20th Feb 2007 07:08
InterContinental Hotels Group PLC20 February 2007 20 February 2007 InterContinental Hotels Group PLC Full Year Results to 31 December 2006 Headlines • Continuing revenue up 13% from £713m to £805m, up 13% at constant exchange rates.• Continuing operating profit up 16% from £173m to £201m, up 17% at constant exchange rates.• Operating profit of £258m, including other operating income and expenses of £27m.• Global constant currency RevPAR growth of 9.8%. Total gross revenue* from all hotels in IHG's system up 9% to £8.3bn.• Franchised operating profit up 10% to £235m. Managed operating profit up 27% to £85m.• Adjusted continuing earnings per share up 67% from 22.5p to 37.5p. Basic earnings per share of 104.1p.• Further £850m return of funds announced, taking total returns to £3.6bn since March 2004.• Final dividend up 24% to 13.3p. Total dividend up 20% to 18.4p.• Room count up by 18,713 rooms to 556,246. Now expect to exceed 50,000-60,000 net rooms growth target.• Signings up 47% to 102,774 rooms. Development pipeline up by 49,479 rooms to 157,991 (1,241 hotels). * Total gross revenue is defined as total room revenue from franchised hotels and total hotel revenue frommanaged, owned and leased hotels. It is not revenue attributable to IHG, as it is derived mainly from hotels ownedby third parties. The metric is highlighted as an indicator of the scale and reach of IHG's brands. All figures and movements unless otherwise noted are at actual exchange rates and before other operating incomeand expenses. See appendix 3 for analysis of financial headlines. Constant exchange rate comparatives shown in appendix 4 Commenting on the results and trading, Andrew Cosslett, Chief Executive of InterContinental Hotels Group PLC said:"2006 was a successful year for IHG on all fronts. We outperformed the market and saw a record level of signings for IHGbrands. We now expect to exceed our growth target of adding 50,000-60,000 rooms on a net and organic basis by the end of2008. We have strengthened the business and are executing a clear strategy. We have made a good start to 2007 with theopening of InterContinental Los Angeles and the signing of our 125th hotel in China, the Crowne Plaza Sun PalaceBeijing. We continue to be very positive about the Company's prospects." Increase in development pipeline and rooms openIHG continues to increase its development pipeline, and now expects to exceed its 50,000-60,000 net organic roomadditions target by the end of 2008 from the 30 June 2005 starting position of 537,675. • 102,774 rooms were signed in the year; 61,673 in the Americas, 13,321 in EMEA and 27,780 in Asia Pacific.• 157,991 rooms are now in the pipeline, up 49,479 (46%) since the start of the year, at 1,241 hotels.• IHG's development activity in Asia Pacific continues to be successful. In Greater China 39 hotels, 16,445 rooms, were signed in the year, including 8 InterContinentals, 5 Crowne Plazas, 13 Holiday Inns and 13 Holiday Inn Expresses. The 125th hotel in China has now been signed in pursuit of IHG's target of having 125 hotels in China open by the end of 2008. IHG also entered into a joint venture with ANA during 2006; 13 ANA owned hotels, 4,937 rooms, entered the IHG system during December, making IHG the largest international hotel operator in Japan. IHG maintains its focus on enhancing the quality of its portfolio, in tandem with growth. In 2006: • 42,841 rooms opened; 26,613 in the Americas, 4,823 in EMEA and 11,405 in Asia Pacific.• 24,128 rooms exited; 18,310 in the Americas, 3,642 in EMEA and 2,176 in Asia Pacific.• The room count at the end of the year increased by 18,713 rooms to 556,246. Disposals and returns of fundsIn the year, the sale of 31 Continental European hotels was completed for £680m before transaction costs and $191m wasreceived from the sale of Felcor shares. 28.4m shares were repurchased under IHG's ongoing buyback programme at a costof £258m. There were 356m shares outstanding at the end of the year, 366m on a fully diluted basis. IHG's net debt atthe period end was £134m including the $186m (£97m) finance lease on the InterContinental Boston. £850m further returnof funds was announced today. £700m will be returned via a special dividend with share consolidation and £150m via afurther share buyback programme. IHG continues to own 25 hotels with a book value of £1bn. The InterContinental brand repositioning introduced in 2006has accelerated the pace of signings and improved guest preference, and recent research confirms its strong growthpotential. IHG will consider the need for continued ownership of each of its owned InterContinental hotels onceadditional brand representation has been identified in its market and financial results are at the right level tomaximise value. IHG's strategy envisages a reduction in capital intensity and the return of surplus funds to shareholders. Capitalinvestment in new hotel projects will be made where this creates value by accelerating the development of IHG's brands.Such investment will be funded largely from the proceeds of hotel disposals with a view subsequently to recycling thatcapital into other projects. Americas: strong performance across all brandsRevenue performance RevPAR increased 9.2% with rate generating most of the increase. InterContinental, Crowne Plaza, Holiday Inn, HolidayInn Express and Candlewood each outperformed their market segments, with RevPAR up 10.4%, 10.4%, 7.4%, 10.7% and 7.4%respectively. Staybridge Suites also showed continued growth, with a 7.1% increase. Holiday Inn's fourth quarter RevPARgrowth was lower, in line with the industry, due to the prior year comparable having benefited from Hurricane Katrinadisplacement. Operating profit performance Operating profit from continuing operations increased 18% from $339m to $399m. Continuing owned and leased hoteloperating profit improved from $25m to $26m impacted, as expected, by a $6m loss from InterContinental Boston in itsopening year. The underlying improvement of $7m was driven by increased occupancy and rate at the InterContinentalAtlanta and InterContinental San Francisco, and increased rate at InterContinental New York. Managed hotels profit wasup 39% to $50m, benefiting from improved trading in existing operations and retained management contracts on assetsdisposed. Franchised hotels profit increased 12% to $382m reflecting RevPAR growth of 9.2% and net room count growth of4%. EMEA: RevPAR growth acceleratingRevenue performance RevPAR increased 12.1%, driven by increased occupancy and 8.5% rate growth. The Middle East continued to performstrongly, growing RevPAR by 19.0%. Continental Europe delivered a RevPAR increase of 9.0%, benefiting from continuedimprovement across the region, particularly in Germany and France. In the UK, Holiday Inn and Express by Holiday Innperformed in-line with the market segment, recording RevPAR growth of 6.3%. Operating profit performance Operating profit from continuing operations increased 16% from £31m to £36m. Continuing owned and leased hoteloperations were flat at a loss of £5m. InterContinental Le Grand Paris continued to rebuild its business postrefurbishment, delivering a 25.8% RevPAR increase. The refurbishment of InterContinental London Park Lane, whichimpacted 2006 profit versus 2004 by £18m, is largely complete; the hotel reopened in November 2006 and is expected to befully operational by Spring 2007. Managed hotels profit was up 19% from £31m to £37m, as a result of improved tradingand retained management contracts on assets disposed. Franchised hotels profit decreased from £26m to £24m with anunderlying trading improvement outweighed by the non-recurrence of the £7m liquidated damages received in 2005. Asia Pacific: strong growthRevenue performance IHG's market leading positions in the region have led to further strong growth. RevPAR increased 10.2%, mainly driven byrate. InterContinental, Crowne Plaza and Holiday Inn all performed strongly, with RevPAR up 11.5%, 10.3% and 8.5%respectively. Greater China RevPAR increased 12.1%, driven by rate increases. Operating profit performance Operating profit from continuing operations increased 33% from $39m to $52m. Owned and leased hotel operating profitincreased 55% to $31m as a result of excellent trading at InterContinental Hong Kong, driven by a 31.8% RevPAR increase. Managed hotels profit increased 34% to $39m, driven by good trading and retained management contracts on assetdisposals. Strengthening Operating SystemIHG continues to demonstrate the strength of its revenue delivery to hotel owners through its reservation channels andloyalty programme, Priority Club Rewards: • $5.7bn of rooms revenue booked through IHG's reservation channels, 44% of total rooms revenue, up from 41% in 2005.• $4.4bn of rooms revenue from Priority Club Rewards members, 34% of total rooms revenue, up from 32% in 2005.• Internet revenues increased from 14% to 16% of total rooms revenue, 86% of which was from IHG's own websites. Overheads and TaxAsia Pacific regional overheads increased by £4m to £12m after continued infrastructure investment in China. This wasbalanced by reductions in the Americas and EMEA which left the aggregated regional overheads up £1m at £64m. Aspreviously indicated, central overheads in the fourth quarter were higher than previous periods at £25m, bringing thetotal for the full year to £81m, an increase of £16m. This included investment in new global research designed to enablehigher quality brand development and enhance IHG's franchising capability going forward. Central overheads in 2007 areexpected to increase in line with inflation. The effective tax rate for 2006 was 24%. IHG's tax rate is expected in the long term, as previously indicated, to trendupwards. Appendix 1: Asset disposal programme detail Number of hotels Proceeds Net book valueDisposed since April 2003 174 £3.0bn £2.9bnRemaining hotels 25 £1.0bn For a full list please visit www.ihg.com/Investors Appendix 2: Return of funds programme as at 31 December 2006 Timing Total return Returned Still to be returned£501m special dividend Paid December 2004 £501m £501m NilFirst £250m share Completed in 2004 £250m £250m Nilbuyback£996m capital return Paid 8 July 2005 £996m £996m NilSecond £250m share Completed in 2006 £250m £250m Nilbuyback£497m special dividend Paid 22 June 2006 £497m £497m NilThird £250m share Underway £250m £219m £31mbuyback£700m special dividend Quarter 2, 2007 £700m Nil £700m£150m share buyback Yet to commence £150m Nil £150mTotal £3.59bn £2.71bn £0.88bn Appendix 3: Financial headlines Twelve months to 31 Dec £m Total Americas EMEA Asia Pacific Central 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005Franchised operating profit 235 214 208 186 24 26 3 2Managed operating profit 85 67 27 20 37 31 21 16Continuing owned and leased 26 20 14 14 (5) (5) 17 11operating profitRegional overheads (64) (63) (32) (34) (20) (21) (12) (8)Continuing operating profit pre 282 238 217 186 36 31 29 21central overheadsCentral overheads (81) (65) - - - - - - (81) (65)Continuing operating profit 201 173 217 186 36 31 29 21 (81) (65)Discontinued owned and leased 30 96 4 12 26 73 - 11 - -operating profitTotal operating profit 231 269 221 198 62 104 29 32 (81) (65) Appendix 4: Constant currency continuing operating profits before other operating income and expenses. Americas EMEA Asia Pacific Total*** Actual Constant Actual Constant Actual Constant Actual Constant currency* currency** currency* currency** currency* currency* currency** currency**Growth 17% 17% 16% 15% 38% 38% 16% 17% Exchange rates USD:GBP EUR:GBP2006 1.84 1.472005 1.83 1.46 * Sterling actual currency** Translated at constant 2005 exchange rates*** After Central Overheads Appendix 5: Investor information for 2006 final dividend Ex-dividend Date: 21 March 2007Record Date: 23 March 2007Payment Date: 8 June 2007Dividend payment: Ordinary shares 13.3p per share: ADRs 25.9c per ADR For further information, please contact: Investor Relations (Paul Edgecliffe-Johnson; Heather Ward): +44 (0) 1753 410 176Media Affairs (Leslie McGibbon): +44 (0) 1753 410 425 +44 (0) 7808 094 471 High resolution images to accompany this announcement are available for themedia to download free of charge from www.vismedia.co.uk . This includes profileshots of the key executives. Presentation for Analysts and Shareholders A presentation with Andrew Cosslett (Chief Executive) and Richard Solomons(Finance Director) will commence at 9.30am (London time) on 20 February atInterContinental London Park Lane, One Hamilton Place, Park Lane W1J 7QY. Therewill be an opportunity to ask questions. The presentation will conclude atapproximately 10.30am (London time). There will be a live audio webcast of the results presentation on the webaddress www.ihg.com/prelims07. The archived webcast of the presentation isexpected to be on this website later on the day of the results and will remainon it for the foreseeable future. There will also be a live dial-in facility International dial-in +44 (0)20 7863 6164 US Q&A conference call There will also be a conference call, primarily for US investors and analysts,at 10.00am (Eastern Standard Time) on 20 February with Andrew Cosslett (ChiefExecutive) and Richard Solomons (Finance Director). There will be anopportunity to ask questions. International dial-in +44 (0)1452 562716US Toll Free 1866 832 0717Conference ID: 7492790 A recording of the conference call will also be available for 7 days. To accessthis please dial the relevant number below and use the access number 7492790# International dial-in +44 (0)1452 550000US Toll Free 1866 247 4222 Website The full release and supplementary data will be available on our website from7.00 am (London time) on Tuesday 20 February. The web address is www.ihg.com/prelims07 Note to Editors: InterContinental Hotels Group PLC of the United Kingdom (LON:IHG, NYSE:IHG(ADRs)) is the world's largest hotel group by number of rooms. InterContinentalHotels Group owns, manages, leases or franchises, through various subsidiaries,over 3,700 hotels and 556,000 guest rooms in nearly 100 countries andterritories around the world. The Group owns a portfolio of well recognised andrespected hotel brands including InterContinental(R) Hotels & Resorts, CrownePlaza(R) Hotels & Resorts, Holiday Inn(R) Hotels and Resorts, Holiday InnExpress(R), Staybridge Suites(R), Candlewood Suites(R) and Hotel IndigoTM, andalso manages the world's largest hotel loyalty programme, Priority Club(R)Rewards. InterContinental Hotels Group offers information and online reservations for allits hotel brands at www.ihg.com and information for the Priority Club Rewardsprogramme at www.priorityclub.com. For the latest news from InterContinental Hotels Group, visit our online PressOffice at www.ihg.com/media OPERATING AND FINANCIAL REVIEW This operating and financial review (OFR) provides a commentary on theperformance of InterContinental Hotels Group PLC (the Group or IHG) for thefinancial year ended 31 December 2006. BUSINESS OVERVIEW Market and Competitive Environment IHG operates in the global hotel market which has an estimated total roomcapacity of 18.8 million rooms. Room capacity has been growing at approximately3% per annum over the last five years. The hotel market is geographicallyconcentrated with 12 countries accounting for two-thirds of worldwide hotel roomsupply. The Group has a leadership position (top three by room numbers) in moreof these markets than any other major hotel company. The hotel market is, however, a fragmented market with the four largestcompanies controlling only 11% of the global hotel room supply and the 10largest controlling less than 21%. The Group is the largest of these companiesby room numbers with a 3% market share. The major competitors in this marketinclude other large global hotel companies, smaller hotel companies andindependent hotels. Within the global market, a relatively low proportion of hotel rooms are branded(see figure 1), but there has been an increasing trend towards branded rooms.For example, Mintel, a market research company, estimates that the proportion ofbranded rooms in Europe has grown from 15% in 2000 to 25% in 2004. Largerbranded companies are therefore gaining market share at the expense of smallercompanies and independent hotels. IHG is well positioned to benefit from thistrend. Hotel owners are increasingly recognising the benefits of working with agroup such as IHG which can offer a portfolio of brands to suit the differentreal-estate opportunities an owner may have. Furthermore, hotel ownership isincreasingly being separated from hotel operations, encouraging hotel owners touse third parties such as IHG to manage or franchise their hotels. Figure 1 Percentage of branded hotel rooms by region 2004North America 65%South America 20%Europe 25%Middle East 25%East Asia 25% Source: Mintel (latest data available) US market data indicates a steady increase in hotel industry revenues, broadlyin line with Gross Domestic Product, with growth of approximately 1-1.5% perannum in real terms since 1967 driven by a number of underlying trends: • change in demographics - as the population ages and becomes wealthier, increased leisure time and income encourages more travel and hotel visits; • increase in travel volumes as low cost airlines grow rapidly; • globalisation of trade and tourism; • increase in affluence and freedom to travel within the Chinese middle class; and • increase in the preference for branded hotels amongst consumers. Potential negative trends include increased terrorism, environmentalconsiderations and economic factors such as rising oil prices. Currently,however, there are no indications that demand is being significantly affected bythese factors. Supply growth in the industry is cyclical, averaging between zero and 5% perannum historically. The Group's profit is partly protected from supply pressuredue to its model of third party ownership of hotels under IHG management andfranchise contracts. Strategy IHG owns, operates and franchises hotels, with its brands being represented inalmost 100 countries and territories around the world. The strategy is tobecome the preferred hotel company for guests and owners by building thestrongest operating system in the industry, focused on the biggest markets andsegments where scale really counts. During 2006, IHG initiated a number ofresearch projects, the results of which will strengthen the Group's strategywith respect to brand development, franchising operations and growthopportunities. The Group has four stated strategic priorities: • brand performance - to operate a portfolio of brands attractive to both owners and guests that have clear market positions in relation to competitors; • excellent hotel returns - to generate higher owner returns through revenue delivery and improved operating efficiency; • market scale and knowledge - to accelerate profitable growth in the largest markets where the Group currently has scale; and • aligned organisation - to create a more efficient organisation with strong core capabilities. Executing the four strategic priorities is designed to achieve: • organic growth of 50,000 to 60,000 net rooms by the end of 2008 (starting from 537,000 in June 2005), with specific growth targets for the InterContinental brand and the key Chinese market; and • out-performance of total shareholder return against a competitor set. Growth is planned to be attained predominantly from managing and franchisingrather than owning hotels. Nearly 550,000 rooms operating under Group brands aremanaged or franchised. The managed and franchised model is attractive because itenables the Group to achieve its goals with limited capital investment. With arelatively fixed cost base, such growth yields high incremental margins for IHG,and is primarily how the Group has grown recently. For this reason, the Grouphas executed a disposal programme for most of its owned hotels, releasingcapital and enabling returns of funds to shareholders. A key characteristic of the managed and franchised business model on which theGroup has focused is that it generates more cash than is required for investmentin the business, with a high return on capital employed. Currently, 92% ofcontinuing earnings before interest, tax and regional and central overheads isderived from managed and franchised operations. The Group aims to deliver its growth targets through the strongest operatingsystem in the industry which includes: • a strong brand portfolio across the major markets, including two leading brands: InterContinental and Holiday Inn; • market coverage - a presence in nearly 100 countries and territories; • scale - 3,741 hotels, 556,246 rooms, 130 million guest stays per annum; • IHG global reservation channels delivering $5.7bn of global system room revenue in 2006, $2.0bn from the internet; • a loyalty programme, Priority Club Rewards, contributing $4.4bn of global system room revenue; and • a strong web presence - holidayinn.com is the industry's most visited site, with around 75 million total site visits per annum. With a clear target for rooms growth and a number of brands with market premiumsoffering excellent returns for owners, the Group is well placed to execute itsstrategy and achieve its goals. Business Relationships IHG maintains effective business relationships across all aspects of itoperations. However, the Group's operations are not dependent upon any singlecustomer, supplier or hotel owner due to the extent of its brands, marketsegments and geographical coverage. For example, the largest hotel ownercontrols less than 4% of the Group's total room count. To promote effective owner relationships, the Group's management meets withowners of IHG branded hotels on a regular basis. In addition, IHG has animportant relationship with the International Association of Holiday Inns(IAHI). The IAHI is an independent worldwide association for owners of theCrowne Plaza, Holiday Inn, Holiday Inn Express, Hotel Indigo, Staybridge Suitesand Candlewood Suites brands. IHG and the IAHI work together to support andfacilitate the continued development of IHG's brands and systems. Many jurisdictions and countries regulate the offering of franchise agreementsand recent trends indicate an increase in the number of countries adoptingfranchise legislation. As a significant percentage of the Group's revenues arederived from franchise fees, the Group's continued compliance with franchiselegislation is important to the successful deployment of the Group's strategy. Significant Developments Investment with All Nippon Airways (ANA) In December 2006, IHG invested £10m for a 75% stake in a hotel joint venturewith ANA, IHG ANA Hotels Group Japan LLC (IHG ANA), increasing IHG's portfolioin Japan from 12 hotels (3,686 rooms) to 25 hotels (8,623 rooms). As part ofthe transaction, ANA has signed 15 year management contracts with IHG ANA forits 13 owned and leased hotels (4,937 rooms). Key Owned and Leased Assets In November 2006, IHG reopened the InterContinental London Park Lane followingthe substantial completion of a major refurbishment and opened the newly builtInterContinental Boston. Asset Disposal Programme During 2006, IHG achieved further progress with its asset disposal programme,including: • the sale of 24 hotels in Continental Europe to a subsidiary of Westbridge Hospitality Fund LP for £240m, before transaction costs. IHG retained a 15 year franchise contract on each of the hotels; and • the sale of seven European InterContinental hotels to Morgan Stanley Real Estate Funds (MSREF) for £440m, before transaction costs. IHG retained a 30 year management contract on each of the hotels, with two 10 year renewals at IHG's discretion. The long-term contracts ensure continued representation of the InterContinental brand in key European markets. These transactions support IHG's continued strategy of growing its managed andfranchised business whilst reducing asset ownership. Since April 2003, 174hotels with a net book value of £2.9bn have been sold, generating aggregateproceeds of around £3.0bn. Of these 174 hotels, 156 have remained in the IHGsystem through either franchise or management agreements. Figure 2 Asset disposal programme detail Number of hotels Proceeds Net book value Disposed since April 2003 174 £3.0bn £2.9bnRemaining owned and leased hotels 25 - £1.0bn Return of Funds Programme In the year, IHG paid a £497m special dividend, completed a second £250m sharebuyback and substantially completed a third £250m share buyback. Since April2003, IHG has returned £2.7bn to shareholders. On 20 February 2007, a further £850m return of funds was announced, comprising a£700m special dividend with share consolidation and a £150m share buyback. Figure 3 Return of funds programme Timing Total Returned to Still to be date return returned£501m special dividend Paid December 2004 £501m £501m NilFirst £250m share buyback Completed in 2004 £250m £250m Nil£996m capital return Paid July 2005 £996m £996m NilSecond £250m share buyback Completed in 2006 £250m £250m Nil£497m special dividend Paid June 2006 £497m £497m NilThird £250m share buyback Under way £250m £219m £31m£700m special dividend Quarter 2 2007 £700m - £700m£150m share buyback Yet to commence £150m - £150m ______ _____ ____Total £3,594m £2,713m £881m ______ _____ ____ Management and Organisation In 2006, there were no significant changes to the management and organisation ofthe Group. During the year, the Group focused on realising benefits from theprior year global realignment of functions, including Finance, Human Resourcesand Information Technology. The following announcements relating to members of the Executive Committee weremade during 2006: • the appointment of Tom Conophy in January 2006 as Chief Information Officer (CIO), a new position created to develop the global technology strategy across IHG's brands, leveraged by his 25 years of experience in the Information Technology (IT) industry; and • the retirement of Richard Hartman, President, EMEA, effective from September 2007. Group Performance 12 months ended 31 December 2006 2005 %Summary Results £m £m change Revenue: Americas 433 384 12.8 EMEA 206 200 3.0 Asia Pacific 111 87 27.6 Central 55 42 31.0 ____ ____ _____Continuing operations 805 713 12.9Discontinued operations 155 1,197 (87.1) ____ ____ _____ 960 1,910 (49.7) ____ ____ _____Operating profit: Americas 217 186 16.7 EMEA 36 31 16.1 Asia Pacific 29 21 38.1 Central (81) (65) 24.6 ____ ____ _____Continuing operations 201 173 16.2Discontinued operations 30 166 (81.9) ____ ____ _____Operating profit before other operating income andexpenses 231 339 (31.9) Other operating income and expenses 27 (22) - ___ ____ ____Operating profit 258 317 (18.6)Interest (11) (33) (66.7) ___ ____ ____Profit before tax 247 284 (13.0) ___ ____ ____Analysed as:Continuing operations 217 127 70.9Discontinued operations 30 157 (80.9) ____ ____ ____Earnings per ordinary share: Basic 104.1p 95.2p 9.3 Adjusted 42.9p 38.2p 12.3 Adjusted - continuing operations 37.5p 22.5p 66.7 Group Results Revenue from continuing operations increased by 12.9% to £805m and continuingoperating profit increased by 16.2% to £201m during the 12 months ended 31December 2006. The growth was driven by a combination of strong industryfundamentals in all three of IHG's regions, RevPAR premiums to market for mostof IHG's brands and continuing expansion in hotel and room count. Including discontinued operations, total operating profit, before otheroperating income and expenses, decreased by 31.9% to £231m during 2006 as aresult of asset disposals. Discontinued operations represent the results fromoperations that have been sold or are held for sale and where there is aco-ordinated plan to dispose of the operations under IHG's asset disposalprogramme. In this OFR, discontinued operations include owned and leased hotelsin the US, UK, Continental Europe and Asia Pacific that have been sold or placedon the market from 1 January 2005, and the Britvic Group, disposed of by way ofan initial public offering in December 2005. With the weighted average US dollar exchange rate to sterling being similar tothe rate in 2005 (2006 $1.84: £1, 2005 $1.83: £1), growth rates for resultsexpressed in US dollars were similar to those in sterling. Continuing operatingprofit before other operating income and expenses was $369m, ahead of 2005 by16.8%. Including discontinued operations, operating profit before other incomeand expenses was $424m, 31.5% lower than 2005. Total Gross Revenues One measure of overall IHG hotel system performance is the growth in total grossrevenue, with total gross revenue defined as total room revenue from franchisedhotels and total hotel revenue from managed, owned and leased hotels. Totalgross revenue is not revenue attributable to IHG, as it is derived mainly fromhotels owned by third parties. Total gross revenue increased by 9.4% from$13.9bn in 2005 to $15.2bn in 2006, with strong growth levels achieved acrossall major brands (see figure 4). Figure 4 12 months ended 31 December 2006 2005 %Total gross revenues $bn $bn change InterContinental 3.0 2.7 11.1Crowne Plaza 2.3 2.0 15.0Holiday Inn 6.3 6.0 5.0Holiday Inn Express 3.0 2.6 15.4Other brands 0.6 0.6 - ____ ____ ____Total 15.2 13.9 9.4 ____ ____ ____ Global Room Count and Pipeline During 2006, the IHG global system (the number of hotels and rooms which areowned, leased, managed or franchised by the Group) increased by 135 hotels(18,713 rooms). The growth was driven by continued expansion in the US andGreater China (which includes the People's Republic of China, Hong Kong, Macauand Taiwan), together with the addition of IHG ANA (13 hotels, 4,937 rooms).Holiday Inn Express represented 71% of the net hotel growth, demonstratingstrong market demand in the midscale, limited service sector. The net declinein the number of Holiday Inn hotels mainly reflects IHG's continued strategy toreinvigorate the Holiday Inn brand through the removal of lower quality,non-brand conforming hotels in the US. Figure 5 Hotels RoomsGlobal hotel and room count Change Change at 31 December 2006 Over 2005 2006 Over 2005Analysed by brand: InterContinental 148 11 49,599 3,337 Crowne Plaza 275 40 75,632 10,228 Holiday Inn 1,395 (40) 260,470 (7,346) Holiday Inn Express 1,686 96 143,582 10,028 Staybridge Suites 97 10 10,953 1,038 Candlewood Suites 130 18 14,149 1,466 Hotel Indigo 6 3 893 396 Other 4 (3) 968 (434) ____ ____ ______ _____Total 3,741 135 556,246 18,713 ____ ____ ______ _____Analysed by ownership type: Owned and leased 25 (30) 8,460 (7,025) Managed 512 8 125,214 3,965 Franchised 3,204 157 422,572 21,773 ____ ____ ______ _____Total 3,741 135 556,246 18,713 ____ ____ ______ _____ At the end of 2006, the IHG pipeline (contracts signed for hotels and rooms yetto enter the IHG global system) totalled 1,241 hotels (157,991 rooms). In theyear, the hotel and room pipeline increased by over 40% as a result of recordlevels of signings across all regions. Figure 6 Hotels RoomsGlobal pipeline Change Changeat 31 December 2006 Over 2005 2006 Over 2005Analysed by brand: InterContinental 36 9 13,211 3,858 Crowne Plaza 60 6 17,113 3,599 Holiday Inn 299 95 44,774 13,739 Holiday Inn Express 574 145 55,520 17,454 Staybridge Suites 120 41 12,605 4,410 Candlewood Suites 128 45 11,723 4,256 Hotel Indigo 24 16 3,045 2,163 ____ ____ ______ _____Total 1,241 357 157,991 49,479 ____ ____ ______ _____Analysed by ownership type: Owned and leased - (2) - (574) Managed 139 41 41,648 13,843 Franchised 1,102 318 116,343 36,210 ____ ____ ______ _____Total 1,241 357 157,991 49,479 ____ ____ ______ _____ Reservation Systems and Loyalty Programme IHG supports revenue delivery into its hotels through its global reservationchannels and loyalty programme, Priority Club Rewards. In 2006, global systemroom revenue booked through IHG's reservation channels increased by 21% to$5.7bn, and the proportion of IHG global system room revenue booked via IHG'sreservation channels increased from 41% to 44%. The IHG internet channel continued to show strong growth, with global systemroom revenue booked via the internet increasing by 18% to $2.0bn, accounting for16% of IHG global system room revenue (up from 14% in 2005). Room revenue generated from Priority Club Rewards members (across all IHGchannels) increased by 16% to $4.4bn and represented 34% of IHG global systemroom revenue (up from 32% in 2005). AMERICAS 12 months ended 31 December 2006 2005 %Americas Results $m $m change Revenue: Owned and leased 211 195 8.2 Managed 143 118 21.2 Franchised 443 389 13.9 ____ ____ _____Continuing operations 797 702 13.5Discontinued operations* 55 111 (50.5) ____ ____ _____Total $m 852 813 4.8 ____ ____ _____Sterling equivalent £m 463 445 4.0 ____ ____ _____Operating profit before other operating income andexpenses: Owned and leased 26 25 4.0 Managed 50 36 38.9 Franchised 382 340 12.4 ____ ____ _____ 458 401 14.2Regional overheads (59) (62) (4.8) ____ ____ _____Continuing operations 399 339 17.7Discontinued operations* 8 23 (65.2) ____ ____ _____Total $m 407 362 12.4 ____ ____ _____Sterling equivalent £m 221 198 11.6 _____ ____ _____ * Discontinued operations are all owned and leased. Revenue and operating profit from continuing operations increased by 13.5% to$797m and 17.7% to $399m respectively during 2006. Underlying tradingperformance across all ownership types was strong, although the pace of RevPARgrowth achieved in the first half of the year was not maintained throughout thesecond half of the year. Discontinued operations include the results of hotels sold during 2005 and 2006,together with four hotels currently on the market for disposal. Includingdiscontinued operations, revenue grew 4.8% whilst operating profit increased by12.4%. Continuing owned and leased revenue increased by 8.2% to $211m. Owned andleased InterContinental branded hotels achieved RevPAR growth in excess of 12%over 2005, driven by gains in both daily rates and occupancy levels (see figure7). The owned and leased results were impacted, as expected, by a $6m loss atthe recently opened InterContinental Boston. Excluding this loss, the combinedimpact of RevPAR growth and operating efficiencies led to a 28% increase inoperating profit from continuing owned and leased hotels. Managed revenues increased by 21.2% to $143m during the year as a result ofstrong underlying trading, restructured management agreements, an increasednumber of hotels under management contracts and the full year benefit ofcontracts negotiated during 2005 as part of the hotel disposal programme.RevPAR growth in the managed hotels was strong across most brands (see figure7). Holiday Inn growth levels were impacted during the fourth quarter by hotelrefurbishments (nine of 28 hotels). Managed revenues include $80m (2005 $70m)from properties that are structured, for legal reasons, as operating leases butwith the same characteristics as management contracts. Managed operating profit increased by 38.9% to $50m including $9m (2005 $9m)from the managed properties held as operating leases and $3m from the receipt ofbusiness interruption proceeds following hurricane damage in 2005. As aconsequence of the 2005 hurricane season, ongoing insurance costs increasedsignificantly, reducing managed operating profit in 2006 by an incremental $3m. Franchised revenue and operating profit increased by 13.9% to $443m and 12.4% to$382m respectively, driven by RevPAR growth of 9.2%, net room count growth of 4%and fees associated with record levels of signings. The RevPAR gains wereachieved across all brands despite high prior year comparables (see figure 7).Holiday Inn Express and Crowne Plaza both reported double digit RevPAR growth,driven by higher daily rates. Americas regional overheads were favourably impacted during the year by lowerclaims in the Company-funded employee healthcare programme. Figure 7 12 months ended 31 DecemberAmericas RevPAR movement on previous year 2006 Owned and leased (comparable): InterContinental 12.2%Managed (comparable): InterContinental 10.1% Crowne Plaza 14.1% Holiday Inn 4.7% Staybridge Suites 8.8% Candlewood Suites 9.9%Franchised (all hotels): Crowne Plaza 10.3% Holiday Inn 7.6% Holiday Inn Express 10.7% Figure 8 Hotels RoomsAmericas hotel and room count Change Change at 31 December 2006 Over 2005 2006 Over 2005Analysed by brand: InterContinental 49 4 16,525 1,197 Crowne Plaza 155 22 42,604 5,530 Holiday Inn 987 (40) 186,067 (8,937) Holiday Inn Express 1,506 81 123,718 7,908 Staybridge Suites 97 10 10,953 1,038 Candlewood Suites 130 18 14,149 1,466 Hotel Indigo 6 3 893 396 Other - (2) - (295) ____ ____ ______ _____Total 2,930 96 394,909 8,303 ____ ____ ______ _____Analysed by ownership type: Owned and leased 13 1 4,679 428 Managed 189 (19) 39,257 (6,063) Franchised 2,728 114 350,973 13,938 ____ ____ ______ _____Total 2,930 96 394,909 8,303 ____ ____ ______ _____ Americas net hotel and room count grew by 96 hotels (8,303 rooms) to 2,930hotels (394,909 rooms) (see figure 8). The net growth includes openings of 222hotels (26,613 rooms) led by demand for Holiday Inn Express 128 hotels (11,155rooms). Although the regions net growth was predominantly achieved in the USmarkets, Mexico represented over 10% of the expansion. The net growth alsoincludes removals of 126 hotels (18,310 rooms), of which Holiday Inn hotelsrepresented 56% (74% of rooms). Figure 9 Hotels RoomsAmericas pipeline Change Changeat 31 December 2006 Over 2005 2006 Over 2005Analysed by brand: InterContinental 6 (1) 2,935 (770) Crowne Plaza 24 1 5,839 1,227 Holiday Inn 212 59 26,566 7,525 Holiday Inn Express 503 114 43,550 10,587 Staybridge Suites 115 36 12,027 3,832 Candlewood Suites 128 45 11,723 4,256 Hotel Indigo 24 16 3,045 2,163 ____ ____ ______ _____Total 1,012 270 105,685 28,820 ____ ____ ______ _____Analysed by ownership type: Owned and leased - (2) - (574) Managed 14 1 3,710 (231) Franchised 998 271 101,975 29,625 ____ ____ ______ _____Total 1,012 270 105,685 28,820 ____ ____ ______ _____ The Americas pipeline continued to achieve record growth levels and totalled1,012 hotels (105,685 rooms) at 31 December 2006. Signing levels outpaced prioryear as demand for the new Holiday Inn prototype and Holiday Inn Expresscontinued to accelerate throughout 2006. During the year 61,673 room signingswere completed, compared to 49,765 room signings in 2005. This level of growthdemonstrates strong demand for IHG brands and represents a key driver of futureprofitability. EUROPE, MIDDLE EAST AND AFRICA (EMEA) 12 months ended 31 December 2006 2005 %EMEA Results £m £m change Revenue: Owned and leased 100 110 (9.1) Managed 71 55 29.1 Franchised 35 35 - ____ ____ _____Continuing operations 206 200 3.0Discontinued operations* 125 411 (69.6) ____ ____ _____Total £m 331 611 (45.8) ____ ____ ____Dollar equivalent $m 608 1,115 (45.5) ____ ____ _____Operating profit before other operating income andexpenses: Owned and leased (5) (5) - Managed 37 31 19.4 Franchised 24 26 (7.7) ____ ____ _____ 56 52 7.7Regional overheads (20) (21) (4.8) ____ ____ _____Continuing operations 36 31 16.1Discontinued operations* 26 73 (64.4) ____ ____ _____Total £m 62 104 (40.4) ____ ____ _____Dollar equivalent $m 114 189 (39.7) ____ ____ _____ * Discontinued operations are all owned and leased. Revenue from continuing operations of £206m was 3.0% ahead of 2005 whilstcontinuing operating profit before other income and expenses increased by 16.1%to £36m. Including discontinued operations, revenue and operating profitdecreased by 45.8% and 40.4% respectively, reflecting the impact of hotels soldand converted to management and franchise contracts over the past two years. In the owned and leased estate, continuing revenues declined by £10m to £100m asa result of the major refurbishment at the InterContinental London Park Lane.The hotel reopened in November 2006 following a 13 month closure and is expectedto be fully operational by Spring 2007. Excluding the impact of theInterContinental London Park Lane in 2005 and 2006, the continuing owned andleased operating profit increased by £5m, driven by enhanced trading performanceat the InterContinental Paris Le Grand where RevPAR growth was more than 25%over 2005. Managed revenues and operating profit increased by 29.1% to £71m and 19.4% to£37m respectively. The growth was driven by the impact of management contractsnegotiated in 2005 and 2006 as part of the hotel disposal programme in the UKand Europe, together with strong RevPAR growth in key regions includingContinental Europe and the Middle East (see figure 10). Franchised revenue of £35m was in line with 2005 revenues whilst operatingprofit decreased by £2m to £24m. The prior year included £7m in liquidateddamages for the termination of franchise contracts in South Africa. Excludingthe impact of this, franchised operating profit increased by 26.3% as a resultof strong RevPAR growth across the UK and Continental Europe and increased roomcount, following the negotiation of franchise contracts in Continental Europe aspart of the hotel disposal programme and further expansion in the region. Figure 10 12 months ended 31 DecemberEMEA RevPAR movement on previous year 2006 Owned and leased (comparable): InterContinental 21.8%All ownership types*: UK 6.0% Continental Europe 9.0% Middle East 19.0% * Includes comparable owned, leased and managed hotels and all franchisedhotels. Figure 11 Hotels RoomsEMEA hotel and room count Change Changeat 31 December 2006 Over 2005 2006 Over 2005Analysed by brand: InterContinental 66 1 21,423 (50) Crowne Plaza 68 4 16,440 409 Holiday Inn 317 (3) 50,628 (316) Holiday Inn Express 172 11 18,109 1,138 ____ ____ ______ _____Total 623 13 106,600 1,181 ____ ____ ______ _____Analysed by ownership type: Owned and leased 10 (31) 3,088 (7,453) Managed 174 (2) 40,675 978 Franchised 439 46 62,837 7,656 ____ ____ ______ _____Total 623 13 106,600 1,181 ____ ____ ______ _____ Figure 12 Hotels RoomsEMEA pipeline Change Change at 31 December 2006 Over 2005 2006 Over 2005Analysed by brand: InterContinental 10 1 2,549 170 Crowne Plaza 15 3 3,667 790 Holiday Inn 54 26 7,818 2,952 Holiday Inn Express 59 22 7,445 3,289 Staybridge Suites 5 5 578 578 ____ ____ ______ _____Total 143 57 22,057 7,779 ____ ____ ______ _____Analysed by ownership type: Managed 39 10 7,689 1,194 Franchised 104 47 14,368 6,585 ____ ____ ______ _____Total 143 57 22,057 7,779 ____ ____ ______ _____ During 2006, EMEA hotel and room count grew by 13 hotels (1,181 rooms). The netgrowth included the opening of 31 hotels (4,823 rooms) and the removal of 18hotels (3,642 rooms), including exits on a limited number of managed hotels, asagreed at the time of the UK portfolio disposal in May 2005. The pipeline in EMEA increased by 57 hotels (7,779 rooms) to 143 hotels (22,057rooms) (see figure 12). The growth includes 13,321 record level room signings,driven by demand for Holiday Inn and Holiday Inn Express in the UK, ContinentalEurope and South Africa, and for all brands in the Middle East and Russia. ASIA PACIFIC 12 months ended 31 December 2006 2005 %Asia Pacific Results $m $m change Revenue: Owned and leased 131 108 21.3 Managed 65 45 44.4 Franchised 8 6 33.3 ____ ____ _____Continuing operations 204 159 28.3Discontinued operations* - 98 - ____ ____ _____Total $m 204 257 (20.6) ____ ____ _____Sterling equivalent £m 111 141 (21.3) ____ ____ _____Operating profit before other operating income andexpenses: Owned and leased 31 20 55.0 Managed 39 29 34.5 Franchised 5 5 - ____ ____ _____ 75 54 38.9Regional overheads (23) (15) 53.3 ____ ____ _____Continuing operations 52 39 33.3Discontinued operations* - 20 - ____ ____ _____Total $m 52 59 (11.9) ____ ____ _____Sterling equivalent £m 29 32 (9.4) ____ ____ _____ * Discontinued operations are all owned and leased. Revenue and operating profit from continuing operations increased by 28.3% to$204m and 33.3% to $52m respectively during 2006. Including discontinuedoperations, revenue and operating profit declined by 20.6% and 11.9%respectively, reflecting the sale of 10 owned and leased hotels in Australasiaand Fiji during 2005. Continuing owned and leased operating profit increased by 55.0% to $31m drivenby trading at the InterContinental Hong Kong which achieved rate-led RevPARgrowth of over 30.0%. The hotel also benefited from a rooms refurbishmentprogramme and the prior year repositioning of its food and beverage operations. The managed estate achieved revenue growth of 44.4% increasing from $45m to $65mdue to the retention of management contracts on the 10 owned and leased hotelssold in 2005 combined with strong underlying trading in Greater China wherecomparable RevPAR increased by 12.1% over 2005. Regional overheads increased by $8m to $23m. The increase reflectsinfrastructure and development costs including additional headcount, officefacility and IT costs, associated with ongoing expansion in the region. Figure 13 Hotels RoomsAsia Pacific hotel and room count Change Changeat 31 December 2006 Over 2005 2006 Over 2005Analysed by brand: InterContinental 33 6 11,651 2,190 Crowne Plaza 52 14 16,588 4,289 Holiday Inn 91 3 23,775 1,907 Holiday Inn Express 8 4 1,755 982 Other 4 (1) 968 (139) ____ ____ ______ _____Total 188 26 54,737 9,229 ____ ____ ______ _____Analysed by ownership type: Owned and leased 2 - 693 - Managed 149 29 45,282 9,050 Franchised 37 (3) 8,762 179 ____ ____ ______ _____Total 188 26 54,737 9,229 ____ ____ ______ _____ Figure 14 Hotels RoomsAsia Pacific pipeline Change Change at 31 December 2006 Over 2005 2006 Over 2005Analysed by brand: InterContinental 20 9 7,727 4,458 Crowne Plaza 21 2 7,607 1,582 Holiday Inn 33 10 10,390 3,262 Holiday Inn Express 12 9 4,525 3,578 ____ ____ ______ _____Total 86 30 30,249 12,880 ____ ____ ______ _____Analysed by ownership type: Managed 86 30 30,249 12,880 ____ ____ ______ _____Total 86 30 30,249 12,880 ____ ____ ______ _____ Net hotel and room count in Asia Pacific increased by 26 hotels (9,229 rooms)(see figure 13). The net growth includes 14 hotels (3,628 rooms) in GreaterChina reflecting continued expansion in one of IHG's strategic markets, and 13hotels (4,937 rooms) in Japan that joined the system as part of the IHG ANAtransaction. The pipeline in Asia Pacific increased by 30 hotels (12,880 rooms) to 86 hotels(30,249 rooms). The substantial growth indicates the demand for IHG's brands inthe Chinese market where signings of 16,445 rooms were more than double 2005signings. Central 12 months ended 31 December 2006 2005 %Central Results £m £m change Revenue 55 42 31.0Gross central costs (136) (107) 27.1 ____ ____ _____Net central costs £m (81) (65) 24.6 ____ ____ _____Dollar equivalent $m (149) (118) 26.3 _____ ____ _____ Net central costs increased by £16m to £81m and included significant investmentin new global research, designed to enable higher quality brand development andenhance IHG's franchising capability, and also included increased ITinfrastructure costs. Other Operating Income and Expenses Other operating income and expenses of £27m includes the gain on the sale of theGroup's investment in FelCor Lodging Trust Inc. Other operating income and expenses are treated as special items by reason oftheir size or incidence and are excluded from the calculation of adjustedearnings per share in order to provide a more meaningful comparison ofperformance. Net Financing Costs Net financing costs totalled £11m in 2006 compared to £33m in 2005 primarily asa result of significantly lower average debt levels in the year (£92m in 2006compared to £700m in 2005). Financing costs included £10m (2005 £5m) ofinterest costs associated with Priority Club Rewards where interest is chargedon the accumulated balance of cash received in advance of the redemption pointsawarded. The increase over 2005 costs arises from growth in the schememembership and higher interest rates. Financing costs in 2006 also included £4m in respect of the InterContinentalBoston finance lease. Prior year costs included £9m in respect of thediscontinued Soft Drinks operations. Taxation The effective rate of tax on profit before tax, excluding the impact of specialitems, was 24%. By also excluding the impact of prior year items, which areincluded wholly within continuing operations, the equivalent tax rate would be36%. This rate is higher than the UK statutory rate of 30% due mainly tooverseas profits (predominantly in the US) being subject to statutory rateshigher than the UK statutory rate, unrelieved losses and other disallowableexpenses. The equivalent effective rates for 2005 were 29% and 38%respectively. Taxation within special items totalled a credit of £94m (2005 £8m credit). Thisrepresented, primarily, the release of provisions which were special by reasonof their size or incidence, relating to tax matters which were settled duringthe year, or in respect of which the statutory limitation period had expired.In 2006, taxation special items, in addition to such provision releases,included £12m for the recognition of a deferred tax asset in respect of tax losses. Net tax paid in 2006 totalled £49m (2005 £91m) including £6m in respect ofdisposals. Gain on Disposal of Assets The gain on disposal of assets, net of related tax, totalled £117m in 2006 andprimarily comprised the gain on the sale of seven InterContinental hotels toMSREF. Earnings Basic earnings per share in 2006 were 104.1p, compared with 95.2p in 2005.Adjusted earnings per share were 42.9p, against 38.2p in 2005. Adjustedcontinuing earnings per share were 37.5p, 66.7% up on last year. Dividends The Board has proposed a final dividend per share of 13.3p; with the interimdividend of 5.1p, the normal dividend for 2006 will total 18.4p. Share Price and Market Capitalisation The IHG share price closed at 1262.0p on 31 December 2006, up from 839.5p on 31December 2005. The market capitalisation of the Group at the year end was£4.5bn. CASH FLOW The net movement in cash and cash equivalents in the 12 months to 31 December2006 was an outflow of £152m. This included net cash inflows from operatingactivities of £230m, net cash inflows from investing activities of £620m and netcash outflows from financing activities of £1,002m. Proceeds from the disposal of hotels and other financial assets totalled £744m. Capital expenditure totalled £124m and included a major refurbishment at theInterContinental London Park Lane and the completion of a rooms refurbishmentprogramme at the InterContinental Hong Kong. Cash outflows associated with shareholder returns during the year included aspecial dividend of £497m and share buybacks of £260m. Capital Structure and Liquidity Management Net debt at 31 December 2006 was £134m (see figure 15). In November 2006, theInterContinental Boston opened; this hotel is operated under a finance lease andthe lease commitment of £97m is therefore included within Group borrowings. Gearing (net debt expressed as a percentage of shareholders' equity) at 31December 2006 was 20%. Figure 15 2006 2005Net debt at 31 December £m £m Borrowings: Sterling 102 - US Dollar 282 220 Euro 101 488 Other 48 71Cash and cash equivalents (403) (686) ____ ____ 130 93Excluding fair value of derivatives (net) 4 (5) ____ ____Total net debt 134 88 ____ ____ Average debt levels 92 700 ____ ____ Note: all shown after the effect of derivatives. Figure 16 2006 2005Facilities at 31 December £m £m Committed 1,157 1,163Uncommitted 39 14 ____ ____Total 1,196 1,177 ____ ____ Medium and long-term borrowing requirements at 31 December 2006 were met througha £1.1bn Syndicated Bank Facility which matures in November 2009. Short-termborrowing requirements were principally met from drawings under committed anduncommitted bilateral loan facilities. At the year end, the Group had £944m ofcommitted facilities available for drawing. The Syndicated Bank Facility contains two financial covenants, interest coverand net debt/Earnings before Interest, Tax, Depreciation and Amortisation(EBITDA). The Group is in compliance with both covenants, neither of which isexpected to represent a material restriction on funding or investment policy inthe foreseeable future. Treasury Management Treasury policy is to manage financial risks that arise in relation tounderlying business needs. The activities of the treasury function are carriedout in accordance with Board approved policies and are subject to regular audit.The treasury function does not operate as a profit centre. The treasury function seeks to reduce the financial risk of the Group andmanages liquidity to meet all foreseeable cash needs. One of the primaryobjectives of the Group's treasury risk management policy is to mitigate theadverse impact of movements in interest rates and foreign exchange rates. The US dollar is the predominant currency of the Group's revenues and cashflowsand movements in foreign exchange rates, particularly the US dollar and euro,can affect the Group's reported profit, net assets and interest cover. To hedgethis translation exposure, the Group matches the currency of its debt (eitherdirectly or via derivatives) to the currency of its net assets, whilstmaximising the amount of US dollars borrowed. A general weakening of the USdollar (specifically a one cent rise in the sterling: US dollar rate) would havereduced the Group's profit before tax for 2006 by an estimated £1m. Foreign exchange transaction exposure is managed by the forward purchase or saleof foreign currencies or the use of currency options. Most significant exposuresof the Group are in currencies that are freely convertible. Interest rate exposure is managed within parameters that stipulate that fixedrate borrowings should normally account for no less than 25%, and no more than75%, of net borrowings for each major currency. This is achieved through the useof interest rate swaps and options and forward rate agreements. Figure 17 2006 2005 Interest risk profile of gross debt for major currencies % %(including derivatives) at 31 December At fixed rates 53 36At variable rates 47 64 Credit risk on treasury transactions is minimised by operating a policy on theinvestment of surplus funds that generally restricts counterparties to thosewith an A credit rating or better, or those providing adequate security. Limitsare set for individual counterparties. Most of the Group's surplus funds areheld in the UK or US and there are no material funds where repatriation isrestricted as a result of foreign exchange regulations. Pensions The Group operates two main schemes, the InterContinental Hotels UK Pension Planand the US-based InterContinental Hotels Pension Plan. Including the unfundedelement of the Plans, the accounting deficits at 31 December 2006 were £29m and£33m respectively. Following the 2006 actuarial review of the UK Pension Plan, the Company hasagreed with the Plan Trustees to make a special contribution of £40m. Thespecial contribution will be paid over three years with £20m in 2007 and £10m ineach of 2008 and 2009. The defined benefit section of the UK Plan is generallyclosed to new members and the US Plan is closed to new members and pensionableservice no longer accrues for current employee members.INTERCONTINENTAL HOTELS GROUP PLC GROUP INCOME STATEMENT For the year ended 31 December 2006 2006 2005 Continuing Discontinued Continuing Discontinued operations operations operations operations Total Total £m £m £m £m £m £m Revenue (note 3) 805 155 960 713 1,197 1,910Cost of sales (364) (121) (485) (333) (884) (1,217)Administrative expenses (180) - (180) (150) (74) (224) ____ ____ ____ ____ ____ ____ 261 34 295 230 239 469Depreciation and (60) (4) (64) (57) (73) (130)amortisationOther operating income and 27 - 27 (22) - (22)expenses (note 5) ____ ____ ____ ____ ____ ____Operating profit (note 4) 228 30 258 151 166 317Financial income 26 - 26 30 - 30Financial expenses (37) - (37) (54) (9) (63) ____ ____ ____ ____ ____ ____Profit before tax 217 30 247 127 157 284Tax (note 6) 50 (9) 41 (24) (56) (80) ____ ____ ____ ____ ____ ____Profit after tax 267 21 288 103 101 204 Gain on disposal of assets, - 117 117 - 311 311net of tax charge of £6m(2005 £38m) (note 5) ____ _____ ____ ____ ____ ____Profit for the year 267 138 405 103 412 515 ==== ===== ==== ==== ==== ====Attributable to: Equity holders of the parent 267 138 405 103 393 496 Minority equity - - - - 19 19 interest ____ _____ ____ ____ ____ ____Profit for the year 267 138 405 103 412 515 ==== ===== ==== ==== ==== ====Earnings per ordinary share(note 8): Basic 68.6p 35.5p 104.1p 19.8p 75.4p 95.2p Diluted 66.9p 34.6p 101.5p 19.3p 73.8p 93.1p Adjusted 37.5p 42.9p 22.5p 38.2p Adjusted diluted 36.6p 41.8p 21.9p 37.3p ===== ===== ===== =====Dividends per ordinary share(note 7): Paid: Final 10.7p 10.0p Interim 5.1p 4.6p Special interim 118.0p - Proposed: Final 13.3p 10.7p ===== ===== InterContinental Hotels Group PLC GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE For the year ended 31 December 2006 2006 2005 £m £mIncome and expense recognised directly in equityGains on valuation of available-for-sale assets 16 31Gains on cash flow hedges 1 1Exchange differences on retranslation of foreign operations (30) 29Actuarial losses on defined benefit pension plans (2) (23) ____ _____ (15) 38 ____ _____Transfers to the income statementOn cash flow hedges (1) (6)On disposal of foreign operations 4 2On disposal of available-for-sale assets (14) - ____ _____ (11) (4) ____ _____TaxTax on items above taken directly to or transferred from equity 4 (1)Deferred tax related to share schemes recognised directly in equity 26 8 ____ _____ 30 7 ____ _____ Net income recognised directly in equity 4 41 Profit for the year 405 515 ____ _____Total recognised income and expense for the year 409 556 ==== =====Attributable to: Equity holders of the parent 409 541 Minority equity interest - 15 _____ _____ 409 556 ===== ===== InterContinental Hotels Group PLC GROUP CASH FLOW STATEMENT For the year ended 31 December 2006 2006 2005 £m £mProfit for the year 405 515Adjustments for: Net financial expenses 11 33 Income tax (credit)/charge (41) 80 Gain on disposal of assets, net of tax (117) (311) Other operating income and expenses (27) 22 Depreciation and amortisation 64 130 Equity settled share-based cost, net of payments 14 12 _____ _____Operating cash flow before movements in working capital 309 481Increase in net working capital (21) (32)Employee benefit contributions, net of cost - (26) _____ _____Cash flow from operations 288 423Interest paid (33) (59)Interest received 24 29Tax paid (49) (91) _____ _____Net cash from operating activities 230 302 _____ _____Cash flow from investing activitiesPurchases of property, plant and equipment - Hotels (87) (107)Purchases of intangible assets - Hotels (23) (19)Purchases of other financial assets - Hotels (8) (10)Acquisition of subsidiary, net of cash acquired (6) -Disposal of assets, net of cash disposed of - Hotels 620 1,816Proceeds from other financial assets - Hotels 124 10Purchases of property, plant and equipment - Soft Drinks - (47)Disposal of business, net of cash disposed of - Soft Drinks - 220 _____ _____Net cash from investing activities 620 1,863 _____ _____Cash flow from financing activitiesProceeds from the issue of share capital 20 10Purchase of own shares (260) (207)Payment to shareholders as a result of the capital reorganisation on 27 - (996)June 2005Purchase of own shares by employee share trusts (47) (29)Proceeds on release of own shares by employee share trusts 19 16Dividends paid to shareholders (561) (81)Dividends paid to minority interests (1) (177)Decrease in borrowings (172) (442) _____ _____Net cash from financing activities (1,002) (1,906) ______ _____ Net movement in cash and cash equivalents in the year (152) 259Cash and cash equivalents at beginning of the year 324 72Exchange rate effects 7 (7) ______ _____Cash and cash equivalents at end of the year 179 324 ===== ===== INTERCONTINENTAL HOTELS GROUP PLC GROUP BALANCE SHEET 31 December 2006 2006 2005 £m £mASSETSProperty, plant and equipment 997 1,356Goodwill 109 118Intangible assets 154 120Investment in associates 32 42Other financial assets 96 113 _____ _____Total non-current assets 1,388 1,749 _____ _____Inventories 3 3Trade and other receivables 237 252Current tax receivable 23 22Cash and cash equivalents 179 324Other financial assets 13 106 _____ _____Total current assets 455 707Non-current assets classified as held for sale 50 279 _____ ______Total assets 1,893 2,735 ===== =====LIABILITIESLoans and other borrowings (10) (2)Trade and other payables (402) (468)Current tax payable (231) (324) _____ _____Total current liabilities (643) (794) _____ _____Loans and other borrowings (303) (410)Employee benefits (71) (76)Provisions and other payables (109) (107)Deferred tax payable (79) (210) _____ _____Total non-current liabilities (562) (803)Liabilities classified as held for sale (2) (34) _____ _____Total liabilities (1,207) (1,631) ===== =====Net assets (note 11) 686 1,104 ===== =====EQUITYIHG shareholders' equity 678 1,084Minority equity interest 8 20 _____ ______Total equity 686 1,104 ===== ===== INTERCONTINENTAL HOTELS GROUP PLC NOTES TO THE FINANCIAL STATEMENTS 1. Basis of preparation The audited consolidated financial statements of InterContinental Hotels Group PLC (IHG) for the year ended 31 December 2006 have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 1985. Discontinued operations are those relating to hotels sold or those classified as held for sale when the results relate to a separate line of business, geographical area of operations, or where there is a co-ordinated plan to dispose of a separate line of business or geographical area of operations. Exchange rates 2. The results of foreign operations have been translated into sterling at weighted average rates of exchange for the period. In the case of the US dollar, the translation rate is £1=$1.84 (2005 £1=$1.83). In the case of the euro, the translation rate is £1=€1.47 (2005 £1=€1.46). Foreign currency denominated assets and liabilities have been translated into sterling at the rates of exchange on the balance sheet date. In the case of the US dollar, the translation rate is £1=$1.96 (2005 £1=$1.73). In the case of the euro, the translation rate is £1=€1.49 (2005 £1=€1.46). 3. Revenue 2006 2005 Continuing Discontinued Continuing Discontinued operations operations Total operations operations Total £m £m £m £m £m £m Hotels Americas 433 30 463 384 61 445 EMEA 206 125 331 200 411 611 Asia Pacific 111 - 111 87 54 141 Central 55 - 55 42 - 42 _____ _____ _____ _____ ______ _____ 805 155 960 713 526 1,239 Soft Drinks - - - - 671 671 _____ _____ _____ _____ ______ _____ 805 155 960 713 1,197 1,910 ===== ====== ===== ===== ===== ===== 4. Operating profit 2006 2005 Continuing Discontinued Continuing Discontinued operations operations Total operations operations Total £m £m £m £m £m £m Hotels Americas 217 4 221 186 12 198 EMEA 36 26 62 31 73 104 Asia Pacific 29 - 29 21 11 32 Central (81) - (81) (65) - (65) ____ _____ ____ _____ ______ _____ 201 30 231 173 96 269 Soft Drinks - - - - 70 70 ____ _____ ____ _____ ______ _____ 201 30 231 173 166 339 Other operating income and expenses (note 5) 27 - 27 (22) - (22) _____ _______ ______ _____ ______ _____ Operating profit 228 30 258 151 166 317 ===== ====== ===== ===== ===== ===== 5. Special items 2006 2005 £m £m Other operating income and expenses* Gain on sale of investment (note a) 25 - Reversal of previously recorded impairment (note b) 2 - Impairment of property, plant and equipment (note c) - (7) Restructuring costs (note d) - (13) Property damage (note e) - (9) Employee benefits curtailment gain (note f) - 7 ____ ____ 27 (22) ==== ==== Tax* Tax charge on other operating income and expenses (6) - Special tax credit (note g) 100 8 ____ ____ 94 8 ==== ==== Gain on disposal of assets Gain on disposal of assets 123 349 Tax charge (6) (38) ____ ____ 117 311 ==== ==== * Relates to continuing operations. The above items are treated as special by reason of their size or incidence (see note 8). a. Gain on the sale of the Group's investment in FelCor Lodging Trust, Inc. b. Relates to the reversal of impairment in value of an associate investment. c. Property, plant and equipment were written down by £7m in 2005 following an impairment review of the hotel estate. d. Restructuring costs relate to the delivery of the further restructuring of the Hotels business. e. Damage to properties resulting from fire and natural disasters. f. A curtailment gain arose as a result of the sale of UK hotel properties. g. Represents the release of provisions which are special by reason of their size or incidence relating to tax matters which have been settled or in respect of which the relevant statutory limitation period has expired, together with, in 2006, a credit in respect of previously unrecognised losses. Tax 6. 2006 2005 Income Tax £m £m UK Corporation tax at 30% (2005 30%): Current period 16 11 Benefit of tax reliefs on which no deferred tax previously recognised (10) - Adjustments in respect of prior periods (4) (6) ____ ____ 2 5 ____ ____ Foreign tax: Current period 72 149 Benefit of tax reliefs on which no deferred tax previously recognised (1) (2) Adjustments in respect of prior periods (94) (19) ____ ____ (23) 128 ____ ____ Total current tax (21) 133 ____ ____ Deferred tax: Origination and reversal of temporary differences 27 (3) Changes in tax rates (4) (2) Adjustments to estimated recoverable deferred tax assets (13) 1 Adjustments in respect of prior periods (24) (11) ____ ____ Total deferred tax (14) (15) ____ ____ Total income tax on profit for the year (35) 118 ==== ==== Further analysed as tax relating to: Profit before special items 53 88 Special items (note 5): Other operating income and expenses 6 - Special tax credit* (100) (8) ____ ____ Tax (credit)/ charge (41) 80 Gain on disposal of assets 6 38 ____ ____ (35) 118 ==== ==== The tax (credit)/charge can be further analysed as relating to: Profit on continuing operations (50) 24 Profit on discontinued operations 9 56 Gain on disposal of assets 6 38 ____ ____ (35) 118 ==== ==== * Represents the release of provisions which are special by reason of their size or incidence relating to tax matters which have been settled or in respect of which the relevant statutory limitation period has expired, together with, in 2006, a credit in respect of previously unrecognised losses. 7. Dividends paid and proposed 2006 2005 pence per pence per 2006 2005 share share £m £m Paid during the year: Final (declared in previous year) 10.7 10.0 46 61 Interim 5.1 4.6 18 20 Special interim 118.0 - 497 - _____ _____ _____ _____ 133.8 14.6 561 81 ===== ===== ===== ===== Proposed for approval at the Annual General Meeting (not recognised as a liability at 31 December): Final 13.3 10.7 47 46 ===== ===== ===== ===== The proposed final dividend is payable on the shares in issue at 23 March 2007. 8. Earnings per ordinary share Basic earnings per ordinary share is calculated by dividing the profit for the year available for IHG equity holders by the weighted average number of ordinary shares, excluding investment in own shares, in issue during the year. Diluted earnings per ordinary share is calculated by adjusting basic earnings per ordinary share to reflect the notional exercise of the weighted average number of dilutive ordinary share options outstanding during the year. On 1 June 2006, shareholders approved a share capital consolidation on the basis of seven new ordinary shares for every eight existing ordinary shares, together with a special dividend of 118 pence per existing ordinary share. The overall effect of the transaction was that of a share repurchase at fair value, therefore no adjustment has been made to comparative data. Adjusted earnings per ordinary share is disclosed in order to show performance undistorted by special items, to give a more meaningful comparison of the Group's performance. 2006 2005 Continuing Continuing operations Total operations Total Basic earnings per share Profit available for equity holders (£m) 267 405 103 496 Basic weighted average number of ordinary shares (millions) 389 389 521 521 Basic earnings per share (pence) 68.6 104.1 19.8 95.2 ==== ==== ==== ==== Diluted earnings per share Profit available for equity holders (£m) 267 405 103 496 Diluted weighted average number of ordinary shares (millions) (see below) 399 399 533 533 Diluted earnings per share (pence) 66.9 101.5 19.3 93.1 ==== ==== ==== ==== 2006 2005 millions millions Diluted weighted average number of ordinary shares is calculated as: Basic weighted average number of ordinary shares 389 521 Dilutive potential ordinary shares - employee share options 10 12 ____ ____ 399 533 ==== ==== Adjusted earnings per share - continuing 2006 2005 operations £m £m Profit available for equity holders 267 103 Less adjusting items (note 5): Other operating income and expenses (27) 22 Tax on other operating income and expenses 6 - Special tax credit (100) (8) ____ ____ Adjusted earnings 146 117 Basic weighted average number of ordinary shares (millions) 389 521 Adjusted earnings per share (pence) 37.5 22.5 ==== ==== 9. Cash flows related to discontinued operations 2006 2005 £m £m Hotels Operating profit before interest, depreciation and amortisation 34 124 Investing activities (8) (54) Financing activities (25) (16) ==== ==== Soft Drinks Operating profit before interest, depreciation and amortisation - 115 Investing activities - (47) Financing activities - 162 ==== ==== 10. Net debt 2006 2005 £m £m Cash and cash equivalents 179 324 Loans and other borrowings - current (10) (2) Loans and other borrowings - non-current (303) (410) ____ ____ (134) (88) ==== ==== Finance lease liability included above (97) - ==== ==== 11. Net assets 2006 2005 £m £m Hotels Americas 390 369 EMEA 359 951 Asia Pacific 285 296 Central 73 88 ____ ____ 1,107 1,704 Net debt (134) (88) Unallocated assets and liabilities (287) (512) ____ ____ 686 1,104 ==== ==== 12. Statement of changes in IHG shareholders' equity 2006 2005 £m £m At 1 January 1,084 1,817 Total recognised income and expense for the year 409 541 Equity dividends paid (561) (81) Issue of ordinary shares 20 10 Purchase of own shares (260) (207) Cash element of capital reorganisation - (996) Movement in shares in employee share trusts and share schemes (14) - _____ ____ At 31 December 678 1,084 ==== ==== 13. Capital commitments and contingencies At 31 December 2006 amounts contracted for but not provided for in the financial statements for expenditure on property, plant and equipment was £24m (2005 £76m). At 31 December 2006 the Group had contingent liabilities of £11m (2005 £20m), mainly comprising guarantees given in the ordinary course of business. In limited cases, the Group may provide performance guarantees to third-party owners to secure management contracts. The maximum exposure under such guarantees is £142m (2005 £134m). It is the view of the Directors that, other than to the extent that liabilities have been provided for in these financial statements, such guarantees are not expected to result in financial loss to the Group. The Group has given warranties in respect of the disposal of certain of its former subsidiaries and hotels. It is the view of the Directors that, other than to the extent that liabilities have been provided for in these financial statements, such warranties are not expected to result in financial loss to the Group. 14. Group financial statements This preliminary statement of results was approved by the Board on 19 February 2007. It does not represent the full Group financial statements of InterContinental Hotels Group PLC and its subsidiaries which will be delivered to the Registrar of Companies in due course. The financial information for the year ended 31 December 2005 has been extracted from the IHG Annual Report and Financial Statements for that year as filed with the Registrar of Companies. Auditors' review The auditors, Ernst & Young LLP, have given an unqualified report under Section 235 of the Companies Act 1985, as amended, in respect of the full Group financial statements for both years referred to above. ____________________ This announcement of the preliminary results for the year ended 31 December 2006 contains 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 and objectives of the Board of Directors of InterContinental Hotels Group with respect thereto. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use words such as 'anticipate', 'target', 'expect', 'estimate', 'intend', 'plan', 'goal', 'believe', or other words of similar meaning. These statements are based on assumptions and assessments made by InterContinental Hotels Group's management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate. By their nature, forward-looking statements are inherently predictive, speculative and involve risk and uncertainty. There are a number of factors that could cause actual results and developments to differ materially from those expressed in, or implied by, such forward-looking statements, including, but not limited to: the risks involved with the Group's reliance on the reputation of its brands and protection of intellectual property rights; the risks relating to identifying, securing and retaining management and franchise agreements; the effect of political and economic developments; the ability to recruit and retain key personnel; events that adversely impact domestic or international travel, including terrorist incidents and epidemics such as Severe Acute Respiratory Syndrome (SARS); the risks involved in the Group's reliance upon its proprietary reservation systems and increased competition from third-party intermediaries who provide reservation infrastructure; the risks involved with the Group's reliance on technologies and systems; the future balance between supply and demand for the Group's hotels; the lack of selected development opportunities; the risk of litigation; risks associated with the Group's ability to maintain adequate insurance; the Group's ability to borrow and satisfy debt covenants; compliance with data privacy regulations; and the risks associated with funding the defined benefits under its pension plans. The main factors that could affect the business and financial results are described in Item 3 Risk Factors in the Annual Report of InterContinental Hotels Group PLC on Form 20-F for the financial period ended 31 December 2005, or in any Annual Report of InterContinental Hotels Group PLC on Form 20-F for any subsequent year, filed with the US Securities and Exchange Commission. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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