Edgar Filing: INTERCONTINENTAL HOTELS GROUP PLC /NEW/

Prepared and filed by St Ives Burrups

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 20-F

(Mark One)

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal period ended December 31, 2003

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from October 1, 2002 to December 31, 2003

Commission file number: 1-10409

InterContinental Hotels Group PLC
(Exact name of Registrant as specified in its charter)

England and Wales
(Jurisdiction of incorporation or organization)

67 Alma Road,
Windsor, Berkshire SL4 3HD
(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered


American Depositary Shares	New York Stock Exchange
Ordinary Shares of £1 each	New York Stock Exchange*

*	Not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission.

Securities registered or to be registered pursuant to Section 12(g) of the Act:
None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

Ordinary Shares of £1 each 739,364,254

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days:

Yes

Indicate by check mark which financial statement item the registrant has elected to follow:

Item 17

Item 18

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TABLE OF CONTENTS

		Page
Introduction		5
Cautionary Note Regarding Forward-Looking Statements		6

PART I
Item 1.	Identity of Directors, Senior Management and Advisers	8
Item 2.	Offer Statistics and Expected Timetable	8
Item 3.	Key Information	8
	Selected Consolidated Financial Information	8
	Risk Factors	13
Item 4.	Information on the Company	17
	Summary	17
	Segmental Information	19
	Hotels	22
	Soft Drinks	36
	Trademarks	37
	Organizational Structure	38
	Property, Plants and Equipment	38
	Environment	39
Item 5.	Operating and Financial Review and Prospects	39
	Introduction	39
	Critical Accounting Policies Under UK GAAP and US GAAP	40
	Operating Results	42
	Liquidity and Capital Resources	55
Item 6.	Directors, Senior Management and Employees	58
	Directors and Senior Management	58
	Compensation	60
	Board Practices	61
	Employees	63
	Share Ownership	64
Item 7.	Major Shareholders and Related Party Transactions	64
	Major Shareholders	64
	Related Party Transactions	65
Item 8.	Financial Information	66
	Consolidated Statements and Other Financial Information	66
	Significant Changes	66
Item 9.	The Offer and Listing	66
	Plan of Distribution	68
	Selling Shareholders	68
	Dilution	68
	Expenses of the Issue	68
Item 10.	Additional Information	68
	Memorandum and Articles of Association	68
	Material Contracts	70
	Exchange Controls	72
	Taxation	72
	Documents on Display	75
Item 11.	Quantitative and Qualitative Disclosures About Market Risk	75
Item 12.	Description of Securities Other Than Equity Securities	77

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		Page
PART II
Item 13.	Defaults, Dividend Arrearages and Delinquencies	78
Item 14.	Material Modifications to the Rights of Security Holders and Use of Proceeds	78
Item 15.	Controls and Procedures	78
Item 16.	[Reserved]	78
Item 16A.	Audit Committee Financial Expert	78
Item 16B.	Code of Ethics	78
Item 16C.	Principal Accountant Fees and Services	78
Item 16D.	Exemptions from the Listing Standards for Audit Committees	79
Item 16E.	Purchases of Equity Securities by the Issuer and Affiliated Purchasers	79

PART III
Item 17.	Financial Statements	79
Item 18.	Financial Statements	79
Item 19.	Exhibits	79

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INTRODUCTION

As used in this document, except as the context otherwise requires, the terms:

•	“board” refers to the board of directors of InterContinental Hotels Group PLC or, where appropriate, the board of Six Continents PLC;


•	“Britvic” refers to Britannia Soft Drinks Limited;


•	“Company” refers to InterContinental Hotels Group PLC or Six Continents PLC or their respective board of directors as the context requires;


•	“Group” refers to InterContinental Hotels Group PLC and its subsidiaries or Six Continents PLC and its subsidiaries as the context requires;


•	“Hotels” or “IHG Hotels” refers to the hotels business of Six Continents or InterContinental Hotels Group PLC as the context requires;


•	“IHG” refers to InterContinental Hotels Group PLC or, where appropriate, its board of directors;


•	“MAB” or “Mitchells and Butlers” refers to Mitchells & Butlers plc;


•	“ordinary share” or “share” refer to the ordinary shares of 28p each of Six Continents PLC or the ordinary shares of £1 each of the Company;

•

“Separation transaction” or “Separation” refers to the transaction that separated Six Continents PLC’s hotels and soft drinks businesses from its retail business, completed on April 15, 2003. The Separation resulted in two separately listed holding companies: (i) Mitchells & Butlers plc, which is the holding company of the retail business and Standard Commercial Property Developments Limited; and (ii) InterContinental Hotels Group PLC, which is the holding company for the hotels and soft drinks businesses;


•	“Six Continents” refers to Six Continents PLC;


•	“Soft Drinks” and “Britvic Group” refer to the soft drinks business of InterContinental Hotels Group PLC, which the Company has through its controlling interest in Britvic; and


•	“VAT” refers to UK value added tax levied by HM Customs & Excise on certain goods and services.

References in this document to the “Companies Act” mean the Companies Act 1985, as amended, of Great Britain; references to the “EU” mean the European Union. References in this document to “UK” refer to the United Kingdom of Great Britain and Northern Ireland.

The Company publishes its Consolidated Financial Statements expressed in UK pounds sterling. In this document, references to “US dollars”, “US$”, “$” or “¢” are to United States (“US”) currency, references to “euro” or “€” are to the euro, the currency of the European Economic and Monetary Union and references to “pounds sterling”, “sterling”, “£”, “pence” or “p” are to UK currency. Solely for convenience, this Annual Report on Form 20-F contains translations of certain pound sterling amounts into US dollars at specified rates. These translations should not be construed as representations that the pound sterling amounts actually represent such US dollar amounts or could be converted into US dollars at the rates indicated. Unless otherwise indicated, the translations of pounds sterling into US dollars have been made at the rate of £1.00 = $1.78, the noon buying rate in The City of New York for cable transfers in pounds sterling as certified for customs purposes by the Federal Reserve Bank of New York (the “Noon Buying Rate”) on December 31, 2003. On March 26, 2004 the Noon Buying Rate was £1.00 = $1.81. For information regarding rates of exchange between pounds sterling and US dollars from fiscal 1999 to the present, see “Item 3. Key Information – Exchange Rates”.

The Company’s fiscal year ends on December 31. This reflects a change from September 30, implemented following Separation. The December 31 fiscal year end is in line with the calendar accounting year ends of the majority of comparable US and European hotel companies. IHG will continue to report on a December 31 fiscal year end basis, as the Group believes this will facilitate more meaningful comparisons with other key participants in the industry. References in this document to a particular year are to the fiscal year unless otherwise indicated. For example, references to the fiscal period ended December 31, 2003 are shown as 2003 and represent the

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15 months from October 1, 2002 to December 31, 2003, unless otherwise specified, references to the fiscal year ended September 30, 2002 are shown as 2002 and references to other fiscal years are shown in a similar manner.

The Company’s Consolidated Financial Statements are prepared on the basis of accounting principles generally accepted in the United Kingdom (“UK GAAP”) which differ from those generally accepted in the United States (“US GAAP”). The significant differences applicable to the Group are explained in Note 33 of Notes to the Financial Statements.

During 2003, the Company changed its fiscal year end to December 31 and thus its financial statements for its last fiscal period are presented for the 15 months ended December 31, 2003 as permitted by the Companies Act 1985. In accordance with the transition period reporting requirements of the US Securities and Exchange Commission, an unaudited analysis of the financial statements and notes thereto for this 15 month period showing the three month period ended December 31, 2002 and the 12 month period ended December 31, 2003 is presented in Note 32 of Notes to the Financial Statements.

IHG believes that the reporting of profit and earnings measures before exceptional items provides additional meaningful information on underlying returns and trends to shareholders. The Group’s key performance indicators used in budgets, monthly reporting, forecasts, long- term planning and incentive plans for internal financial reporting focus primarily on profit and earnings measures before exceptional items. For this purpose, exceptional items comprises operating exceptional items, in addition to those non-operating exceptional items disclosed below operating profit as required by UK GAAP. Throughout this document earnings per share is also calculated excluding the effect of all exceptional items and the related tax effect and is referred to as adjusted earnings per share.

The Company furnishes The Bank of New York, as Depositary, with annual reports containing Consolidated Financial Statements and an independent auditor’s opinion thereon. These Financial Statements are prepared on the basis of UK GAAP. The annual reports contain reconciliations to US GAAP of net income and shareholders’ equity. The Company also furnishes the Depositary with semi-annual reports prepared in conformity with UK GAAP, which contain unaudited interim consolidated financial information. Upon receipt thereof, the Depositary mails all such reports to recorded holders of American Depositary Receipts (“ADRs”) evidencing American Depositary Shares (“ADSs”). The Company also furnishes to the Depositary all notices of shareholders’ meetings and other reports and communications that are made generally available to shareholders of the Company. The Depositary makes such notices, reports and communications available for inspection by recorded holders of ADRs and mails to all recorded holders of ADRs notices of shareholders’ meetings received by the Depositary. The Company is not required to report quarterly financial information. However, during 2003, the Company reported interim financial information at March 31, 2003 and September 30, 2003 in accordance with the Listing Rules of the UK Listing Authority. In addition, it provided a trading update at June 30, 2003 and intends to continue to provide quarterly financial information during fiscal 2004, although it has not made any decision with respect to reporting quarterly financial information after 2004.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Form 20-F contains certain forward-looking statements as defined in Section 21E of the Securities Exchange Act of 1934 with respect to the financial condition, results of operations and business of the Group and certain of the plans and objectives of the board of directors of InterContinental Hotels Group PLC 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 such words as “anticipate”, “target”, “expect”, “estimate”, “intend”, “plan”, “goal”, “believe” or other words of similar meanings. Such statements in the Form 20-F include, but are not limited to, statements under the following headings: (i) “Item 4. Information on the Company”; (ii) “Item 5. Operating and Financial Review and Prospects”; (iii) “Item 8. Financial Information”; and (iv) “Item 11. Quantitative and Qualitative Disclosures About Market Risk”. Specific risks faced by the Company are described under “Item 3. Key Information – Risk Factors” commencing on page 13. By their nature, forward-looking statements involve risk and uncertainty, and the factors described in the context of such forward-looking statements in this Form 20-F could cause actual results and developments to differ materially from those expressed in or implied by such forward-looking statements. These factors include, among others, the effect of economic recession, events that adversely impact domestic or international travel, including terrorist incidents and epidemics such as Severe Acute Respiratory Syndrome (“SARS”), increased use of intermediary reservation channels, the risks involved with the Group’s reliance on brands and protection of intellectual property rights and the reliance on consumer perception of its brands, the future balance between supply and demand for the Group’s hotels, political and economic developments and currency exchange rate fluctuations (including the effect of fluctuations in the US dollar/UK pound sterling exchange rate on the Group’s revenue and

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on the price of Company ADSs and the US dollar value of dividends), the ability to recruit and retain key personnel, possible regulatory and legislative changes or action, the risks involved with developing and employing new technologies, the inability to sustain its organizational structure or meet cost saving strategies, the effects of being unable to make disposals of hotel assets, the risks of litigation, the Group’s ability to purchase adequate insurance, risks associated with funding the defined benefits under its pension schemes, the significant levels of indebtedness for the Group, the ability to access the capital markets for future capital needs, the availability of properties to be acquired or operated by franchisees or by the Group under management contracts, the risks of reliance on suppliers in the soft drinks business, possible contamination and the effect of adverse weather conditions on the demand in the soft drinks business.

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PART I

ITEM 1.

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

Not applicable.

ITEM 2.

OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3.

KEY INFORMATION

SELECTED CONSOLIDATED FINANCIAL INFORMATION

Summary

The selected consolidated financial data set forth below for the 15 months ended December 31, 2003 and the years ended September 30, 2002, 2001, 2000 and 1999 are derived from Consolidated Financial Statements of the Group, which have been audited by its independent auditors, Ernst & Young LLP, restated where appropriate to accord with the Group’s current accounting policies and presentation. The selected consolidated financial data set forth below should be read in conjunction with, and are qualified in their entirety by reference to, the Consolidated Financial Statements and Notes thereto included elsewhere in this Annual Report.

The selected consolidated financial data for the 12 months ended December 31, 2003 and for the three months ended December 31, 2002 are derived from the unaudited analysis of the 15 month period ended December 31, 2003 in the Consolidated Financial Statements included elsewhere in this Annual Report. See Note 32 of Notes to the Financial Statements. Segmental information has been restated for the year ended September 30, 2002 to reflect the new organizational structure of the Group following the fundamental reorganization of the Hotels business (see “Organization Review” on page 29). It has not been practicable to restate segmental information for the year ended September 30, 2001.

The Group prepares its Consolidated Financial Statements in accordance with UK GAAP which differ in certain respects from US GAAP. The US GAAP selected financial data as of and for the years ended September 30, 2002, 2001, 2000 and 1999 have been restated for the effects of an under provision for deferred taxation with a consequential change to goodwill arising on acquisitions of £145 million, identified in fiscal 2003, following a review of historical tax basis and unrealized gains in respect of the Group’s properties. The overall effect on deferred tax was an underprovision of £53 million for the year ended September 30, 2002 (2001: £3 million, 2000: £30 million, 1999: £30 million). A description of the significant differences and reconciliations of net income and shareholders’ equity are set forth in Note 33 of Notes to the Financial Statements.

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Consolidated Profit and Loss Account Data

	15 months ended December 31 (1)						12 months ended December 31			Three months ended December 31			Year ended September 30 (1)

	2003 (2)			2003			2003			2002			2002			2001			2000			1999

	$			£			£			£			£			£			£			£
	(In millions, except per share and ADS amounts)
Amounts in accordance with UK GAAP (3)
Turnover:
Continuing operations		4,788			2,690			2,161			529			2,134			2,473			2,092			1,675
Discontinued operations		1,412			793			451			342			1,481			1,560			3,066			3,011

		6,200			3,483			2,612			871			3,615			4,033			5,158			4,686

Total operating profit before operating exceptional items:
Continuing operations		616			346			286			60			329			486			428			365
Discontinued operations		244			137			85			52			289			306			477			459

		860			483			371			112			618			792			905			824

Operating exceptional items:
Continuing operations		(91	)		(51	)		(51	)		—			(77	)		(43	)		—			—

		(91	)		(51	)		(51	)		—			(77	)		(43	)		—			—

Total operating profit:
Continuing operations		525			295			235			60			252			443			428			365
Discontinued operations		244			137			85			52			289			306			477			459

		769			432			320			112			541			749			905			824

Non-operating exceptional items:
Continuing operations		(303	)		(170	)		(167	)		(3	)		(2	)		(2	)		2			(112	)
Discontinued operations		(76	)		(43	)		(43	)		—			55			2			1,294			—

		(379	)		(213	)		(210	)		(3	)		53			—			1,296			(112	)

Profit on ordinary activities before interest		390			219			110			109			594			749			2,201			712
Interest receivable		185			104			77			27			116			165			57			48
Interest payable and similar charges		(269	)		(151	)		(112	)		(39	)		(176	)		(224	)		(209	)		(188	)
Premium on early settlement of debt		(242	)		(136	)		(136	)		—			—			—			—			—

Profit before taxation		64			36			(61	)		97			534			690			2,049			572
Taxation		30			17			46			(29	)		(52	)		(223	)		(342	)		(190	)
Minority equity interests		(60	)		(34	)		(30	)		(4	)		(25	)		(24	)		(16	)		(8)

Earnings		34			19			(45	)		64			457			443			1,691			374

Per ordinary share:
Basic		4.6¢			2.6p			(6.1)p			8.7p			62.5p			60.6p			228.5p			55.3p
Diluted		4.6¢			2.6p			(6.1)p			8.7p			62.3p			60.2p			227.0p			54.9p
Adjusted: pre-FRS 15 (4)		n/a			n/a			n/a			n/a			n/a			n/a			n/a			71.7p
post-FRS 15 (4)		86.2¢			48.4p			39.3p			9.1p			51.4p			66.6p			68.8p			66.6p

Dividends (5)		37.7¢			21.2p			21.2p			—			41.7p			40.5p			39.3p			38.1p

See page 11 for footnotes.

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Consolidated Profit and Loss Account Data

	15 months ended December 31 (1)						12 months ended December 31			Three months ended December 31			Year ended September 30 (1)

	2003 (2)			2003			2003			2002			2002			2001			2000			1999

	$			£			£			£			£			£			£			£
	(In millions, except per share and ADS amounts)
Amounts in accordance with US GAAP (6)
Income/(loss) before cumulative effect on prior years of change in accounting principle:
Continuing operations before effect of restatement		51			29			(1	)		30			110			191			142			(28	)
Effect of restatement for the period		—			—			—			—			56			—			—			—

Continuing operations as restated		51			29			(1	)		30			166			191			142			(28	)
Income from discontinued operations before effect of restatement		107			60			30			30			172			491			313			303
Effect of restatement for the period		—			—			—			—			(10	)		(31	)		142			—

Income from discontinued operations as restated		107			60			30			30			162			460			455			303
Surplus on disposal		—			—			—			—			171			25			1,242			—

Total discontinued operations as restated		107			60			30			30			333			485			1,697			303
Cumulative effect on prior years of adoption of FAS 142		(1,267	)		(712	)		—			(712	)		—			—			—			—

Net (loss)/income		(1,109	)		(623	)		29			(652	)		499			676			1,839			275

Per ordinary share and American Depositary Share (7) Basic
Income/(loss) before cumulative effect on prior years of change in accounting principle:
Continuing operations before effect of restatement		7.0	¢		4.0	p		(0.1	)p		4.1	p		15.0	p		26.1	p		19.2	p		(4.3	)p
Effect of restatement for the period		—			—			—			—			7.7	p		—			—			—

Continuing operations as restated		7.0	¢		4.0	p		(0.1	)p		4.1	p		22.7	p		26.1	p		19.2	p		(4.3	)p
Discontinued operations before effect of restatement		14.6	¢		8.2	p		4.1	p		4.1	p		46.9	p		70.6	p		210.1	p		45.0	p
Effect of restatement for the period		—			—			—			—			(1.3	)p		(4.3	)p		19.2	p		—

Total discontinued operations as restated		14.6	¢		8.2	p		4.1	p		4.1	p		45.6	p		66.3	p		229.3	p		45.0	p
Cumulative effect on prior years of adoption of FAS 142		(172.9)	¢		(97.1	)p		—			(97.1	)p		—			—			—			—

Net (loss)/income		(151.3)	¢		(84.9	)p		4.0	p		(88.9	)p		68.3	p		92.4	p		248.5	p		40.7	p

Diluted
Income/(loss) before cumulative effect on prior years of change in accounting principle:
Continuing operations before effect of restatement		7.0¢			4.0	p		(0.1	)p		4.1	p		14.9	p		26.0	p		19.1	p		(4.3	)p
Effect of restatement for the period		—			—			—			—			7.7	p		—			—			—

Continuing operations as restated		7.0¢			4.0	p		(0.1	)p		4.1	p		22.6	p		26.0	p		19.1	p		(4.3	)p
Discontinued operations before effect of restatement		14.6¢			8.2	p		4.1	p		4.1	p		46.7	p		70.2	p		208.7	p		44.6	p
Effect of restatement for the period		—			—			—			—			(1.3	)p		(4.3	)p		19.1	p		—

Total discontinued operations as restated		14.6¢			8.2	p		4.1	p		4.1	p		45.4	p		65.9	p		227.8	p		44.6	p
Cumulative effect on prior years of adoption of FAS 142		(172.9)¢			(97.1	)p		—			(97.1	)p		—			—			—			—

Net (loss)/income		(151.3)¢			(84.9	)p		4.0	p		(88.9	)p		68.0	p		91.9	p		246.9	p		40.3	p

Footnotes on the following page.

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Consolidated Balance Sheet Data

	December 31		September 30
	2003 (2)	2003	2002	2001	2000	1999

	$	£	£	£	£	£
	(In millions)
Amounts in accordance with UK GAAP (restated) (3)
Intangible assets	281	158	173	174	189	13
Tangible assets	7,033	3,951	7,641	7,558	6,683	5,794
Investments	306	172	218	234	217	505
Current assets	1,778	999	1,022	1,107	1,684	1,405
Total assets	9,398	5,280	9,054	9,073	8,773	7,717

Current liabilities (8)	1,931	1,085	2,273	2,009	1,604	1,803
Long-term debt (8)	1,759	988	631	1,019	1,213	2,101
Share capital	1,315	739	734	734	745	694
Shareholders’ funds	4,546	2,554	5,335	5,153	5,099	3,053

Amounts in accordance with US GAAP (restated) (6)
Intangible assets	2,825	1,587	2,702	2,902	2,960	2,594
Tangible assets	6,970	3,916	6,552	6,343	5,130	4,211
Investments	310	174	189	205	254	505
Current assets	1,741	978	983	1,209	1,796	1,438
Total assets	11,846	6,655	10,426	10,659	10,140	8,748

Current liabilities (8)	2,663	1,496	2,109	2,033	1,461	2,595
Long-term debt (8)	931	523	622	779	1,152	1,111
Redeemable preference share capital	—	—	—	—	—	18
Share capital	1,315	739	243	242	246	223
Shareholders’ equity	6,016	3,380	6,221	6,381	6,147	3,755

(1)	Other than the results for fiscal 1999 which include 53 weeks’ trading (Hotels 12 months), all other fiscal years include 52 weeks’ trading (Hotels 12 months). Fiscal 2003 reflects 15 months’ trading (Soft Drinks 64 weeks).

(2)	US dollar amounts have been translated at the Noon Buying Rate on December 31, 2003 of £1.00 = $1.78 solely for convenience.

(3)	Fiscal 2002, 2001, 2000, and 1999 amounts have been restated on the adoption of UITF 38 and the reclassification of pension balances within provisions in fiscal 2002 and 2001 (see Note 1 of Notes to the Financial Statements).

(4)	Adjusted earnings per share are disclosed in order to show performance undistorted by exceptional items or, in respect of Financial Reporting Standard 15, the impact of adopting this Standard.

(5)	Dividend per share amounts have been restated to reflect the Separation.

(6)	US GAAP amounts for fiscal 2002, 2001, 2000 and 1999 have been restated to reflect adjustments to goodwill and deferred taxation following a review of historical tax basis and unrealized gains in respect of the Group’s properties (see Note 33 of Notes to the Financial Statements).

(7)	Each American Depositary Share represents one ordinary share.

(8)	Long-term debt under UK GAAP includes amounts supported by long-term facilities, which are classified as current liabilities under US GAAP.

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Dividends

Six Continents PLC paid an interim dividend of 6.6p per ordinary share on April 9, 2003 for the period prior to the Separation.

Following Separation, InterContinental Hotels Group PLC paid an interim dividend of 4.05p per share on October 14, 2003. The IHG board has proposed a final dividend of 9.45p per share, payable on June 7, 2004, if approved by shareholders at the Annual General Meeting to be held on June 1, 2004, bringing the total IHG dividend for the 12 months ended December 31, 2003 to 13.50p per share.

IHG has adopted a progressive dividend policy that it believes is appropriate to the strategies of the Group and that seeks to build dividends in real terms from the base of 13.50p and to build cover over time. However, the payment of any further dividends will depend upon the earnings and financial condition of InterContinental Hotels Group PLC.

The table below sets forth the amounts of interim, final and total dividends on each ordinary share in respect of each fiscal year indicated. Comparative dividends per share have been restated using the aggregate of the weighted average number of shares of InterContinental Hotels Group PLC and Six Continents PLC, adjusted to equivalent shares of InterContinental Hotels Group PLC. For the purposes of showing the dollar amounts per ADS, such amounts are before deduction of UK withholding tax (as described under “Item 10. Additional Information — Taxation”) and are translated into US dollars per ADS at the Noon Buying Rate on each of the respective UK payment dates. However, dividends paid in US dollars by the Depositary may be based on a market exchange rate other than the Noon Buying Rate.

	Pence per ordinary share			$ per ADS
	Interim	Final	Total	Interim	Final		Total
Year ended September 30
1999 (1)	11.56	26.55	38.11	0.188	0.427		0.615
2000 (1)	11.92	27.37	39.29	0.178	0.402		0.580
2001 (1)	12.27	28.20	40.47	0.177	0.406		0.583
2002 (1)	12.58	29.14	41.72	0.205	0.474		0.679

Period ended December 31, 2003
Six Continents (1)	7.65	—	7.65	0.119	—		0.119
IHG	4.05	9.45	13.50	0.068	0.171	(2)	0.239

(1)	Restated to reflect an equivalent number of shares in InterContinental Hotels Group PLC.

(2)	The 2003 final dividend has been translated at the Noon Buying Rate on March 26, 2004 of £1.00=$1.81.

Dividends will be paid in pounds sterling and exchange rate fluctuations will affect the US dollar amount received by holders of ADRs on conversion of such dividends. Moreover, fluctuations in the exchange rates between pounds sterling and the US dollar will affect the dollar equivalent of the pounds sterling price of the ordinary shares on the London Stock Exchange and, as a result, are likely to affect the market price of ADSs which are evidenced by ADRs in the United States.

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Exchange Rates

The following tables show, for the periods and dates indicated, certain information regarding the exchange rate for pounds sterling, based on the Noon Buying Rate for pounds sterling expressed in US dollars per £1.00. The exchange rate on March 26, 2004 was £1.00 = $1.81.

Month	Month’s Highest Exchange Rate	Month’s Lowest Exchange Rate

September 2003	1.66	1.57
October 2003	1.70	1.66
November 2003	1.72	1.67
December 2003	1.78	1.72
January 2004	1.85	1.79
February 2004	1.90	1.82
March 2004 (through March 26, 2004)	1.87	1.79

Year ended September 30	Period End	Average Rate (1)	High	Low

1999	1.65	1.63	1.72	1.55
2000	1.48	1.55	1.68	1.40
2001	1.47	1.44	1.50	1.37
2002	1.57	1.48	1.58	1.41
Period ended December 31

2003	1.78	1.63	1.78	1.54

(1)	The average of the Noon Buying Rate on the last day of each full month during the period.

A significant portion of the Group’s assets, liabilities and revenues are denominated in currencies other than pounds sterling, principally the US dollar and euro. For a discussion of the impact of exchange rate movements, see “Item 11. Quantitative and Qualitative Disclosures About Market Risk”.

RISK FACTORS

This section describes some of the risks that could materially affect the Group’s businesses. The factors below should be considered in connection with any forward looking statements in this Form 20-F and the cautionary statements contained on page 6.

The risks below are not the only ones that the Group faces. Some risks are not yet known to IHG and some that IHG does not currently believe to be material could later turn out to be material. All of these risks could materially affect the Group’s businesses, turnover, operating profit, earnings, net assets and liquidity and capital resources.

The Group is exposed to the risks of economic recession

The Group is exposed to the risks of either a global economic recession or a recession in one or more of its key markets that could lower revenues and reduce income. A recession would adversely affect room rates and/or occupancy levels and other income generating activities resulting in deterioration of results of operations and potentially affecting the value of properties in affected economies.

The Group is exposed to the risk of events that adversely impact domestic or international travel

The Group’s room rates and occupancy levels could be adversely impacted by events that reduce domestic or international travel, such as actual or threatened acts of terrorism or war, epidemics, travel-related accidents, travel-related industrial action, increased transportation and fuel costs and natural disasters resulting in reduced worldwide travel or other local factors impacting individual hotels.

In fiscal 2003, the outbreak of SARS dramatically reduced travel to Toronto, Hong Kong, Singapore, China and to other destinations in Asia. If the apparently successful efforts to control the disease are not maintained and the disease reappears or spreads beyond previously affected areas to other markets, particularly in the United States or Europe, the resulting decline in travel could have an adverse impact on the Group’s business,

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financial condition and results of operations. Additionally, future epidemics such as the SARS epidemic could materially harm the Group’s future financial results.

Terrorist incidents such as the events of September 11, 2001, and the bombings in Bali in October 2002 and the war in Iraq in 2003 have significantly affected international travel and consequently global demand for hotel rooms. Further incidents or uncertainties in this area may have an adverse impact on the Group’s operations and financial results.

The Group is exposed to the risk of increased use of intermediaries’ reservation channels

The value of the Group’s brands is partly derived from the ability to drive reservations through its proprietary HolidexPlus reservation system. In recent years there have been very rapid changes in the ability to choose and book hotel rooms, partly driven by the internet, with the emergence of intermediaries which market hotel rooms in such a way that there is the risk of commoditization of hotel rooms. Some of the emerging business models and intermediaries could have a significant impact on the ability of the Group to continue to drive reservations, and hence have an impact on the value of the Group’s brands. Additionally, these channels, including off-line intermediaries and travel agents, are becoming more consolidated which may lead to higher costs of distribution for the Group, for example by intermediaries being able to demand higher commissions. Although the Group is actively taking steps to adapt to the changing environment (by developing competitive internet reservation systems for its own benefit), because of the very high pace of change in this area there is a risk that the Group will not adapt quickly enough.

The Group is reliant on the reputation of its brands and the protection of its intellectual property rights

An event that were to materially damage the reputation of one or more of the Group’s brands and/or failure to sustain the appeal of the Group’s brands to its customers could have an adverse impact on the value of that brand and subsequent revenues from that brand or business. Given the importance of brand recognition to the Group’s businesses, the Group has invested considerable effort in protecting its intellectual property, including by registration of trademarks and domain names. If the Group is unable to protect its intellectual property, any infringement or misappropriation could materially harm its future financial results and ability to develop its businesses.

The Group is exposed to the risks of the hotel industry supply and demand cycle

The Group’s future operating results could be adversely affected by industry over-capacity (by number of rooms) and weak demand. Reductions in room rates and occupancy levels would adversely impact the Group’s results of operations.

The Group may not be able to increase or maintain the number of its properties operated by its franchisees or pursuant to its management contracts

Competition may generally reduce the number of suitable management, franchise and investment opportunities offered to the Group, and increase the bargaining power of property owners seeking to engage a manager or become a franchisee. There can be no assurance that the Group will be able to identify, retain or add franchisees to the Group system or to secure management contracts. There are also risks that significant franchisees or groups of franchisees may have interests that conflict, or are not aligned, with those of the Group. Changes in legislation or regulatory changes may be implemented that have the effect of favoring franchisees relative to brand owners.

The Group is exposed to political and economic developments and currency exchange rate fluctuations

Global political and economic developments and currency exchange rate fluctuations may impact results of operations. In addition, local economic factors such as local interest rates, risks of hyper-inflation or deflation and political developments in some countries could adversely impact the Group’s results of operations. Political or economic factors could effectively prevent the Group from receiving profits from, or from selling its investments in, certain countries. In addition, fluctuations in currency exchange rates between the UK pound sterling, the currency in which the Group reports its financial statements, and the US dollar and other currencies in which the Group’s international operations or investments do business, could adversely affect the Group’s reported earnings and the value of its businesses. Fluctuations of this type have been experienced recently with the significant strengthening of the pound against the dollar.

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The Group is dependent upon recruiting and retaining key personnel and developing their skills

In order to develop, support and market its products, the Group must hire and retain highly skilled employees with particular expertise. The implementation of the Group’s strategic business plans could be undermined by failure to recruit or retain key personnel, the unexpected loss of key senior employees, failures in the Group’s succession planning and incentivization plans, or a failure to invest in the development of key skills. Additionally, unless skills are supported by a sufficient infrastructure to enable knowledge and skills to be passed on, the Group risks losing accumulated knowledge if key employees leave the Group.

The Group is exposed to changes in consumer perception and preference adversely affecting its brands

The Group’s range of brands and relevance to the sectors of the markets in which it operates may be adversely affected by changes in taste, commoditization (whereby the price and quality of hotel rooms become relatively more important than brand identifications) or other factors affecting consumers’ willingness to purchase goods or services, including any factor which adversely affects the reputation of those brands.

The Group is exposed to regulatory action

Both in the United Kingdom and internationally, the Group’s operations are subject to regulation, and further changes in regulation could adversely affect results of operations. Examples of such regulatory changes could include:

•	Further employment legislation which could impact labor costs such as minimum wage and maximum working hours, overtime, working conditions, recruiting and terminating employees and work permits.


•	Changes in tax legislation and practice.

•

Future legislation or regulation or different enforcement of current legislation or regulations, particularly in the areas of competition law, consumer protection, nondiscrimination, franchise and environmental law could adversely affect the Group’s operations. The Group’s operations are exposed to governmental actions in almost 100 countries and territories. The hospitality industry is heavily regulated, including with respect to food and beverage sales, employee relations, diversity and access for the disabled, construction and environmental concerns. Compliance with these laws could reduce revenues and profits of properties owned or managed by the Group. The Group and its various properties are subject worldwide to numerous laws, including those relating to the preparation and sale of food and beverages, such as health and liquor license laws. Additionally, the success of the Group’s strategy in relation to the expansion of its existing properties may be dependent upon obtaining necessary building permits or zoning variances from local authorities. The Group is also subject to foreign and US federal, state and local laws and regulations relating to the environment and the handling of hazardous substances which may impose or create significant potential environmental liabilities, even in situations where the environmental problem or violation occurred on a property before the Group acquired it.


•	Adverse regulatory developments could limit or prevent the Group receiving profits from, or limit its ability to sell, the properties affected by the regulatory change.

The Group is exposed to certain risks in relation to technology

A failure by the Group to take advantage of new technology and developments could put the Group at a competitive disadvantage in the field of e-commerce and business-to-business hospitality or supplier procurement or any other aspect of the Group businesses dependent upon its technology infrastructure. The Group may have to make substantial additional investments in new technologies to remain competitive. The technologies that the Group chooses may not prove to be commercially successful or the information technology strategy employed may not be sufficiently aligned or responsive to changes in business strategy. As a result, the Group could lose customers, fail to attract new customers or incur substantial costs in order to maintain its customer base or face other losses. Additionally, failure to develop an appropriate e- commerce strategy and select the right partners could erode the Group’s market share.

The Group is reliant upon its HolidexPlus reservation system which is an electronic booking and delivery channel directly linked to travel agents, hotels and internet networks. Inadequate disaster recovery arrangements leading to loss of key communications linkages, particularly in relation to HolidexPlus and other key parts of the IT infrastructure for a prolonged period, or permanently, may result in significant business interruption and subsequent impact on revenues.

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The Group may be unable to sustain the new organizational structure or meet cost-saving strategies on an ongoing basis

The Group has implemented a new organizational structure and certain cost-saving strategies relating to its non-hotel cost base. There is no assurance that the organizational structure will remain appropriate or that annualized cost-savings will be realized, which could adversely affect the financial performance of the Group.

The Group may be unable to make disposals of hotel assets

The Group has stated its intention to dispose of assets that do not have strategic value, either with or without brand representation. If a disposal is appropriate, there can be no assurance that the Group will be able to complete any such selected disposals on commercially reasonable terms, or at all.

The Group is exposed to the risk of litigation

The Group could be at risk of litigation from its guests, customers, joint venture partners, suppliers, employees, regulatory authorities, franchisees and/or the owners of hotels managed by it for breach of its contractual or other duties. Claims filed in the United States may include requests for punitive damages as well as compensatory damages.

Exposure to litigation may affect the Group’s reputation even though the monetary consequences are not significant.

The Group may face difficulties insuring its businesses

Historically, the Group has maintained insurance at levels determined by it to be appropriate in light of the cost of cover and the risk profiles of the businesses in which it operates. Following the effects of the September 11, 2001 terrorist attacks and subsequent events, many companies faced increased premiums for reduced cover as the insurance market hardened. A repeat of incidents of this nature may result in the Group experiencing significant increases in the cost of insuring its business at an acceptable level, or in the Group being unable to obtain cover for certain risks at a realistic price.

The Group is exposed to funding risks in relation to the defined benefits under its pension plans

The Group is required by law to maintain a minimum funding level in relation to its ongoing obligation to provide current and future pensions for the members of its pension plans who are entitled to defined benefits. In addition, if any plan of the Group is wound up, the Group could become statutorily liable to make an immediate payment to the trustees to bring the funding of these defined benefits to a level which is higher than this minimum. The contributions payable by the Group must be set with a view to making prudent provision for the benefits accruing under the plans of the Group.

Some of the issues which could adversely affect the funding of these defined benefits (and materially affect the Group’s funding obligations) are: (i) poor investment performance of pension fund investments; (ii) long life expectancy (which will make pensions payable for longer and therefore more expensive to provide); (iii) adverse annuity rates (which tend in particular to depend on prevailing interest rates and life expectancy) as these will make it more expensive to secure pensions with an insurance company; and (iv) other events occurring which make past service benefits more expensive than predicted in the actuarial assumptions by reference to which the Group’s past contributions were assessed.

The Group’s indebtedness could adversely affect its financial position

The Group has put in place borrowing facilities to meet its expected capital resource requirements. The Group’s ability to borrow under these and any other additional facilities which it might seek to establish will require that the Group be able to comply with certain financial and other covenants contained in the relevant facility documentation. If the Group’s revenues, cash flow or credit ratings do not meet expectations, the Group may lose its ability to borrow money or to do so on terms it considers to be favorable. Conditions in the capital markets will also affect the Group’s ability to borrow funds or to raise equity financing, as well as the terms it may obtain. All of these factors could also make it difficult or impossible for the Group otherwise to raise capital needed to pursue its strategy.

The Group cannot assure investors that it will be able to arrange any additional financing or refinancing needed to fund its capital resource requirements on acceptable terms, or at all.

If the Group’s levels of debt increase substantially, its business may not be able to generate sufficient cash flow to service its debt and/or continue its investment program.

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The Group may experience a lack of selected acquisition opportunities

While the Group’s strategy is to extend the hotel network through activities that do not involve significant capital, in some cases the Group may consider it appropriate to acquire new land or locations for the development of new hotels. If the availability of suitable sites becomes limited, this could adversely affect its results of operations.

Additional Risks Relating to Soft Drinks

The Britvic Group is reliant upon certain suppliers

The Britvic Group is reliant upon fruit juice concentrates, sugar and other fruit juice raw materials as necessary ingredients for many of its products, as well as packaging and containers such as cans and Polyethylene Trephthalate (PET) bottles. In the event the Britvic Group is unable to obtain an adequate supply of these raw materials or packaging or fails to negotiate the purchase of these materials on a reasonable commercial basis, this could have a significant adverse impact on the Britvic Group’s financial operations.

The Britvic Group is exposed to risks related to possible product contamination

The Britvic Group, like all beverage producers, has been and will continue to be vulnerable to accidental or malicious contamination of its products or base raw materials. Any such contamination could result in recall of the Britvic Group’s products, the Britvic Group being unable to sell its products, damage to brand image and/or civil or criminal liability, which could have a material adverse effect on the Britvic Group’s operations and financial performance.

The Britvic Group is exposed to significant competition

The Britvic Group operates in a highly competitive market sector in which large competitors are active.

A change in the level of marketing undertaken by competitors or in their pricing policies, the growth or strengthening of existing retailers of beverage products, the introduction of new competing brands or products or increased purchasing power pressure from customers could have a material adverse effect on the Britvic Group’s operations and financial performance. Conversely, competition law may regulate the Company’s ability to participate in industry consolidation at a strategic level.

Adverse weather conditions could reduce demand for the Britvic Group’s products

Demand for the Britvic Group’s products may be affected by weather conditions, especially in the summer months, when unseasonably cool or wet weather can affect sales volumes and therefore the results of the Britvic Group’s operations for the year.

ITEM 4. INFORMATION ON THE COMPANY

SUMMARY

Group Overview

Group companies operate in two core business areas: hotels and resorts, with worldwide interests through ownership, leasing, management and franchising, and soft drink manufacture in the United Kingdom.

On March 22, 2004, InterContinental Hotels Group PLC had a market capitalization of £3.6 billion, and was included in the list of FTSE 100 companies. Following the Separation in April 2003, InterContinental Hotels Group PLC became the holding company for the Group of which Six Continents PLC is the principal subsidiary company. Six Continents PLC was formed in 1967.

The Company’s corporate headquarters are in the United Kingdom, and the registered address is:

InterContinental Hotels Group PLC
67 Alma Road
Windsor
Berkshire SL4 3HD
Tel: +44 (0) 1753 410 100
Internet address: www.ihgplc.com

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InterContinental Hotels Group PLC was incorporated in Great Britain on October 2, 2002 and registered in, and operates under, the laws of England and Wales. Operations undertaken in countries other than England and Wales are under the laws of those countries in which they reside.

Group History and Recent Developments

The Group, formerly known as Bass, and more recently, Six Continents, was historically a conglomerate operating, among other things, as a brewer, soft drinks manufacturer, hotelier, leisure operator, and restaurant, pub and bar owner. In the last several years, the Group underwent a major transformation in its operations and organization, as a result of the Separation and a number of significant disposals during this period, narrowing the scope of its business.

On August 22, 2000, Six Continents completed the sale of its brewing business to Interbrew S.A. (“Interbrew”) of Belgium for £2.3 billion.

In February 2001, the Group sold an estate of 988 smaller unbranded pub sites with limited growth potential to Nomura International PLC (“Nomura”) for £625 million.

On March 3, 2003 Capital Management and Investment PLC (“CMI”) announced an unsolicited unilateral securities exchange offer for Six Continents PLC, which was firmly rejected by the board. At an Extraordinary General Meeting held on March 12, 2003 shareholders voted in favor of proceeding with the proposed Separation of Six Continents, immediately following which CMI’s bid lapsed.

On April 15, 2003, following shareholder and regulatory approval, Six Continents PLC separated into two new listed groups, InterContinental Hotels Group PLC comprising the Hotels and Soft Drinks businesses and Mitchells & Butlers plc comprising the Retail and Standard Commercial Property Developments businesses (see page F-8 for the mechanics of the Separation).

Acquisitions, Dispositions and Capital Expenditure

Since the Separation, the Group has entered into the following significant acquisition and disposal transactions:

On July 1, 2003, the Group completed the sale of a 16 property Staybridge Suites portfolio to Hospitality Properties Trust (“HPT”) for $185 million. The Group entered into a contract with HPT for the ongoing management of these hotels. In September 2003, HPT converted 14 other suite hotels to the Staybridge Suites brand under IHG management.

On September 9, 2003, the Group completed the sale of the London May Fair Hotel Limited (the holding company for the InterContinental London May Fair) to Radisson Edwardian for £115 million.

In October 2003, the Group announced the acquisition of the Candlewood Suites brand in the United States from Candlewood Hotel Corporation for a consideration of $15 million and an agreement to enter into a management contract with HPT to manage 76 Candlewood Suites properties. The transaction concluded on December 31, 2003.

On February 24, 2004, the Group sold its share of Midland Hotel and Conference Centre Limited (the holding company for the Crowne Plaza The Midland in Manchester) to Quintessential Hotels Limited for £20 million.

On March 15, 2004, the Group announced that it had entered into an agreement to sell the InterContinental Central Park South in New York City to Anbau Enterprises Inc. for $63.5 million, with an expected completion date in April 2004.

The Group’s continuing operations have invested cash capital expenditure, including for major refurbishments, of £288 million, £396 million and £621 million in fiscal 2003, 2002 and 2001, respectively. Capital expenditure was significantly higher in 2001 due to acquisitions completed in that year.

Material acquisitions and dispositions relating to IHG Hotels are described below under — “Hotels — History”.

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Hotels

Hotels owns, manages, leases or franchises a number of hotel brands including InterContinental, Crowne Plaza, Holiday Inn, Staybridge Suites, Candlewood Suites and Holiday Inn Express (or Express by Holiday Inn outside of the Americas) (“Express”), which at December 31, 2003 comprised 3,520 hotels with 536,318 guest rooms in nearly 100 countries and territories.

Soft Drinks

IHG has a controlling interest in and manages Britvic, the second largest soft drinks manufacturer (measured by volume) in the United Kingdom. Britvic owns an extensive portfolio of soft drinks brands that include Tango and Robinsons. It also produces Pepsi Beverages International (“PBI”) products under license. The Group, and other shareholders in the Britvic business (Allied Domecq, Whitbread and PepsiCo) have agreed, subject, inter alia, to market conditions, to consider an initial public offering of Britvic between January 1, 2005 and December 31, 2008.

SEGMENTAL INFORMATION

Geographic Segmentation

The following table shows turnover and operating profit in pounds sterling by geographical area and the percentage of each geographical area, for the following periods: 15 months ended December 31, 2003 including unaudited information for the three months ended December 31, 2002 and 12 months ended December 31, 2003, the years ended September 30, 2002 and 2001.

Amounts in accordance with UK GAAP

15 months ended December 31,	12 months ended December 31,	Three months ended December 31,	Year ended September 30					15 months ended December 31,	12 months ended December 31,	Three months ended December 31,	Year ended September 30
2003	2003	2002		2002	2001			2003	2003	2002		2002	2001

%							(£ million)
						Turnover by Geographical Area (1) (3)
61.2	58.7	68.7		68.9	60.7	United Kingdom		2,131	1,533	598		2,491	2,446
14.6	15.7	10.9		11.4	10.9	Rest of Europe, the Middle East and Africa		506	411	95		411	441
16.4	17.4	13.4		13.2	22.5	United States		571	454	117		476	908
3.6	3.8	3.1		3.0	3.4	Rest of Americas		127	100	27		108	137
4.2	4.4	3.9		3.5	2.5	Asia Pacific		148	114	34		129	101

100.0	100.0	100.0		100.0	100.0			3,483	2,612	871		3,615	4,033

						Operating Profit before Exceptional Items by Geographical Area (1) (2)
55.3	53.1	62.5		64.2	54.4	United Kingdom		267	197	70		397	431
7.9	8.1	7.1		9.7	14.6	Rest of Europe, the Middle East and Africa		38	30	8		60	116
25.7	28.8	15.2		18.5	24.0	United States		124	107	17		114	190
6.8	7.0	6.3		4.2	5.1	Rest of Americas		33	26	7		26	40
4.3	3.0	8.9		3.4	1.9	Asia Pacific		21	11	10		21	15

100.0	100.0	100.0		100.0	100.0			483	371	112		618	792

(1)	The results of overseas operations have been translated into sterling at weighted average rates of exchange for the period. In the case of the US dollar, the translation rates are fiscal 2003: £1=$1.62 (2002: £1=$1.48; 2001: £1=$1.44).

(2)

Operating profit before exceptional items does not include operating and non-operating exceptional items for all periods presented. Operating exceptional items by region are United Kingdom (2003: 15 months £17 million, 12 months £17 million, 3 months £nil million; 2002: £24 million; 2001: £19 million), Rest of Europe, the Middle East and Africa (2003: 15 months £24 million, 12 months £24 million, 3 months £nil million; 2002: £nil million; 2001: £nil million) the United States (2003: 15 months £9 million, 12 months £9 million, 3 months £nil million; 2002: £39 million; 2001: £24 million) and Asia Pacific (2003: 15 months £1 million, 12 months £1 million, 3 months £nil million; 2002: £14 million; 2001: £nil million).

(3)	Amounts are reported by origin. See Note 2 of Notes to the Financial Statements for details by destination, for which the amounts are not significantly different.

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Activity Segmentation

The following table shows turnover and operating profit in pounds sterling by activity and the percentage contribution of each activity for the following periods: 15 months ended December 31, 2003 (including unaudited information for the three months ended December 31, 2002 and 12 months ended December 31, 2003) and the year ended September 30, 2002. Segmental information has been restated for the year ended September 30, 2002 to reflect the new structure of the organization following the fundamental reorganization of the Hotels business (see “Organization Review” on page 29).

Amounts in accordance with UK GAAP

15 months ended December 31,		12 months ended December 31,		Three months ended December 31,		Year ended September 30,				15 months ended December 31,	12 months ended December 31,		Three months ended December 31,		Year ended September 30,
2003		2003		2002		2002				2003	2003		2002		2002

%								Turnover by Activity (1)	(£ million)

24.6		24.3		25.7		26.7		Americas		661	525		136		570
37.5		37.3		38.4		37.2		EMEA		1,010	807		203		794
5.5		5.3		6.4		6.0		Asia Pacific		148	114		34		128
1.9		1.9		1.9		1.9		Central (3)		51	41		10		40

69.5		68.8		72.4		71.8		Hotels		1,870	1,487		383		1,532
30.5		31.2		27.6		28.2		Soft Drinks		820	674		146		602

100.0		100.0		100.0		100.0		Continuing operations		2,690	2,161		529		2,134
								Discontinued operations		793	451		342		1,481

										3,483	2,612		871		3,615

								Operating Profit before Exceptional Items by Activity (1) (2)
56.3		56.3		56.6		52.6		Americas		195	161		34		173
32.9		32.2		36.7		38.0		EMEA		114	92		22		125
6.4		4.2		16.7		7.0		Asia Pacific		22	12		10		23
(23.1	)	(21.7	)	(30.0	)	(16.7	)	Central (3)		(80)	(62	)	(18	)	(55	)

72.5		71.0		80.0		80.9		Hotels		251	203		48		266
27.5		29.0		20.0		19.1		Soft Drinks		95	83		12		63

100.0		100.0		100.0		100.0		Continuing operations		346	286		60		329
								Discontinued operations		137	85		52		289

										483	371		112		618

(1)	The results of overseas operations have been translated into sterling at weighted average rates of exchange for the period. In the case of the US dollar, the translation rates are fiscal 2003: £1=$1.62 (2002: £1=$1.48).

(2)

Operating profit before exceptional items does not include operating and non-operating exceptional items for all periods presented. Operating exceptional items by business segment are the Americas (2003: 15 months £9 million, 12 months £9 million, 3 months £nil million; 2002: £39 million), EMEA (2003: 15 months £41 million, 12 months £41 million, 3 months £nil million; 2002: £24 million) and Asia Pacific (2003: 15 months £1 million, 12 months £1 million, 3 months £nil million; 2002: £14 million).

(3)	Central includes global functions that were centralized following the reorganization review. Costs are reduced by Holidex fee income.

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The following table shows turnover and operating profit in pounds sterling by activity and the percentage contribution of each activity for the year ended September 30, 2002 and the year ended September 30, 2001. As it has not been practicable to restate segmental information for the year ended September 30, 2001 to conform with the new presentation resulting from the new structure following the fundamental reorganization of the Hotels business, the 2002 financial information is presented on the same basis.

Amounts in accordance with UK GAAP


Year ended September 30			Year ended September 30

2002	2001			2002	2001

%		Turnover by Activity (1)		(£ million)
71.8	76.7	Hotels		1,532	1,896
28.2	23.1	Soft Drinks		602	571
—	0.2	Other (3)		—	6

100.0	100.0	Continuing operations		2,134	2,473
		Discontinued operations		1,483	1,567
		Less: Inter-divisional sales		2	7

				3,615	4,033

		Operating Profit before Exceptional Items by Activity (1) (2)
79.6	87.9	Hotels		262	427
19.2	11.7	Soft Drinks		63	57
1.2	0.4	Other (3)		4	2

100.0	100.0	Continuing operations		329	486
		Discontinued operations		289	306

				618	792

(1)	The results of overseas operations have been translated into sterling at weighted average rates of exchange for the year. In the case of the US dollar, the translation rates are fiscal 2002: £1=$1.48 (2001: £1=$1.44).

(2)

Operating profit before exceptional items does not include operating and non-operating exceptional items for all periods presented. Operating exceptional items by business segment are the Americas (2002: £39 million, 2001: £11 million), EMEA (2002: £24 million, 2001: £18 million), Asia Pacific (2002: £14 million, 2001: £nil million) and Other (2002: £nil million, 2001: £14 million).

(3)	Other includes central service costs, dividends received from FelCor Lodging Trust Inc., goodwill amortization, significant contract termination receipts, rebates and other non-trading items.

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HOTELS

Overview

InterContinental Hotels Group owns a portfolio of well-recognized and respected brands, including InterContinental, Crowne Plaza, Staybridge Suites, Holiday Inn and Express, with more than 3,500 owned, leased, managed and franchised hotels and approximately 535,000 guest rooms across nearly 100 countries and territories as at December 31, 2003. IHG believes its strong hotel brands, international scope and portfolio of high quality assets, built through organic growth and acquisition, place it in a strong competitive position.

History

The Group made its first significant international hotel acquisition when it acquired Holiday Inn International in 1988 and the remaining North American Business of Holiday Inn in 1990. This gave the Group the Holiday Inn and the Crowne Plaza by Holiday Inn brands. Subsequently, in 1990, the Group launched the limited service brand, Express.

In line with its strategy to optimize capital deployment, the Group disposed of its owned US midscale hotel property assets in 1997, but retained branding distribution on the majority of these properties through franchise agreements.

During 1997, the Group entered the US upscale extended stay segment with the introduction and development of Staybridge Suites by Holiday Inn. To expand further its international reach and its strong brand portfolio, the Group acquired the InterContinental hotels business in March 1998. This acquisition added 117 InterContinental and 20 Forum hotels to the portfolio. Following this acquisition, the Group had a portfolio of brands spanning the industry from upper upscale to midscale limited service across all regions.

In January 2000, the Group announced that it had purchased the business of the Australia-based hotel company, Southern Pacific Hotels Corporation (“SPHC”), which operated 59 hotels under the “Parkroyal” and “Centra” brands across Australia, New Zealand and the South Pacific as well as hotels in select South East Asian countries, for Australian $313 million. These hotels strengthened considerably the Group’s existing organically-built presence in the Asia Pacific region. A large proportion of these hotels were subsequently converted to the InterContinental, Crowne Plaza and Holiday Inn brands. Shortly afterwards, in April 2000, the Group acquired the outstanding 90.1% of the issued share capital which it did not already own of Bristol Hotels & Resorts Inc., a US based hotel management company comprising 112 hotels operating mainly under leases, for a total consideration of $157 million. These leases were then sold or converted to management contracts by July 2001.

In April 2001, the Group acquired the entire business of Posthouse for a consideration of £810 million. Posthouse consisted of 79 midscale hotels, 78 of which were in the United Kingdom and one in the Republic of Ireland, with 12,333 rooms, of which 77 hotels were owned or on long leases and two were management contracts. The Group then converted the majority of these hotels to the Holiday Inn brand, thereby enhancing the position of Holiday Inn in the United Kingdom, making it the number one midscale brand by number of rooms. This acquisition, combined with strong midscale segment positions in Germany and Italy, gave the Group a strong European base of operations.

In August 2001, the Group completed the acquisition, for a total consideration of £241 million, of the Regent Hotel in Hong Kong, which it subsequently rebranded “InterContinental Hong Kong”, strengthening its upper upscale hotel market position in the Asia Pacific region and adding a key location for its international guests.

In April 2003, the Group completed its Separation from the Retail business of Six Continents, creating a focused hotel company. The Separation also resulted in the creation of Mitchells & Butlers plc, a stand-alone operator of managed pubs, bars and restaurants. On Separation, the Group retained a controlling interest in Britannia Soft Drinks Limited, the holding company for the Britvic Group.

Developments

InterContinental Hotels. During 2003, 10 new InterContinental Hotels were added to the portfolio including Bangkok, Perth, and Warsaw. After dispositions there was no net change in the total number of InterContinental Hotels.

The Group expects to open an InterContinental in Buckhead (Atlanta) in late 2004 and Boston in 2006, along with other properties in Beijing, Cyprus and Seattle.

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The major refurbishment program at some of the leading InterContinental properties is now largely complete, with the reopening of the InterContinental Le Grand, Paris in April 2003. Since reopening, the hotel has encountered difficult market conditions due to the Iraq war, reduced US travel and a poorly attended airshow, all contributing to a slower than expected performance. As the global economy recovers, IHG expects the refurbished hotels to demonstrate the benefit of the capital invested.

Staybridge Suites. As of December 31, 2003, 71 hotels were open, including 23 opened in 2003, in addition to a further 22 franchise agreements and 15 management contracts which had been signed during the year. In July 2003, IHG entered into an arrangement with Hospitality Properties Trust (“HPT”), whereby 16 owned Staybridge suites were sold to HPT in conjunction with a management contract between HPT and IHG to keep the hotels in the IHG system. In September 2003, IHG announced the conversion by HPT of 14 Summerfield suites to Staybridge Suites under IHG management.

Holiday Inn. By December 31, 2003, 70 of the 79 original Posthouse hotels acquired in 2001 had been re-branded as IHG hotels, and 9 had been disposed of.

Candlewood Suites. On December 31, 2003, IHG acquired the Candlewood Suites brand and entered into a management contract with HPT to manage 76 Candlewood Suites properties. This adds 109 hotels and 12,569 rooms to the IHG portfolio in the United States in the midscale extended stay segment where IHG was previously unrepresented.

Crowne Plaza. On February 24, 2004, IHG sold its share of Midland Hotel and Conference Centre Limited (the holding company for the Crowne Plaza The Midland in Manchester) to Quintessential Hotels Limited.

Strategy

IHG Hotels’ strategy is to use the strength of its brands, the breadth of its hotel distribution, the diversity of its business models and the benefits of its scale to drive growth and returns for shareholders. Key to the implementation of this strategy are the following priorities:

•

the continued development of high quality, strongly differentiated and preferred brands;


	•	extending the network of hotels around the world that are attractive to international guests in the upscale and upper upscale brands and in the domestic markets for the midscale brands;


	•	using the Group’s scale to drive revenues and operating margins;


	•	enhancing returns from the asset base by redeploying capital over time; and


	•	investing and training staff to ensure that brands and service levels are maintained and enhanced.

Segmental Results

The following table shows turnover and operating profit in US dollars of the IHG Hotels business by activity and the percentage contribution of each activity for the following periods: 15 months ended December 31, 2003 (including unaudited information for the three months ended December 31, 2002 and 12 months ended December 31, 2003) and the year ended September 30, 2002. Segmental information has been restated for the year ended September 30, 2002 to reflect the new structure of the organization following the fundamental reorganization of the Hotels business.

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Amounts in accordance with UK GAAP


15 months ended December 31, 2003		12 months ended December 31, 2003		Three months ended December 31, 2002		Year ended September 30, 2002			15 months ended December 31, 2003		12 months ended December 31, 2003		Three months ended December 31, 2002		Year ended September 30, 2002

%									($ million)
								Turnover by Activity (1)
								Americas
20.2		19.9		21.2		20.5		Owned and leased	608		481		127		463
1.9		1.9		2.0		2.5		Managed	58		46		12		57
13.3		13.5		12.5		14.2		Franchised	402		327		75		322

35.4		35.3		35.7		37.2			1,068		854		214		842

								EMEA
49.9		50.2		48.6		48.1		Owned and leased	1,503		1,213		290		1,088
2.6		2.6		2.5		2.3		Managed	77		62		15		53
1.5		1.5		1.5		1.6		Franchised	46		37		9		36

54.0		54.3		52.6		52.0			1,626		1,312		314		1,177

								Asia Pacific
6.6		6.4		7.4		6.7		Owned and leased	198		154		44		152
1.1		1.1		1.3		1.3		Managed	34		26		8		29
0.2		0.2		0.3		0.2		Franchised	7		5		2		5

7.9		7.7		9.0		8.2			239		185		54		186

2.7		2.7		2.7		2.6		Central (3)	82		66		16		57

100.0		100.0		100.0		100.0			3,015		2,417		598		2,262

								Operating Profit before Exceptional Items by Activity (2)
								Americas
9.4		9.7		8.0		9.1		Owned and leased	38		32		6		36
2.2		2.1		2.7		3.8		Managed	9		7		2		15
84.4		84.5		84.0		66.5		Franchised	342		279		63		262
(18.3	)	(17.0	)	(24.0	)	(14.2	)	Regional overheads	(74	)	(56	)	(18	)	(56	)

77.7		79.3		70.7		65.2			315		262		53		257

								EMEA
38.5		37.9		41.3		46.7		Owned and leased	156		125		31		184
9.6		9.4		10.7		7.4		Managed	39		31		8		29
8.9		8.8		9.3		4.3		Franchised	36		29		7		17
(11.9	)	(10.9	)	(16.0	)	(10.9	)	Regional overheads	(48	)	(36	)	(12	)	(43	)

45.1		45.2		45.3		47.5			183		149		34		187

								Asia Pacific
6.7		5.5		12.0		6.1		Owned and leased	27		18		9		24
6.2		4.6		13.3		4.8		Managed	25		15		10		19
1.2		1.2		1.3		1.3		Franchised	5		4		1		5
(5.4	)	(5.5	)	(5.3	)	(4.1	)	Regional overheads	(22	)	(18	)	(4	)	(16	)

8.7		5.8		21.3		8.1			35		19		16		32

(31.5	)	(30.3	)	(37.3	)	(20.8	)	Central (3)	(128	)	(100	)	(28	)	(82	)

100.0		100.0		100.0		100.0			405		330		75		394

(1)	Amounts are reported by origin.

(2)	Operating profit before exceptional items excludes profits/(losses) on sale of fixed assets and operations and other exceptional items.

(3)	Central includes global functions that were centralized following the reorganization review. Costs are reduced by Holidex fee income.

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The following table shows turnover and operating profit in US dollars of the IHG Hotels business by activity and the percentage contribution of each activity for the year ended September 30, 2002 and the year ended September 30, 2001. As it has not been practicable to restate segmental information for the year ended September 30, 2001 to conform with the new presentation resulting from the new structure following the fundamental reorganization of the Hotels business, the 2002 financial information is presented on the same basis.

Amounts in accordance with UK GAAP


Year ended September 30					Year ended September 30
2002		2001				2002		2001

%					($ million)
				Turnover by Activity (1)
				Americas
20.6		19.6		Owned and leased		466		535
12.7		11.0		Managed and upscale franchised		288		301
4.8		24.5		Midscale franchised		108		666

38.1		55.1				862		1,502

				EMEA
48.1		35.9		Owned and leased		1,088		979
5.3		3.7		Managed and franchised		121		100

53.4		39.6				1,209		1,079

8.5		5.3		Asia Pacific		191		145

100.0		100.0				2,262		2,726

				Operating Profit before Exceptional Items by Activity (2)
				Americas
5.9		12.7		Owned and leased		23		78
51.7		7.0		Managed and upscale franchised		200		43
10.6		36.6		Midscale franchised		41		224

68.2		56.3				264		345

				EMEA
37.5		40.1		Owned and leased		145		246
10.1		7.2		Managed and franchised		39		44

47.6		47.3				184		290

9.3		4.2		Asia Pacific		36		26
(25.1	)	(7.8	)	Other (3)		(97	)	(48	)

100.0		100.0				387		613

(1)	Amounts are reported by origin.

(2)	Operating profit before exceptional items excludes profits/(losses) on sale of fixed assets and operations and other exceptional items.

(3)	Other includes central service costs, dividends received from FelCor Lodging Trust Inc., goodwill amortization, significant contract termination receipts, rebates and other non-trading items.

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Segmental Results

The following table shows turnover and operating profit in pounds sterling of the IHG Hotels business by activity and the percentage contribution of each activity for the following periods: 15 months ended December 31, 2003 (including unaudited information for the three months ended December 31, 2002 and 12 months ended December 31, 2003), and the year ended September 30, 2002. Segmental information has been restated for the year ended September 30, 2002 to reflect the new structure of the organization following the fundamental reorganization of the Hotels business (see “Organization Review” on page 29).

Amounts in accordance with UK GAAP

15 months ended December 31, 2003		12 months ended December 31, 2003		Three months ended December 31, 2002		Year ended September 30, 2002			15 months ended December 31, 2003		12 months ended December 31, 2003		Three months ended December 31, 2002		Year ended September 30, 2002

	%									(£ million)

								Turnover by Activity (1) (2)
								Americas
20.1		19.9		20.9		20.5		Owned and leased	376		296		80		314
1.9		1.9		2.1		2.5		Managed	36		28		8		38
13.3		13.5		12.5		14.2		Franchised	249		201		48		218

35.3		35.3		35.5		37.2			661		525		136		570

								EMEA
49.8		50.1		48.8		48.2		Owned and leased	933		746		187		736
2.6		2.6		2.6		2.3		Managed	48		38		10		36
1.6		1.5		1.6		1.4		Franchised	29		23		6		22

54.0		54.2		53.0		51.9			1,010		807		203		794

								Asia Pacific
6.6		6.4		7.3		6.7		Owned and leased	123		95		28		103
1.1		1.0		1.3		1.3		Managed	20		15		5		20
0.3		0.3		0.3		0.3		Franchised	5		4		1		5

8.0		7.7		8.9		8.3			148		114		34		128

2.7		2.8		2.6		2.6		Central (4)	51		41		10		40

100.0		100.0		100.0		100.0			1,870		1,487		383		1,532

								Operating Profit before Exceptional Items by Activity(1) (3)
								Americas
9.2		9.9		6.3		9.0		Owned and leased	23		20		3		24
2.0		2.0		2.1		3.8		Managed	5		4		1		10
84.8		84.5		85.4		66.6		Franchised	213		172		41		177
(18.3)		(17.2	)	(22.9	)	(14.3	)	Regional overheads	(46	)	(35	)	(11	)	(38	)

77.7		79.2		70.9		65.1			195		161		34		173

								EMEA
38.6		37.9		41.7		46.6		Owned and leased	97		77		20		124
9.6		9.4		10.4		7.5		Managed	24		19		5		20
9.2		8.9		10.4		4.1		Franchised	23		18		5		11
(12.0)		(10.8	)	(16.7	)	(11.3	)	Regional overheads	(30	)	(22	)	(8	)	(30	)

45.4		45.4		45.8		46.9			114		92		22		125

								Asia Pacific
7.2		5.4		14.6		5.6		Owned and leased	18		11		7		15
5.6		3.9		12.5		5.3		Managed	14		8		6		14
1.6		2.0		—		1.9		Franchised	4		4		—		5
(5.6)		(5.4	)	(6.3	)	(4.1	)	Regional overheads	(14	)	(11	)	(3	)	(11	)

8.8		5.9		20.8		8.7			22		12		10		23

(31.9)		(30.5	)	(37.5	)	(20.7	)	Central (4)	(80	)	(62	)	(18	)	(55	)

100.0		100.0		100.0		100.0			251		203		48		266

Footnotes on the following page.

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(1)	The results of overseas operations have been translated into sterling at weighted average rates of exchange for the year. In the case of the US dollar, the translation rates are fiscal 2003: £1=$1.62 (2002: £1=$1.48).

(2)	Amounts are reported by origin.

(3)	Operating profit before exceptional items excludes profits/(losses) on sale of fixed assets and operations and other exceptional items.

(4)	Central includes global functions that were centralized following the reorganization review. Costs are reduced by Holidex fee income.

The following table shows turnover and operating profit for the IHG Hotels business in pounds sterling by activity and the percentage contribution of each activity for the year ended September 30, 2002 and the year ended September 30, 2001. As it has not been practicable to restate segmental information for the year ended September 30, 2001 to conform with the new presentation resulting from the new structure following the fundamental reorganization of the Hotels business, the 2002 financial information is presented on the same basis.

Amounts in accordance with UK GAAP


Year ended September 30					Year ended September 30
2002		2001				2002		2001

	%				(£ million)
				Turnover by Activity (1) (2)
				Americas
20.6		19.6		Owned and leased		316		372
12.7		24.5		Managed and upscale franchised		195		464
4.8		11.0		Midscale franchised		73		209

38.1		55.1				584		1,045
				EMEA
48.1		35.9		Owned and leased		737		680
5.4		3.7		Managed and franchised		82		70

53.5		39.6				819		750
8.4		5.3		Asia Pacific		129		101

100.0		100.0				1,532		1,896

				Operating Profit before Exceptional Items by Activity (1) (3)
				Americas
5.7		12.6		Owned and leased		15		54
10.7		7.0		Managed and upscale franchised		28		30
51.5		36.6		Midscale franchised		135		156

67.9		56.2				178		240
				EMEA
37.4		40.0		Owned and leased		98		171
10.3		7.3		Managed and franchised		27		31

47.7		47.3				125		202
9.2		4.2		Asia Pacific		24		18
(24.8)		(7.7	)	Other (4)		(65	)	(33	)

100.0		100.0				262		427

(1)	The results of overseas operations have been translated into sterling at weighted average rates of exchange for the year. In the case of the US dollar, the translation rates are fiscal 2002: £1=$1.48 (2001: £1=$1.44).

(2)	Amounts are reported by origin.

(3)	Operating profit before exceptional items excludes profits/(losses) on sale of fixed assets and operations and other exceptional items.

(4)	Other includes central service costs, dividends received from FelCor Lodging Trust Inc., goodwill amortization, significant contract termination receipts, rebates and other non-trading items.

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Operations


	Ownership/Management Model

Hotels operates through four different business models to ensure a balance of growth, returns, risk and reward. Profits are broadly balanced between owned hotels, which have an opportunity for greater profits but are subject to greater volatility, and managed/franchised hotels, which have more stable income streams. The four models are:

•	owned or leased (“O & L”), where a Group company both owns (or leases) and operates a hotel and, in the case of ownership, takes all the benefits and risks of ownership. Rooms owned or leased by IHG Hotels totaled 39,459 as at December 31, 2003, together representing 7% of its hotel rooms;

•

management contract, where IHG Hotels manages the hotel for third-party owners under an IHG brand in return for a management fee and provides the system infrastructure necessary for the hotel to operate. Management contract fees are usually linked to a hotel’s revenues and often include an additional incentive fee, linked to profitability or cash flow. IHG Hotels operated 103,440 rooms under management contracts at December 31, 2003, representing 19% of its hotel rooms;


•	joint venture, where a Group company directly or indirectly holds an equity interest in the hotel and receives a share of the benefits and risks of ownership in proportion to its stake. A management contract is generally entered into in conjunction with the joint venture; and

•

franchise, where IHG Hotels neither own nor manage the hotel, but provide the use of the brand, systems and expertise. IHG Hotels derives revenues from a royalty or licensing fee payable by the franchisee for the right to operate under an IHG brand. This fee is often based on a percentage of room revenue. IHG Hotels operated 393,419 rooms under a franchise agreement as at December 31, 2003 with 84% of rooms in North and South America operating under this model. As at December 31, 2003, franchised hotels represented 74% of IHG’s total rooms.

The following table shows the number of hotels and rooms owned, operated or franchised by IHG at December 31, 2003, September 30, 2002 and September 30, 2001.

	Owned or Leased			Management Contracts and Joint Ventures			Franchised			Total
		No. of Hotels	No. of Rooms		No. of Hotels	No. of Rooms		No. of Hotels	No. of Rooms		No. of Hotels	No. of Rooms

2003		171	39,459		423	103,440		2,926	393,419		3,520	536,318
2002		190	42,642		314	86,761		2,821	386,122		3,325	515,525
2001		191	42,531		318	85,893		2,758	386,272		3,267	514,696

The Group sets quality and service standards for all of its hotel brands (including those operated under management contract or franchise arrangements) and operates a customer satisfaction and hotel quality measurement system to ensure those standards are met or exceeded. The quality measurement system includes an assessment of both physical property and customer service standards. In 2003 IHG relaunched the customer satisfaction tracking element of this assessment to better enable the company to respond to customer needs.

Global System

The Group uses a global system for reservations, IT, internet and its loyalty scheme (Priority Club Rewards). Across all its brands, the Group’s objective is to further exploit the scale and strength of its global system to drive revenue and operating efficiencies. The elements of the global system include:

Priority Club Rewards: This is one of the largest loyalty programs in the hotel industry, with approximately 19.2 million members, an increase in 2003 of more than 23%. It has alliances with 45 airlines which enable members to collect frequent flyer miles. IHG also has alliances with external partners such as car hire companies and credit card companies, which provide exposure and access to IHG’s system.

Central Reservation System: The Group operates the HolidexPlus and Holidex central reservation systems. The HolidexPlus and Holidex systems receive reservation requests entered on terminals located at most of its reservation centers, as well as from global distribution systems operated by a number of major corporations and travel agents. Where local hotel systems allow, the HolidexPlus and the Holidex systems immediately confirm reservations or indicate alternative accommodation available within IHG’s network. Confirmations are transmitted electronically to the hotel for which the reservation is made. By December 2003, all but 19 of the 3,520 IHG hotels had been upgraded to the HolidexPlus system.

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The Group estimates that, during 2003, these reservation systems (which include company reservation centers, global distribution systems and internet reservations) delivered around 29% of the Group’s global hotel room nights sold.

Internet: The Group introduced electronic hotel reservations in 1995. The Internet continues to be an important communications and distribution channel for the Group’s sales. During fiscal 2003, 7.5 million room nights, representing $710 million of revenue, were booked via the various Company branded websites, such as www.intercontinental.com and www.holiday-inn.com. The “Lowest Internet Rate Guarantee” program promises customers that if they find a better rate on the Internet than on the Group’s sites, the Group will honor the lower rate, plus a further 10% reduction on that rate.

Over 70% of room nights at the Group’s hotels that are booked on the web are now booked directly through the Group’s own brand sites.

Sales and Marketing

IHG targets its sales and marketing expenditure in each region on driving revenue and brand awareness or, in the case of sales investments, targeting segments such as corporate accounts, travel agencies and meeting organizers. The majority of IHG’s sales and marketing expenditure is funded by contractual fees paid by most hotels in the system.

The strategic goals for the global system as a whole include:

•	adding further locations and improving guest satisfaction for its brands;


•	continuing the focus on enrolments in Priority Club Rewards and increasing share of the total hotel spend to establish Priority Club Rewards as the number one program in the industry;


•	making the direct channels the best available; and


•	improving pricing structure.

Organization Review

Following the announcement in October 2002 of the Separation, the Group’s management initiated action in four key areas to improve operating performance of IHG Hotels:

•

redesigning the organization to align it with the strategic priorities and speed up decision making;


	•	changing the management team to ensure the right people are in the right jobs;


	•	reducing the cost base through eliminating unnecessary work and streamlining processes; and


	•	optimizing capital deployment through a rigorous hotel by hotel review to determine appropriate levels of ownership and capital expenditure.

As a result of actions the Group has taken, it achieved the following in 2003:

•

a new executive team, including well-respected hotel operators, was appointed and a new organization design was agreed comprising the following key business units:


		•	Global Brand Services (“GBS”), managing the global systems, reservations and loyalty club for the Group;


		•	Finance and Asset Management (“FAM”) managing the capital allocation, financial standards and reporting for the Group;


		•	Central Shared Services (“CSS”), operating many of the global transactional processes across Finance, HR and IT;


		•	three operating regions, namely EMEA, Americas and Asia Pacific, each headed by a seasoned hotel professional with at least 20 years industry experience each;


		•	Corporate Services, with responsibility for Corporate Governance, Risk Management, Risk Insurance, Internal Audit, Data Privacy, Intellectual Property, Group Legal and Company Secretariat; and


		•	Global HR, managing the talent in IHG around the world.

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Brands

Brands Overview

	December 31, 2003
Brands		Room Numbers	Hotels

InterContinental		45,046	135
Crowne Plaza		58,482	202
Holiday Inn		287,769	1,529
Express		120,298	1,455
Staybridge Suites		8,221	71
Candlewood Suites		12,569	109
Other		3,933	19

Total		536,318	3,520

InterContinental

	Americas Total	Americas O & L	EMEA Total	EMEA O & L	Asia Pacific

Average Room Rate $ (1)	129.87	161.92	131.80	162.41	124.46
Room Numbers (2)	15,074	4,421	20,842	4,779	9,130

(1)	For the 12-month period ended December 31, 2003

(2)	As at December 31, 2003

InterContinental is IHG’s global upper upscale hotel brand. The hotels are targeted at both business and leisure guests. InterContinental hotels are generally situated in prime locations in major cities and key resorts around the world and provide high quality amenities, generally reflecting the local culture. There were 135 InterContinental hotels in more than 60 countries which represented 8% of all of IHG hotel rooms as at December 31, 2003.

InterContinental hotels are principally owned, leased or managed by IHG Hotels. The brand is one of the top international upper upscale hotel brands based on room numbers and has more than 50 years of heritage in the segment. IHG’s competition includes international luxury chains (for example Four Seasons and Ritz Carlton) and upper upscale chains (for example, Marriott, Hilton, Hyatt and Westin).

Crowne Plaza

	Americas Total	Americas O & L	EMEA Total	EMEA O & L	Asia Pacific

Average Room Rate $ (1)	94.17	102.28	102.37	101.28	70.76
Room Numbers (2)	31,235	2,288	15,689	4,182	11,558

(1)	For the 12-month period ended December 31, 2003

(2)	As at December 31, 2003

Crowne Plaza is IHG’s global upscale hotel brand which has been developed as a stand-alone brand since acquisition of the Holiday Inn business and has grown to 202 hotels worldwide. The brand is targeted at the business guest, with a particular focus on meetings and related services. The upscale Crowne Plaza hotels and resorts are predominantly located in major and secondary cities and resorts around the world, typically in significant business centers, and provide the high level of comfort, amenities, services, facilities and meeting space expected of a full service hotel. Crowne Plaza represented 11% of IHG Hotels’ hotel rooms as at December 31, 2003.

The majority of the upscale Crowne Plaza hotels and resorts are franchised hotels. As at December 31, 2003, 53% of Crowne Plaza brand properties were in the Americas. The key competitors in this segment include Sheraton, Marriott, Hilton, Double-Tree, Wyndham and Radisson.

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Holiday Inn


	Americas Total	Americas O&L	EMEA Total	EMEA O&L	Asia Pacific

Average Room Rate $ (1)	78.01	74.04	75.21	89.11	55.32
Room Numbers (2)	213,389	2,665	54,997	15,782	19,383

(1)	For the 12-month period ended December 31, 2003

(2)	As at December 31, 2003

Holiday Inn is IHG’s midscale full service brand. Holiday Inn International was acquired in 1988 with the remaining North American business of Holiday Inn being acquired in 1990. In the last ten years, the brand has grown in EMEA and Asia Pacific, while its number of hotels has declined in the Americas. This decline has been more than offset by the growth in Express. The brand is targeted at the mid-market guest and is IHG Hotels’ largest global hotel brand based on room numbers. Holiday Inn is also one of the world’s most recognized hotel brands. IHG seeks to offer, through its Holiday Inn brand, good value for money with appropriate standards of products and services.

There were 1,529 Holiday Inn hotels located in more than 70 countries which represented 54% of all IHG’s hotel rooms as at December 31, 2003. The brand is predominantly franchised. As at December 31, 2003, 73% of the Holiday Inn branded hotels were located in the Americas.

Express

	Americas Total	EMEA Total	EMEA O&L	Asia Pacific

Average Room Rate $ (1)	72.83	74.96	57.98	54.32
Room Numbers (2)	106,796	13,270	995	232

(1)	For the 12-month period ended December 31, 2003

(2)	As at December 31, 2003

Express is IHG’s midscale limited service hotel brand. IHG recognized the need for a brand in this category in the early 1990s and subsequently developed Express to further the reach of the Holiday Inn brand and enter the midscale limited service segment. The brand has grown rapidly and aims to provide the room quality of midscale hotels without the associated full range of facilities. The brand is targeted at the value-conscious guest, as best evidenced by the “Stay Smart” marketing campaign in the United States.

There were 1,455 Express hotels worldwide, which represented 22% of IHG’s hotel rooms as at December 31, 2003. Express is the third largest brand in the US midscale limited service segment based on room numbers, and 89% of the Express branded rooms are located in the Americas. Express hotels are almost entirely franchised. The brand enjoys a RevPAR premium to many of its competitors in the United States. Express also has a solid and growing brand presence in the UK market where it faces competition from a variety of local market brands and independent hotels.

Staybridge Suites

	Americas Total	Americas O & L

Average Room Rate $ (1)	83.96	83.43
Room Numbers (2)	8,221	496

(1)	For the 12-month period ended December 31, 2003

(2)	As at December 31, 2003

Staybridge Suites is IHG’s organically developed upscale extended stay brand and offers self-catering services and amenities designed specifically for those on extended travel. The rooms provide more space than the typical hotel room, offering studios and one and two bedroom suites, with cooking and other facilities available in each room/suite. As at December 31, 2003, there were 71 Staybridge Suites hotels, all of which are located in the Americas, which represented 2% of all IHG’s hotel rooms. The first Staybridge Suites hotel was opened in 1998, with the fiftieth Staybridge Suites hotel following in November 2002, thereby demonstrating the fastest roll out of

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50 properties in its segment. In July 2003, the Group sold 16 Staybridge Suites hotels in the United States to HPT for $185 million. These hotels will, however, continue to operate within the Staybridge Suites brand as a result of the Group having entered into a management agreement relating to these hotels with HPT for a period of 20 years, with options to extend. In September 2003, HPT converted 14 other suite hotels to the Staybridge Suites brand, under IHG management. Staybridge Suites brands are divided broadly between franchised and managed models. The primary competitors include Residence Inn, Homewood, Summerfield and Hawthorne.

Candlewood Suites (1)

			Total

Average Room Rate $ (2)			56.71
Room Numbers (3)			12,569

(1)	No operations of the Candlewood brand have been included in the 2003 Consolidated Financial Statements.

(2)	For the 12-month period ended December 31, 2003

(3)	As at December 31, 2003

The Candlewood Suites brand was acquired on December 31, 2003. This brand’s positioning in the midscale extended stay segment will complement Staybridge Suites’ upscale positioning. Candlewood Suites is an established brand of purpose built hotels with 109 properties on average of less than five years old. The major owner of Candlewood Suites properties is HPT, who owned 64 at the time of announcement and who, in a related transaction, purchased an additional 12 properties. IHG will manage all 76 of HPT’s properties under 20 year agreements, with options to extend.

Geographical Analysis

While IHG’s brands are in the main recognized globally, operational management is divided into three main geographic regions – North and South America (“Americas”), Europe, the Middle East and Africa (“EMEA”) and Asia and countries in the Pacific region (“Asia Pacific”). With its worldwide hotels operations and multiple ownership models, IHG is less dependent on the business cycle of any one country or region, although the US market is predominant. The following table shows information concerning the geographical locations of IHG’s hotels as at December 31, 2003.

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	Owned or Leased		Management Contracts and Joint Ventures		Franchised		Total
As at December 31, 2003	No. of Hotels	No. of Rooms	No. of Hotels	No. of Rooms	No. of Hotels	No. of Rooms	No. of Hotels	No. of Rooms

United States
InterContinental	7	3,451	5	1,812	1	150	13	5,413
Crowne Plaza	5	1,995	21	7,351	61	16,523	87	25,869
Holiday Inn	6	1,541	59	18,080	916	172,627	981	192,248
Holiday Inn Express	—	—	4	657	1,261	100,093	1,265	100,750
Staybridge Suites	3	376	31	3,808	35	3,714	69	7,898
Candlewood Suites	—	—	76	9,219	33	3,350	109	12,569
Other brands	—	—	6	1,221	—	—	6	1,221

Total	21	7,363	202	42,148	2,307	296,457	2,530	345,968

Rest of Americas
InterContinental	3	970	12	3,699	18	4,992	33	9,661
Crowne Plaza	1	293	1	217	17	4,856	19	5,366
Holiday Inn	2	1,124	6	1,444	120	18,573	128	21,141
Holiday Inn Express	—	—	—	—	56	6,046	56	6,046
Staybridge Suites	1	120	1	203	—	—	2	323
Candlewood Suites	—	—	—	—	—	—	—	—
Other brands	—	—	—	—	—	—	—	—

Total	7	2,507	20	5,563	211	34,467	238	42,537

Total Americas
InterContinental	10	4,421	17	5,511	19	5,142	46	15,074
Crowne Plaza	6	2,288	22	7,568	78	21,379	106	31,235
Holiday Inn	8	2,665	65	19,524	1,036	191,200	1,109	213,389
Holiday Inn Express	—	—	4	657	1,317	106,139	1,321	106,796
Staybridge Suites	4	496	32	4,011	35	3,714	71	8,221
Candlewood Suites	—	—	76	9,219	33	3,350	109	12,569
Other brands	—	—	6	1,221	—	—	6	1,221

Total	28	9,870	222	47,711	2,518	330,924	2,768	388,505

United Kingdom
InterContinental	2	653	1	445	—	—	3	1,098
Crowne Plaza	6	1,716	2	399	3	764	11	2,879
Holiday Inn	76	12,736	3	431	22	3,092	101	16,259
Holiday Inn Express	1	120	—	—	88	8,697	89	8,817
Staybridge Suites	—	—	—	—	—	—	—	—
Candlewood Suites	—	—	—	—	—	—	—	—
Other brands	—	—	—	—	—	—	—	—

Total	85	15,225	6	1,275	113	12,553	204	29,053

Europe
InterContinental	10	3,741	11	4,329	3	1,167	24	9,237
Crowne Plaza	10	2,466	6	1,665	18	3,883	34	8,014
Holiday Inn	15	3,046	10	1,978	157	21,876	182	26,900
Holiday Inn Express	7	875	6	625	24	2,134	37	3,634
Staybridge Suites	—	—	—	—	—	—	—	—
Candlewood Suites	—	—	—	—	—	—	—	—
Other brands	1	580	—	—	2	430	3	1,010

Total	43	10,708	33	8,597	204	29,490	280	48,795

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	Owned or Leased		Management Contracts and Joint Ventures		Franchised		Total
As at December 31, 2003	No. of Hotels	No. of Rooms	No. of Hotels	No. of Rooms	No. of Hotels	No. of Rooms	No. of Hotels	No. of Rooms

InterContinental	1	385	31	8,898	4	1,224	36	10,507
Crowne Plaza	—	—