Summary financial statement

The financial results for 2007 were strong all around the world. Our continuing operating profit increased by 19% to 237, driven by 7% RevPAR growth, 5% record net rooms growth and strong results from our remaining owned and leased hotels. Adjusted earnings per share from our continuing business increased by 23% to 46.9p and the final dividend was increased by 12% to 14.9p.Richard Solomons - Financial Director

This Summary Financial Statement provides a commentary on the performance of the Group for the financial year ended 31 December 2007.

Group and regional trading

Revenue from continuing operations increased by 12.3% to £883m and continuing operating profit increased by 18.5% to £237m during the 12 months ended 31 December 2007.

The growth was driven by strong underlying RevPAR gains across all regions, hotel expansion in key markets and profit uplift from owned and leased assets. Including discontinued operations, total revenue decreased by 3.9% to £923m whilst operating profit before exceptional items increased by 6.1% to £245m, reflecting the year-on-year impact of asset disposals.

During 2007, the IHG global system increased by 208 hotels (28,848 rooms, or 5.2%) to 3,949 hotels (585,094 rooms). The record growth level was driven, in particular, by continued expansion in the US, the UK, China and Japan, resulting in openings of 366 hotels (52,846 rooms).

At the end of 2007, the IHG pipeline totalled 1,674 hotels (225,872 rooms). Record room signings across all regions of 125,533 rooms led to pipeline growth of 67,881 rooms (or 43.0%), which demonstrates strong demand for IHG brands across all regions and represents a key driver of future profitability.

In the Americas, revenue and operating profit from continuing operations increased by 6.6% to £450m and 2.3% to £220m respectively during 2007. The region achieved healthy RevPAR growth across all ownership types and RevPAR premiums to the US market segments for hotels operating under InterContinental, Crowne Plaza, Holiday Inn and Holiday Inn Express brands. During the fourth quarter, consistent with the US market, the region was impacted by a marginal softening in RevPAR growth due to a slight decline in occupancy levels.

Continuing owned and leased revenue increased by 23.1% to £128m and operating profit increased by 66.7% to £20m. Positive underlying trading was driven by RevPAR growth of 9.7%, led by the InterContinental brand with growth of 10.6%. The results benefited from strong trading performances at the InterContinental Boston and the InterContinental New York.

Managed operating profit decreased by 22.2% to £21m principally due to increased revenue investment to support growth in contract signings, the impact of fewer hotels under management contracts following the restructuring of the FelCor agreement in 2006 and foreign exchange losses in Latin America.

The franchise results benefited from RevPAR growth of 5.8%, net room count growth of 4.0% and fees associated with growth in signings.

In EMEA, revenue and operating profit from continuing operations increased by 23.7% to £245m and 81.1% to £67m respectively. During the year, the region achieved RevPAR growth of 8.6% driven by substantial gains across all brands and ownership types.

In the owned and leased estate, continuing revenue increased by 31.5% to £121m as a result of trading at the InterContinental London Park Lane, which became fully operational during the first half of 2007, together with strong rate-led RevPAR growth at the InterContinental Paris Le Grand. Continuing operating profit increased by £21m to £17m, including operating profit growth of £14m at the InterContinental London Park Lane.

EMEA managed revenues increased by 18.3% to £84m and operating profit increased by 16.2% to £43m, driven by management contracts negotiated in 2006 as part of the hotel disposal programme in Europe and strong underlying trading in markets such as the Middle East, the UK, Spain and Russia.

Franchised revenue and operating profit increased by 14.3% to £40m and 20.8% to £29m respectively. The growth was principally driven by RevPAR gains and room count expansion in the UK and Continental Europe.

Asia Pacific revenue increased by 17.1% to £130m whilst operating profit increased by 6.9% to £31m. The region achieved strong RevPAR growth of 8.9% across all brands and ownership types and continued its strategic expansion in China and Japan.

The owned and leased results benefited from the impact of strong trading at the InterContinental Hong Kong, despite the impact of renovation works throughout a significant part of the year.

Managed revenue increased by 36.1% to £49m as a result of the full-year contribution from the hotels which joined the system in 2006 as part of the IHG ANA joint venture, continued organic expansion in China and solid RevPAR growth across Southern Asia and Australia. Operating profit increased by 9.5% to £23m as revenue gains were offset by integration and ongoing costs associated with the ANA joint venture and continued infrastructure investment in China.

Franchised revenues doubled from £4m to £8m, driven by hotels in the IHG ANA joint venture. Growth in profitability was also impacted by ANA integration and ongoing costs.

During 2007, net central costs were flat on 2006 but increased in line with inflation when translated at constant currency exchange rates.

Exceptional operating items, interest and taxation

Exceptional operating items of £30m included an £18m gain on sale of financial assets and an £11m gain on the sale of associate investments.

Net financial expenses increased from £11m in 2006 to £45m in 2007, as a result of higher debt levels following payment of the £709m special dividend in June 2007.

Financing costs included £10m (2006 £10m) of interest costs associated with Priority Club Rewards, and £9m (2006 £4m) in respect of the InterContinental Boston finance lease.

The effective rate of tax on profit before tax, excluding the impact of exceptional items, was 22% (2006 24%).

Earnings per share, dividends, treasury

Basic earnings per share in 2007 were 72.2p, compared with 104.1p in 2006. Adjusted earnings per share were 48.4p, against 42.9p in 2006. Adjusted continuing earnings per share were 46.9p, 23.4% up on last year.

The Board has proposed a final dividend per share of 14.9p; with the interim dividend per share of 5.7p, the normal dividend per share for 2007 will total 20.6p.

The net movement in cash and cash equivalents in the 12 months to 31 December 2007 was an outflow of £131m. This included net cash inflows from operating activities of £232m, net cash outflows from investing activities of £19m and net cash outflows from financing activities of £344m.

Net debt at 31 December 2007 was £825m and included the InterContinental Boston finance lease commitment of £100m.

Asset disposal and return of funds

During 2007, IHG achieved further progress with its asset disposal programme, including the sale of the Crowne Plaza Santiago and the Holiday Inn Disney, Paris both retained under IHG franchise contracts and the sale of the InterContinental Montreal retained under an IHG management agreement. In total these transactions generated £49m in proceeds before transaction costs. IHG also divested a number of equity interests during the year, for total proceeds of £57m. In 2007, IHG paid a £709m special dividend, completed a third £250m share buyback and commenced a £150m share buyback. At the year-end, £100m of this buyback was outstanding. Since March 2004, IHG has returned £3.5bn to shareholders.

 

This Summary Financial Statement was approved by the Board on 18 February 2008 and signed on its behalf by Richard Solomons. It does not contain sufficient information to provide as complete an understanding of the Group’s results and state of affairs as that provided in the Annual Report and Financial Statements 2007. That report may be obtained, free of charge, by completing the relevant section of the Form of Proxy and returning it to the Company’s Registrar, Equiniti.

The auditors have issued an unqualified report on the financial statements containing no statement under Section 237(2) or 237(3) of the Companies Act 1985.

See information concerning Directors’ emoluments.

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