turnover and operating profit wasboosted by a full year's trading from the Le Grand InterContinental Paris, whichwas closed for refurbishment for part of 2003. Owned and leased operatingprofit finished £20m ahead of 2003 with the Le Grand InterContinental Pariscontributing £12m of the increase. Managed operating profit in EMEA rose by £5m to £24m. This was driven by hotelsin the Middle East where over half of EMEA's managed hotels are located.Overall, Middle East managed RevPAR increased by 8.8% for InterContinental,8.8% for Crowne Plaza and 6.4% for Holiday Inn. Liquidated damages ofapproximately £4m were received from the early termination of the managementcontract for the InterContinental Barcelona. Overall EMEA franchise RevPAR was 6.1% up on 2003 and there was a net increasein system size of 13 hotels. As a result, EMEA franchise operating profit was£3m ahead of 2003 at £21m. Total EMEA regional overheads increased by £1m, reflecting the benefits of thereorganisation partly offset by bonus awards for 2004. During the year, a number of UK hotels were sold, including the Crowne PlazaManchester Midland, Holiday Inn Teeside, Holiday Inn Sheffield West, Holiday InnCrawley and the Holiday Inn Preston. Asia Pacific Asia Pacific Results 12 months ended 31 Dec 31 Dec Change 2004 2003 % $m $mTurnover: Owned and leased 201 154 30.5 Managed 38 26 46.2 Franchised 5 5 - ____ ____ ____ 244 185 31.9 ____ ____ ____Operating profit before exceptionalitems: Owned and leased 31 18 72.2 Managed 25 15 66.7 Franchised 3 4 (25.0) ____ ____ ____ 59 37 59.5Regional overheads (20) (18) 11.1 ____ ____ ____Total $m 39 19 105.3 ____ ____ ____ Sterling equivalent £m 21 12 75.0 Asia Pacific's results improved significantly in 2004 as the region made arecovery from the negative impacts in 2003 of the war in Iraq, SARS and theterrorist bombing in Bali. Turnover grew by 32% to $244m with a significant increase in both owned andleased turnover (up by $47m) and managed turnover (up by $12m). The owned and leased estate operating profit grew by $13m to $31m with asignificant contribution from the InterContinental Hong Kong. RevPAR at theInterContinental Hong Kong increased by over 50% on 2003 and, with highoperational gearing, this led to a substantially improved profit. In the lastquarter of the year the hotel was running at an occupancy of over 85% and RevPARwas up by 29% over 2003. In total, owned and leased RevPAR across the regionwas up by 47%. Asia Pacific managed hotel RevPAR also increased in comparison with 2003;InterContinental increased by 18%, Crowne Plaza by 23%, and Holiday Inn by 24%.Operating profit increased by $10m to $25m. Asia Pacific regional overheads were $2m higher than 2003, principally as aresult of infrastructure costs to support further planned expansion in GreaterChina. In addition to the 44 IHG hotels already open and operating in GreaterChina, there are another 53 management agreements signed and under negotiationwhich will increase IHG's presence and leadership in the Chinese hotel market. In the year, the Holiday Inn Newcastle and the Holiday Inn Adelaide were soldwith proceeds being broadly in line with net book value. Central Central 12 months ended 31 Dec 31 Dec Change 2004 2003 % £m £mTurnover 40 41 (2.4)Gross central costs (92) (106) (13.2) ____ ____ ____Net central costs £m (52) (65) (20.0) ____ ____ ____ Dollar equivalent $m (93) (105) (11.4) Central support function costs totalled £52m in 2004, £13m down on 2003. Thereduction primarily reflects the continued drive to reduce overhead costs. USdollar denominated costs also benefited from being converted at a weaker USdollar to sterling exchange rate. Regional and central overheads were flat year on year reflecting significantsavings achieved given inflationary pressures, new initiatives and the paymentof bonuses in 2004. EMEA overheads expressed in US dollars were 16.7% higherthan 2003 primarily due to the impact of exchange rates; in sterling, theincrease was 4.5%. Including regional costs charged directly to income streams,total gross overheads were 2.0% below 2003 levels when compared at constantexchange rates. SOFT DRINKS Soft Drinks 12 months ended 31 Dec 31 Dec Change 2004 2003 % £m £m Turnover 706 674 4.7Operating profit before exceptional items 80 83 (3.6) EBITDA 128 124 3.2 Strategy In March 2004, Soft Drinks secured a new long-term Exclusive Bottling Agreement(EBA) with PepsiCo Inc. This agreement is for 15 years and will automaticallybe extended for a further five years on an initial public offering of thebusiness. As part of the EBA, the shareholding of Britannia Soft Drinks Ltd(BSD) was restructured with IHG's direct shareholding being reduced to 47.5%whilst its interest in the total business remained unchanged; IHG continues tocontrol and consolidate the results of BSD. The shareholders in BSD also agreedto consider an initial public offering of BSD between 1 January 2005 and 31December 2008 if market conditions are suitable. Soft Drinks continued to invest in its key brands and in new product innovation. During 2004, BSD acquired the Ben Shaw's water business, further increasingBSD's presence in the UK's expanding water market and providing additionalcapacity. Performance Soft Drinks turnover increased by 4.7% to £706m, a strong performance against a2003 result that benefited from a particularly favourable summer. Volume growthwas 1.5% with strong growth in on-premise volume up 7.3%, driven by accountgains during the year. Soft Drinks increased its share of the take- home marketalthough volumes were lower as the market volume fell below 2003. Pepsi achieveda take-home cola market share of 20%. Turnover growth benefited from an extraweek's trading; 2004 included 53 weeks' trading compared with 52 weeks in 2003. Operating profit for Soft Drinks was £80m, £3m down on 2003. Operating profitin 2003, however, was boosted by an estimated £5m from the exceptionally goodsummer weather. Although 2004 operating profit benefited from an extra week'strading, incremental costs associated with a move to a more standalone basis,additional depreciation, increased pension costs and continued investment bothin brand support and infrastructure costs, left profit £3m down on last year. Operating cash flow for Soft Drinks was £73m compared with £71m for the 12months ended 31 December 2003. Net capital expenditure was £70m against £55min 2003 with significant expenditure on a Business Transformation Programme. Exceptional Items Following a review of the hotel estate, tangible fixed assets have been writtendown by £48m; £28m has been charged as an operating exceptional item and £20mreverses previous revaluation gains. Other operating exceptional items included a charge of £11m related to thedelivery of the further restructuring of the Hotels business in conjunction withthe asset disposal programme, and other operating income of £20m relating to theadjustment to market valuation of the Group's investment in FelCor Lodging TrustInc. Non-operating exceptional items included a profit of £15m realised on the saleof hotels, a £74m provision for loss on disposal of assets in the Americas andthe United Kingdom and a £10m provision against the value of certain fixed assetinvestments. Non-operating exceptional items also included a net exceptional interest chargeof £11m. This related mainly to refinancing costs, including the premium paidon the repurchase of the Group's 2010 €600m Eurobonds of £17m, net ofexceptional interest income which included £14m received on tax refunds. The release of provisions relating to tax matters which were settled during theyear or in respect of which the relevant statutory limitation period hasexpired, the recognition of deferred tax assets in respect of losses, and tax onthe current year exceptional items has resulted in an exceptional tax credit of£167m. Operating and non-operating exceptional items, together with their related taxcredits, have been excluded in the calculation of adjusted earnings per share. Refinancing of Group Debt In November 2004 the Group refinanced its existing bank facility with a new£1.6bn facility. The new facility comprises a £1.1bn five year tranche and a£0.5bn 364 day tranche with an option to extend for one year. As part of thisrefinancing exercise the Group repurchased its euro and sterling denominatedbonds. Interest The net interest charge for the year (pre-exceptionals) was £22m compared to a£39m pro forma interest charge for the 12 months ended 31 December 2003. Thereduction was principally due to lower average debt levels and the weaker USdollar. The exceptional interest charge totalled £11m as analysed inExceptional Items. TAXATION The tax charge on ordinary activities excluding exceptional items was 16% for2004. The equivalent effective rate for the IHG Group excluding MAB was 24% forthe 15 months ended 31 December 2003, following restatement in respect ofexceptional tax credits on a basis consistent with 2004. Net tax paid in the 12months ended 31 December 2004 reflected tax repayments received during theperiod and the impact of exceptional costs. Excluding the effect of exceptional items and prior year items, the Group's taxrate for the 12 months ended 31 December 2004 was 36%. The equivalent for theIHG group was 37% for the 15 months ended 31 December 2003. The difference fromthe UK statutory rate of 30% arose primarily due to overseas profits being taxedat rates higher than the UK statutory rate. CAPITAL EXPENDITURE AND CASH FLOW IHG's operating cash flow for 2004 was £364m compared with £411m for the 12months ended 31 December 2003 (pro forma). Net capital expenditure was £151m,including £257m capital additions and £106m disposal proceeds, principally fromthe sale of hotels. Hotels gross capital expenditure was £187m, lower thanexpected as £38m was deferred until 2005 following delays in the timing of someprojects. Major items of expenditure in 2004 included the InterContinentalBuckhead, Atlanta, refurbishment expenditure on the Holiday Inn UK estate andrefurbishment expenditure on the InterContinental hotels in London, Cannes andFrankfurt. Net interest paid was £41m, and tax payments totalled £35m. Dividend paymentstotalled £626m including the special dividend paid in December 2004. Therepurchase of shares totalled £255m. EARNINGS AND DIVIDEND Basic earnings per share for the year were 42.1p. Adjusted earnings per share,removing the distorting effect of exceptional items, were 32.5p compared with apro forma figure for the 12 months ended 31 December 2003 of 20.8p. Thisrepresents an increase of over 50%. The Board has proposed a final dividend per share of 10.0p; with the interimdividend of 4.3p, the normal dividend for the year totalled 14.3p. A specialdividend of 72p was paid in December 2004. SHARE PRICE AND MARKET CAPITALISATION The share price in 2004 fluctuated between 479.2p and 690.8p, and closed at647.5p on 31 December 2004. This compares with the share price immediatelyfollowing the Separation in April 2003 of 372.5p. At 31 December 2004, the market capitalisation of IHG was £4.03bn. TREASURY MANAGEMENTRelated Shares:
InterContinental Hotels