SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 20-F
   
(Mark One)  
o REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)
OF THE SECURITIES EXCHANGE ACT OF 1934
or
þor
þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
  For the fiscal year ended December 31, 2006
or
2007
oor
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission filenumber: 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 1113329/747 pence 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
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 113/7
Ordinary Shares of 1329/47 pence each                              356,116,049
294,623,308
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act:  Yes þ     No o
 
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934:  Yes o     No þ
 
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 þ     No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” inRule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þAccelerated filer oNon-accelerated filer o
 
     Large accelerated filer  þ          Accelerated filer  o          Non-accelerated filer  o
Indicate by check mark which financial statement item the registrant has elected to follow:
Item 17o     Item 18  þ
 
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act):
Yes          o                No          þ
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
 
US GAAP o
International Reporting Standards as issued by  
the International Standards Accounting Board		Other  o
 

TABLE OF CONTENTS
       
    Page
Introduction
4
Cautionary Note Regarding Forward-Looking Statements
5
     
Introduction4 
 Cautionary Note Regarding Forward-Looking Statements5
PART I
Item 1.
  Identity of Directors, Senior Management and Advisors 7
Item 2.
  Offer Statistics and Expected Timetable 7
Item 3.
  Key Information 7
   Selected Consolidated Financial Information 7
   Risk Factors 1311
Item 4.
  Information on the Company 1614
   Summary 1614
   Segmental Information 2018
   Hotels 2422
   Soft Drinks 4539
   Trademarks 4539
   Organizational Structure 4539
   Property, Plant and Equipment 4539
   Environment 4640
Item 4A.
  Unresolved Staff Comments 4741
Item 5.
  Operating and Financial Review and Prospects 4741
   IntroductionCritical Accounting Policies 4741
   Critical Accounting Policies Under International Financial Reporting Standards (“IFRS”) and US GAAPOperating Results 4743
   Operating Results 50
Liquidity and Capital Resources 6051
Item 6.
  Directors, Senior Management and Employees 6254
   Directors and Senior Management 6254
   Compensation 6557
   Board Practices 6758
   Employees 6961
   Share Ownership 7162
Item 7.
  Major Shareholders and Related Party Transactions 7163
   Major Shareholders 7163
   Related Party Transactions 7263
Item 8.
  Financial Information 7263
   Consolidated Statements and Other Financial Information 7263
   Significant Changes 7264
Item 9.
  The Offer and Listing 7264
   Plan of Distribution 7465
   Selling Shareholders 7465
   Dilution 7465
   Expenses of the Issue 7465


2

2

       
    Page
Item 10.
Additional Information65
    
Item 10.Additional Information74
Memorandum and Articles of Association 7465
   Material Contracts 7768
   Exchange Controls 7970
   Taxation 7970
   Documents on Display 8374
Item 11.
  Quantitative and Qualitative Disclosures About Market Risk 8374
Item 12.
  Description of Securities Other Than Equity Securities 76
 85 
 
PART II
Item 13.
  Defaults, Dividend Arrearages and Delinquencies 8576
Item 14.
  Material Modifications to the Rights of Security Holders and Use of Proceeds 8576
Item 15.
  Controls and Procedures 8576
Item 16.
  [Reserved] 8677
Item 16A.
  Audit Committee Financial Expert 8677
Item 16B.
  Code of Ethics 8677
Item 16C.
  Principal Accountant Fees and Services 8677
Item 16D.
  Exemptions from the Listing Standards for Audit Committees 8778
Item 16E.
  Purchases of Equity Securities by the Issuer and Affiliated Purchasers 78
 87 
 
PART III
Item 17.
  Financial Statements 8778
Item 18.
  Financial Statements 8879
Item 19.
  Exhibits 8879


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3

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 InterContinental Hotels Limited or Six Continents Limited;
 
 • “Britvic” refers to Britannia Soft Drinks Limited for the period up to November 18, 2005, and thereafter, Britannia SD Holdings Limited (renamed Britvic plc on November 21, 2005) which became the holding company of the Britvic Group on November 18, 2005;
 
 • “Britvic Group” refers to Britvic and its subsidiaries from time to time;
 
 • “Company” refers to InterContinental Hotels Group PLC, InterContinental Hotels Limited or Six Continents Limited or their respective board of directors as the context requires;
 
 • “Group” refers to InterContinental Hotels Group PLC and its subsidiaries or, where appropriate, InterContinental Hotels Limited or Six Continents Limited and their subsidiaries as the context requires;
 
 • “Hotels” or “IHG Hotels” refers to the hotels business of the Group;
 
 • “IHG” refers to InterContinental Hotels Group PLC or, where appropriate, its board of directors;
 
 • “IHL” refers to InterContinental Hotels Limited, previously InterContinental Hotels Group PLC, former parent company of the Group and re-registered as a private limited company on June 27, 2005;
 
 • “MAB” or “Mitchells and Butlers” refers to Mitchells & Butlers plc;
• “ordinary share” or “share” refers, before April 14, 2003, to the ordinary shares of 28 pence each in Six Continents Limited; following that date and until December 10, 2004 to the ordinary shares of £1 each in IHL; following that date and until June 27, 2005 to the ordinary shares of 112 pence each in IHL; following that date and until June 12, 2006 to the ordinary shares of 10 pence each in IHG; and following that date until June 12, 20064, 2007 to the ordinary shares of 113/7 pence each in IHG; and following June 4, 2007 to the ordinary shares of 1329/47 pence each in IHG;
 
 • “Six Continents” refers to Six Continents Limited; previously Six Continents PLC and re-registered as a private limited company on June 6, 2005;
 
 • “Soft Drinks” and “Britvic business” refer to the soft drinks business of InterContinental Hotels Group PLC, which the Company had through its controlling interest in Britvic and which the Company disposed of by way of an initial public offering effective December 14, 2005; and
 
 • “VAT” refers to UK value added tax levied by HM Revenue and Customs 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, references to “pounds sterling”, “sterling”, “£”, “pence” or “p” are to UK currency and references to “A$” are to Australian (“A”) currency. Solely for convenience, this Annual Report onForm 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 = $1.96,$2.01, 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, 2006.2007. On March 16, 200714, 2008 the Noon Buying Rate was

4

£1.00 £1.00 = $1.94.$2.03. For information regarding rates of exchange between pounds sterling and US dollars from fiscal 20022003 to the present, see “Item 3. Key Information — Exchange Rates”.
 
The Company’s fiscal year ends on December 31. 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


4

on a December 31 fiscal year end basis, as the Group believes this facilitates 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 year ended December 31, 20062007 are shown as 20062007 and references to the year ended December 31, 20052006 are shown as 2005,2006, unless otherwise specified, references to the fiscal period ended December 31, 2004, are shown as 2004 and references to other fiscal years are shown in a similar manner.
 
The Company’s Consolidated Financial Statements are prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and in accordance with IFRS as adopted by the European Union (“EU”) which differ. IFRS as adopted by the EU differs in certain respects from IFRS as issued by the accounting principles generally accepted inIASB, however, the United States (“US GAAP”). The significant differences applicable tohave no impact on the Group are explained in Note 32 of Notes toCompany’s Consolidated Financial Statements for the Financial Statements.years presented.
 
IHG believes that the reporting of profit and earnings measures before other operating income and expensesexceptional 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 other operating income and expenses.exceptional items. Throughout this document earnings per share is also calculated excluding the effect of all otherexceptional operating income and expenses, specialitems, exceptional interest, specialexceptional tax and gain on disposal of assets and is referred to as adjusted earnings per share.
 
The Company furnishes JP Morgan Chase Bank, N.A., 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 IFRS. 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 registered holders of ADRs and mails to all registered holders of ADRs notices of shareholders’ meetings received by the Depositary. During 2006,2007, the Company reported interim financial information at June 30, 20062007 in accordance with the Listing Rules of the UK Listing Authority. In addition, it provided quarterly financial information at March 31, 20062007 and at September 30, 20062007 and intends to continue to provide quarterly financial information during fiscal 2007.2008. The Financial Statements may be found on the Company’s website at www.ihg.com.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
ThisForm 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 InterContinental Hotels Group and certain 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 words such as “anticipate”, “target”, “expect”, “estimate”, “intend”, “plan”, “goal”, “believe”, or other words of similar meaning. These statements are based on assumptions and assessments made by InterContinental Hotels Group’s management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate.
 
Such statements in theForm 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 13.11.


5

5

By their nature, forward-looking statements are inherently predictive, speculative and involve risk and uncertainty. There are a number of factors that could cause actual results and developments to differ materially from those expressed in, or implied by, such forward-looking statements, including, but not limited to: the risks involved with the Group’s reliance on the reputation of its brands and protection of its intellectual property rights; the risks relating to identifying, securing and retaining management and franchise agreements; the effect of political and economic developments; the ability to recruit and retain key personnel; events that adversely impact domestic or international travel, including terrorist incidents and epidemics such as Severe Acute Respiratory Syndrome (“SARS”);incidents; the risks involved in the Group’s reliance upon its proprietary reservation system and increased competition from third-party intermediaries who providein reservation infrastructure; the risks involved with the Group’s reliance on technologies and systems; the future balance betweenrisks of the hotel industry supply and demand forcycle; the Group’s hotels; thepossible lack of selected development opportunities; risks related to corporate responsibility; the risk of litigation; the risks associated with the Group’s ability to maintain adequate insurance; the Group’s ability to borrow and satisfy debt covenants; compliance with data privacy regulations; and the risks associated with funding the defined benefits under its pension plans.


6

6

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 years ended December 31, 2007, 2006, 2005 and 2004 has been prepared in lineaccordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and in accordance with IFRS as adopted inby the European Union (“EU”), which is consistent with IFRS, and is derived from the Consolidated Financial Statements of the Group which have been audited by its independent registered public accounting firm, Ernst & Young LLP. There isIFRS as adopted by the EU differs in certain respects from IFRS as issued by the IASB, however, the differences have no available comparative dataimpact on the Company’s Consolidated Financial Statements for the years ended prior to December 31, 2004 as consolidated financial data was then prepared in accordance with accounting principles generally accepted in the United Kingdom (“UK GAAP”).presented. The selected consolidated financial data set forth below should be read in conjunction with, and is qualified in its entirety by reference to, the Consolidated Financial Statements and Notes thereto included elsewhere in this Annual Report.


7

7

Consolidated Income Statement Data
Consolidated Profit and Loss Account Data
                  
  Years ended December 31,
   
  2006(2) 2006 2005(1) 2004(1)
         
  $ £ £ £
  (in millions, except per share and ADS amounts)
Amounts in accordance with IFRS
                
Revenue:                
 Continuing operations  1,480   805   713   606 
 Discontinued operations  285   155   1,197   1,598 
             
   1,765   960   1,910   2,204 
             
Total operating profit before other operating income and expenses:                
 Continuing operations  369   201   173   120 
 Discontinued operations  55   30   166   226 
             
   424   231   339   346 
             
Other operating income and expenses:                
 Continuing operations  50   27   (22)  (49)
             
   50   27   (22)  (49)
��            
Total operating profit:                
 Continuing operations  419   228   151   71 
 Discontinued operations  55   30   166   226 
             
   474   258   317   297 
             
Financial income  48   26   30   70 
Financial expenses  (68)  (37)  (63)  (103)
             
Profit before tax  454   247   284   264 
Tax  75   41   (80)  127 
             
Profit after tax  529   288   204   391 
Gain on disposal of assets, net of tax  215   117   311   19 
             
Profit available for shareholders  744   405   515   410 
             
Attributable to:                
 Equity holders of the parent  744   405   496   383 
 Minority equity interest  —   —   19   27 
             
Profit for the year  744   405   515   410 
             
Earnings per ordinary share:                
 Basic  191.9p   104.1p   95.2p   53.9p 
 Diluted  186.9p   101.5p   93.1p   53.3p 
             
                     
  Years ended December 31, 
  2007(1)  2007  2006  2005(2)  2004(2) 
  $  £  £  £  £ 
  (in millions, except per share and ADS amounts) 
 
Revenue:                    
Continuing operations  1,771   883   786   697   607 
Discontinued operations  79   40   174   1,213   1,597 
                     
   1,850   923   960   1,910   2,204 
                     
Total operating profit before exceptional operating items:                    
Continuing operations  474   237   200   175   125 
Discontinued operations  17   8   31   164   221 
                     
   491   245   231   339   346 
                     
Exceptional operating items:                    
Continuing operations  60   30   27   (15)  (24)
Discontinued operations  —   —   —   (7)  (25)
                     
   60   30   27   (22)  (49)
                     
Total operating profit:                    
Continuing operations  534   267   227   160   101 
Discontinued operations  17   8   31   157   196 
                     
   551   275   258   317   297 
                     
Financial income  18   9   26   30   70 
Financial expenses  (108)  (54)  (37)  (63)  (103)
                     
Profit before tax  461   230   247   284   264 
                     
Tax:                    
On profit before exceptional items  (90)  (45)  (53)  (88)  (56)
On exceptional items  —   —   (6)  —   22 
Exceptional tax  60   30   100   8   161 
                     
   (30)  (15)  41   (80)  127 
                     
Profit after tax  431   215   288   204   391 
Gain on disposal of assets, net of tax  32   16   117   311  ��19 
                     
Profit for the year  463   231   405   515   410 
                     
Attributable to:                    
Equity holders of the parent  463   231   405   496   383 
Minority equity interest  —   —   —   19   27 
                     
Profit for the year  463   231   405   515   410 
                     
Earnings per ordinary share:                    
Continuing operations:                    
Basic  131.3¢   65.6p   69.1p   21.9p   36.3p 
Diluted  127.7¢   63.8p   67.4p   21.4p   35.9p 
                     
Total operations:                    
Basic  144.7¢   72.2p   104.1p   95.2p   53.9p 
Diluted  140.7¢   70.2p   101.5p   93.1p   53.3p 
                     
Footnotes on page 10.9.


8

8

                                   
          Three months 12 months 15 months  
    ended ended ended Year ended
  Year ended December 31, December 31, December 31, December 31, September 30,
           
  2006(2) 2006 2005(1) 2004(1) 2002 2003 2003(1) 2002(1)
                 
    £ £ £ £ £ £ £
  $  
    (in millions, except per share and ADS amounts)
Amounts in accordance with US GAAP
                                
Income/(loss) before cumulative effect on prior years of change in accounting principle:                                
 Continuing operations  928   505   104   257   14   (63)  (49)  102 
 Discontinued operations:                                
  Income from discontinued operations  —   —   41   62   46   92   138   226 
  Surplus on disposal  —   —   210   21   —   —   —   171 
                         
 Total discontinued operations  —   —   251   83   46   92   138   397 
Cumulative effect on prior years of:
adoption of FAS 142		  —   —   —   —   (712)  —   (712)  — 
 adoption of FAS 123(R)  (35)  (19)  —   —   —   —   —   — 
                         
Net income/(loss)  893   486   355   340   (652)  29   (623)  499 
                         
Per ordinary share and American Depositary Share(4)
                                
Basic
                                
Income/(loss) before cumulative effect on prior years of change in accounting principle:                                
 Continuing operations  238.6¢  129.8p  20.0p  36.2p  1.9p  (8.6)p  (6.7)p  14.0p
 Discontinued operations  —   —   48.2p  11.7p  6.3p  12.6p  18.9p  54.3p
Cumulative effect on prior years of:
adoption of FAS 142		  —   —   —   —   (97.1)p  —   (97.1)p  — 
 adoption of FAS 123(R)  (9.0)¢  (4.9)p  —   —   —   —   —   — 
                         
Net income/(loss)  229.6¢  124.9p  68.2p  47.9p  (88.9)p  4.0p  (84.9)p  68.3p
                         
Diluted
                                
Income/(loss) before cumulative effect on prior years of change in accounting principle:                                
 Continuing operations  233.8¢  127.2p  19.5p  35.7p  1.9p  (8.6)p  (6.7)p  13.9p
 Discontinued operations  —   —   47.1p  11.5p  6.3p  12.6p  18.9p  54.1p
Cumulative effect on prior years of:
adoption of FAS 142		  —   —   —   —   (97.1)p  —   (97.1)p  — 
 adoption of FAS 123(R)  (8.8)¢  (4.8)p  —   —   —   —   —   — 
                         
Net income/(loss)  225.0¢  122.4p  66.6p  47.2p  (88.9)p  4.0p  (84.9)p  68.0p
                         
Footnotes on page 10.

9

Consolidated Balance Sheet Data
                     
  December 31, 
  2007(3)  2007  2006  2005  2004 
  $  £  £  £  £ 
  (in millions) 
 
Goodwill and intangible assets  556   277   263   238   206 
Property, plant and equipment  1,934   962   997   1,356   1,926 
Investments and other financial assets  253   126   128   155   122 
Retirement benefit assets  65   32   —   —   — 
Current assets  710   353   455   707   598 
Non-current assets classified as held for sale  115   57   50   279   1,826 
                     
Total assets  3,633   1,807   1,893   2,735   4,678 
                     
Current liabilities  1,226   610   643   794   926 
Long-term debt  1,748   869   303   410   1,156 
Net assets  98   49   686   1,104   1,938 
Share capital  163   81   66   49   723 
IHG shareholders’ equity  92   46   678   1,084   1,821 
                     
Number of Shares in issue at period end (millions)      295   356   433   622 
                     
Consolidated Balance Sheet Data
                 
  December 31,
   
  2006(3) 2006 2005 2004
         
  $ £ £ £
  (in millions)
Amounts in accordance with IFRS
                
Goodwill and intangible assets  516   263   238   206 
Property, plant and equipment  1,956   997   1,356   1,926 
Investments and other financial assets  251   128   155   122 
Current assets  892   455   707   598 
Non-current assets classified as held for sale  98   50   279   1,826 
Total assets  3,713   1,893   2,735   4,678 
             
Current liabilities(5)
  1,261   643   794   926 
Long-term debt(5)
  594   303   410   1,156 
Share capital  129   66   49   723 
IHG shareholders’ equity  1,330   678   1,084   1,821 
             
Number of Shares in issue at period end (millions)      356   433   622 
             
                         
  December 31,
   
  2006(3) 2006 2005 2004 2003 2002
             
  $ £ £ £ £ £
  (in millions)
Amounts in accordance with US GAAP
                        
Goodwill and intangible assets  2,401   1,224   1,395   1,384   1,587   2,702 
Property, plant and equipment  2,605   1,328   1,685   3,454   3,916   6,552 
Investments and other financial assets  214   109   141   115   174   189 
Current assets  979   499   738   699   978   983 
Non-current assets classified as held for sale  84   43   258   300   —   — 
Total assets  6,283   3,203   4,217   5,952   6,655   10,426 
                   
Current liabilities(5)
  1,671   852   1,161   2,021   1,496   2,109 
Long-term debt(5)
  190   97   36   52   523   622 
Share capital  80   41   43   697   739   243 
IHG shareholders’ equity  2,938   1,498   2,015   2,796   3,380   6,221 
                   
Number of Shares in issue at period end (millions)      356   433   622   739   734 
                   
(1)TheUS dollar amounts have been translated at the weighted average rate for the year ended 2002 includes Hotels 12 months and Soft Drinks 52 weeks. The period ended 2003 includes Hotels 15 months, Soft Drinks 64 weeks ended December 20, 2003 and Mitchells and Butlers 28 weeks ended April 12, 2003. of £1.00 = $2.01.
(2)The year ended 2004 includes Hotels 12 months and Soft Drinks 53 weeks ended December 25, 2004. The year ended 2005 includes Hotels 12 months and Soft Drinks 50 weeks and three days ended December 14, 2005.
(2) (3)US dollar amounts have been translated at the weighted average rate for the year of £1.00 = $1.84.
(3) US dollar amounts have been translated at the Noon Buying Rate on December 31, 20062007 of £1.00 = $1.96$2.01 solely for convenience.
(4) Each American Depositary Share represents one ordinary share.
(5) Long-term debt under IFRS includes amounts supported by long-term credit facilities, which are classified as current liabilities under US GAAP.

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Dividends
 
InterContinental Hotels Group PLC paid an interim dividend of 5.15.7 pence per share on October 5, 2006.2007. The IHG board has proposed a final dividend of 13.314.9 pence per share, payable on June 8, 2007,6, 2008, if approved by shareholders at the Annual General Meeting to be held on June 1, 2007,May 30, 2008, bringing the total IHG dividend for the year ended December 31, 20062007 to 18.420.6 pence per share.
 On February 20, 2007, IHG announced its intention to pay a £700 million special dividend to shareholders during the second quarter of 2007.
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 (as IHL then was) and Six Continents PLC (as Six Continents then was), 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.
Ordinary dividend
                         
  Pence per ordinary share $ per ADS
     
  Interim Final Total Interim Final Total
             
Year ended September 30,
                        
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   0.174   0.242 
Year ended December 31,
                        
2004  4.30   10.00   14.30   0.077   0.191   0.268 
2005  4.60   10.70   15.30   0.081   0.187   0.268 
2006  5.10   13.30   18.40   0.096   0.259(2)  0.355 
 
                         
  Pence per ordinary share  $ per ADS 
  Interim  Final  Total  Interim  Final  Total 
 
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   0.174   0.242 
Year ended December 31,
                        
2004  4.30   10.00   14.30   0.077   0.191   0.268 
2005  4.60   10.70   15.30   0.081   0.187   0.268 
2006  5.10   13.30   18.40   0.096   0.259   0.355 
2007  5.70   14.90   20.60   0.115   0.292(2)  0.407 
(1)Restated to reflect an equivalent number of shares in InterContinental Hotels Group PLC.
(2)
(2) The 20062007 final dividend payable to ADS holders will be paid in USD and was set using the closing USD/GBP spot rate of £1.00: $1.94$1.96 on February 16, 2007.15, 2008.


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Special Dividend
         
  Pence per  
  ordinary share $ per ADS
     
December 2004  72.00   1.39 
June 2006  118.00   2.17 
         
  Pence per
    
  ordinary share  $ per ADS 
 
December 2004  72.00   1.39 
June 2006  118.00   2.17 
June 2007  200.00   4.00 
Return of Capital
         
  Pence per
    
  ordinary share  $ per ADS 
 
June 2005  165.00   2.86 

11

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 16, 200714, 2008 was £1.00 = $1.94.$2.03.
         
  Month’s Month’s
  highest lowest
Month exchange rate exchange rate
     
September 2006  1.91   1.86 
October 2006  1.91   1.86 
November 2006  1.97   1.89 
December 2006  1.98   1.95 
January 2007  1.99   1.93 
February 2007  1.97   1.94 
March 2007 (through March 16, 2007)  1.96   1.92 
                 
  Period Average    
  end rate(1) High Low
         
Year ended September 30,
                
2002  1.56   1.48   1.58   1.41 
Period ended December 31,
                
2003  1.78   1.63   1.78   1.54 
Year ended December 31,
                
2004  1.93   1.84   1.95   1.75 
2005  1.73   1.82   1.93   1.71 
2006  1.96   1.84   1.97   1.74 
2007 (through March 16, 2007)  1.94   1.96   1.99   1.92 
 
         
  Month’s
  Month’s
 
  highest
  lowest
 
Month
 exchange rate  exchange rate 
 
September 2007  2.04   1.99 
October 2007  2.08   2.03 
November 2007  2.11   2.05 
December 2007  2.07   1.98 
January 2008  1.99   1.95 
February 2008  1.99   1.94 
March 2008 (through March 14, 2008)  2.03   1.99 
                 
  Period
  Average
       
  end  rate(1)  High  Low 
 
Period ended December 31,
                
2003  1.78   1.63   1.78   1.54 
Year ended December 31,
                
2004  1.93   1.84   1.95   1.75 
2005  1.73   1.82   1.93   1.71 
2006  1.96   1.84   1.97   1.74 
2007  2.01   2.01   2.11   1.92 
2008 (through March 14, 2008)  2.03   2.00   2.03   1.94 
(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 the euro. For a discussion of the impact of exchange rate movements, see “Item 11. Quantitative and Qualitative Disclosures About Market Risk”.


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12

RISK FACTORS
 
This section describes some of the risks that could materially affect the Group’s business. The factors below should be considered in connection with any financial and forward-looking information in this Form 20-F and the cautionary note regarding forward-looking statements contained on pages 5 and 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 business, revenue, operating profit, earnings, net assets and liquidity and/or capital resources.
The Group is reliant on the reputation of its brands and the protection of its intellectual property rights
The Group is reliant on the reputation of its brands and the protection of its intellectual property rights
 
Any event that materially damages 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. In addition, the value of the Group’s brands is influenced by a number of other factors, some of which may be outside the Group’s control, including commoditisation (whereby price/quality becomes relatively more important than brand identifications due, in part, to the increased prevalence of third partythird-party intermediaries), consumer preference and perception, failure by the Group or its franchisees to ensure compliance with the significant regulations applicable to hotel operations (including fire and life safety requirements), or other factors affecting consumers’ willingness to purchase goods and services, including any factor which adversely affects the reputation of those brands.
 
In particular, where the Group is unable to enforce adherence to its operating and quality standards, or the significant regulations applicable to hotel operations, pursuant to its management and franchise contracts, there may be further adverse impact upon brand reputation or customer perception and therefore the value of the hotel brands.
 
Given the importance of brand recognition to the Group’s business, the Group has invested considerable effort in protecting its intellectual property, including registration of trademarks and domain names. However, the laws of certain foreign countries in which the Group operates do not protect the Group’s proprietary rights to the same extent as the laws in the United States and the European Union. This is particularly relevant in China where, despite recent improvements in IP ownershipintellectual property rights, the relative lack of protection increases the risk that the Group will be unable to prevent infringements of its intellectual property in this key growth market. Any widespread infringement or misappropriation could materially harm the value of the Group’s brands and its ability to develop the business.
The Group is exposed to a variety of risks related to identifying, securing and retaining management and franchise agreements
The Group is exposed to a variety of risks related to identifying, securing and retaining management and franchise agreements
 
The Group’s growth strategy depends on its success in identifying, securing and retaining management and franchise agreements. Competition with other hotel companies 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. The terms of new management or franchise agreements may not be as favourable as current arrangements and the Group may not be able to renew existing arrangements on the same terms.
 
There can also be no assurance that the Group will be able to identify, retain or add franchisees to the Group system or to secure management contracts. For example, the availability of suitable sites, planning and other local regulations or the availability and affordability of finance may all restrict the supply of suitable hotel development opportunities under franchise or management agreements. 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 including, for example, the unwillingness of franchisees to support brand improvement initiatives. In connection with entering into management or franchise agreements, the Group may be required to make investments in or guarantee the obligations of third parties or guarantee minimum income to third parties.

13

 
Changes in legislation or regulatory changes may be implemented that have the effect of favouringfavoring franchisees relative to brand owners.


11

The Group is exposed to the risks of political and economic developments
The Group is exposed to the risks of political and economic developments
 
The Group is exposed to the risks of global and regional adverse political, economic and financial market developments, including recession, inflation and currency fluctuations that could lower revenues and reduce income. A recession in one country or more widely tends to reduce leisure and business travel to and from affected countries and would adversely affect room rates and/or occupancy levels and other income-generating activities resulting in deterioration of results of operations and potentially reducing the value of properties in affected economies. The owners or potential owners of hotels managed or franchised by one group face similar risks which could adversely affect IHG’s ability to secure management or franchise agreements. More specifically, the Group is highly exposed to the US market and, accordingly, is particularly susceptible to adverse changes in the US economy.
 
Further political or economic factors or regulatory action could effectively prevent the Group from receiving profits from, or selling its investments in, certain countries, or otherwise adversely affect operations. For example, changes to tax rates or legislation in the jurisdictions in which the Group operates could decrease the proportion of profits the Group is entitled to retain, or the Group’s interpretation of various tax laws and regulations may prove to be incorrect, resulting in higher than expected tax charges. In addition, fluctuations in currency exchange rates between 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 business. Fluctuations of this type have been experienced over recent years with the significant strengthening of sterling against the US dollar. As the majority of the Group’s profits have become increasingly weighted towards North America,are generated in the United States, such fluctuations may have greatera significant impact on the Group’s reported results.
The Group is dependent upon recruiting and retaining key personnel and developing their skills
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 incentive plans, or a failure to invest in the development of key skills. Some of the markets in which the Group operates are experiencing rapid economic growth and the Group must compete against a number of companies inside and outside the hospitality industry for suitably qualified or experienced employees. Failure to attract and retain these employees may threaten the success of the Group’s operations in these markets. 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 the risk of events that adversely impact domestic or international travel
The Group is exposed to the risk of events that adversely impact domestic or international travel
 
The room rates and occupancy levels of the Group could be adversely impacted by events that reduce domestic or international travel, such as actual or threatened acts of terrorism or war, epidemics, (such as SARS and avian flu), 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. A decrease in the demand for hotel rooms as a result of such events may have an adverse impact on the Group’s operations and financial results. In addition, inadequate preparedness, contingency planning or recovery capability in relation to a major incident or crisis may prevent operational continuity and consequently impact the value of the brand or the reputation of the Group.
The Group is reliant upon its proprietary reservation system and is exposed to the risk of failures in the system and increased competition in reservation infrastructure
The Group is reliant upon its proprietary reservation system and is exposed to the risk of failures in the system and increased competition in reservation infrastructure
 
The value of the brands of the Group is partly derived from the ability to drive reservations through its proprietary HolidexPlus reservation system, an electronic booking and delivery channel directly linked to travel agents, hotels and internet networks. Inadequate disaster recovery arrangements, or inadequate continued investment in this technology, leading to loss of key communications linkages, particularly in relation to HolidexPlus, internet reservation channels and other key parts of the Information Technology (“IT”)IT infrastructure for a prolonged period, or permanently, may result in significant business interruption and subsequent impact on revenues.
 
The Group is also exposed to the risk of competition from third partythird-party intermediaries who provide reservation infrastructure. In particular, any significant increase in the use of these reservation channels in preference to


12

14

preference to
proprietary channels may impact the Group’s ability to control the supply, presentation and price of its room inventory.
The Group is exposed to certain risks in relation to technology and systems
The Group is exposed to certain risks in relation to technology and systems
 
To varying degrees, the Group is reliant upon certain technologies and systems (including IT systems) for the running of its business, particularly those which are highly integrated with business processes. Disruption to those technologies or systems could adversely affect the efficiency of the business, notwithstanding business continuity or disaster recovery processes. The Group may have to make substantial additional investments in new technologies or systems to remain competitive. Failing to keep pace with developments in technologies or systems may put the Group at a competitive disadvantage. The technologies or systems that the Group chooses may not be commercially successful or the technology or system strategy employed may not be sufficiently aligned to the needs of the business or responsive to changes in business strategy. As a result, the Group could lose customers, fail to attract new customers or incur substantial costs or face other losses. Additionally, failure to develop an appropriatee-commerce strategy and select the right partners could erode the Group’s market share.
The Group is exposed to the risks of the hotel industry supply and demand cycle
The Group is exposed to the risks of the hotel industry supply and demand cycle
 
The future operating results of the Group could be adversely affected by industry over-capacity (by number of rooms) and weak demand due, in part, to the cyclical nature of the hotel industry, or other differences between planning assumptions and actual operating conditions. Reductions in room rates and occupancy levels would adversely impact the results of Group operations.
The Group may experience a lack of selected development opportunities
The Group may experience a lack of selected development opportunities
 
While the strategy of the Group 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.
The Group is exposed to the risk of litigation
The Group is exposed to risks related to corporate responsibility
 
The reputation of the Group and the value of its brands are influenced by a wide variety of factors, including the perception of key stakeholders and the communities in which the Group operates. The social and environmental impacts of business are under increasing scrutiny, and the Group is exposed to the risk of damage to its reputation if it fails to demonstrate sufficiently responsible practices in a number of areas such as sustainability, responsible tourism, environmental management, human rights and support for the local community.
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 or fines imposed by regulatory authorities may affect the reputation of the Group even though the monetary consequences are not significant.
The Group may face difficulties insuring its business
The Group may face difficulties insuring its business
 
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 business in which it operates. However, forces beyond the Group’s control including market forces, may limit the scope of coverage the Group can obtain as well as the Group’s ability to obtain coverage at reasonable rates. Other forces beyond the Group’s control, such as terrorist attacks or natural disasters may be uninsurable or simply too expensive to insure against. Inadequate or insufficient insurance could expose the Group to large claims or could result in the loss of capital invested in properties, as well as the anticipated future revenue from properties, and could leave the Group responsible for guarantees, debt or other financial obligations related to such properties.


13

The Group is exposed to a variety of risks associated with its ability to borrow and satisfy debt covenants
The Group is exposed to a variety of risks associated with its ability to borrow and satisfy debt covenants
 
The Group is reliant on having access to borrowing facilities to meet its expected capital requirements and to maintain an efficient balance sheet. The majority of the Group’s borrowing facilities are only available if the financial covenants in the facilities are complied with. If the Group is not in compliance with the covenants, the lenders may demand the repayment of the funds advanced. If the Group’s financial

15

performance does not meet market expectations it may not be able to refinance its existing facilities on terms it considers favourable.favorable. The availability of funds for future financing is in part dependent on conditions and liquidity in the capital markets.
The Group is required to comply with data privacy regulations
The Group is required to comply with data privacy regulations
 
Existing and emerging data privacy regulations limit the extent to which the Group can use customer information for marketing or promotional purposes. Compliance with these regulations in each jurisdiction in which the Group operates may require changes in marketing strategies and associated processes which could increase operating costs or reduce the success with which products and services can be marketed to existing or future customers. In addition, non-compliance with privacy regulations may result in fines, damage to reputation or restrictions on the use or transfer of information.
The Group is exposed to funding risks in relation to the defined benefits under its pension plans
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 members of its pension plans who are entitled to defined benefits. In addition, if any planthe UK Plan of the Group is wound-up or a participating employer ceases to have contributing members, 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) include:
 • poor investment performance of pension fund investments which are substantially weighted towards global equity markets;investments;
 
 • longlonger life expectancy than assumed in the plans’ actuarial valuations (which will make pensions payable for longer and therefore more expensive to provide);
 
 • 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
 
 • 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 trustees of the UK defined benefits plansplan can demand increases to the contribution rates relating to the funding of thosethis pension plans,plan, which would oblige the relevant members of the Group to contribute extra amounts to such pension funds. The trustees must consult the plans’plan’s actuary and principal employer before exercising this power. In practice, contribution rates are agreed between the Group and the trustees on actuarial advice, and are set for three yearthree-year terms. The last such review was as at March 31, 2006. As at March 16, 2007, being the latest practicable date prior to publication of this document, the Group has agreed to make a special contribution to the UK Pension Plan of £40 million over the next three years. However, this action does not preclude the trustees from further demands in respect of increases to contribution rates and funding levels.
ITEM 4.INFORMATION ON THE COMPANY
SUMMARY
Group Overview
Group Overview
 
The Group is a worldwide owner, manager and franchisor of hotels and resorts. Through its various subsidiaries it owned, leased, managed, or franchised 3,741 hotels and 556,246 guest rooms in nearly 100 countries and territories around the world, as at December 31, 2006.2007. The Group’s brands include InterContinental Hotels & Resorts (“InterContinental”), Crowne Plaza Hotels & Resorts (“Crowne Plaza”), Holiday Inn Hotels & Resorts (“Holiday Inn”), Holiday Inn Express (or Express by Holiday Inn outside of

16

the Americas), Staybridge Suites, Candlewood Suites and Hotel Indigo. The Group also manages the hotel loyalty program, Priority Club Rewards.


14

With the disposal of the Group’s interests in Britvic, a manufacturer and distributor of soft drinks in the United Kingdom, by way of an initial public offering (“IPO”) in December 2005, the Group is now focused solely on hotel franchising, management and ownership.
 
The Group’s revenue and earnings are derived from (i) hotel operations, which include operation of the Group’s owned hotels, management and other fees paid under management contracts, where the Group operates third-parties’ hotels, and franchise and other fees paid under franchise agreements and (ii) until December 14, 2005, the manufacture and distribution of soft drinks.
 
On March 16, 2007,14, 2008, InterContinental Hotels Group PLC had a market capitalization of approximately £4.3£2.3 billion, and was included in the list of FTSE 100 companies, a list of the 100 largest companies by market capitalization on the London Stock Exchange.
Following a capital restructuring in June 2005, InterContinental Hotels Group PLC became the holding company for the Group. Six Continents Limited (formerly Six Continents PLC), which was formed in 1967, is the principal subsidiary company.
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.ihg.com
InterContinental Hotels Group PLC
67 Alma Road
Windsor
Berkshire SL4 3HD
Tel: +44 (0) 1753 410 100
Internet address: www.ihg.com
 
InterContinental Hotels Group PLC was incorporated in Great Britain on May 21, 2004 and registered in, and operates under, the laws of England and Wales. Operations undertaken in countries other than England and Wales are subject to the laws of those countries in which they reside.
Group History and Recent Developments
Group History and Recent Developments
 
The Group, formerly known as Bass and, more recently, Six Continents, was historically a conglomerate operating as, among other things, a brewer, soft drinks manufacturer, hotelier, leisure operator, and restaurant, pub and bar owner. In the last several years, the Group has undergone a major transformation in its operations and organization, as a result of the Separation (as discussed below) and a number of significant disposals during this period, which has narrowed the scope of its business.
 
On April 15, 2003, following shareholder and regulatory approval, Six Continents PLC (as it then was) separated into two new listed groups, InterContinental Hotels Group PLC (as it then was) comprising the Hotels and Soft Drinks businesses and Mitchells & Butlers plc comprising the Retail and Standard Commercial Property Developments businesses (the “Separation”).
Acquisitions and Dispositions
The Group disposed of its interests in the soft drinks business by way of an initial public offering (“IPO”) of Britvic, a manufacturer and distributor of soft drinks in the United Kingdom, in December 2005.
 
Acquisitions and Dispositions
Since the Separation, 174181 hotels with a net book value of £2.9 billion have been sold, generating aggregate proceeds of £3.0 billion. Of these 174181 hotels, 156162 have remained in the IHG global system (the number of hotels and rooms owned, leased, managed or franchised by the Group) through either franchise or management agreements. As of March 16, 200714, 2008 the Group had on the market a further fivethree hotels. The following are the more significant transactions which have occurred since January 1, 2006:2007:
 On February 10, 2006
During 2007, the Group announceddisposed of (i) the sale of 9.5 million shares in FelCor Lodging Trust, Incorporated (“FelCor”)Crowne Plaza Santiago on May 16, 2007 for $180.5 million, ($19 per share). This sale followed renegotiation of the management agreement with FelCor.
      On March 13, 2006, the Group announced the sale to Westbridge Hospitality Fund LP, (“Westbridge”), of 24 hotels in Continental Europe. Westbridge is a joint venture between CADIM, a Montreal-based pension

17

fund manager, and Westmont Hospitality, one of IHG’s largest franchisees. The portfolio was sold for £240$21 million before transaction costs. IHG retainedcosts, approximately $9 million above the net book value, retaining a 1510 year franchise contract on eachcontract; (ii) its 74.11% share of the hotels. The sale completedInterContinental Montreal on May 2, 2006.
      On July 13, 2006 the Group announced the sale of seven European InterContinental hotels to Morgan Stanley Real Estate Funds (“MSREF”)12, 2007 for £440£17 million before transaction costs. IHG retainedcosts, approximately £5 million above book value, retaining a 30 year management contract on eachthe hotel; and (iii) the


15

Holiday Inn Disney, Paris on November 30, 2007 for £14 million before transaction costs, approximately £2 million above net book value, retaining a five year franchise contract.
The Group also divested a number of the hotels, with two 10 year renewals at IHG’s discretion. The long-term contracts ensure continued representationequity interests of the InterContinental brand in key European markets.
      On October 28, 2006 the Group announced the signing ofwhich proceeds totaled £57 million, including a hotel joint venture with All Nippon Airways (“ANA”), IHG ANA Hotels Group Japan LLC (“IHG ANA”). IHG invested £10 million for a 75% share in the joint venture, increasing IHG’s portfolio in Japan from 12 hotels (3,686 rooms) to 25 hotels (8,623 rooms). As part of the transaction, ANA has signed a 15 year management contract with IHG ANA Hotels Group Japan for its 13 owned and leased hotels (4,937 rooms).
      On January 16, 2007 the Group announced the sale of its 33.3% interest in the Crowne Plaza London — The City to Grupo Statuto,for £19 million and a leading Italian real estate investor. The hotel has been sold15% interest in the InterContinental Chicago for gross proceeds of £81£11 million. IHG’s net proceeds after debt repayments are £18 million, £11 million above net book value.
 
The asset disposal program which commenced in 2003 has significantly reduced the capital requirements of the Group whilst largely retaining the hotels in the IHG system through management and franchise agreements.
 
Capital expenditure in 20062007 totaled £124£93 million compared with £124 million in 2006 and £183 million in 2005 and £257 million in 2004.2005. Capital expenditure in 20062007 included the completion of the major refurbishment of the InterContinental London, Park Lane and a rolling rooms refurbishment programrenovation works at the InterContinental Hong Kong.
 
At December 31, 20062007 capital committed, being contracts placed for expenditure on property, plant and equipment not provided for in the financial statements, totaled £24£10 million.
 
On October 24, 2007 the Group announced a worldwide relaunch of its Holiday Inn brand family. In support of this, the Group will make a non recurring revenue investment of up to £30 million which it is anticipated will be charged to the income statement as an exceptional item during 2008.
Following the completion of the hotel disposals in 2006,2007, the Group owns 2518 hotels.
FIGURE 1
             
Asset disposal program detail Number of hotels Proceeds Net book value
       
    (£ billion)
Disposed to date  174   3.0   2.9 
Remaining hotels  25   —   1.0 
             
Asset disposal program detail
 Number of hotels  Proceeds  Net book value 
     (£ billion) 
 
Disposed since April 2003  181   3.0   2.9 
Remaining owned and leased hotels  18   —   0.9 
Return of Funds
 
Return of Funds
Since March 2004, the Group has announced the return of £3.6 billion of funds to shareholders by way of special dividends, share repurchase programs and capital returns and has returned £3.5 billion to shareholders as at March 14, 2008 (see Figure 2).
 In 2006, 28.4
A third £250 million share repurchase program was completed in 2007 and the £150 million share repurchase program announced on February 20, 2007 was commenced. At December 31, 2007 £92 million of this share repurchase was outstanding. During the year 7.7 million shares were repurchased at an average price of 9091046 pence per share (total £258£80.7 million). These repurchases completed the second and initiated the third £250 million share repurchase program, announced on September 8, 2005. The precise timing of share purchases will be dependent upon, amongst other things, market conditions. By March 16, 2007,14, 2008, a total of 26.056.3 million shares had been repurchased under the third£150 million repurchase program at an average price per share of 938926 pence per share (approximately £244£58 million). Purchases are made under the existing authority from shareholders which will be renewed at the Company’s Annual General Meeting. Any shares repurchased under these programs will be canceled.
 
Information relating to the purchases of equity securities can be found in Item 16E.
 
On February 20, 2007, IHG announced a further £850 million return of funds to shareholders. This comprises a proposed special dividend of approximately £700 million with share consolidation and a further £150 million share repurchase program to commence after completion of the third £250 million program.

18

      In June 2006, £497consolidation. £709 million was returned to shareholders in June 2007 by way of a special dividend of 118200 pence per ordinary share held on June 9, 2006.1, 2007.


16

FIGURE 2
                 
Return of funds program Timing Total return Returned to date(i) Still to be returned
         
      (£ million)  
£501 million special dividend  Paid December 17, 2004   501   501   Nil 
First £250 million share buyback  Completed in 2004   250   250   Nil 
£996 million capital return  Paid July 8, 2005   996   996   Nil 
Second £250 million share buyback  Completed in 2006   250   250   Nil 
£497 million special dividend  Paid June 22, 2006   497   497   Nil 
Third £250 million share buyback  Ongoing   250   244   6 
£700 million special dividend  Expected second quarter 2   007 700   —   700 
£150 million share buyback  Yet to commence   150   —   150 
             
Total      3,594   2,738   856 
             
Return of funds program
TimingTotal returnReturned to date(i)Still to be returned
£501 million special dividendPaid in December 2004£501m£501mNil
First £250 million share buybackCompleted in 2004£250m£250mNil
£996 million capital returnPaid in July 2005£996m£996mNil
Second £250 million share buybackCompleted in 2006£250m£250mNil
£497 million special dividendPaid in June 2006£497m£497mNil
Third £250 million share buybackCompleted in 2007£250m£250mNil
£709 million special dividendPaid in June 2007£709m£709mNil
£150 million share buybackUnder way£150m£58m£92m
Total£3,603m£3,511m£92m
(i)As at March 16, 2007.
Hotels14, 2008.
 
Hotels
IHG owns a number of hotel brands including InterContinental, Crowne Plaza, Holiday Inn, Holiday Inn Express, Staybridge Suites, Candlewood Suites and Hotel Indigo. As at December 31, 2006,2007, IHG’s brands comprised 3,7413,949 franchised, managed, owned or leased hotels and 556,246 guest585,094 rooms in nearly 100 countries and territories.countries.
Soft Drinks
Soft Drinks
 
In December 2005 IHG disposed of its interests in Britvic, one of the two leading manufacturers of soft drinks by value and volume in Great Britain, by way of an IPO. IHG received aggregate proceeds of approximately £371 million (including two additional dividends, one of £47 million received in November 2005 and another of £89 million received in May 2005, before any commissions or expenses). The Group results for fiscal 2005 include the results of Soft Drinks for the period up until the IPO of Britvic on December 14, 2005.


17

19

SEGMENTAL INFORMATION
Geographic Segmentation
Geographic Segmentation
 
The following table shows revenue and operating profit before otherexceptional operating income and expensesitems in pounds sterling and percentage by geographical area, for the following periods: years ended December 31, 2007, 2006 2005 and 2004.2005.
              
  Year ended Year ended Year ended
  December 31, December 31, December 31,
  2006 2005 2004
       
  (£ million)
Revenue(1)(4)
            
 Americas  433   384   306 
 Europe, the Middle East and Africa  206   200   186 
 Asia Pacific  111   87   74 
 
Central(5)
  55   42   40 
          
Continuing operations  805   713   606 
          
 Americas  30   61   189 
 Europe, the Middle East and Africa  125   1,082   1,349 
 Asia Pacific  —   54   60 
          
Discontinued operations(3)
  155   1,197   1,598 
          
Total  960   1,910   2,204 
          
Operating profit before other operating income and expenses(1)(2)
            
 Americas  217   186   149 
 Europe, the Middle East and Africa  36   31   11 
 Asia Pacific  29   21   17 
 
Central(5)
  (81)  (65)  (57)
          
Continuing operations  201   173   120 
          
 Americas  4   12   24 
 Europe, the Middle East and Africa  26   143   195 
 Asia Pacific  —   11   7 
          
Discontinued operations(3)
  30   166   226 
          
Total  231   339   346 
          
 
                 
  Year ended December 31,    
  2007  2006  2005    
  (£ million) 
 
Revenue(1)
                
Americas  450   422   376     
Europe, the Middle East and Africa  245   198   192     
Asia Pacific  130   111   87     
Central(4)
  58   55   42     
                 
Continuing operations  883   786   697     
                 
Americas  31   41   69     
Europe, the Middle East and Africa  9   133   1,090     
Asia Pacific  —   —   54     
                 
Discontinued operations(3)
  40   174   1,213     
                 
Total  923   960   1,910     
                 
Operating profit before exceptional operating items(1)(2)
                
Americas  220   215   186     
Europe, the Middle East and Africa  67   37   33     
Asia Pacific  31   29   21     
Central(4)
  (81)  (81)  (65)    
                 
Continuing operations  237   200   175     
                 
Americas  8   6   12     
Europe, the Middle East and Africa  —   25   141     
Asia Pacific  —   —   11     
                 
Discontinued operations(3)
  8   31   164     
                 
Total  245   231   339     
                 
Footnotes on page 21.19.


18

20

              
  Year ended Year ended Year ended
  December 31, December 31, December 31,
  2006 2005 2004
       
  (%)
Revenue            
 Americas  45.1   20.1   13.9 
 Europe, the Middle East and Africa  21.5   10.4   8.4 
 Asia Pacific  11.6   4.6   3.4 
 
Central(5)
  5.7   2.2   1.8 
          
Continuing operations  83.9   37.3   27.5 
          
 Americas  3.1   3.2   8.6 
 Europe, the Middle East and Africa  13.0   56.7   61.2 
 Asia Pacific  —   2.8   2.7 
          
Discontinued operations  16.1   62.7   72.5 
          
Total  100.0   100.0   100.0 
          
Operating profit before other operating income and expenses            
 Americas  93.9   69.1   43.1 
 Europe, the Middle East and Africa  15.6   11.5   3.2 
 Asia Pacific  12.6   7.8   4.9 
 
Central(5)
  (35.1)  (24.1)  (16.5)
          
Continuing operations  87.0   64.3   34.7 
          
 Americas  1.7   4.5   6.9 
 Europe, the Middle East and Africa  11.3   27.1   56.4 
 Asia Pacific  —   4.1   2.0 
          
Discontinued operations  13.0   35.7   65.3 
          
Total  100.0   100.0   100.0 
          
                 
  Year ended December 31,    
  2007  2006  2005    
  (%) 
 
Revenue                
Americas  48.8   44.0   19.7     
Europe, the Middle East and Africa  26.5   20.6   10.0     
Asia Pacific  14.1   11.6   4.6     
Central  6.3   5.7   2.2     
                 
Continuing operations  95.7   81.9   36.5     
                 
Americas  3.3   4.3   3.6     
Europe, the Middle East and Africa  1.0   13.8   57.1     
Asia Pacific  —   —   2.8     
                 
Discontinued operations  4.3   18.1   63.5     
                 
Total  100.0   100.0   100.0     
                 
Operating profit before exceptional operating items                
Americas  89.8   93.1   54.9     
Europe, the Middle East and Africa  27.3   16.0   9.7     
Asia Pacific  12.7   12.6   6.2     
Central  (33.1)  (35.1)  (19.2)    
                 
Continuing operations  96.7   86.6   51.6     
                 
Americas  3.3   2.6   3.5     
Europe, the Middle East and Africa  —   10.8   41.6     
Asia Pacific  —   —   3.3     
                 
Discontinued operations  3.3   13.4   48.4     
                 
Total  100.0   100.0   100.0     
                 
 
(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 rate is 2006: £1 = $1.84; (2005:$2.01 (2006 £1 = $1.83, 2004:$1.84, 2005 £1 = $1.82)$1.83) . In the case of the euro, the translation rate is 2006: £1 =€1.47; (2005: €1.46 (2006 £1 =€1.46, 2004: €1.47, 2005 £1 =€1.47) €1.46).
 
(2)Operating profit before otherexceptional operating income and expensesitems does not include otherexceptional operating income and expensesitems for all periods presented. OtherExceptional operating income and expenses (chargeitems (credit unless otherwise noted) by region are the Americas (2006:£9 million (2006 £25 million, credit; 2005:2005 £5 million; 2004: £15 million credit)charge); Europe, the Middle East and Africa (2006:£10 million (2006 £2 million, credit; 2005:2005 £12 million; 2004: £57 million)million charge); Asia Pacific £8 million (2006 £nil, 2005 £5 million charge); and Asia Pacific (2006: £nil; 2005: £5 million; 2004: £7 million)Central £3 million (2006 £nil, 2005 £nil).
 
(3)Europe, the Middle East and Africa includes discontinued operations for Hotels (2006: £26 million; 2005: £73 million; 2004: £118£nil (2006 £25 million, 2005 £71 million) and Soft Drinks (2006: £nil; 2005:£nil (2006 £nil, 2005 £70 million; 2004: £77 million). The Americas and Asia Pacific discontinued operations all relate to Hotels. Hotels discontinued operations were all owned and leased.
 
(4)Amounts are reported by origin. See Note 2 of Notes to the Consolidated Financial Statements for details by destination, for which the amounts are not significantly different.
(5) Central revenue primarily relates to Holidex (IHG’s proprietary reservation system) fee income. Central operating profit includes central revenue less costs related to global functions.

19

21

Activity Segmentation
 
The following table shows revenue and operating profit before otherexceptional operating income and expensesitems in pounds sterling by activity and the percentage contribution of each activity for the following periods: years ended December 31, 2007, 2006 2005 and 2004.2005.
               
  Year ended Year ended Year ended
  December 31, December 31, December 31,
  2006 2005 2004
       
  (£ million)
Revenue(1)(4)
            
 Hotels            
  Americas  433   384   306 
  Europe, the Middle East and Africa  206   200   186 
  Asia Pacific  111   87   74 
  
Central(5)
  55   42   40 
          
Continuing operations  805   713   606 
          
 
Hotels(3)
            
  Americas  30   61   189 
  Europe, the Middle East and Africa  125   411   643 
  Asia Pacific  —   54   60 
 Soft Drinks  —   671   706 
          
Discontinued operations  155   1,197   1,598 
          
Total  960   1,910   2,204 
          
Operating profit before other operating income and expenses(1)(2)
            
 Hotels            
  Americas  217   186   149 
  Europe, the Middle East and Africa  36   31   11 
  Asia Pacific  29   21   17 
  
Central(5)
  (81)  (65)  (57)
          
Continuing operations  201   173   120 
          
 
Hotels(3)
            
  Americas  4   12   24 
  Europe, the Middle East and Africa  26   73   118 
  Asia Pacific  —   11   7 
 Soft Drinks  —   70   77 
          
Discontinued operations  30   166   226 
          
Total  231   339   346 
          
 
                 
  Year ended December 31,    
  2007  2006  2005    
  (£ million) 
 
Revenue(1)
                
Hotels                
Americas  450   422   376     
Europe, the Middle East and Africa  245   198   192     
Asia Pacific  130   111   87     
Central(4)
  58   55   42     
                 
Continuing operations  883   786   697     
                 
Hotels(3)
                
Americas  31   41   69     
Europe, the Middle East and Africa  9   133   419     
Asia Pacific  —   —   54     
Soft Drinks  —   —   671     
                 
Discontinued operations  40   174   1,213     
                 
Total  923   960   1,910     
                 
Operating profit before exceptional operating items(1)(2)
                
Hotels                
Americas  220   215   186     
Europe, the Middle East and Africa  67   37   33     
Asia Pacific  31   29   21     
Central(4)
  (81)  (81)  (65)    
                 
Continuing operations  237   200   175     
                 
Hotels(3)
                
Americas  8   6   12     
Europe, the Middle East and Africa  —   25   71     
Asia Pacific  —   —   11     
Soft Drinks      —   70     
                 
Discontinued operations  8   31   164     
                 
Total  245   231   339     
                 
Footnotes on page 23.21.


20

22

               
  Year ended Year ended Year ended
  December 31, December 31, December 31,
  2006 2005 2004
       
  (%)
Revenue            
 Hotels            
  Americas  45.1   20.1   13.9 
  Europe, the Middle East and Africa  21.5   10.4   8.4 
  Asia Pacific  11.6   4.6   3.4 
  Central  5.7   2.2   1.8 
          
Continuing operations  83.9   37.3   27.5 
          
 Hotels            
  Americas  3.1   3.2   8.6 
  Europe, the Middle East and Africa  13.0   21.5   29.2 
  Asia Pacific  —   2.9   2.7 
 Soft Drinks  —   35.1   32.0 
          
Discontinued operations  16.1   62.7   72.5 
          
Total  100.0   100.0   100.0 
          
Operating profit before other operating income and expenses            
 Hotels            
  Americas  93.9   54.9   43.1 
  Europe, the Middle East and Africa  15.6   9.1   3.2 
  Asia Pacific  12.6   6.2   4.9 
  Central  (35.1)  (19.2)  (16.5)
          
Continuing operations  87.0   51.0   34.7 
          
 Hotels            
  Americas  1.7   3.6   6.9 
  Europe, the Middle East and Africa  11.3   21.5   34.1 
  Asia Pacific  —   3.2   2.0 
 Soft Drinks  —   20.7   22.3 
          
 Discontinued operations  13.0   49.0   65.3 
          
Total  100.0   100.0   100.0 
          
                 
  Year ended December 31,    
  2007  2006  2005    
  (%) 
 
Revenue                
Hotels                
Americas  48.8   44.0   19.7     
Europe, the Middle East and Africa  26.5   20.6   10.0     
Asia Pacific  14.1   11.6   4.6     
Central  6.3   5.7   2.2     
                 
Continuing operations  95.7   81.9   36.5     
                 
Hotels                
Americas  3.3   4.3   3.6     
Europe, the Middle East and Africa  1.0   13.8   22.0     
Asia Pacific  —   —   2.8     
Soft Drinks  —   —   35.1     
                 
Discontinued operations  4.3   18.1   63.5     
                 
Total  100.0   100.0   100.0     
                 
Operating profit before exceptional operating items                
Hotels                
Americas  89.8   93.1   54.9     
Europe, the Middle East and Africa  27.3   16.0   9.7     
Asia Pacific  12.7   12.6   6.2     
Central  (33.1)  (35.1)  (19.2)    
                 
Continuing operations  96.7   86.6   51.6     
                 
Hotels                
Americas  3.3   2.6   3.5     
Europe, the Middle East and Africa  —   10.8   20.9     
Asia Pacific  —   —   3.3     
Soft Drinks  —   —   20.7     
                 
Discontinued operations  3.3   13.4   48.4     
                 
Total  100.0   100.0   100.0     
                 
 
(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 rate is 2006:£1=$2.01 (2006 £1 = $1.84, (2005: $1.83, 2004:2005 £1 = $1.82)$1.83). In the case of the euro, the translation rate is 2006: £1 = €1.47 (2005:€1.46 (2006 £1 =€1.46, 2004: €1.47, 2005 £1 = €1.47)€1.46).
 
(2)Operating profit before otherexceptional operating income and expensesitems does not include otherexceptional operating income and expensesitems for all periods presented. OtherExceptional operating income and expenses items (charge(credit unless otherwise noted) by business segmentregion are the Americas (2006:£9 million (2006 £25 million, credit; 2005: £7 million; 2004: £152005 £5 million credit)charge); Europe, the Middle East and Africa (2006:£10 million (2006 £2 million, credit; 2005: £10 million; 2004: £57 million)2005 £12 million charge); Asia Pacific £8 million (2006 £nil, 2005 £5 million charge); and Asia Pacific (2006: nil million;Central £3 million (2006 £nil, 2005: £5 million; 2004: £7 million)£nil).
 
(3)Hotels discontinued operations were all owned and leased.
 
(4)Amounts are reported by origin. See Note 2 of Notes to the Consolidated Financial Statements for details by destination, for which the amounts are not significantly different.
(5) Central revenue primarily relates to Holidex (IHG’s proprietary reservation system) fee income. Central operating profit includes central revenue less costs related to global functions.

21

23

HOTELS
Overview
 
InterContinental Hotels Group is an international hotel business which owns a portfolio of well-recognizedestablished and respecteddiverse hotel brands, including InterContinental, Crowne Plaza, Holiday Inn, Holiday Inn Express, Staybridge Suites, Candlewood Suites and Hotel Indigo, with 3,7413,949 franchised, managed, owned and leased hotels and 556,246585,094 guest rooms in nearly 100 countries and territories as at December 31, 2006.2007. Approximately 98.5%580,000 rooms or 99% of the Group’s rooms are operated under managed and franchised models.
 IHG
The Group operates in the global hotel market, which has an estimated total room capacity of 18.818 million rooms. Room capacity has been growing at approximately 3% per annum over the last five years. Competitors in the market include other large hotel companies and independently owned hotels.
The market remains fragmented, with an estimated seven million branded hotel rooms (approximately 40% of the total market). The Group has an estimated 8% share of the branded market (approximately 3% of the total market). The top six major companies, including IHG, together control approximately 38% of the branded rooms, only 15% of total hotel rooms.
Geographically, the market is geographicallymore concentrated with 12the top 20 countries accounting for two-thirds80% of worldwideglobal hotel room supply.rooms. Within this, the United States is dominant (more than 25% of global hotel rooms) with China, Japan and Italy being the next largest markets. The Group hasGroup’s brands have a leadership position (top three by room numbers) in each of the six of these 12 countries — US, UK, Mexico, Canada, Greater China and Australia — morelargest geographic markets, a greater representation than any other major hotel company.
 The
US market data indicates a steady increase in hotel market is, however,industry revenues, broadly in line with Gross Domestic Product, with growth of approximately 1-1.5% per annum in real terms since 1967. Hotel revenue growth in the United States and other key markets has been impacted by a fragmented market with the four largest companies controlling only 11%number of the global hotel room supply and the 10 largest controlling less than 21%. The Group is the largest of these companies by room numbers with a 3% market share. The major competitors in this market include other large global hotel companies, smaller hotel companies and independent hotels.underlying trends, including:
 
• change in demographics — as the population ages and becomes wealthier, increased leisure time and income encourages more travel and hotel visits;
• increase in travel volumes as low cost airlines grow rapidly;
• globalization of trade and tourism;
• increase in affluence and freedom to travel within the Chinese middle class; and
• increase in the preference for branded hotels amongst consumers.
FIGURE 3
Branded hotel rooms by region as a percentage of the total market
2006
United States67%
Europe, Middle East and Africa (“EMEA”)35%
Asia Pacific28%
Source: IHG Analysis, Northstar Travel Management
Within the global market, a relatively low proportion of hotel rooms are branded, (see figure 3), buthowever, there has been an increasing trend towards branded rooms. For example, Mintel, a market research company, estimates that the proportion of branded rooms in Europe has grown from 15% in 2000 to 25% in 2004. Larger brandedBranded companies are therefore gaining market share at the expense of smaller companies and independent hotels. IHGunbranded companies. The Group is well positioned to benefit from this trend. Hotel owners are increasingly recognising the benefits of working with a group such as IHG which can offer a portfolio of brands to suit the different real-estatereal estate opportunities an owner may have.have, together with effective revenue delivery through global reservation channels. Furthermore, hotel ownership is increasingly being separated from hotel operations, encouraging hotel owners to use third parties such as IHG to manage or franchise their hotels.
FIGURE 3
Percentage of branded hotel rooms by region2004
North America65%
South America20%
Europe25%
Middle East25%
East Asia25%
Source: Mintel (latest data available)
     US market data indicates a steady increase in hotel industry revenues, broadly in line with Gross Domestic Product, with growth of approximately 1-1.5% per annum in real terms since 1967, driven by a number of underlying trends:
•change in demographics — as the population ages and becomes wealthier, increased leisure time and income encourages more travel and hotel visits;
•increase in travel volumes as low cost airlines grow rapidly;
•globalisation of trade and tourism;
•increase in affluence and freedom to travel within the Chinese middle class; and
•increase in the preference for branded hotels amongst consumers.
Potential negative trends impacting hotel industry growth include increased terrorism, increased costs associated with compliance with environmental regulationsconsiderations and economic factors such as risinghigh oil prices. Currently, however, there are no indications that demand is being significantly affected by these factors.prices, risk of recession and global credit restrictions.


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24

Supply growth in the industry is cyclical, averaging between zero and 5% per annum historically. The Group’s fee-based profit is partly protected from changes in supply pressure due to its model of third party ownership of hotels under IHG management and franchise contracts.
Operations
 
The Group currently operates an ‘asset-light’ business model and owns only a small number of hotels deemed to be strategically important to the brands they represent. Through three distinct business models which offer different growth, return, risk and reward opportunities, IHG achieves growth through its partnerships with financial participants who may provide capital in exchange for, among other things, IHG’s expertise and brand value. The models are summarized as follows:
franchised, where Group companies neither own nor manage the hotel, but license the use of a Group brand and provide access to reservation systems, loyalty schemes and know-how. The Group derives revenues from a brand royalty or licensing fee, based on a percentage of room revenue. At the end of 2006,2007, 76% of the Group’s rooms were franchised, with 89% of rooms in the Americas operating under this model.
managed, where in addition to licensing the use of a Group brand, a Group company manages the hotel for third party owners. The Group derives revenues from base and incentive management fees and provides the system infrastructure necessary for the hotel to operate. Management contract fees are linked to total hotel revenue and may have an additional incentive fee linked to profitabilityand/or cash flow. The terms of these agreements vary, but are often long term (for example, 10 years or more). The Group’s responsibilities under the management agreement typically include hiring, training and supervising the managers and employees that operate the hotels under the relevant brand standards. The Group prepares annual budgets for the hotels that it manages, and the property owners are responsible for funding periodic maintenance and repair on a basis to be agreed with the Group. In order to gain access to central reservation systems, global and regional brand marketing and brand standards and procedures, the owners are typically required to make a further contribution. In certain cases, property owners may require performance targets, with consequences for management fees and sometimes the contract itself (including on occasion, the right of termination) if those targets are not met. At the end of 2006,2007, 23% of the Group’s rooms were operated under management contracts.
owned and leased (“O & L”), where a Group company both owns (or leases) and operates the hotel and, in the case of ownership, takes all the benefits and risks associated with ownership. The Group has sold a significant proportion of its owned and leased portfolio and in future expects to own only hotels where it is considered strategically important to do so. Rooms owned or leased by the Group at the end of 20062007 represented 1% of the Group’s rooms.
 
In addition, the Group also makes equity investments in hotel ownership entities, where its equity investment is less than 100% and it participates in a share of the benefits and risks of ownership. A management contract is generally entered into as well as the equity investment.

25

 
The following table shows the number of hotels and rooms owned, leased, managed or franchised by IHG as at December 31, 2007, 2006 December 31, 2005 and December 31, 2004.2005.
                                 
      Management        
    contracts and joint    
  Owned or leased ventures Franchised Total
         
  No. of No. of No. of No. of No. of No. of No. of No. of
  hotels rooms hotels rooms hotels rooms hotels rooms
                 
2006  25   8,460   512   125,214   3,204   422,572   3,741   556,246 
2005  55   15,485   504   121,249   3,047   400,799   3,606   537,533 
2004  166   38,420   403   98,953   2,971   396,829   3,540   534,202 
 
                                 
     Management
       
     contracts and joint
       
  Owned or leased  ventures  Franchised  Total 
  No. of
  No. of
  No. of
  No. of
  No. of
  No. of
  No. of
  No. of
 
  hotels  rooms  hotels  rooms  hotels  rooms  hotels  rooms 
 
2007  18   6,396   539   134,883   3,392   443,815   3,949   585,094 
2006  25   8,460   512   125,214   3,204   422,572   3,741   556,246 
2005  55   15,485   504   121,249   3,047   400,799   3,606   537,533 
The Group sets quality and service standards for all of its hotel brands (including those operated under management contracts 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.


23

Strategy
 
IHG owns, operates and franchises hotels, with itsseeks to deliver enduring top quartile shareholder returns, when measured against a broad global hotel peer group. The Group’s underlying strategy is that by putting the guest first, it will grow a portfolio of differentiated hospitality brands represented in nearly 100core strategic countries and territories around the world. The Group’s strategy isglobal key cities to become the preferred hotel companymaximise scale advantage. With a clear target for guestsroom growth and owners by building the strongest operating system in the industry, focused on the largest markets and segments where scale really counts. During 2006, IHG initiated a number of research projects,brands with market premiums offering excellent returns for owners, the results of which will strengthenGroup is well placed to execute the Group’s strategy with respect to brand development, franchising operations and growth opportunities.
      The Group has four statedfollowing strategic priorities:
 •brand performance — to operate a portfolio of brands attractive to both owners and guests that have clear market positions and differentiation in relation to competitors;the eyes of the guest;
 
 •excellent hotel returns — to generate higher owner returns through revenue delivery and improved operating efficiency;
 
 •market scale and knowledge — to accelerate profitable growth in the largest markets where the Group currently has scale; and
 
 •aligned organisationorganization — to create a more efficient organization with strong core capabilities.
 Executing the four strategic priorities is designed to achieve:
•IHG has set an organic growth target of at least 50,000 to 60,000 net rooms by the end of 2008 (up 19,246 from 537,000 in June 2005), with specific growth targets for the InterContinental brand and the key Chinese market; and
•out-performance of total shareholder return against a competitor set.
      Growth is planned to be attainedadded by the end of 2008, with specific growth targets for the InterContinental brand (15-25 net InterContinental hotel additions) and within the Chinese market (125 hotels in China). As at December 31, 2007, IHG had achieved organic growth of 47,419 net rooms against the target set in June 2005, together with 13 net InterContinental hotel additions and 81 hotels in China.
IHG’s future growth will be achieved predominantly fromby managing and franchising rather than owning hotels. Approximately 580,000 rooms operating under Group brands are managed and leasing hotels.franchised. The managed and franchised fee-based model is attractive because it enables the Group to achieve its goals with limited capital investment. With a relatively fixed cost base, such growth yields high incremental margins for IHG, and is primarily how the Group has grown recently.investment at an accelerated pace. For this reason, the Group has executed a disposal program for most of its owned hotels, releasing capital and enabling returns of funds to shareholders.shareholders as well as targeted investment in the business.
 
A key characteristic of the managed and franchised business model on which the Group has focused is that it generates more cash than is required for investment in the business, with a high return on capital employed. During the year ended December 31, 2006, 92%2007, 86% of continuing earnings before interest, tax, exceptional operating items and regional and central overheads was derived from managed and franchised operations.

26

 
The Group aims to deliver its growth targets through the strongest operating system in the industry which includes:
 •a strong brand portfolio across the major markets, including two leading brands: InterContinental and Holiday Inn;where IHG’s brands achieved revenue per available room (“RevPAR”) growth premiums within respective key market segments during 2007;
 
 •market coverage — a presence in nearly 100 countries and territories;countries;
 
 •scale — 3,7413,949 hotels, 556,246585,094 rooms and 130137 million guest staysroom nights per annum;
 
 •IHG global reservation channels delivering $5.7$6.8 billion of global system room revenue in 2006,2007, including $2.0$2.6 billion from the internet;
 
 •a loyalty program, Priority Club Rewards, contributing $4.4$5.2 billion of global system room revenue;revenue in 2007; and
 
 •a strong web presence — holidayinn.com is one of the industry’s most visited site,sites, with around 75 million total site visits per annum.
 
With a clear target for rooms growth and a number of brands with market premiums offering excellent returns to owners, the Group is well placed to execute its strategy and achieve its goals.


24

27

Segmental Results
Segmental Results
 
The following table shows revenue and operating profit before otherexceptional operating income and expensesitems in sterling of the IHG continuing Hotels business by activity and the percentage contribution of each activity for the following periods: years ended December 31, 2007, 2006 2005 and 2004.2005.
               
  Year ended Year ended Year ended
  December 31, December 31, December 31,
  2006 2005 2004
       
  (£ million)
Continuing revenue(1)(4)
            
 Americas            
  Owned and leased  115   106   80 
  Managed  77   65   30 
  Franchised  241   213   196 
          
   433   384   306 
 EMEA            
  Owned and leased  100   110   116 
  Managed  71   55   43 
  Franchised  35   35   27 
          
   206   200   186 
 Asia            
  Owned and leased  71   59   50 
  Managed  36   25   21 
  Franchised  4   3   3 
          
   111   87   74 
 
Central(3)
  55   42   40 
          
Total  805   713   606 
          
Continuing operating profit before other operating income and expenses(1)(2)
            
 Americas            
  Owned and leased  14   14   3 
  Managed  27   20   6 
  Franchised  208   186   167 
  Regional overheads  (32)  (34)  (27)
          
   217   186   149 
 EMEA            
  Owned and leased  (5)  (5)  (11)
  Managed  37   31   24 
  Franchised  24   26   21 
  Regional overheads  (20)  (21)  (23)
          
   36   31   11 
 Asia Pacific            
  Owned and leased  17   11   9 
  Managed  21   16   14 
  Franchised  3   2   2 
  Regional overheads  (12)  (8)  (8)
          
   29   21   17 
 
Central(3)
  (81)  (65)  (57)
          
Total  201   173   120 
          
 
             
  Year ended December 31, 
  2007  2006  2005 
  (£ million) 
 
Continuing revenue(1)
            
Americas            
Owned and leased  128   104   98 
Managed  78   77   65 
Franchised  244   241   213 
             
   450   422   376 
EMEA            
Owned and leased  121   92   102 
Managed  84   71   55 
Franchised  40   35   35 
             
   245   198   192 
Asia            
Owned and leased  73   71   59 
Managed  49   36   25 
Franchised  8   4   3 
             
   130   111   87 
Central(3)
  58   55   42 
             
Total  883   786   697 
             
Continuing operating profit before exceptional operating items(1)(2)
            
Americas            
Owned and leased  20   12   14 
Managed  21   27   20 
Franchised  212   208   186 
Regional overheads  (33)  (32)  (34)
             
   220   215   186 
EMEA            
Owned and leased  17   (4)  (3)
Managed  43   37   31 
Franchised  29   24   26 
Regional overheads  (22)  (20)  (21)
             
   67   37   33 
Asia Pacific            
Owned and leased  18   17   11 
Managed  23   21   16 
Franchised  3   3   2 
Regional overheads  (13)  (12)  (8)
             
   31   29   21 
Central(3)
  (81)  (81)  (65)
             
Total  237   200   175 
             
Footnotes on page 29.26.


25

28

               
  Year ended Year ended Year ended
  December 31, December 31, December 31,
  2006 2005 2004
       
  (%)
Continuing revenue            
 Americas            
  Owned and leased  14.3   14.8   13.2 
  Managed  9.6   9.1   5.0 
  Franchised  29.9   29.9   32.3 
          
   53.8   53.8   50.5 
 EMEA            
  Owned and leased  12.4   15.4   19.1 
  Managed  8.8   7.8   7.1 
  Franchised  4.4   4,9   4.5 
          
   25.6   28.1   30.7 
 Asia Pacific            
  Owned and leased  8.8   8.3   8.2 
  Managed  4.5   3.5   3.5 
  Franchised  0.5   0.4   0.5 
          
   13.8   12.2   12.2 
 Central  6.8   5.9   6.6 
          
Total  100.0   100.0   100.0 
          
Continuing operating profit before other operating income and expenses            
 Americas            
  Owned and leased  7.0   8.0   2.5 
  Managed  13.6   11.4   5.0 
  Franchised  103.5   107.9   139.2 
  Regional overheads  (16.0)  (19.7)  (22.5)
          
   108.1   107.6   124.2 
 EMEA            
  Owned and leased  (2.5)  (2.9)  (9.2)
  Managed  18.4   18.0   20.0 
  Franchised  12.0   15.1   17.5 
  Regional overheads  (10.0)  (12.2)  (19.2)
          
   17.9   18.0   9.1 
 Asia Pacific            
  Owned and leased  8.4   6.4   7.5 
  Managed  10.6   9.2   11.7 
  Franchised  1.3   1.3   1.7 
  Regional overheads  (6.0)  (4.8)  (6.7)
          
   14.3   12.1   14.2 
 Central  (40.3)  (37.7)  (47.5)
          
Total  100.0   100.0   100.0 
          
             
  Year ended December 31, 
  2007  2006  2005 
  (%) 
 
Continuing revenue            
Americas            
Owned and leased  14.5   13.2   14.1 
Managed  8.8   9.8   9.3 
Franchised  27.6   30.7   30.6 
             
   50.9   53.7   54.0 
EMEA            
Owned and leased  13.7   11.7   14.6 
Managed  9.5   9.0   7.9 
Franchised  4.5   4.5   5.0 
             
   27.7   25.2   27.5 
Asia Pacific            
Owned and leased  8.3   9.0   8.5 
Managed  5.6   4.6   3.6 
Franchised  0.9   0.5   0.4 
             
   14.8   14.1   12.5 
Central  6.6   7.0   6.0 
             
Total  100.0   100.0   100.0 
             
Continuing operating profit before exceptional operating items            
Americas            
Owned and leased  8.4   6.0   8.0 
Managed  8.9   13.5   11.4 
Franchised  89.5   104.0   106.3 
Regional overheads  (13.9)  (16.0)  (19.4)
             
   92.9   107.5   106.3 
EMEA            
Owned and leased  7.2   (2.0)  (1.7)
Managed  18.1   18.5   17.7 
Franchised  12.2   12.0   14.8 
Regional overheads  (9.3)  (10.0)  (12.0)
             
   28.2   18.5   18.8 
Asia Pacific            
Owned and leased  7.6   8.5   6.3 
Managed  9.7   10.5   9.1 
Franchised  1.3   1.5   1.1 
Regional overheads  (5.5)  (6.0)  (4.5)
             
   13.1   14.5   12.0 
Central  (34.2)  (40.5)  (37.1)
             
Total  100.0   100.0   100.0 
             
 
(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 rate is 2006: £1 = $1.84; (2005:$2.01 (2006 £1 = $1.83, 2004:$1.84, 2005 £1 = $1.82)$1.83). In the case of the euro, the translation rate is 2006: £1 =€1.47; (2005: €1.46 (2006 £1 =€1.46, 2004: €1.47, 2005 £1 =€1.47) €1.46).
 
(2)Operating profit before otherexceptional operating income and expensesitems does not include otherexceptional operating income and expensesitems for all periods presented. OtherExceptional operating income and expenses (chargeitems (credit unless otherwise noted) by region are the Americas (2006:£9 million (2006 £25 million, credit; 2005:2005 £5 million; 2004: £15 million credit)charge); Europe, the Middle East and Africa (2006:£10 million (2006 £2 million, credit; 2005:2005 £12 million; 2004: £57 million)million charge); Asia Pacific £8 million (2006 £nil, 2005 £5 million charge); and Asia Pacific (2006: £nil; 2005: £5 million; 2004: £7 million)Central £3 million (2006 £nil, 2005 £nil).
 
(3)Central revenue primarily relates to Holidex (IHG’s proprietary reservation system) fee income. Central operating profit includes central revenue less costs related to global functions.
(4) Amounts are reported by origin. See Note 2 of Notes to the Consolidated Financial Statements for details by destination, for which the amounts are not significantly different.

26

29

The following table shows revenue and operating profit before exceptional operating items in US dollars of the IHG continuing Hotels business by activity and the percentage contribution of each activity for the following periods: years ended December 31, 2007, 2006 2005 and 2004.2005.
               
  Year ended Year ended Year ended
  December 31, December 31, December 31,
  2006 2005 2004
       
  ($ million)
Continuing revenue(1)(4)
            
 Americas            
  Owned and leased  211   195   146 
  Managed  143   118   55 
  Franchised  443   389   357 
          
   797   702   558 
 EMEA            
  Owned and leased  184   201   211 
  Managed  131   100   78 
  Franchised  63   64   50 
          
   378   365   339 
 Asia Pacific            
  Owned and leased  131   108   91 
  Managed  65   45   38 
  Franchised  8   6   5 
          
   204   159   134 
 
Central(3)
  101   77   74 
          
Total  1,480   1,303   1,105 
          
Continuing operating profit before other operating income and expenses(1)(2)
            
 Americas            
  Owned and leased  26   25   6 
  Managed  50   36   12 
  Franchised  382   340   304 
  Regional overheads  (59)  (62)  (50)
          
   399   339   272 
 EMEA            
  Owned and leased  (9)  (9)  (20)
  Managed  68   56   43 
  Franchised  44   48   38 
  Regional overheads  (36)  (39)  (42)
          
   67   56   19 
 Asia Pacific            
  Owned and leased  31   20   17 
  Managed  39   29   25 
  Franchised  5   5   3 
  Regional overheads  (23)  (15)  (15)
          
   52   39   30 
 
Central(3)
  (149)  (118)  (102)
          
Total  369   316   219 
          
 
             
  Year ended December 31, 
  2007  2006  2005 
  ($ million) 
 
Continuing revenue(1)
            
Americas            
Owned and leased  257   192   180 
Managed  156   143   118 
Franchised  489   443   389 
             
   902   778   687 
EMEA            
Owned and leased  244   169   187 
Managed  167   131   100 
Franchised  81   63   64 
             
   492   363   351 
Asia Pacific            
Owned and leased  145   131   108 
Managed  99   65   45 
Franchised  16   8   6 
             
   260   204   159 
Central(3)
  117   101   77 
             
Total  1,771   1,446   1,274 
             
Continuing operating profit before exceptional operating items(1)(2)
            
Americas            
Owned and leased  40   22   26 
Managed  41   50   36 
Franchised  425   382   340 
Regional overheads  (66)  (59)  (62)
             
   440   395   340 
EMEA            
Owned and leased  33   (7)  (5)
Managed  87   68   56 
Franchised  58   44   48 
Regional overheads  (44)  (36)  (39)
             
   134   69   60 
Asia Pacific            
Owned and leased  36   31   20 
Managed  46   39   29 
Franchised  6   5   5 
Regional overheads  (25)  (23)  (15)
             
   63   52   39 
Central(3)
  (163)  (149)  (118)
             
Total  474   367   321 
             
Footnotes on pages 31 and 32.page 28.


27

30

               
  Year ended Year ended Year ended
  December 31, December 31, December 31,
  2006 2005 2004
       
  (%)
Continuing revenue            
 Americas            
  Owned and leased  14.3   15.0   13.2 
  Managed  9.7   9.0   5.0 
  Franchised  29.9   29.9   32.3 
          
   53.9   53.9   50.5 
 EMEA            
  Owned and leased  12.4   15.4   19.1 
  Managed  8.8   7.7   7.1 
  Franchised  4.3   4.9   4.5 
          
   25.5   28.0   30.7 
 Asia Pacific            
  Owned and leased  8.9   8.3   8.2 
  Managed  4.4   3.4   3.4 
  Franchised  0.5   0.5   0.5 
          
   13.8   12.2   12.1 
 Central  6.8   5.9   6.7 
          
Total  100.0   100.0   100.0 
          
Continuing operating profit before other operating income and expenses            
 Americas            
  Owned and leased  7.0   8.1   2.7 
  Managed  13.5   10.4   5.5 
  Franchised  103.5   98.0   138.8 
  Regional overheads  (16.0)  (17.9)  (22.8)
          
   108.0   98.6   124.2 
 EMEA            
  Owned and leased  (2.4)  5.8   (9.1)
  Managed  18.4   16.4   19.6 
  Franchised  11.9   13.5   17.4 
  Regional overheads  (9.7)  (11.0)  (19.2)
          
   18.2   24.7   8.7 
 Asia            
  Owned and leased  8.4   5.5   7.8 
  Managed  10.6   8.4   11.4 
  Franchised  1.3   1.4   1.4 
  Regional overheads  (6.2)  (4.3)  (6.9)
          
   14.1   11.0   13.7 
 Central  (40.3)  (34.3)  (46.6)
          
Total  100.0   100.0   100.0 
          
             
  Year ended December 31, 
  2007  2006  2005 
  (%) 
 
Continuing revenue            
Americas            
Owned and leased  14.5   13.3   14.1 
Managed  8.8   9.9   9.3 
Franchised  27.6   30.6   30.5 
             
   50.9   53.8   53.9 
EMEA            
Owned and leased  13.8   11.7   14.7 
Managed  9.4   9.0   7.9 
Franchised  4.6   4.4   5.0 
             
   27.8   25.1   27.6 
Asia Pacific            
Owned and leased  8.2   9.0   8.5 
Managed  5.6   4.5   3.5 
Franchised  0.9   0.6   0.5 
             
   14.7   14.1   12.5 
Central  6.6   7.0   6.0 
             
Total  100.0   100.0   100.0 
             
Continuing operating profit before exceptional operating items            
Americas            
Owned and leased  8.4   6.0   8.1 
Managed  8.6   13.6   11.2 
Franchised  89.7   104.0   105.9 
Regional overheads  (13.9)  (16.0)  (19.3)
             
   92.8   107.6   105.9 
EMEA            
Owned and leased  7.0   (1.9)  (1.6)
Managed  18.4   18.5   17.4 
Franchised  12.2   12.0   15.0 
Regional overheads  (9.3)  (9.8)  (12.1)
             
   28.3   18.8   18.7 
Asia            
Owned and leased  7.6   8.5   6.2 
Managed  9.7   10.6   9.0 
Franchised  1.3   1.4   1.6 
Regional overheads  (5.3)  (6.3)  (4.6)
             
   13.3   14.2   12.2 
Central  (34.4)  (40.6)  (36.8)
             
Total  100.0   100.0   100.0 
             
 
(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 rate is 2006: £1 = $1.84; (2005:$2.01 (2006 £1 = $1.83, 2004:$1.84, 2005 £1 = $1.82)$1.83). In the case of the euro, the translation rate is 2006: £1 =€1.47; (2005: €1.46 (2006 £1 =€1.46, 2004: €1.47, 2005 £1 =€1.47) €1.46).

31

(2)Operating profit before otherexceptional operating income and expensesitems does not include otherexceptional operating income and expensesitems for all periods presented. OtherExceptional operating income and expenses (chargeitems (credit unless otherwise noted) by region are the Americas (2006:£9 million (2006 £25 million, credit; 2005:2005 £5 million; 2004: £15 million credit)charge); Europe, the Middle East and Africa (2006:£10 million (2006 £2 million, credit; 2005:2005 £12 million; 2004: £57 million)million charge); Asia Pacific £8 million (2006 £nil, 2005 £5 million charge); and Asia Pacific (2006: £nil; 2005: £5 million; 2004: £7 million)Central 2007 £3 million (2006 £nil, 2005 £nil).
 
(3)Central revenue primarily relates to Holidex (IHG’s proprietary reservation system) fee income. Central operating profit includes central revenue less costs related to global functions.
(4) Amounts are reported by origin. See Note 2 of Notes to the Consolidated Financial Statements for details by destination, for which the amounts are not significantly different.


28

Global System
 
The Group supports revenue delivery into its hotels through its global reservation channels and global loyalty program (Priority Club Rewards) which is paid for by assessments from each hotel in the Group. The elements of the global system include:
 
Priority Club Rewards:  The Group operates the Priority Club Rewards loyalty program. Members enjoy a variety of privileges and rewards as they stay at the Group’s hotels around the world. IHG has alliances with over 40 airlines, which enable members to collect frequent flyer miles, and with external partners such as car hire companies and credit card companies, which provide exposure and access to IHG’s system. Global system rooms sales generated from Priority Club Rewards members during 2006 was $4.42007 were $5.2 billion and represented approximately 34%35% of IHG global system rooms sales.
 
Central Reservation System Technology:  The Group operates the HolidexPlus reservation system. The HolidexPlus system receives 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 system immediately confirms reservations or indicates alternative accommodation available within IHG’s network. Confirmations are transmitted electronically to the hotel for which the reservation is made.
 
Reservation Call Centers:  The Group operates 12 reservation centers around the world which enable it to sell in local languages in many countries and offer a high quality service to customers.
 
Internet:  The Group introduced electronic hotel reservations in 1995. The Internet continues to be an important communications, branding and distribution channel for the Group’s sales. During 2006,2007, the internet channel continued to show strong growth, with global system rooms sales booked through the internet increasing by 18%27% to $2.0$2.6 billion. Approximately 16%17% of IHG global system rooms sales is via the internet through various branded websites, such as www.intercontinental.com and www.holiday-inn.com,www.holidayinn.com, as well as certified third parties (up from 14%16% in 2005)2006). IHG has established standards for working with third party intermediaries — on-line travel distributors — who sell or re-sell IHG hotel rooms via their internet sites. Under the standards, certified distributors are required to respect IHG’s trademarks, ensure reservations are guaranteed through an automated and common confirmation process, and clearly present fees to customers. About 86%85% of IHG global system rooms sales booked on the web is now booked directly through the Group’s own brand sites.
 
The Group estimates that, during 2006,2007, global system rooms sales booked through these reservation systems (which include company reservation centers, global distribution systems and internet reservations) rose by approximately 21%19% to $5.7$6.8 billion, and the proportion of IHG global system rooms sales booked through IHG’s reservation channels increased from 41%44% to 44%45%.
Sales and Marketing
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.

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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 their share of the total hotel spend to establish Priority Club Rewards as the number one program in the industry;spend;
 
• makingcontinuing to improve the direct channels the best available;channels; and
 
• improving pricing structure.


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Global Brands
Brands Overview
 
Global Brands
Brands Overview
The Group’s portfolio includes seven established and diverse brands. These brands cover several market segments and in the case of InterContinental, Crowne Plaza, Holiday Inn and Express, operate internationally. Staybridge Suites operates in the Americas and was launched in the United Kingdom in 2005. Candlewood Suites and Hotel Indigo operate exclusively in the United States.
         
  December 31, 2006
   
Brands Room numbers Hotels
     
InterContinental  49,599   148 
Crowne Plaza  75,632   275 
Holiday Inn  260,470   1,395 
Holiday Inn Express  143,582   1,686 
Staybridge Suites  10,953   97 
Candlewood Suites  14,149   130 
Hotel Indigo  893   6 
Other  968   4 
Total  556,246   3,741 
             
  December 31, 2007    
Brands
 Room numbers  Hotels    
 
InterContinental  50,762   149     
Crowne Plaza  83,170   299     
Holiday Inn  256,699   1,381     
Holiday Inn Express  156,531   1,808     
Staybridge Suites  13,466   122     
Candlewood Suites  16,825   158     
Hotel Indigo  1,501   11     
Other  6,140   21     
             
Total  585,094   3,949     
             
InterContinental
                     
  Americas
  Americas
  EMEA
  EMEA
  Asia Pacific
 
  total  O & L  total  O & L  total 
 
Average room rate $(1)
  169.83   260.63   190.85   449.58   173.22 
Room numbers(2)
  16,624   1,914   20,012   1,288   14,126 
InterContinental
                     
  Americas Americas EMEA EMEA  
  total O & L total O & L Asia Pacific
           
Average room rate $(1)
  152.75   227.59   164.11   269.15   160.73 
Room numbers(2)
  16,525   2,271   21,423   1,288   11,651 
(1)For the year ended December 31, 2006;2007; quoted at constant US$ exchange rate. Owned and leased averageAverage room rate is for comparable InterContinental hotels.
 
(2)As at December 31, 2006.2007.
 
InterContinental is IHG’s most prestigioushotels are located in major cities and leisure destinations in over 60 countries. Each hotel brand. The brand aims to meetoffers high-class facilities and services aimed at the tastes of discerning business and leisure travellers. traveller. The brand strives to provide guests with memorable experiences which also give a sense of each hotel’s location. These hotels blend luxury with a celebration of local culture and heritage which is reflected in everything from décor to dining.
InterContinental hotels are generally located in prime locations in major cities and key resorts aroundprincipally managed by the world. ThereGroup. As at December 31, 2007, there were 148149 InterContinental hotels across 60 countries and territories which represented 9% of all of IHG’s total hotel rooms as at December 31, 2006.
      InterContinental hotels are principally owned, leased or managed by the Group. The brand is one of the largest international premium hotel brands based on room numbers and has more than 50 years of heritage. 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).
rooms. During 2006, 14 new2007, five InterContinental hotels were added to the portfolio. After removals there was a net gain of 11 in the total number of InterContinental hotels.portfolio while four hotels were removed.

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Crowne Plaza
                 
  Americas
  EMEA
  EMEA
  Asia Pacific
 
  total  total  O & L  total 
 
Average room rate $(1)
  115.01   150.73   117.61   100.23 
Room numbers(2)
  47,893   17,326   233   17,951 
Crowne Plaza
                     
  Americas Americas EMEA EMEA  
  total O & L total O & L Asia Pacific
           
Average room rate $(1)
  111.05   85.24   130.75   111.64   95.21 
Room numbers(2)
  42,604   293   16,440   732   16,588 
(1)For the year ended December 31, 2006;2007; quoted at constant US$ exchange rate. Owned and leased averageAverage room rate is for comparable Crowne Plaza hotels.
 
(2)As at December 31, 2006.2007.
 
Crowne Plaza is IHG’s globalone of the fastest growing upscale hotel brand which had grown to 275 hotels worldwide by December 31, 2006. Defined as “the Place to Meet”,brands in the brand is targeted at the business guest, with a particular focus on executive meetings and business events. Mostlyworld, located in principal cities, the upscalemore than 50 countries. Crowne Plaza hotels provide the high level of comfort, amenities, services,offers simple elegance and full-service facilities and meeting space expected byfor business and leisure travellers ofalike. Mainly sited in principal cities, these hotels offer high quality accommodation for leisure and business travellers who appreciate style, a full service hotel. Crowne Plaza represented 14% of IHG hotel rooms as at December 31, 2006.sociable environment, excellent meeting facilities and state-of-the-art business technology.
 Approximately 68%
The majority of the upscale Crowne Plaza hotels and resorts are franchised hotels.operated under franchise agreements. As at December 31, 2006, 56% of2007, there were 299 Crowne Plaza brand properties were in the Americas. The key competitors in this segment include Sheraton, Marriott, Hilton, Double-Tree, Wyndham and Radisson.
hotels which represented 14% of IHG’s total hotel rooms. During 2006, 452007, 38 Crowne Plaza hotels were added to the portfolio while five14 hotels were removed, resulting in a net increase of 40 hotels.removed.


30

Holiday Inn
                 
  Americas
  Americas
  EMEA
  Asia Pacific
 
  total  O & L  total  total 
 
Average room rate $(1)
  95.97   96.04   119.64   81.18 
Room numbers(2)
  177,999   1,882   52,842   25,858 
Holiday Inn
                     
  Americas Americas EMEA EMEA  
  total O & L total O & L Asia Pacific
           
Average room rate $(1)
  91.35   93.67   105.70   92.86   73.82 
Room numbers(2)
  186,067   1,882   50,628   915   23,775 
(1)For the year ended December 31, 2006;2007; quoted at constant US$ exchange rate. Owned and leased averageAverage room rate is for comparable Holiday Inn hotels.
 
(2)As at December 31, 2006.2007.
 
Friendly service and great value are the hallmarks of the Holiday Inn is onebrand. One of the world’s most recognized hotel brands, with a global reputation for full service, comfort and value. Holiday Inn International was acquiredrelaunched in 1988, with2007 to improve our ability to meet guest needs for contemporary high-quality and consistent facilities. The relaunch includes a new identity and logo. Aimed at both business travellers and families on holiday, the remaining North American business of Holiday Inn being acquired in 1990. The Holiday Inn brand is targeted at themid-market guest and is the Group’s largest global hotel brand based on room numbers. The Holiday Inn brand continues to expand and evolve globally to provide convenient and productive facilities for business travellers as well as memorable holiday experiences for families.grow around the world.
 There were 1,395 
Holiday Inn hotels located in more than 70 countries and territories which represented 47% of all IHG’s hotel rooms as at December 31, 2006. The brand isare predominantly franchised.operated under franchise agreements. As at December 31, 2006, 71% of the2007, there were 1,381 Holiday Inn branded hotels which represented 44% of IHG’s total hotel rooms and of which 69% were located in the Americas. During 2007, 69 new Holiday Inn hotels were added to the portfolio, while 83 hotels were removed.
Holiday Inn Express
             
  Americas
  EMEA
  Asia Pacific
 
  total  total  total 
 
Average room rate $(1)
  94.10   104.73   72.75 
Room numbers(2)
  134,551   19,380   2,600 
Holiday Inn Express
             
  Americas EMEA  
  total total Asia Pacific
       
Average room rate $(1)
  87.46   91.82   42.86 
Room numbers(2)
  123,718   18,109   1,755 
(1)For the year ended December 31, 2006;2007; quoted at constant US$ exchange rate. Owned and leased averageAverage room rate is for comparable Holiday Inn Express hotels.
 
(2)As at December 31, 2006.2007.

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Convenience, comfort and value make Holiday Inn Express is a rapidly growing, freshpopular choice with guests and uncomplicated brand, offeringlimited-service comfort, conveniencehotel owners. Contemporary guest rooms and good value. IHG recognizedbathrooms, a complimentary breakfast and easily accessible locations make this limited service Holiday Inn an ideal choice for people on the need for a brand in this category in the early 1990s and subsequently developedroad. Holiday Inn Express to extend the reach of the was also relaunched in 2007.
Holiday Inn brand and enter the midscale limited service market. The brand aims to provide the room quality of midscaleExpress hotels where guests enjoy smart bedrooms, contemporary bathrooms and complimentary breakfast.
      Thereare almost entirely operated under franchise agreements. As at December 31, 2007, there were 1,6861,808 Holiday Inn Express hotels worldwide which represented 26%27% of IHG’s total hotel rooms as at December 31, 2006. Holiday Inn Express is oneand of the largest brands in the US midscale limited service sector based on room numbers, and approximatelywhich 86% of the Holiday Inn Express branded rooms arewere located in the Americas. Holiday Inn Express hotels are almost entirely franchised. Holiday Inn 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.
During 2006, 1452007, 177 new Holiday Inn Express hotels were added to the portfolio, while 4955 hotels were removed from the portfolio, resulting in a net gain of 96 hotels. A further 299 franchise agreements were signed, adding to the system pipeline.removed.
Staybridge Suites
Staybridge Suites
     
  Americas
  total
 
Average room rate $(1)
  100.53105.06 
Room numbers(2)
  10,95313,466 
 
(1)For the year ended December 31, 2006;2007; quoted at constant US$ exchange rate. Average room rate is for comparable Staybridge Suite’s hotels.
 
(2)As at December 31, 2006.2007.
 
Staybridge Suites is IHG’s organically developedlong-stay upscalea high-end brand that offersoffering guests a home away from home. The rooms offer more space than the typicalhome for extended hotel room, offeringstays. Residential in style, they provide studios and one and two bedroom suites, complete with kitchens, and living rooms and work stationsareas, andhigh-speed internet access along with breakfast. As at December 31, 2006, there were 97 Staybridge Suites hotels, all of whichfor business and leisure guests. The “Just Like Home” theatre and new buffet kitchen are located incommunal areas where guests can meet and relax. The brand will develop outside the Americas, representing 2% of all IHG’s hotel rooms. United States during 2008.
The Staybridge Suites brand is primarilyprincipally operated under franchisedmanagement contracts and managed models. The primary competitors include Residence Inn, Homewood, Summerfield and Hawthorne. On April 6, 2005 the Group announced the launch offranchise agreements. As at December 31, 2007, there were 122 Staybridge Suites hotels, all located in the United Kingdom.
Americas, which represented 2% of IHG’s total hotel rooms. During 2006, 122007, 25 hotels were added to the portfolio with two removals.portfolio.


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Candlewood Suites
     
  Americas
  total
 
Average room rate $(1)
  67.2770.14 
Room numbers(2)
  14,14916,825 
 
(1)For the year ended December 31, 2006;2007; quoted at constant US$ exchange rate. Average room rate is for comparable Candlewood Suites hotels.
 
(2)As at December 31, 2006.2007.
 The Candlewood Suites brand was acquired on December 31, 2003. Candlewood Suites is a mid-scale extended-stay brand which complements Staybridge Suites’ upside positioning. Candlewood Suites is an established brand of carefully designed and purpose-built hotels created
Created for guest stays of a week or longer, Candlewood Suites offer studios and one bedroom suites with studio and one-bedroom suites featuring well-equippedwell equipped kitchens, spacious work areas and an array of convenient amenities. As at December 31, 2006 there were 130This extended stay brand continues to grow rapidly in the Americas and recently launched a new bedding collection.
The Candlewood Suites hotels. Thebrand is operated under management contracts and franchise agreements. Hospitality Properties Trust (“HPT”) is a major owner of Candlewood Suites properties is HPT and the Group manages all 76 of HPT’s Candlewood Suites properties under a 20 year agreement. At the end of 2006,As at December 31, 2007, there were 158 Candlewood Suites hotels which represented 2%3% of all ofIHG’s total rooms. During 2007, 29 hotels were added to the Group’s rooms.portfolio and one was removed.

35

Hotel Indigo
 In April 2004, the Group launched its seventh brand,
Hotel Indigo which is a new, innovativethe industry’s first branded boutique hotel. The brand designed foris aimed at style-conscious guests who want peaceful and affordable luxury combined with all the style-conscious traveller who seeks the ambience of a boutiqueknowledge, experience and operating systems that an international hotel with the benefits and consistencies of a global hotel operation.company can offer. Inspired by lifestyle retailing, Hotel Indigoit features seasonal changes, inviting service, inspiring artwork, casual gourmet restaurants,dining, airy guest rooms and24-hour business amenities.
The first Hotel Indigo opened in Atlanta, Georgia in the United States in October 2004. As at December 31, 20062007, there were six11 Hotel Indigo hotels with 893 rooms.five hotels added to the portfolio during the year.
     
  Americas
  total
 
Average room rate $(1)
  100.77116.54 
Room numbers(2)
  8931,501 
 
(1)For the year ended December 31, 2006;2007; quoted at constant US$ exchange rate. Average room rate is for comparable Hotel Indigo hotels.
 
(2)As at December 31, 2006.2007.
Geographical Analysis
 
Although it has worldwide hotel operations, the Group is most dependent on the Americas for operating profit, reflecting the structure of the branded global hotel market. In termsThe Americas region generated 69% of itsthe Group’s continuing operating profit before central overheads and otherexceptional operating income and expenses, the Americas represented 77%, EMEA represented 13% and the Asia Pacific region represented 10% in the year ended December 2006.items during 2007.
 
The geographical analysis, split by number of rooms and operating profit, is set out in the table below.
             
  Americas EMEA Asia Pacific
       
  (% of total)
Room numbers(1)
  71   19   10 
Hotel level operating profit (before central overheads and other operating income and expenses)(2)
  77   13   10 
 
             
  Americas  EMEA  Asia Pacific 
  (% of total) 
 
Room numbers(1)
  70   19   11 
Regional operating profit (before central overheads and exceptional operating items)(2)
  69   21   10 
(1)As at December 31, 2006.2007.
 
(2)For the year ended December 31, 2006.2007.


32

 
The following table shows information concerning the geographical locations and ownership of IHG’s hotels as at December 31, 2006.2007.
                                  
    Management contract    
  Owned or leased and joint ventures Franchised Total
         
  Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms
                 
United States
                                
 InterContinental  4   1,914   10   4,103   3   852   17   6,869 
 Crowne Plaza  —   —   14   5,439   108   30,224   122   35,663 
 Holiday Inn  3   758   26   8,639   817   152,758   846   162,155 
 Holiday Inn Express  —   —   1   252   1,430   115,138   1,431   115,390 
 Staybridge Suites  2   233   39   4,765   51   5,356   92   10,354 
 Candlewood Suites  —   —   77   9,340   53   4,809   130   14,149 
 Hotel Indigo  —   —   2   305   4   588   6   893 
                         
Total  9   2,905   169   32,843   2,466   309,725   2,644   345,473 
                         

36

                                  
    Management contract    
  Owned or leased and joint ventures Franchised Total
         
  Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms
                 
Rest of Americas
                                
 InterContinental  1   357   11   3,498   20   5,801   32   9,656 
 Crowne Plaza  1   293   3   737   29   5,911   33   6,941 
 Holiday Inn  2   1,124   4   1,844   135   20,944   141   23,912 
 Holiday Inn Express  —   —   —   —   75   8,328   75   8,328 
 Staybridge Suites  —   —   2   335   3   264   5   599 
 Candlewood Suites  —   —   —   —   —   —   —   — 
 Hotel Indigo  —   —   —   —   —   —   —   — 
                         
Total  4   1,774   20   6,414   262   41,248   286   49,436 
                         
Total Americas
                                
 InterContinental  5   2,271   21   7,601   23   6,653   49   16,525 
 Crowne Plaza  1   293   17   6,176   137   36,135   155   42,604 
 Holiday Inn  5   1,882   30   10,483   952   173,702   987   186,067 
 Holiday Inn Express  —   —   1   252   1,505   123,466   1,506   123,718 
 Staybridge Suites  2   233   41   5,100   54   5,620   97   10,953 
 Candlewood Suites  —   —   77   9,340   53   4,809   130   14,149 
 Hotel Indigo  —   —   2   305   4   588   6   893 
                         
Total  13   4,679   189   39,257   2,728   350,973   2,930   394,909 
                         
United Kingdom
                                
 InterContinental  1   447   —   —   —   —   1   447 
 Crowne Plaza  —   —   6   1,530   9   1,938   15   3,468 
 Holiday Inn  —   —   58   9,973   46   6,483   104   16,456 
 Holiday Inn Express  —   —   1   120   106   10,949   107   11,069 
 Staybridge Suites  —   —   —   —   —   —   —   — 
 Candlewood Suites  —   —   —   —   —   —   —   — 
                         
Total  1   447   65   11,623   161   19,370   227   31,440 
                         
Europe
                                
 InterContinental  1   470   23   7,972   3   951   27   9,393 
 Crowne Plaza  3   732   6   1,351   32   7,644   41   9,727 
 Holiday Inn  3   915   9   2,059   174   26,393   186   29,367 
 Holiday Inn Express  1   153   9   1,005   54   5,778   64   6,936 
 Staybridge Suites  —   —   —   —   —   —   —   — 
 Candlewood Suites  —   —   —   —   —   —   —   — 
                         
Total  8   2,270   47   12,387   263   40,766   318   55,423 
                         

37

                                  
    Management contract    
  Owned or leased and joint ventures Franchised Total
         
  Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms
                 
The Middle East and Africa
                                
 InterContinental  1   371   33   10,264   4   948   38   11,583 
 Crowne Plaza  —   —   11   3,041   1   204   12   3,245 
 Holiday Inn  —   —   18   3,360   9   1,445   27   4,805 
 Holiday Inn Express  —   —   —   —   1   104   1   104 
 Staybridge Suites  —   —   —   —   —   —   —   — 
 Candlewood Suites  —   —   —   —   —   —   —   — 
 Other  —   —   —   —   —   —   —   — 
                         
Total  1   371   62   16,665   15   2,701   78   19,737 
                         
Total EMEA
                                
 InterContinental  3   1,288   56   18,236   7   1,899   66   21,423 
 Crowne Plaza  3   732   23   5,922   42   9,786   68   16,440 
 Holiday Inn  3   915   85   15,392   229   34,321   317   50,628 
 Holiday Inn Express  1   153   10   1,125   161   16,831   172   18,109 
 Staybridge Suites  —   —   —   —   —   —   —   — 
 Candlewood Suites  —   —   —   —   —   —   —   — 
 Other  —   —   —   —   —   —   —   — 
                         
Total  10   3,088   174   40,675   439   62,837   623   106,600 
                         
Far East and Australasia (Asia Pacific)
                                
 InterContinental  1   495   24   8,789   8   2,367   33   11,651 
 Crowne Plaza  —   —   44   13,806   8   2,782   52   16,588 
 Holiday Inn  1   198   70   20,101   20   3,476   91   23,775 
 Holiday Inn Express  —   —   7   1,618   1   137   8   1,755 
 Staybridge Suites  —   —   —   —   —   —   —   — 
 Candlewood Suites  —   —   —   —   —   —   —   — 
 Other  —   —   4   968   —   —   4   968 
                         
Total  2   693   149   45,282   37   8,762   188   54,737 
                         

38

                                  
    Management contract    
  Owned or leased and joint ventures Franchised Total
         
  Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms
                 
Total
                                
 InterContinental  9   4,054   101   34,626   38   10,919   148   49,599 
 Crowne Plaza  4   1,025   84   25,904   187   48,703   275   75,632 
 Holiday Inn  9   2,995   185   45,976   1,201   211,499   1,395   260,470 
 Holiday Inn Express  1   153   18   2,995   1,667   140,434   1,686   143,582 
 Staybridge Suites  2   233   41   5,100   54   5,620   97   10,953 
 Candlewood Suites  —   —   77   9,340   53   4,809   130   14,149 
 Hotel Indigo  —   —   2   305   4   588   6   893 
 Other  —   —   4   968   —   —   4   968 
                         
Total  25   8,460   512   125,214   3,204   422,572   3,741   556,246 
                         
                                 
  Owned and leased  Managed  Franchised  Total 
  Hotels  Rooms  Hotels  Rooms  Hotels  Rooms  Hotels  Rooms 
 
Americas
                                
InterContinental  4   1,914   23   8,313   23   6,397   50   16,624 
Crowne Plaza  —   —   19   6,620   153   41,273   172   47,893 
Holiday Inn  5   1,882   29   9,654   918   166,463   952   177,999 
Holiday Inn Express  —   —   1   252   1,614   134,299   1,615   134,551 
Staybridge Suites  2   233   41   5,142   79   8,091   122   13,466 
Candlewood Suites  —   —   78   9,410   80   7,415   158   16,825 
Hotel Indigo  —   —   2   305   9   1,196   11   1,501 
                                 
Total  11   4,029   193   39,696   2,876   365,134   3,080   408,859 
                                 
EMEA
                                
InterContinental  3   1,288   53   17,077   6   1,647   62   20,012 
Crowne Plaza  1   233   20   5,234   51   11,859   72   17,326 
Holiday Inn  —   —   86   15,452   249   37,390   335   52,842 
Holiday Inn Express  1   153   12   1,310   169   17,917   182   19,380 
                                 
Total  5   1,674   171   39,073   475   68,813   651   109,560 
                                 
Asia Pacific
                                
InterContinental  1   495   28   11,256   8   2,375   37   14,126 
Crowne Plaza  —   —   50   15,833   5   2,118   55   17,951 
Holiday Inn  1   198   78   23,242   15   2,418   94   25,858 
Holiday Inn Express  —   —   10   2,463   1   137   11   2,600 
Other  —   —   9   3,320   12   2,820   21   6,140 
                                 
Total  2   693   175   56,114   41   9,868   218   66,675 
                                 
Total
                                
InterContinental  8   3,697   104   36,646   37   10,419   149   50,762 
Crowne Plaza  1   233   89   27,687   209   55,250   299   83,170 
Holiday Inn  6   2,080   193   48,348   1,182   206,271   1,381   256,699 
Holiday Inn Express  1   153   23   4,025   1,784   152,353   1,808   156,531 
Staybridge Suites  2   233   41   5,142   79   8,091   122   13,466 
Candlewood Suites  —   —   78   9,410   80   7,415   158   16,825 
Hotel Indigo  —   —   2   305   9   1,196   11   1,501 
Other  —   —   9   3,320   12   2,820   21   6,140 
                                 
Total  18   6,396   539   134,883   3,392   443,815   3,949   585,094 
                                 
Americas
 
In the Americas, the largest proportion of rooms is operated under the franchise business model primarily in the midscale segment (Holiday Inn and Holiday Inn Express). Similarly, in the upscale segment, Crowne Plaza is predominantly franchised, whereas the majority of the InterContinental brand is operated under franchise and management agreements. With 2,9303,080 hotels, the Americas represented 78% of the bulk ofGroup’s hotels and approximately 77%69% of the Group’s continuing operating profit before central costs and otherexceptional operating income and expensesitems during the year ended December 31, 2006.2007. The key profit producing region is the United States, although IHG is also represented in each of Latin America, Canada, Mexico and the Caribbean.
EMEA
 
Comprising 623651 hotels at the end of 2006,2007, EMEA represented approximately 13%21% of the Group’s continuing operating profit before central costs and otherexceptional operating income and expensesitems during the year ended December 31, 2006. 2007.


33

Profits are primarily generated from hotels in the United Kingdom, continentalContinental European gateway cities and the Middle East portfolio.
Asia Pacific
 
Comprising 218 hotels as at December 31, 2007, Asia Pacific represented 10% of the Group’s rooms andrepresents approximately 10% of the Group’s operating profit before central costs and otherexceptional operating income and expensesitems during the year ended December 31, 2006. IHG has a strong and growing presence in Asia Pacific, comprising 188 hotels in total.2007. Greater China is expected to generate significant growth in the hotel and tourism industry over the next decade. As at December 31, 20062007 the Group had 6581 hotels in Greater China and a further 55107 hotels in development.
Room Count and System Pipeline
 The
During 2007, the IHG global system grew significantly during 2006 ending the fiscal year at 3,741(the number of hotels and 556,246 rooms 135which are owned, leased, managed or franchised by the Group) increased by 208 hotels (28,848 rooms, or 5.2%) to 3,949 hotels (585,094 rooms). The record growth level was driven, in particular, by continued expansion in the United States, the United Kingdom, China and Japan, resulting in openings of 366 hotels (52,846 rooms). Holiday Inn Express represented 58.7% of the net hotel growth, demonstrating strong market demand in the midscale, limited service sector. The extended stay portfolio, comprising Staybridge Suites and Candlewood Suites hotels, expanded by 53 hotels (5,189 rooms), indicating owner confidence in this sector.
The net decline in the Holiday Inn hotel and room count (14 hotels and 18,713 rooms higher than at December 31, 2005 (see Figure 4). During 2006, 2863,771 rooms) primarily reflects IHG’s continued strategy to reinvigorate the Holiday Inn brand through the removal of lower quality, non-brand conforming hotels with 42,841 rooms were added to the system, while 151 hotels with 24,128 rooms were removed from the system. Of the hotels removed from the system, 126 (18,310 rooms) were in the Americas.
      OneUnited States. This strategy is further supported by the worldwide brand relaunch of the key elementsHoliday Inn brand family, announced in October 2007, which entails the consistent delivery of the asset disposal program is the retention of management contracts for the hotels sold. Of those sold between Separationbest-in-class service and December 31, 2006, management contracts or franchise agreements were retained for 156physical quality in all Holiday Inn and Holiday Inn Express hotels. Overall, the number of owned and leased rooms fell by 7,025 while the number of managed and franchised rooms in the system grew by 3,965 rooms and 21,773 rooms respectively.

39

 
At the end of 2006,2007, the number of rooms in theIHG pipeline (contracts signed butfor hotels and rooms yet to enter the IHG global system) was 1,241, an increasetotaled 1,674 hotels (225,872 rooms). In the year, record room signings across all regions of 40% from 2005 (see figure 5)125,533 rooms led to pipeline growth of 67,881 rooms (or 43.0%). This positions the Group well to achieve its stated goallevel of organic growth demonstrates strong demand for IHG brands across all regions and represents a key driver of at least 50,000 to 60,000 net rooms in the period June 2005 to December 2008. Whilst there is no guarantee that all of the pipeline will enter the system in that period, a number of initiatives are in place to both secure new deals and to reduce the time between a hotel signing with IHG and opening.future profitability.
 The growth in pipeline was fuelled by record level signings during 2006; 102,774 rooms were signed which represents an increase of over 100% of the average between 2001 and 2005. This partly reflects the increased investment in development resource particularly in the Americas and Asia Pacific.
There are no assurances that all of the hotels in the pipeline will open or enter the system. The construction, conversion and development of hotels is dependent upon a number of factors, including meeting brand standards, obtaining the necessary permits relating to construction and operation, the cost of constructing, converting and equipping such hotels and the ability to obtain suitable financing at acceptable interest rates. The supply of capital for hotel development in the United States and major economies may not continue at previous levels and consequently the system pipeline could decrease.
Americas
The Americas hotel and room count grew by 150 hotels (13,950 rooms) to 3,080 hotels (408,859 rooms). The growth included openings of 274 hotels (31,744 rooms) led by continued demand for Holiday Inn Express of 156 hotels (13,908 rooms). Franchised hotels contributed over 98% of net growth, reflecting the sustained demand for the franchised model. Net growth also included removals of 124 hotels (17,794 rooms), of which Holiday Inn hotels represented 54.0% (69.2% rooms).
The Americas pipeline continued to achieve high growth levels and totaled 1,330 hotels (141,157 rooms) at December 31, 2007. During the year, 75,279 room signings were completed, compared with 61,673 room signings in 2006. These signing levels outpaced the prior year as demand for Holiday Inn and Holiday Inn Express continued to accelerate. Furthermore, the extended stay brands, Staybridge Suites and Candlewood Suites, contributed 24.3% of the region’s room signings.
FIGURE 4EMEA
                          
  Hotels Rooms
     
    Change   Change
Global hotel and room count at December 31, 2006 2006 2005 over 2005 2006 2005 over 2005
             
Analyzed by brand:                        
 InterContinental  148   137   11   49,599   46,262   3,337 
 Crowne Plaza  275   235   40   75,632   65,404   10,228 
 Holiday Inn  1,395   1,435   (40)  260,470   267,816   (7,346)
 Holiday Inn Express  1,686   1,590   96   143,582   133,554   10,028 
 Staybridge Suites  97   87   10   10,953   9,915   1,038 
 Candlewood Suites  130   112   18   14,149   12,683   1,466 
 Hotel Indigo  6   3   3   893   497   396 
 Other  4   7   (3)  968   1,402   (434)
                   
Total  3,741   3,606   135   556,246   537,533   18,713 
                   
Analyzed by ownership type:                        
 Owned and leased  25   55   (30)  8,460   15,485   (7,025)
 Managed  512   504   8   125,214   121,249   3,965 
 Franchised  3,204   3,047   157   422,572   400,799   21,773 
                   
Total  3,741   3,606   135   556,246   537,533   18,713 
                   
During 2007, EMEA hotel and room count increased by 28 hotels (2,960 rooms) to 651 hotels (109,560 rooms). The net growth included the opening of 55 hotels (7,956 rooms) and the removal of 27 hotels (4,996 rooms).


34

40

System growth was led by openings in the United Kingdom of 22 hotels (2,522 rooms). Holiday Inn was the largest contributor of room openings, adding over 50% of the region’s total.
The pipeline in EMEA increased by 44 hotels (10,832 rooms) to 187 hotels (32,889 rooms). The growth included a record level of 19,153 room signings, driven by exceptional demand in the Middle East, particularly in the United Arab Emirates and Saudi Arabia. Across the region, sustained demand for the Holiday Inn brand led to 6,004 room signings during the year whilst the region also experienced a significant increase in room signings for the InterContinental and Crowne Plaza brands. The EMEA pipeline included 10 Staybridge Suites hotels (1,229 rooms), of which the first hotels are expected to open in the United Kingdom and the Middle East during 2008.
Asia Pacific
Asia Pacific hotel and room count increased by 30 hotels (11,938 rooms) to 218 hotels (66,675 rooms). The net growth included 16 hotels (7,827 rooms) in Greater China reflecting continued expansion in one of IHG’s strategic markets, together with 15 hotels (3,542 rooms) in Japan that joined the system as part of the IHG ANA joint venture.
The pipeline in Asia Pacific increased by 71 hotels (21,577 rooms) to 157 hotels (51,826 rooms). Demand in the Greater China market continued throughout the year and represented 82.3% of the region’s room signings. From a brand perspective, Crowne Plaza attracted significant interest, contributing over half of the total room signings.
FIGURE 4
                         
  Hotels  Rooms 
        Change
        Change
 
Global hotel and room count at December 31 2007  2006  over 2006  2007  2006  over 2006 
 
Analyzed by brand:                        
InterContinental  149   148   1   50,762   49,599   1,163 
Crowne Plaza  299   275   24   83,170   75,632   7,538 
Holiday Inn  1,381   1,395   (14)  256,699   260,470   (3,771)
Holiday Inn Express  1,808   1,686   122   156,531   143,582   12,949 
Staybridge Suites  122   97   25   13,466   10,953   2,513 
Candlewood Suites  158   130   28   16,825   14,149   2,676 
Hotel Indigo  11   6   5   1,501   893   608 
Other  21   4   17   6,140   968   5,172 
                         
Total  3,949   3,741   208   585,094   556,246   28,848 
                         
Analyzed by ownership type:                        
Owned and leased  18   25   (7)  6,396   8,460   (2,064)
Managed  539   512   27   134,883   125,214   9,669 
Franchised  3,392   3,204   188   443,815   422,572   21,243 
                         
Total  3,949   3,741   208   585,094   556,246   28,848 
                         


35

FIGURE 5
                          
  Hotels Rooms
     
    Change   Change
Global pipeline at December 31, 2006 2006 2005 over 2005 2006 2005 over 2005
             
Analyzed by brand:                        
 InterContinental  36   27   9   13,211   9,353   3,858 
 Crowne Plaza  60   54   6   17,113   13,514   3,599 
 Holiday Inn  299   204   95   44,774   31,035   13,739 
 Holiday Inn Express  574   429   145   55,520   38,066   17,454 
 Staybridge Suites  120   79   41   12,605   8,195   4,410 
 Candlewood Suites  128   83   45   11,723   7,467   4,256 
 Hotel Indigo  24   8   16   3,045   882   2,163 
                   
Total  1,241   884   357   157,991   108,512   49,479 
                   
Analyzed by ownership type:                        
 Owned and leased  —   2   (2)  —   574   (574)
 Managed  139   98   41   41,648   27,805   13,843 
 Franchised  1,102   784   318   116,343   80,133   36,210 
                   
Total  1,241   884   357   157,991   108,512   49,479 
                   
                         
  Hotels  Rooms 
        Change
        Change
 
Global pipeline at December 31
 2007  2006  over 2006  2007  2006  over 2006 
 
Analyzed by brand:                        
InterContinental  62   36   26   20,013   13,211   6,802 
Crowne Plaza  118   60   58   36,362   17,113   19,249 
Holiday Inn  365   299   66   56,945   44,774   12,171 
Holiday Inn Express  712   574   138   70,142   55,520   14,622 
Staybridge Suites  157   120   37   17,150   12,605   4,545 
Candlewood Suites  207   128   79   18,605   11,723   6,882 
Hotel Indigo  52   24   28   6,565   3,045   3,520 
Other  1   —   1   90   —   90 
                         
Total  1,674   1,241   433   225,872   157,991   67,881 
                         
Analyzed by ownership type:                        
Managed  247   139   108   71,814   41,648   30,166 
Franchised  1,427   1,102   325   154,058   116,343   37,715 
                         
Total  1,674   1,241   433   225,872   157,991   67,881 
                         
Seasonality
 
Seasonality
Although the performance of individual hotels and geographic markets might be highly seasonal due to a variety of factors such as the tourist trade and local economic conditions, the geographical spread of IHG’sthe Group’s hotels in nearly 100 countries and territories and the relative stability of the income stream from management and franchising activities diminish the effect of seasonality on the results of the Group.
Competition
Competition
 
The Group’s hotels compete with a wide range of facilities offering various types of lodging options and related services to the public. The competition includes several large and moderate sized hotel chains offering upper, mid and lower priced accommodation and also includes independent hotels in each of these market segments, particularly outside of North America where the lodging industry is much more fragmented. Major hotel chains which compete with the Group include Marriott International, Inc., Starwood Hotels & Resorts Worldwide, Inc., Choice Hotels International, Inc., Best Western International, Inc., Hilton Hotels Corporation, Cendant Corporation,Wyndham Worldwide, Four Seasons Hotels Inc. and Accor S.A.
Key Relationships
Key Relationships
 
IHG maintains effective business relationships across all aspects of its operations. However, theThe Group’s operations are not dependent upon any single customer, supplier or hotel owner due to the extent of its brands, market segments and geographical coverage. For example, theIHG’s largest third-party hotel owner controls less than 4% of the Group’s total room count.
 
To promote effective owner relationships, the Group’s management meets with owners of IHG branded hotels on a regular basis. In addition, IHG has an important relationship with the InternationalIAHI — The Owners’ Association of Holiday Inns (“IAHI”). The IAHI is an independent worldwide association for owners of the Crowne Plaza, Holiday Inn, Holiday Inn Express, Hotel Indigo, Staybridge Suites and Candlewood Suites brands. IHG and the IAHI work together to support and facilitate the continued development of IHG’s brands and systems.systems, with specific emphasis during 2007 on the relaunch of the Holiday Inn brand family. Additionally, IHG and the IAHI began working together to develop and facilitate key corporate responsibility initiatives within the Group’s brands.
 
Many jurisdictions and countries regulate the offering of franchise agreements and recent trends indicate an increase in the number of countries adopting franchise legislation. As a significant percentage of the Group’s


36

41

Group’s
revenues is derived from franchise fees, the Group’s continued compliance with franchise legislation is important to the successful deployment of the Group’s strategy.
 On January 25, 2006 IHG announced a restructured management agreement with FelCor, covering all of the hotels (15,790 rooms) owned by FelCor and managed by IHG. Seventeen hotels (6,301 rooms) were retained by FelCor and managed by IHG, under revised contract terms (the contract duration was extended to 2025 and the incentive fees on all the hotels have been rebased). HPT purchased seven of the hotels (2,072 rooms) from FelCor for $160 million, which IHG continues to manage under a separate management agreement. There was no increase in the guarantees to HPT (described in “Item 10. Additional Information — Material Contracts”) as a result of this transaction.
RevPAR
 On February 10, 2006, the Group announced the sale of its entire shareholding in FelCor for $180.5 million in cash, ($19 per share). This sale followed the renegotiation of the management agreement with FelCor.
      On October 28, 2006 IHG announced the signing of a hotel operating joint venture agreement with ANA. IHG invested £10 million for a majority stake in the joint venture increasing IHG’s portfolio in Japan from 12 hotels (3,686 rooms) to 25 hotels (8,623 rooms). As part of the transaction, ANA signed a 15 year management contract for its 13 owned and leased hotels (4,937 rooms).
Key Performance Indicators (KPIs)
      In addition to the traditional profit measures, the management team at IHG monitor the Group and regional performance of the business through a range of financial and non-financial KPIs, the most significant of which include:
•total gross revenue — measure of the scale and reach of IHG’s brands;
•revenue per available room (RevPAR) — measure of underlying hotel revenue with year-on-year performance being measured by the RevPAR movement against the prior year;
•hotel and room count — measure of the size of IHG’s portfolio; and
•pipeline of hotels and rooms — measure of demand and growth potential for IHG’s brands.
      Data for the calculation of KPIs is provided from IHG and underlying hotel records.

42

RevPAR
The following tables present RevPAR statistics for the years ended December 31, 20062007 and 2005.2006. RevPAR is a key performance indicator which measures underlying hotel revenue with year-on-year performance being measured by the RevPAR movement against the prior year.
 
Owned and leased, managed and managedfranchised statistics are for comparable hotels, and include only those hotels in the IHG system as of December 31, 20062007 and owned and leased, managed or managedfranchised by the Group since January 1, 2005.2006.
 
The comparison with 20052006 is at constant US$ exchange rates.
                                       
  Owned & leased comparable Managed comparable Franchised
       
    Change vs   Change vs   Change vs
  2006 2005 2005 2006 2005 2005 2006 2005 2005
                   
Americas
                                    
 InterContinental                                    
  Occupancy  78.5%  73.5%  5.0% pts  68.7%  67.2%  1.5% pts.  61.7%  59.8%  1.9% pts.
  Average daily rate $227.59  $216.58   5.1% $157.11  $145.82   7.7% $117.50  $106.53   10.3%
  RevPAR $178.63  $159.19   12.2% $107.89  $97.96   10.1% $72.50  $63.73   13.8%
 Crowne Plaza                                    
  Occupancy  72.4%  66.1%  6.3% pts.  75.4%  74.5%  1.0% pts.  62.7%  61.5%  1.2% pts.
  Average daily rate $85.24  $73.41   –16.1% $135.26  $120.07   12.7% $106.38  $98.39   8.1%
  RevPAR $61.75  $48.52   27.3% $102.05  $89.42   14.1% $66.74  $60.53   10.3%
 Holiday Inn                                    
  Occupancy  69.2%  70.6%  1.4% pts.  67.7%  69.0%  –1.3% pts.  62.5%  61.9%  0.6% pts.
  Average daily rate $93.67  $89.72   4.4% $98.56  $92.33   6.7% $90.86  $85.20   6.6%
  RevPAR $64.79  $63.33   2.3% $66.76  $63.76   4.7% $56.77  $52.75   7.6%
 Holiday Inn Express                                    
  Occupancy  —   —   —   74.8%  75.1%  –0.3% pts.  68.0%  66.7%  1.4% pts.
  Average daily rate  —   —   —  $133.55  $119.12   12.1% $87.36  $80.52   8.5%
  RevPAR  —   —   —  $99.91  $89.51   11.6% $59.44  $53.68   10.7%
 Staybridge Suites                                    
  Occupancy  66.7%  73.7%  –7.0% pts.  76.4%  76.8%  –0.5% pts.  72.9%  73.2%  –0.4% pts.
  Average daily rate $91.53  $73.18   –25.1% $104.22  $95.25   9.4% $97.34  $91.23   6.7%
  RevPAR $61.06  $53.93   13.2% $79.59  $73.17   8.8% $70.92  $66.80   6.2%
 Candlewood Suites                                    
  Occupancy  —   —   —   75.7%  75.0%  0.7% pts.  66.1%  69.5%  –3.4% pts.
  Average daily rate  —   —   —  $66.50  $61.03   8.9% $69.22  $64.45   7.4%
  RevPAR  —   —   —  $50.31  $45.76   9.9% $45.72  $44.77   2.1%
 Hotel Indigo                                    
  Occupancy  —   —   —   69.0%  55.9%  13.2% pts.  39.2%  42.4%  –3.3% pts.
  Average daily rate  —   —   —  $127.05  $115.19   10.3% $86.02  $84.44   1.9%
  RevPAR  —   —   —  $87.70  $64.35   36.3% $33.70  $35.85   –6.0%
                                     
  Owned & leased  Managed  Franchised 
        Change vs
        Change vs
        Change vs
 
  2007  2006  2006  2007  2006  2006  2007  2006  2006 
 
Americas
                                    
InterContinental                                    
Occupancy  83.6%  81.7%  1.9%pts  70.5%  68.0%  2.5%pts  64.7%  64.9%  (0.2)%pts
Average daily rate $260.63  $241.21   8.05% $172.28  $161.33   6.79% $126.53  $116.51   8.60%
RevPAR $217.86  $196.97   10.61% $121.51  $109.64   10.83% $81.87  $75.64   8.24%
Crowne Plaza                                    
Occupancy  0   0   0   74.9%  74.7%  0.2%pts  64.1%  63.0%  1.1%pts
Average daily rate  0   0   0  $142.46  $133.33   6.85% $109.16  $103.22   5.75%
RevPAR  0   0   0  $106.71  $99.55   7.19% $69.96  $65.00   7.63%
Holiday Inn                                    
Occupancy  72.9%  69.2%  3.7%pts  68.9%  67.6%  1.3%pts  63.1%  63.5%  (0.4)%pts
Average daily rate $96.04  $93.67   2.53% $106.53  $100.86   5.62% $95.26  $90.52   5.24%
RevPAR $70.01  $64.79   8.06% $73.45  $68.19   7.71% $60.12  $57.44   4.67%
Holiday Inn Express                                    
Occupancy  0   0   0   75.8%  74.8%  1.0%pts  68.1%  68.7%  (0.6)%pts
Average daily rate  0   0   0  $148.58  $133.55   11.25% $93.96  $87.32   7.60%
RevPAR  0   0   0  $112.67  $99.91   12.77% $63.98  $59.95   6.72%
Staybridge Suites                                    
Occupancy  73.7%  74.8%  (1.1)%pts  74.9%  76.5%  (1.6)%pts  73.4%  73.3%  0.1%pts
Average daily rate $100.56  $94.61   6.29% $108.83  $104.53   4.11% $101.81  $96.24   5.79%
RevPAR $74.12  $70.73   4.79% $81.56  $79.92   2.05% $74.77  $70.53   6.01%
Candlewood Suites                                    
Occupancy  0   0   0   74.5%  75.7%  (1.2)%pts  66.3%  69.2%  (2.9)%pts
Average daily rate  0   0   0  $69.81  $66.50   4.98% $71.14  $68.99   3.12%
RevPAR  0   0   0  $52.02  $50.31   3.40% $47.19  $47.71   (1.09)%
Hotel Indigo                                    
Occupancy  0   0   0   68.4%  66.3%  2.1%pts  53.2%  41.1%  12.1%pts
Average daily rate  0   0   0  $142.78  $143.74   (0.67)% $88.12  $78.37   12.44%
RevPAR  0   0   0  $97.72  $95.25   2.59% $46.89  $32.25   45.40%


37

43

                                       
  Owned & leased comparable Managed comparable Franchised
       
    Change vs   Change vs   Change vs
  2006 2005 2005 2006 2005 2005 2006 2005 2005
                   
EMEA
                                    
 InterContinental                                    
  Occupancy  70.6%  69.9%  0.7% pts.  65.4%  60.9%  4.5% pts.  71.3%  68.5%  2.8% pts.
  Average daily rate $269.15  $223.15   20.6% $155.76  $145.66   6.9% $173.14  $141.33   22.5%
  RevPAR $190.08  $156.08   21.8% $101.92  $88.71   14.9% $123.46  $96.87   27.4%
 Crown Plaza                                    
  Occupancy  70.4%  68.8%  1.6% pts.  75.2%  73.7%  1.5% pts.  67.3%  64.5%  2.8% pts.
  Average daily rate $111.64  $104.66   6.7% $140.25  $129.91   8.0% $126.50  $119.16   6.2%
  RevPAR $78.59  $71.99   9.2% $105.53  $95.74   10.2% $85.13  $76.84   10.8%
 Holiday Inn                                    
  Occupancy  70.7%  66.2%  4.5% pts.  73.6%  71.2%  2.4% pts.  65.6%  64.5%  1.1% pts.
  Average daily rate $92.86  $94.18   –1.4% $111.58  $106.62   4.7% $103.50  $92.46   11.9%
  RevPAR $65.66  $62.37   5.3% $82.12  $75.90   8.2% $67.87  $59.64   13.8%
 Holiday Inn Express                                    
  Occupancy  70.1%  63.9%  6.3% pts.  63.8%  56.6%  7.2% pts.  70.8%  68.8%  2.0% pts.
  Average daily rate $78.12  $79.01   –1.1% $76.04  $71.68   6.1% $92.62  $88.39   4.8%
  RevPAR $54.79  $50.45   8.6% $48.49  $40.56   19.5% $65.59  $60.85   7.8%
                                       
  Owned & leased comparable Managed comparable Franchised
       
    Change vs   Change vs   Change vs
  2006 2005 2005 2006 2005 2005 2006 2005 2005
                   
Asia Pacific
                                    
 InterContinental                                    
  Occupancy  72.5%  65.9%  6.6% pts.  71.1%  71.0%  0.1% pts.  70.8%  68.0%  2.8% pts.
  Average daily rate $340.73  $284.50   19.8% $146.55  $140.56   4.3% $159.64  $135.26   18.0%
  RevPAR $247.07  $187.39   31.8% $104.23  $99.80   4.4% $113.03  $92.01   22.8%
 Crowne Plaza                                    
  Occupancy  —   —   —   78.6%  76.8%  1.8% pts.  77.7%  74.6%  31.1% pts.
  Average daily rate  —   —   —  $94.52  $87.95   7.5% $98.31  $91.29   7.7%
  RevPAR  —   —   —  $74.27  $67.56   9.9% $76.41  $68.13   12.2%
 Holiday Inn                                    
  Occupancy  78.6%  76.9%  1.7% pts.  76.6%  75.8%  0.8% pts.  69.5%  71.3%  –1.8% pts.
  Average daily rate $104.63  $92.06   13.7% $75.35  $69.25   8.8% $66.17  $63.98   3.4%
  RevPAR $82.24  $70.76   16.2% $57.72  $52.47   10.0% $45.97  $45.62   0.8%
 Holiday Inn Express                                    
  Occupancy  —   —   —   77.2%  77.8%  –0.6% pts.  65.4%  67.3%  –1.9% pts.
  Average daily rate  —   —   —  $39.38  $37.44   5.2% $53.81  $52.20   3.1%
  RevPAR  —   —   —  $30.39  $29.11   4.4% $35.19  $35.13   0.2%
 Other                                    
  Occupancy  —   —   —   67.1%  70.1%  –3.0% pts.  —   —   — 
  Average daily rate  —   —   —  $74.73  $72.21   3.5%  —   —   — 
  RevPAR  —   —   —  $50.17  $50.64   –0.9%  —   —   — 
        ��                            
  Owned & leased  Managed  Franchised 
        Change vs
        Change vs
        Change vs
 
  2007  2006  2006  2007  2006  2006  2007  2006  2006 
 
EMEA
                                    
InterContinental                                    
Occupancy  81.7%  79.2%  2.5%pts  68.4%  65.3%  3.1%pts  67.1%  64.5%  2.6%pts
Average daily rate $449.58  $406.56   10.58% $176.96  $164.13   7.82% $281.93  $242.64   16.19%
RevPAR $367.30  $322.17   14.01% $121.06  $107.18   12.95% $189.31  $156.44   21.01%
Crown Plaza                                    
Occupancy  70.9%  70.1%  0.8%pts  78.5%  77.2%  1.3%pts  69.6%  68.6%  1.0%pts
Average daily rate $117.61  $122.04   (3.63)% $169.52  $153.74   10.26% $141.89  $135.03   5.08%
RevPAR $83.43  $85.60   (2.54)% $133.01  $118.71   12.05% $98.79  $92.67   6.60%
Holiday Inn                                    
Occupancy  0   0   0   74.5%  73.9%  0.6%pts  67.6%  66.3%  1.3%pts
Average daily rate  0   0   0  $127.69  $120.05   6.36% $115.87  $110.27   5.08%
RevPAR  0   0   0  $95.07  $88.73   7.15% $78.38  $73.10   7.22%
Holiday Inn Express                                    
Occupancy  72.5%  70.1%  2.4%pts  68.3%  63.5%  4.8%pts  73.8%  72.8%  1.0%pts
Average daily rate $81.92  $84.81   (3.41)% $87.88  $82.29   6.79% $106.19  $101.78   4.33%
RevPAR $59.39  $59.49   (0.17)% $60.02  $52.28   14.80% $78.34  $74.04   5.81%
Regulation
 
                                     
  Owned & leased  Managed  Franchised 
        Change vs
        Change vs
        Change vs
 
  2007  2006  2006  2007  2006  2006  2007  2006  2006 
 
Asia Pacific
                                    
InterContinental                                    
Occupancy  69.9%  72.5%  (2.6)%pts  73.8%  70.2%  3.6%pts  73.2%  70.8%  2.4%pts
Average daily rate $377.22  $339.09   11.24% $154.45  $150.48   2.64% $184.82  $157.63   17.25%
RevPAR $263.77  $245.88   7.28% $114.03  $105.68   7.90% $135.32  $111.60   21.25%
Crowne Plaza                                    
Occupancy  0   0   0   75.7%  75.3%  0.4%pts  84.9%  85.4%  (0.5)%pts
Average daily rate  0   0   0  $97.60  $92.57   5.43% $120.67  $108.69   11.02%
RevPAR  0   0   0  $73.87  $69.67   6.03% $102.41  $92.80   10.36%
Holiday Inn                                    
Occupancy  76.7%  78.6%  (1.9)%pts  76.0%  75.7%  0.3%pts  71.1%  70.8%  0.3%pts
Average daily rate $116.17  $106.32   9.26% $81.87  $75.43   8.54% $72.78  $68.49   6.26%
RevPAR $89.16  $83.56   6.70% $62.22  $57.13   8.91% $51.72  $48.48   6.68%
Holiday Inn Express                                    
Occupancy  0   0   0   84.9%  82.7%  2.2%pts  55.4%  65.4%  (10.0)%pts
Average daily rate  0   0   0  $75.05  $67.58   11.05% $56.47  $53.52   5.51%
RevPAR  0   0   0  $63.68  $55.88   13.96% $31.28  $35.01   (10.65)%
Other                                    
Occupancy  0   0   0   59.3%  56.4%  2.9%pts  0   0   0 
Average daily rate  0   0   0  $119.27  $113.80   4.81%  0   0   0 
RevPAR  0   0   0  $70.74  $64.22   10.15%  0   0   0 
Regulation
Both in the United Kingdom and internationally, the Group’s hotel operations are subject to regulation, including health and safety, zoning and similar land use laws as well as regulations that influence or determine wages, prices, interest rates, construction procedures and costs.

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44

SOFT DRINKS
 
The Group disposed of its interest in Britvic by way of an IPO in December 2005. The Group received aggregate proceeds of approximately £371 million (including two additional dividends, one of £47 million received in November 2005, and another of £89 million, received in May 2005, before any commissions or expenses).
 
The Group results for fiscal 2005 include the results of Soft Drinks for the period up until the IPO of Britvic on December 14, 2005.
 
Britvic generated operating profits before other operating income and expenses of £70 million on revenues of £671 million in the period up to December 14, 2005.
TRADEMARKS
 
Group companies own a substantial number of service brands and product brands and the Group believes that its significant trademarks are protected in all material respects in the markets in which it currently operates.
ORGANIZATIONAL STRUCTURE
Principal operating subsidiary undertakings
Principal operating subsidiary undertakings
 
InterContinental Hotels Group PLC (or, where appropriate IHL) was the beneficial owner of all (unless specified) of the equity share capital, either itself or through subsidiary undertakings, of the following companies during the year. Unless stated otherwise, the following companies were incorporated in Great Britain, registered in England and Wales and operate principally within the United Kingdom. The companies listed below include those which principally affect the amount of profit and assets of the Group.
 
Six Continents Limited (formerly a
Hotel Inter-Continental London Limiteda
Six Continents PLC)Hotels, Inc.b
 
InterContinental Hotels Group Services CompanyCorporationb
 
Barclay Operating Corporationb
IHG Resources Inc.b
InterContinental Hotels Group (Management Services)Hong Kong Limitedc
Société Nouvelle du-Grand Hotel, SAd
(a)Incorporated in Great Britain and registered in England and Wales.
 
InterContinental Hotels Group Operating Corporation (incorporated and operates principally(b)Incorporated in the United States)States.
(c)Incorporated in Hong Kong.
(d)Incorporated in France.
PROPERTY, PLANT AND EQUIPMENT
 
Group companies own and lease properties throughout the world. The table below analyzes the net book value of land and buildings (excluding assets classified as held for sale) at December 31, 2006.2007. Approximately 40%37% of the properties by value were directly owned, with 55%53% held under leases having a term of 50 years or longer.
                 
  Europe,      
Net book value of land and buildings as the Middle East      
at December 31, 2006 and Africa Americas Asia Pacific Total
         
  (£ million)
Hotels  278   289   172   739 
             
 
                 
  Europe,
      
Net book value of land and buildings as
 the Middle East
      
at December 31, 2007 and Africa Americas Asia Pacific Total
  (£ million)
 
Hotels  318   251   166   735 
                 


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Group properties comprise hotels. Approximately 85% of the Group’s property values relate to the top five owned and leased hotels (in terms of value) of a total of 2118 hotels.
 In the year ended
At December 31, 2006 property, plant and equipment have been written down by £nil2007, a previously recorded impairment charge of £3 million (2005, £7 million)was reversed following an impairment review of certain hotel assets based on current market trading conditions. Fair value was measured by reference to recent transactions for hotel assets in these markets.

45

ENVIRONMENT
 
IHG is committed to all its operating companies having a responsibility to act in a way that respects the environment in which they operate. The Group’s strong presence in the United States and European Union markets mean that it is affected by and is familiar with highly developed environmental laws and controls. IHG regularly considers environmental matters and seeks to embed good practice into its business strategies and operations. IHG is a member of the FTSE4Good Index Series.
 We have
The Group has a wide range of environmental responsibilities and a unique opportunity to lead the world’s hospitality industry in environmental innovation.
 
As we pursue ourIHG pursues its strategic growth and continuecontinues to develop ourits environmental practice, we aimthe Group aims to minimise our negative effects on the environment. We areThe Group is committed to providing updated information to stakeholders on:
 • developments in global environmental policy;
 • how we establishit establishes management responsibility and accountability for environmental performance;
 • how we evaluateit evaluates and manage ourmanages the Group’s hotels’ environmental footprint;
 • new projects and developments; and
 • performance benchmarking against best practice.
 
In 2006 weIHG improved data collection and reporting to increase our energy efficiency. The Group’s hotels already take steps to conserve resources, including energy and water, and to manage waste and recycling effectively. In 2007, we intend to benchmark these achievements were benchmarked across ourthe Group’s business so that we can set clear targets for improvement.improvement can be set.
 In September 2006 we created the new role of Senior Vice President with responsibility for developing and implementing the Group’s Corporate Social Responsibility (“CSR”) policies and practices. This position reports directly to Richard Winter in his capacity as the IHG Executive Committee member responsible for the development of our global CSR strategy. A comprehensive review of IHG’s current position on CSR was undertaken and a revised strategy was considered and approved by the Board in December 2006.
      Following research throughout 2006, we now have a much better understanding of our main risks and opportunities. The Group’s immediate priorities for action are environmental management and support for the communities in which we operate.it operates. The travel and tourism industry is coming under increasing pressure to address its impact on the environment and society and become more sustainable. We must addressAddressing this challenge asis a priority.
 
IHG believes that travel and tourism should be operated responsibly and that the benefits of taking this approach far outweigh the costs. Tourism provides opportunities for local economic development, new business and much needed jobs, especially in developing countries. It also opens the door to improved learning, better communication, greater diversity and richer, more fulfilling social experiences.
 
The Group accepts that there are actions that hotel operators can take to minimise travel and tourism’s negative effects still further. We will be launching severalThe following new initiatives were launched in 2007 and will encourage our2007:
• an online tool which will enable IHG to measure its water, waste and energy across the globe was piloted;
• a carbon and environmental footprint, the first by a major hotel group was completed;
• compact fluorescent light bulbs were distributed as replacements for incandescent bulbs. It is estimated that this initiative will result in over $2 million of annual energy savings; and
• a range of environmental initiatives were implemented at IHG’s corporate offices, including recycling and improved waste management.
IHG encourages owners and guests to support these activities.
 
IHG will continue to concentrate its efforts on supporting local communities and seek to develop protocols to assess the responsible management of our supply chain.
 Addressing our risks and opportunities in a cohesive way
IHG has required us to developdeveloped a more integrated CSRcorporate responsibility (“CR”) strategy — one that is consistent with our Winning Ways. We haveand created a global team, representing all parts of ourthe business, to manage our CSRthe CR agenda and to develop detailed future plans.
      The Group’s reporting systems will also be strengthened in 2007 so that we can collect better data and set ourselves appropriate performance targets.


40

      Group companies incur expenditure on technical advice, services and equipment in addressing the environmental laws and regulations enacted in the countries in which they operate. In 2006, such expenditure was not material in the context of their Financial results.

46

ITEM 4A.UNRESOLVED STAFF COMMENTS
None.
ITEM 4A.UNRESOLVED STAFF COMMENTS
      None.
ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS
INTRODUCTION
Business and Overview
Business and Overview
 The
InterContinental Hotels Group is an international hotel business which owns a worldwide owner, managerportfolio of established and franchisor of hotels and resorts. Through its various subsidiaries, the Group owned, managed, leased or franchised 3,741 hotels and 556,246 guest rooms in nearly 100 countries and territories around the world, as at December 31, 2006. The Group’sdiverse hotel brands, includeincluding InterContinental, Hotels & Resorts, Crowne Plaza, Hotels & Resorts, Holiday Inn, Hotels & Resorts, Holiday Inn Express, Staybridge Suites, Candlewood Suites and Hotel Indigo.Indigo, with 3,949 franchised, managed, owned and leased hotels and 585,094 guest rooms in nearly 100 countries as at December 31, 2007. The Group also manages the hotel loyalty program, Priority Club Rewards.
 
The Group’s revenue and earnings are derived from (i) hotel operations, which include operation of the Group’s owned hotels, management and other fees paid under management contracts, where the Group operates third-parties’ hotels, and franchise and other fees paid under franchise agreements and (ii) until December 14, 2005, the manufacture and distribution of soft drinks.
Operational Performance
Operational Performance
 
For the year ended December 31, 2006,2007, the Hotels business reported growth in all regions at the revenue and operating profit lines for continuing operations. The 2006 regional increases weregrowth was driven by strong underlying RevPAR growth of approximately 10%gains across the 3,741 hotelsall regions, hotel expansion in key markets and were primarily the result of higher room rates.profit uplift from owned and leased assets.
 
The performance of the Hotels business is evaluated primarily on a regional basis. The regional operations are split by similar product or services: franchise agreement, management contract, and owned and leased operations. All three income types are affected by occupancy and room rates achieved by hotels, ourthe ability to manage costs and the change in the number of available rooms through acquisition, development and disposition. Results are also impacted by economic conditions and capacity. The Group’s segmental results are shown before otherexceptional operating income and expenses,items, interest expense, interest income and income taxes.
 
The Group believes the period-over-period movement in RevPAR to be a meaningful indicator for the performance of the Hotels business.
CRITICAL ACCOUNTING POLICIES UNDER IFRS AND US GAAP
 
The preparation of the Company’s consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and costs and expense during the reporting periods. On an ongoing basis, management evaluates its estimates and judgments, including those relating to revenue recognition, bad debts, inventories, investments, property, plant and equipment, goodwill and intangible assets, income taxes, financing operations, frequent guest program liability, self insurance claims payable, restructuring costs, retirement benefits and contingencies and litigation.
 
Management bases its estimates and judgments on historical experience and on other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates under different assumptions and conditions.


41

47

The Group’sCompany’s critical accounting policies are set out below.
Goodwill, intangible assets, and property, plant and equipment
Revenue recognition
 Under IFRS, goodwill
Revenue is derived from the following sources: owned and leased properties; management fees; franchise fees and other revenues which are ancillary to the Company’s operations.
Generally, revenue represents sales (excluding VAT and similar taxes) of goods and services, net of discounts, provided in the normal course of business and recognized when services have been rendered. The following is a description of the composition of revenues of the Company.
Owned and leased — primarily derived from hotel operations, including the rental of rooms and food and beverage sales from owned and leased hotels operated under the Company’s brand names. Revenue is recognized when rooms are occupied and food and beverages are sold.
Management fees — earned from hotels managed by the Company, usually under long-term contracts with the hotel owner. Management fees include a base fee, which is generally a percentage of hotel revenue, and an incentive fee, which is generally based on the hotel’s profitability or cash flows. Revenue is recognized when earned and realized or realizable under the terms of the contract.
Franchise fees — received in connection with the license of the Company’s brand names, usually under long-term contracts with the hotel owner. The Company charges franchise royalty fees as a percentage of room revenue. Revenue is recognized when earned and realized or realizable under the terms of the agreement.
The Company participates in three funds established to collect and administer assessments from hotel owners for specific use in marketing, the Priority Club loyalty program and the global reservation system. The Company acts, in substance, as an agent with regard to the funds and all assessments are designated for specific purposes and result in no profit for the Group. Accordingly, the revenues, expenses and cash flows of the funds are not included in the Consolidated Income Statement or Consolidated Cash Flow Statement.
Goodwill, intangible assets, and property, plant and equipment
Goodwill arising on acquisitions prior to October 1, 1998 was eliminated against equity. From October 1, 1998 to December 31, 2003, acquired goodwill was capitalized and amortized over a period not exceeding 20 years. Since January 1, 2004, goodwill continued to be capitalized but amortization ceased as at that date, replaced by an annualimpairment review for impairment.
      Under US GAAP, goodwill arising on acquisitions prior to July 1, 2001 was capitalized and amortized over its estimated useful life, not exceeding 40 years. From October 1, 2002, goodwill and indefinite life intangible assets are not amortized but are reviewed annually for impairment.
      Under both IFRS and US GAAP, the Company uses discounted cash flow models to test goodwill and indefinite life intangibles for impairment on an annual basis or more frequently if there are indicators of impairment. The discounted cash flow models require assumptions about the timingGoodwill is allocated to cash-generating units for impairment testing purposes.
Intangible assets and amount of net cash inflows, economic projections, cost of capitalproperty, plant and terminal values. Each of these can significantly affect the value of the assets.
      Under both IFRS and US GAAP, finite lived intangible assetsequipment are capitalized and amortized over their anticipated life.
      Under both IFRSexpected useful lives, and US GAAP, the carrying value of property, plant and equipment and finite lived intangible assets are assessed for indicators of impairment. The Company evaluates the carrying value of its long-lived assets based on its plans, at the time, for such assets and such qualitative factors as future development in the surrounding area, status of expected local competition and projected capital expenditure plans. Changes to the Company’s plans, including decisions to dispose of or change the intended use of an asset, can have a material impact on the carrying value of the asset.
      Under IFRS, property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. Assets that do not generate independent cash flows are combined intocash-generating units.
The impairment testing of individual assets orcash-generating units requires an assessment of the recoverable amount of the asset orcash-generating unit. If the carrying values exceedvalue of the asset orcash-generating unit exceeds its estimated recoverable amount, the assetsasset or cash-generating units areunit is written down to theirits recoverable amount. Recoverable amount is the greater of fair value less cost to sell and value in use. Value in use is assessed based on estimated future cash flows discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. The outcome of such an assessment is subjective, and the result sensitive to the assumed future cashflows to be generated by the assets and discount rates applied in calculating the value in use, both of which will be dependent on the type of asset and its location. Any impairment arising is charged to the income statement. Under US GAAP, the assessment of an asset’s carrying value is by reference in the first instance to undiscounted cashflows. To the extent that undiscounted cashflows do not support carrying value, the fair value of assets must be calculated and the difference to the current carrying value charged to the income statement.
 During 2006, under IFRS the Company recorded an impairment of its property, plant and equipment of £3 million, relating to an asset held for sale. For the purposes of US GAAP, no impairment was required.
Sale of real estateIncome taxes
      Under IFRS, the Company recognises the sales proceeds and related profit or loss on disposal on completion of the sales process. The Group considers the following questions in determining whether revenue and profit should be recorded:
•does the Company have a continuing managerial involvement of the degree associated with asset ownership;
•has the Company transferred the significant risks and rewards associated with asset ownership;
•can the Company reliably measure the proceeds; and

48

will the Company actually receive the proceeds.
 For US GAAP, the Company accounts for sales of real estate in accordance with FAS 66 “Accounting for Sales of Real Estate”. If there is significant continuing involvement with the property, any gain on sale is deferred and is recognized over the life of the continuing involvement, normally a long-term management contract retained on the property. The deferral of gains on such sales totaled £nil in 2006, £5 million in 2005 and £nil in 2004.
Income taxes
      Under IFRS, theThe Company provides for deferred tax in accordance with IAS 12 “Income Taxes” in respect of temporary differences between the tax base and carrying value of assets and liabilities including accelerated capital allowances, unrelieved tax losses, unremitted profits from overseas where the Company does not control remittance, gains rolled over into replacement assets, gains on previously revalued properties and other short-termshort-


42

term temporary differences. Under US GAAP, deferred tax is computed, in accordance with FAS No. 109 “Accounting for Income Taxes”, on temporary differences between the tax bases and book values of assets and liabilities which will result in taxable or tax deductible amounts arising in future years. Deferred tax assets under IFRS are recognized to the extent that it is regarded as probable that the deductible temporary differences can be realized. Under US GAAP, deferred tax assets are recognized in full and a valuation allowance is made to the extent that it is not more likely than not that they will be realized. Under both IFRS and US GAAP, theThe Company estimates deferred tax assets and liabilities based on current tax laws and rates, and in certain cases, business plans. Changes in these estimates may affect the amount of deferred tax liabilities or the valuation of deferred tax assets.
 Under both IFRS and US GAAP, accruals
Accruals for tax contingencies require judgments on the expected outcome of tax exposures which may be subject to significant uncertainty, and therefore the actual results may vary from expectations resulting in adjustments to contingencies and cash tax settlements.
Loyalty program
The hotel loyalty program,
Priority Club Rewards enables members to earn points, funded through hotel assessments, during each stay at an InterContinental Hotels Group hotel and redeem the points at a later date for free accommodation or other benefits. The future redemption liability is included in trade and other payables in the consolidated balance sheets in the Consolidated Financial Statementssheet and is estimated using actuarial methods based on statistical formulas that project the timing of future point redemptionredemptions based on historical levels to give eventual redemption rates and points values. The future redemption liability amounted to £180£212 million at December 31, 2006.2007.
Pensions and other post-employment benefit plans
Pensions and other post-employment benefit plans
 Under IFRS, the Company applies IAS 19 “Employee Benefits”. Under US GAAP, the Company has adopted FAS 158 “Employer’s
Accounting for Defined Benefit Pension Planspensions and Other Post-Retirement Plans” as at December 31, 2006, amending the accounting methodology under FAS 87 “Employer’s Accounting for Pensions” and FAS 106 “Employer’s Accounting for Post-Retirement Benefits other than Pensions” on a prospective basis.
      These accounting standards requirepost-employment benefit plans requires the Company to make assumptions including, but not limited to, future asset returns, discount rates, rates of inflation, discount rates, life expectancies and health care costs. The use of different assumptions, in any of the above calculations, could have a material effect on the accounting values of the relevant assets and liabilities which could result in a material change to the cost of such liabilities as recognized in the income statement over time. These assumptions are subject to periodic review. A sensitivity analysis to changes in various assumptions is included in Note 3 of Notes to the Consolidated Financial Statements.

49

OPERATING RESULTS
Accounting Principles
Accounting Principles
 
The following discussion and analysis is based on the Consolidated Financial Statements of the Group,Company, which are prepared in accordance with IFRS. The principal differences between IFRS and US GAAP as they relate to the Group are discussed in Note 32 of Notes to the Consolidated Financial Statements.
 The Group was required to produce its first set of audited financial statements in accordance with IFRS for the year ending December 31, 2005.
For the year ended December 31, 20062007 the results include specialexceptional items totaling a net credit of £76 million (2006 £238 million, (20052005 £297 million — see “year ended December 31, 2006 compared to year ended December 31, 2005 — Special Items”)million). For comparability of the periods presented, some performance indicators in this Operating and Financial Review and Prospects discussion have been calculated after eliminating these specialexceptional items. Such indicators are prefixed with “adjusted”. A reconciliation to the amounts under IFRS including such specialexceptional items is included in Note 95 of Notes to the Consolidated Financial Statements.


43

50

             
  Year ended
  Year ended
  Year ended
 
  December 31,
  December 31,
  December 31,
 
  2007  2006  2005 
  (£ million) 
 
GROUP RESULTS
            
Revenue:            
Continuing operations            
Hotels  883   786   697 
Discontinued operations            
Hotels  40   174   542 
Soft Drinks  —   —   671 
             
Total revenue  923   960   1,910 
             
Operating profit before exceptional operating items:            
Continuing operations            
Hotels  237   200   175 
Discontinued operations            
Hotels  8   31   94 
Soft Drinks  —   —   70 
             
Total operating profit before exceptional operating items  245   231   339 
Exceptional operating items  30   27   (22)
             
Operating profit  275   258   317 
Net financial expenses  (45)  (11)  (33)
             
Profit before tax  230   247   284 
Tax  (15)  41   (80)
             
Profit after tax  215   288   204 
Gain on disposal of assets, net of tax  16   117   311 
             
Profit available for the year  231   405   515 
             
Earnings per ordinary share:            
Basic  72.2p   104.1p   95.2p 
Adjusted  48.4p   42.9p   38.2p 
Adjusted — continuing operations  46.9p   38.0p   23.2p 
             
Year ended December 2006 compared with year ended December 2005
          
  Year ended Year ended
  December 31, December 31,
  2006 2005
     
  (£ million)
GROUP RESULTS
        
Revenue:        
Continuing operations        
 Hotels  805   713 
Discontinued operations        
 Hotels  155   526 
 Soft Drinks  —   671 
       
Total revenue  960   1,910 
       
Operating profit before other operating income and expenses:        
Continuing operations        
 Hotels  201   173 
Discontinued operations        
 Hotels  30   96 
 Soft Drinks  —   70 
       
Total operating profit before other operating income and expenses  231   339 
Other operating income and expenses  27   (22)
       
Operating profit  258   317 
Interest  (11)  (33)
       
Profit before tax  247   284 
Tax  41   (80)
       
Profit after tax  288   204 
Gain on disposal of assets, net of tax  117   311 
       
Profit available for the year  405   515 
       
Earnings per ordinary share:        
 Basic  104.1p   95.2p 
 Adjusted  42.9p   38.2p 
 Adjusted - continuing operations  37.5p   22.5p 
       
 
Year ended December 2007 compared with year ended December 2006
IHG revenue from continuing operations for the year ended December 31, 20062007 was £805£883 million (2005 £713(2006 £786 million). Operating profit before otherexceptional operating income and expensesitems from continuing operations for the year ended December 31, 2007 was £237 million (2006 £200 million). The growth was driven by strong underlying RevPAR gains across all regions, hotel expansion in key markets and profit uplift from owned and leased assets.
Including discontinued operations, total revenue decreased by 3.9% to £923 million whilst operating profit before exceptional operating items increased by 6.1% to £245 million, reflecting the year-on-year impact of asset disposals. Discontinued operations represent the results from operations that have been sold, or are held for sale, and where there is a coordinated plan to dispose of the operations under IHG’s asset disposal programme, including owned and leased hotels in the United States and Continental Europe that have been sold or placed on the market from January 1, 2006.

44

As the weighted average US dollar exchange rate to sterling has weakened during 2007 (2007 $2.01: £1, 2006 $1.84: £1), growth rates for results expressed in US dollars are higher than those in sterling. Continuing operating profit before exceptional items was £201$474 million, (2005 £173 million)ahead of 2006 by 29.2%. Including discontinued operations, operating profit before exceptional items was $491 million, 15.8% higher than 2006. Translated at constant currency, applying 2006 exchange rates, continuing revenue increased by 19.6% and continuing operating profit increased by 30.0%.
     OtherExceptional operating income and expensesitems
 Other
Exceptional operating income and expenses for the year ended December 31, 2006 totaled £27items of £30 million and included thean £18 million gain on the sale of financial assets and an £11 million gain on the Group’s investment in FelCor.sale of associate investments.
 In 2005 other
Exceptional operating income and expenses totaled £(22) million and included a £13 million restructuring charge, a £9 million charge relating to property damage from fire and natural disasters, a £7 million impairment charge on property, plant and equipment and a £7 million credit related to the curtailment of employee benefits following the UK hotels disposal.

51

      Other operating income and expensesitems are treated as specialexceptional items by reason of their size or incidencenature and are excluded from the calculation of adjusted earnings per share in order to provide a more meaningful comparison of performance.
Net Financing Costsfinancial expenses
 
Net financing costs decreasedfinancial expenses increased from £33 million in 2005 to £11 million in 2006 primarilyto £45 million in 2007, as a result of significantly lower averagehigher debt levels following payment of the £709 million special dividend in the year (£92 million in 2006 compared to £700 million in 2005). June 2007.
Financing costs included £10 million (2005 £5(2006 £10 million) of interest costs associated with Priority Club Rewards where interest is charged on the accumulated balance of cash received in advance of the redemption points awarded. The increase over 2005 arises from growth in the scheme membership and higher interest rates. Net financingFinancing costs in 20062007 also included £9 million (2006 £4 millionmillion) in respect of the InterContinental Boston finance lease. Prior year financing costs included £9 million in respect of the discontinued Soft Drinks operations.
Taxation
 
The effective rate of tax on profit before tax, excluding the impact of specialexceptional items, was 22% (2006 24%). By also excluding the impact of prior year items, which are included wholly within continuing operations, the equivalent effective tax rate would be 36% (2006 36%). Prior year items relate, primarily, to the adjustment of prior year tax accruals in line with filed tax returns and the release of provisions relating to tax matters which were settled during the year, or in respect of which the statutory limitation period had expired. This rate is higher than the UK statutory rate of 30% due mainly to certain overseas profits (predominantly(particularly in the United States) being subject to statutory rates higher than the UK statutory rate unrelieved losses and other disallowable expenses. The equivalent effective rates for 2005, were 29% and 38% respectively.
 
Taxation within specialexceptional items totaled a credit of £30 million (2006 £94 million credit (2005 £8 million credit). In 2006 and 2005, this in respect of continuing operations. This represented, primarily, the release of exceptional provisions which were special by reason of their size or incidence, relating to tax matters which were settled during the year, or in respect of which the statutory limitation period had expired. In 2006, taxation specialexceptional items, in addition to such provision releases, included £12 million for the recognition of a deferred tax asset in respect of tax losses.
 
Net tax paid in 2006 was2007 totaled £69 million (2006 £49 million (2005 £91 million) including £32 million (2006 £6 millionmillion) in respect of disposals.
     Gain on Disposal of AssetsEarnings per share
 The gain on disposal of assets, net of related tax, totaled £117 million in 2006 (2005 £311 million) and primarily comprised the gain on the sale of seven InterContinental hotels to Morgan Stanley Real Estate Funds (“MSREF”). The gain on disposal of assets in 2005 mainly comprised a net gain on disposal of Soft Drinks of £284 million and a net gain on hotel asset disposals of £27 million.
     Earnings
Basic earnings per share for 2006in 2007 were 104.172.2 pence, compared with 95.2104.1 pence in 2005.2006. Adjusted earnings per share were 48.4 pence, against 42.9 pence against 38.2 pence in 2005.2006. Adjusted continuing earnings per share for continuing operations were 37.546.9 pence, 67%23.4% up on last year.


45

52

Highlights for the year ended December 31, 2007
Highlights for the year ended December 31, 2006
 
The following is a discussion of the year ended December 31, 20062007 compared with the year ended December 31, 2005.2006.
Continuing Hotels Results
              
  Year ended Year ended  
  December 31, December 31,  
  2006 2005 Change
       
    %
  (£ million)  
Revenue:            
 Americas  433   384   12.8 
 EMEA  206   200   3.0 
 Asia Pacific  111   87   27.6 
 Central  55   42   31.0 
          
   805   713   12.9 
          
Operating profit before other operating income and expenses:            
 Americas  217   186   16.7 
 EMEA  36   31   16.1 
 Asia Pacific  29   21   38.1 
 Central  (81)  (65)  24.6 
          
   201   173   16.2 
          
Revenue.Continuing Hotels revenueResults
                 
  Year ended
  Year ended
       
  December 31,
  December 31,
       
  2007  2006  Change    
  (£ million)  %    
 
Revenue:                
Americas  450   422   6.6     
EMEA  245   198   23.7     
Asia Pacific  130   111   17.1     
Central  58   55   5.5     
                 
   883   786   12.3     
                 
Operating profit before exceptional operating items:                
Americas  220   215   2.3     
EMEA  67   37   81.1     
Asia Pacific  31   29   6.9     
Central  (81)  (81)  —     
                 
   237   200   18.5     
                 
Revenue from continuing operations increased £92by 12.3% to £883 million (12.9%) from £713and continuing operating profit increased by 18.5% to £237 million forduring the year12 months ended December 31, 2005,2007. The growth was driven by strong underlying RevPAR gains across all regions, hotel expansion in key markets and profit uplift from owned and leased assets. Furthermore, strong revenue conversion led to £805 million for the year ended December 31, 2006.
Operating profit. Continuing Hotelsa 1.4 percentage point increase in continuing operating profit before other operating income and expenses for the year ended December 31, 2006 was £201 million, up 16.2% from £173 million for year ended December 31, 2005.margins to 26.8%.

53

Americas
Continuing Americas Results
                 
  Year ended
  Year ended
       
  December 31,
  December 31,
       
  2007  2006  Change    
  ($ million)  %    
 
Revenue:                
Owned and leased  257   192   33.9     
Managed  156   143   9.1     
Franchised  489   443   10.4     
                 
   902   778   15.9     
                 
Operating profit before exceptional operating items:                
Owned and leased  40   22   81.8     
Managed  41   50   (18.0)    
Franchised  425   382   11.3     
                 
   506   454   11.5     
Regional overheads  (66)  (59)  (11.9)    
                 
Total $ million  440   395   11.4     
                 
Sterling equivalent £ million(i)
  220   215   2.3     
                 
Americas
Continuing Americas Results
              
  Year ended Year ended  
  December 31, December 31,  
  2006 2005 Change
       
    %
  ($ million)  
Revenue:            
 Owned and leased  211   195   8.2 
 Managed  143   118   21.2 
 Franchised  443  ��389   13.9 
          
   797   702   13.5 
          
Operating profit before other operating income and expenses:            
 Owned and leased  26   25   4.0 
 Managed  50   36   38.9 
 Franchised  382   340   12.4 
          
   458   401   14.2 
Regional overheads  (59)  (62)  (4.8)
          
Total $ million  399   339   17.7 
          
Sterling equivalent £ million(i)
  217   186   16.7 
          
(i)The results have been translated into pounds sterling at weighted average rates of exchange for the year. The translation rates are fiscal 2006:2007: £1 = $1.84 (2005:$2.01 (2006 £1 = $1.83)$1.84).


46

 For the year ended December 31, 2006, revenue
Revenue and operating profit from continuing operations increased by 13.5%15.9% to $797$902 million and 17.7%11.4% to $399$440 million respectively.
The region achieved healthy RevPAR growth across all ownership types and RevPAR premiums to the US market segments for hotels operating under the InterContinental, Crowne Plaza, Holiday Inn and Holiday Inn Express brands. During the fourth quarter, consistent with the US market, the region was impacted by a marginal softening in RevPAR growth due to a slight decline in occupancy levels.
Continuing owned and leased revenue increased by 33.9% to $257 million and operating profit increased by 81.8% to $40 million. Positive underlying trading was driven by RevPAR growth of 9.7%, led by the InterContinental brand with growth of 10.6%. The results were favourably impacted by trading performance at the InterContinental Boston which became fully operational during the first half of the year (year-on-year profit increase of $11 million) and trading at the InterContinental New York where robust market conditions lifted average occupancy levels to over 90%.
Managed revenues increased by 9.1% to $156 million during the year, driven by strong RevPAR growth, particularly in Latin America where rate-led RevPAR growth exceeded 20%. Robust brand performance resulted in RevPAR growth premiums, compared to respective US market segments, for InterContinental, Crowne Plaza and Holiday Inn. Growth in the extended stay segment was impacted by an increase in market supply. Managed revenues included $86 million (2006 $80 million) from properties that are structured, for legal reasons, as operating leases but with the same characteristics as management contracts.
Managed operating profit decreased by 18.0% to $41 million, including $6 million (2006 $9 million) from managed properties held as operating leases. The decline in profit principally reflects increased revenue investment to support growth in contract signings, the impact of fewer hotels under management contracts following the restructuring of the FelCor agreement in 2006, foreign exchange losses in Latin America and lower ancilliary revenues together with higher costs at one of the hotels held as an operating lease. These items reduced operating profit margins in the managed estate by 8.7 percentage points to 26.3% and reduced continuing operating profit margins in the region by 2.0 percentage points to 48.8%.
Franchised revenue and operating profit increased by 10.4% to $489 million and 11.3% to $425 million respectively, compared to 2006. The increase was driven by RevPAR growth of 5.8%, net room count growth of 4.0% and fees associated with growth in signings.
Regional overheads were affected positively in 2006 by lower claims in the Group-funded employee healthcare programme. Excluding this, regional overheads were in line with the prior period.


47

Europe, Middle East and Africa
Continuing EMEA Results
             
  Year ended
  Year ended
    
  December 31,
  December 31,
    
  2007  2006  Change 
  (£ million)  % 
 
Revenue:            
Owned and leased  121   92   31.5 
Managed  84   71   18.3 
Franchised  40   35   14.3 
             
   245   198   23.7 
             
Operating profit before exceptional operating items:            
Owned and leased  17   (4)  525.0 
Managed  43   37   16.2 
Franchised  29   24   20.8 
             
   89   57   56.1 
Regional overheads  (22)  (20)  (10.0)
             
Total £ million  67   37   81.1 
             
Dollar equivalent $ million(i)
  134   69   94.2 
             
(i)The results have been translated into US dollars at weighted average rates of exchange for the year. The translation rates are fiscal 2007: $1 = £0.50 (2006: $1 = £0.54).
Revenue and operating profit from continuing operations increased by 23.7% to £245 million and 81.1% to £67 million, respectively.
During the year, the region achieved RevPAR growth of 8.6% driven by substantial gains across all brands and ownership types. From a regional perspective, RevPAR levels benefited from the positive market conditions in the Middle East, France and the United Kingdom. The region’s continuing operating profit margins increased by 8.6 percentage points to 27.3% as a result of improved revenue conversion in the owned and leased portfolio and increased scalability in the franchised operations.
In the owned and leased estate, continuing revenue increased by 31.5% to £121 million as a result of trading at the InterContinental London Park Lane which became fully operational during the first half of 2007, together with strong rate-led RevPAR growth at the InterContinental Paris Le Grand. Effective revenue conversion led to an increase in continuing operating profit of £21 million to £17 million, including operating profit growth of £14 million at the InterContinental London Park Lane.
EMEA managed revenues increased by 18.3% to £84 million and operating profit increased by 16.2% to £43 million. The growth was driven by management contracts negotiated in 2006 as part of the hotel disposal programme in Europe and strong underlying trading in markets such as the Middle East, the United Kingdom, Spain and Russia.
Franchised revenue and operating profit increased by 14.3% to £40 million and 20.8% to £29 million respectively. The growth was principally driven by RevPAR gains and room count expansion in the United Kingdom and Continental Europe.


48

Asia Pacific
Continuing Asia Pacific Results
             
  Year ended
  Year ended
    
  December 31,
  December 31,
    
  2007  2006  Change 
  ($ million)  % 
 
Revenue:            
Owned and leased  145   131   10.7 
Managed  99   65   52.3 
Franchised  16   8   100.0 
             
   260   204   27.5 
             
Operating profit before exceptional operating items:            
Owned and leased  36   31   16.1 
Managed  46   39   17.9 
Franchised  6   5   20.0 
             
   88   75   17.3 
Regional overheads  (25)  (23)  (8.7)
             
Total $ million  63   52   21.2 
             
Sterling equivalent £ million(i)
  31   29   6.9 
             
(i)The results have been translated into pounds sterling at weighted average rates of exchange for the year. The translation rates are fiscal 2007: £1 = $2.01 (2006 £1 = $1.84).
Asia Pacific revenue increased by 27.5% to $260 million whilst operating profit increased by 21.2% to $63 million.
The region achieved strong RevPAR growth across all brands and ownership types and continued its strategic expansion in China and Japan. Strong growth in total profit was achieved; however, revenue conversion was impacted by continued investment to support expansion, resulting in a 1.3 percentage point reduction in operating profit margins to 24.2%.
In the owned and leased estate, revenue increased by 10.7% to $145 million due to the combined impact of strong room and food and beverage trading at the InterContinental Hong Kong, despite the impact of renovation works throughout a significant part of the year. The hotel’s revenue growth combined with profit margin gains drove the estate’s operating profit growth of 16.1% to $36 million.
Managed revenues increased by 52.3% to $99 million as a result of the full year contribution from the hotels which joined the system in 2006 as part of the IHG ANA joint venture in Japan, continued organic expansion in China and solid RevPAR growth across Southern Asia and Australia. Operating profit increased by 17.9% to $46 million as revenue gains were offset by integration and ongoing costs associated with the ANA joint venture and continued infrastructure investment in China.
Franchised revenues doubled from £8 million to $16 million, primarily driven by hotels in the IHG ANA joint venture. Similar to the managed operations, growth in profitability was impacted by ANA integration and ongoing costs.
Regional overheads increased by $2 million to $25 million primarily as a result of investments in technology and corporate infrastructure in China and Japan and included the favourable impact of a legal settlement.


49

Central
             
  Year ended
  Year ended
    
  December 31,
  December 31,
    
  2007  2006  Change 
  (£ million)  % 
 
Revenue  58   55   5.5 
Gross central costs  (139)  (136)  2.2 
             
Net central costs £ million  (81)  (81)  — 
             
Dollar equivalent $ million(i)
  (163)  (149)  9.4 
             
(i)The results have been translated into US dollars at weighted average rates of exchange for the year. The translation rates are fiscal 2007: $1 = £0.50 (2006 $1 = £0.54).
During 2007, net central costs were flat on 2006 but increased in line with inflation when translated at constant currency exchange rates.
Highlights for the 12 months ended December 31, 2006
The following is a discussion of the year ended December 31, 2006 compared with the year ended December 31, 2005.
Group results
Revenue from continuing operations increased by 12.8% to £786 million and continuing operating profit increased by 14.3% to £200 million during the 12 months ended December 31, 2006
Americas
Revenue and operating profit from continuing operations increased by 13.2% to $778 million and 16.2% to $395 million respectively during 2006. Underlying trading performance across all ownership types was strong, although the pace of RevPAR growth achieved in the first half of the year was not maintained throughout the second half of the year.
 
Continuing owned and leased revenue and operating profit increased by 8.2%6.7% to $211 million and 4.0% to $26 million respectively.$192 million. Owned and leased InterContinental branded hotels achieved RevPAR growth in excess of 12%13% over 2005, driven by gains in both daily rates and occupancy levels. The owned and leased results were impacted, as expected, by a $6 million loss at the recently opened InterContinental Boston. Excluding this loss, the combined impact of RevPAR growth and operating efficiencies led to a 28%7.7% increase in operating profit from continuing owned and leased hotels.
 
Managed revenues increased by 21.2% to $143 million during the year as a result of strong underlying trading, restructured management agreements, an increased number of hotels under management contracts and the full year benefit of contracts negotiated during 2005 as part of the hotel disposal program.programme. RevPAR growth in the managed hotels was strong across most brands. Holiday Inn growth levels were impacted during the fourth quarter by hotel refurbishments (nine of the 28 hotels). Managed revenues include $80 million (2005 $70 million) from properties that are structured, for legal reasons, as operating leases but with the same characteristics as management contracts.
Managed operating profit increased by 38.9% to $50 million including $9 million (2005 $9 million) from the managed properties held as operating leases and $3 million from the receipt of business interruption proceeds following hurricane damage in 2005. As a consequence of the 2005 hurricane season, ongoing insurance costs increased significantly, reducing managed operating profit in 2006 by an incremental $3 million.

54

 
Franchised revenue and operating profit increased by 13.9% to $443 million and 12.4% to $382 million respectively, driven by RevPAR growth of 9.2%, net room count growth of 4% and fees associated with record levels of signings. The RevPAR gains were achieved across all brands despite high prior year comparables. Holiday Inn Express and Crowne Plaza both reported double digit RevPAR growth, driven by higher average daily rates.


50

The Americas regional overheads were 4.8% lower in 2006, primarily as a result of lower claims in theGroup-funded employee healthcare program.programme.
 Americas net hotel
Europe, Middle East and room count grewAfrica
Revenue from continuing operations of £198 million was 3.1% ahead of 2005 whilst continuing operating profit increased by 96 hotels (8,303 rooms)12.1% to 2,930 hotels (394,909 rooms). The net growth includes openings of 222 hotels (26,613 rooms) led by demand for Holiday Inn Express 128 hotels (11,155 rooms). Although the regions’ net growth was predominantly achieved in the US markets, Mexico represented over 10% of the expansion. The net growth also included removals of 126 hotels (18,310 rooms), of which Holiday Inn hotels represented 56% (74% of rooms).£37 million.
 The Americas pipeline continued to achieve record growth levels and totaled 1,012 hotels (105,685 rooms) at December 31, 2006. Signing levels outpaced prior year as demand for the new Holiday Inn prototype and Holiday Inn Express continued to accelerate throughout 2006. During the year 61,673 room signings were completed, compared to 49,765 room signings in 2005. This level of growth demonstrates strong demand for IHG brands and represents a key driver of future profitability.
Europe, Middle East and Africa
          Continuing EMEA Results
              
  Year ended Year ended  
  December 31, December 31,  
  2006 2005 Change
       
  (£ million)
    %
Revenue:            
 Owned and leased  100   110   (9.1)
 Managed  71   55   29.1 
 Franchised  35   35   — 
          
   206   200   3.0 
          
Operating profit before other operating income and expenses:            
 Owned and leased  (5)  (5)  — 
 Managed  37   31   19.4 
 Franchised  24   26   (7.7)
          
   56   52   7.7 
Regional overheads  (20)  (21)  (4.8)
          
Total £ million  36   31   16.1 
          
Dollar equivalent $ million(i)
  67   56   19.6 
          
(i) The results have been translated into US dollars at weighted average rates of exchange for the year. The translation rates are 2006: $1 = £0.54 (2005: $1 = £0.55).
In the owned and leased estate, continuing revenues declined by £10 million to £100£92 million as a result of the major refurbishment at the InterContinental London Park Lane. The hotel reopened in November 2006 following a 13 month closure and is expected to bedid not become fully operational by Springuntil July 2007. Continuing operating loss remained in line with 2005. However, excludingExcluding the impact of the InterContinental London Park Lane in 2005 and 2006, the continuing owned and leased operating profit increased by £5£4 million, driven by enhanced trading performance at the InterContinental Paris Le Grand where RevPAR growth was more than 25% over 2005.

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Managed revenues and operating profit increased by 29.1% to £71 million and 19.4% to £37 million respectively. The growth was driven by the impact of management contracts negotiated in 2005 and 2006 as part of the hotel disposal programprogramme in the UKUnited Kingdom and Europe, together with strong RevPAR growth in the key regions including Continental Europe and the Middle East.
 
Franchised revenue of £35 million was in line with 2005 revenues, whilst operating profit decreased by £2 million to £24 million. The prior year included £7 million in liquidated damages for the termination of franchise contracts in South Africa. Excluding the impact of this, franchised operating profit increased by 26.3% as a result of strong RevPAR growth across the UKUnited Kingdom and Continental Europe and increased room count. The increased room count was driven by the negotiation of franchise contracts in Continental Europe as part of the hotel disposal programprogramme and further expansion in the region.
 During 2006, EMEA hotel and room count grew by 13 hotels (1,181 rooms). The net growth included the opening of 31 hotels (4,823 rooms) and the removal of 18 hotels (3,642 rooms), including exits on a limited number of managed hotels, as agreed at the time of the UK portfolio disposal in May 2005.
Asia Pacific
 The pipeline in EMEA increased by 57 hotels (7,779 rooms) to 143 hotels (22,057 rooms). The growth included a record level of 13,321 room signings, driven by demand for Holiday Inn and Holiday Inn Express in the UK, Continental Europe and South Africa, and for all brands in the Middle East and Russia.
Asia Pacific
          Continuing Asia Pacific Results
              
  Year ended Year ended  
  December 31, December 31,  
  2006 2005 Change
       
  ($ million)
    %
Revenue:            
 Owned and leased  131   108   21.3 
 Managed  65   45   44.4 
 Franchised  8   6   33.3 
          
   204   159   28.3 
          
Operating profit before other operating income and expenses:            
 Owned and leased  31   20   55.0 
 Managed  39   29   34.5 
 Franchised  5   5   — 
          
   75   54   38.9 
Regional overheads  (23)  (15)  53.3 
          
Total $ million  52   39   33.3 
          
Sterling equivalent £ million(i)
  29   21   38.1 
          
(i) The results have been translated into pounds sterling at weighted average rates of exchange for the year. The translation rates are fiscal 2006: £1 = $1.84 (2005: £1 = $1.83).
Revenue and operating profit from continuing operations increased by 28.3% to $204 million and 33.3% to $52 million respectively during 2006.

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Continuing owned and leased operating profit increased by 55.0% to $31 million driven by trading at the InterContinental Hong Kong which achieved rate-led RevPAR growth of over 30.0%. The hotel also benefited from a rooms refurbishment programprogramme and the prior year repositioning of its food and beverage operations.
 
The managed estate achieved revenue growth of 44.4%, increasing from $45 million to $65 million, due to the retention of management contracts on the 10 owned and leased hotels sold in 2005 combined with strong underlying trading in Greater China where comparable RevPAR increased by 12.1% over 2005.
 
Regional overheads increased by $8 million to $23 million. The increase reflects infrastructure and development costs including additional headcount, office facility and IT costs, all associated with ongoing expansion in the region.
 Net hotel and room count in Asia Pacific increased by 26 hotels (9,229 rooms). The net growth includes 14 hotels (3,628 rooms) in Greater China reflecting continued expansion in one of IHG’s strategic markets, and 13 hotels (4,937 rooms) in Japan that joined the system as part of the IHG ANA transaction.
Central
 The pipeline in Asia Pacific increased by 30 hotels (12,880 rooms) to 86 hotels (30,249 rooms). The substantial growth indicates the demand for IHG’s brands in the Chinese market where signings of 16,445 rooms were more than double 2005 signings.
Central
             
  Year ended Year ended  
  December 31, December 31,  
  2006 2005 Change
       
    %
  (£ million)  
Revenue  55   42   31.0 
Gross central costs  (136)  (107)  27.1 
          
Net central costs £ million  (81)  (65)  24.6 
          
Dollar equivalent $ million(i)
  (149)  (118)  26.3 
          
(i) The results have been translated into US dollars at weighted average rates of exchange for the year. The translation rates are 2006: $1 = £0.54 (2005: $1 = £0.55).
Net central costs increased by £16 million to £81 million and included significant investment in new global research, designed to enable higher quality brand development and enhance IHG’s franchising capability; the increase also included higher IT infrastructure costs.
Discontinued Operations
 For the year ended December 31, 2006 operating profit from hotels classified as discontinued was £30 million (2005 £96 million) and was £nil (2005 £70 million) for the Soft Drinks business.
      The net gain on disposal of assets for Hotels was £117 million (2005 £27 million) and for Soft Drinks was £nil (2005 £284 million).
Highlights for the 12 months ended December 31, 2005
      Continuing revenue increased £107 million (17.7%) from £606 million for the year ended December 31, 2004 to £713 million for the year ended December 31, 2005.
      Continuing operating profit before other operating income and expenses increased £53 million (44.2%) from £120 million for the year ended December 31, 2004 to £173 million for the year ended December 31, 2005.

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Americas
      Americas continuing operating profit was $339 million, a 24.6% increase on continuing operating profit for the year ended December 31, 2004 of $272 million.
      Continuing owned and leased revenue increased by over 30% driven by strong trading in the comparable estate (those hotels fully trading as owned and leased in both financial years). Comparable RevPARs were 17.7% up for InterContinental and 14.0% up for Holiday Inn with average daily rate growth fuelling the increased RevPAR. The InterContinental Buckhead, Atlanta, also contributed its first full year of trading after opening in November 2004. These revenue increases, together with improved operating efficiency in the hotels, led to continuing owned and leased operating profit increasing significantly over 2004, from $6 million to $25 million.
      Managed revenue increased from $55 million in 2004 to $118 million as a result of strong trading in the comparable estate and the contribution from management contracts negotiated during 2004 and 2005 as part of the asset disposal program. Managed revenue also includes $70 million (2004 $27 million) from properties (including the InterContinental San Juan sold in the year) that are structured, for legal reasons, as operating leases but with the same economic characteristics as a management contract. Overall, managed RevPARs grew by 16.2% for InterContinental, 12.9% for Crowne Plaza, 11.0% for Holiday Inn, 9.1% for Staybridge Suites and 14.8% for Candlewood Suites.
      Managed operating profit increased from $12 million to $36 million including $9 million (2004 $3 million) from the managed properties held as operating leases, including a contribution from the 15 hotels moving from ownership to management.
      Franchised revenue increased by 9.0% to $389 million as a result of strong trading and increased room count and signings. RevPARs across the brands showed strong growth, with Holiday Inn RevPAR 9.2% up on 2004, Holiday Inn Express 10.3% up and Crowne Plaza 8.4% up. The franchised estate increased by 3,878 rooms in the year with the most significant increase being in the Holiday Inn Express brand. Franchised revenue also benefited from the number of signings in 2005 with a record 47,245 room signings (50% up on 2004) leading to higher sales revenues than in 2004. Franchised operating profit rose by $36 million to $340 million.
      Americas regional overheads increased to $62 million from $50 million in 2004, reflecting investment in additional development resources and information technology.
      Americas hotel and room count grew by a net 51 hotels (279 rooms) to 2,834 hotels (386,606 rooms). 190 hotels (22,043 rooms) entered the system and 139 hotels (21,764 rooms) left the system. Of the removals, 83 hotels (16,188 rooms) were Holiday Inn and 53 hotels (4,561 rooms) were Holiday Inn Express.
      The Americas pipeline grew to record levels, 742 hotels (76,865 rooms), with 447 hotels (49,765 rooms) signing contracts during the year to enter the system. Of these signings, 19,355 rooms were Holiday Inn Express.
EMEA
      The EMEA operating model changed in 2005 as a result of the disposal of 73 hotels in the United Kingdom to LRG Acquisition and LRG Holdings Limited (“LRG”) and a number of smaller transactions. As a result, the number of owned and leased hotels reduced by 85 whilst the number of managed hotels increased by 77, including 73 in connection with the LRG transaction.
      Revenue from continuing operations increased by 7.5% to £200 million and continuing operating profit before other operating income and expenses increased by £20 million to £31 million.
      Owned and leased revenue from continuing operations decreased by 5.2% from £116 million in 2004 to £110 million in 2005. Performance across the region was mixed with variable trading conditions in parts of Continental Europe. The refurbishment of the InterContinental London impacted the overall result with the hotel being disrupted for most of the year and closed in the final quarter of the year. Owned and leased

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operating profit from continuing operations increased by £6 million during 2005, reducing the £11 million loss in 2004 to £6 million in 2005.
      Managed revenue increased by £12 million to £55 million. The 2004 result benefited from the receipt in 2004 of approximately £4 million liquidated damages from the early termination of the InterContinental Barcelona management contract. The 2005 result was affected by a loss of earnings following the bombings in Beirut, but underlying trading was strong, particularly in the Middle East where managed RevPAR increased by 11.9%. Management fees are also included from LRG for the hotels sold in May 2005 (including incentive fees); Holiday Inn UK RevPAR overall was up to 4.6%.
      Franchised revenue for EMEA increased by £8 million to £35 million. Holiday Inn franchised RevPAR increased by 4.9% and Holiday Inn Express RevPAR increased by 5.9%. Franchised operating profit increased by £5 million to £26 million and included £7 million liquidated damages for the termination of franchise agreements in South Africa.
      EMEA hotel and room count at December 31, 2005 was broadly level with December 31, 2004 at 610 hotels (105,419 rooms) despite the termination of the master franchise agreement in South Africa (6,338 rooms). Two significant deals added hotels to the system during the year, five Holiday Inn hotels (602 rooms) in the UK from a franchise agreement with Stardon, a joint venture company formed between Starwood Capital Europe and Chardon Hotels, and 13 hotels (2,233 rooms) in the UK from a franchise agreement with Queens Moat Houses Limited.
      The EMEA pipeline at December 31, 2005 was 86 hotels (14,278 rooms).
Asia Pacific
      Asia Pacific revenue from continuing operations increased by 18.7% to $159 million and operating profit before other operating income and expenses increased by 30.0% to $39 million.
      Continuing owned and leased operating profit grew from $17 million in 2004 to $20 million in 2005 mainly reflecting strong trading in the InterContinental Hong Kong which achieved RevPAR growth of 11.7% over 2004, driven by average daily rate growth.
      Asia Pacific managed operating profit grew strongly from $25 million to $29 million, reflecting both the impact of improved RevPAR and an increase in room count over 2004. Greater China managed RevPAR increased by 13.6% and Australia, New Zealand and South Pacific managed RevPAR increased by 6.1%. Asia Pacific franchised operating profit increased by $2 million $5 million.
      Regional overheads were level at $15 million despite increased resources for the planned expansion in Greater China.
      During 2005, a further nine hotels (2,839 rooms) opened in Greater China and 20 hotels (7,308 rooms) signed contracts and entered the pipeline. On a net basis, the number of hotels in Asia Pacific increased by 13 hotels (3,383 rooms). During the year, ten owned and leased hotels (2,315 rooms) in Australia, New Zealand and Fiji were sold but retained with management contracts.
      Asia Pacific pipeline grew by 14 managed hotels (4,564 rooms) primarily in the InterContinental and Crowne Plaza brands. In addition, on February 15, 2006, IHG announced that it had signed contracts with a single owner to manage six hotels (over 4,500 rooms) in China’s Sichuan province, and on February 24, 2006 announced that it had signed contracts with an owner to manage four hotels, with over 1,400 rooms, also in China.
Central
      Net central costs increased by £8 million reflecting increased governance costs, further investment to support development and the accounting treatment of share scheme costs. Under IFRS, the charges for share option schemes established after November 2002 are accounted for in the income statement. As share scheme

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awards are generally made annually and the accounting cost is spread over three years, 2005 is the first year that a full annual cost is taken into account.
Discontinued Operations
      For the year ended December 31, 2005 operating profit from Hotels classified as discontinued was £96 million (2004 £149 million) and operating profit from the Soft Drinks business was £70 million (2004 £77 million).
      The net gain on disposal of assets for Hotels was £27 million (2004 £19 million) and for Soft Drinks was £284 million (2004 £nil).
LIQUIDITY AND CAPITAL RESOURCES
Sources of Liquidity
Sources of Liquidity
 
The Company is financed by a £1.1 billion Syndicated Facility which has a maturity of November 2009. Short-term borrowing requirements are met from drawings under bilateral bank facilities.
 
At December 31, 2007, gross debt was £313£877 million (£533883 million after derivative transactions). The currency denomination of non sterling gross debt, after derivative transactions, was £101£275 million of sterling denominated borrowings,


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£121 million of euro denominated borrowings, £282£439 million of US dollar denominated borrowings and £48 million of borrowings denominated in other currencies mainly Hong Kong dollars.
 
At December 31, 20062007 committed bank facilities amounted to £1,157£1,154 million of which £944£377 million were unutilized. Uncommitted facilities totaled £39£25 million. In the Company’s opinion, the available facilities are sufficient for the Company’s present requirements.
 
The Company also held short term deposits and investments at December 31, 20062007 amounting to £179£52 million (£40358 million after the effect of derivative transactions). Credit risk on treasury transactions is minimisedminimized by operating a policy on investment of surplus funds that generally restricts counterparties to those with an A credit rating or better or those providing adequate security. Limits are also set on the amounts invested with individual counterparties. Most of the Company’s surplus funds are held in the United Kingdom or United States and there are no material funds where repatriation is restricted as a result of foreign exchange regulations.
 
The Company is in compliance with its financial covenants in its loan documentation none of which represent a material restriction on funding or investment policy in the foreseeable future.
 
Details of exchange and interest rate risk and financial instruments are disclosed in “Item 11. Quantitative and Qualitative Disclosures about Market Risk”.
Cash From Operating Activities
Cash From Operating Activities
 
Net cash from operating activities totaled £230£232 million for the year ended December 31, 2006 (2005 £3022007 (2006 £236 million). The decrease reflectsincludes the impact of the asset disposals.higher interest payments and special pension contributions of £30 million.
 
Cash flow from operating activities is the principal source of cash used to fund the ongoing operating expenses, interest payments, maintenance capital expenditure and dividend payments of the Group. The Group believes that the requirements of its existing business and future investment can be met from cash generated internally, disposition of assets and businesses and external finance expected to be available to it.
Cash From Investing Activities
Cash From Investing Activities
 
Net cash outflows from investing activities totaled £620£19 million (2005 £1,863 million) reflecting the(2006 £614 million inflow). The decrease is primarily due to a lower level of asset disposals in 2006 compared to 2005. The main hotel disposals2007.
Cash Used in 2006 were the sale of 24 hotels in Continental Europe to a subsidiary of Westbridge Hospitality Fund LP and the sale of seven European InterContinental hotels to Morgan Stanley Real Estate Funds. In 2006 proceeds from the disposal of hotels and other assets totaled £744 million.Financing Activities

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Cash Used in Financing Activities
 
Net cash used in financing activities totaled £1,002£344 million (2005 £1,906(2006 £1,002 million). Cash outflows associated with shareholder returns in 20062007 totaled £821£854 million and included £260£81 million of share repurchases and a special dividend of £497£709 million. On February 20, 2007 the Company announced a £150 million share repurchase and a special dividend of £700Borrowings increased by £553 million.
 
As of December 31, 2006,2007, the GroupCompany had committed contractual capital expenditure of £24£10 million. Contracts for expenditure on fixed assets are not authorized by the directors on an annual basis, as divisional capital expenditure is controlled by cash flow budgets. Authorization of major projects occurs shortly before contracts are placed.
Off-Balance Sheet Arrangements
Off-Balance Sheet Arrangements
 
As at December 31, 2006,2007, the Company had no off-balance sheet arrangements that have or are reasonably likely to have ana current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.


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Contractual Obligations
Contractual Obligations
 
The Company had the following contractual obligations outstanding as of December 31, 2006:2007:
                     
  Total amounts Less than     After
  committed 1 year 1-3 years 3-5 years 5 years
           
  (£ million)
Long-term debt  216   7   209   —   — 
Finance lease obligations(i)
  1,781   3   16   17   1,745 
Operating lease obligations  190   27   40   23   100 
Agreed pension scheme contributions  47   27   20   —   — 
Capital contracts placed  24   24   —   —   — 
                
   2,258   88   285   40   1,845 
                
 
                     
  Total amounts
  Less than
        After
 
  committed  1 year  1-3 Years  3-5 years  5 years 
  (£ million) 
 
Long-term debt(i)
  777   —   777   —   — 
Finance lease obligations(ii)
  1,729   8   16   16   1,689 
Operating lease obligations  196   28   35   25   108 
Agreed pension scheme contributions  28   18   10   —   — 
Capital contracts placed  10   10   —   —   — 
                     
   2,740   64   838   41   1,797 
                     
(i)Repayment period classified according to the related facility maturity date.
(ii)Represents the minimum lease payments related to the 99 year lease on the InterContinental Boston.
 
The Company may provide performance guarantees to third-party owners to secure management contracts. The maximum exposure under such guarantees is £142£121 million (2005 £134(2006 £142 million). It is the view of the directors that, other than to the extent that liabilities have been provided for in the Consolidated Financial Statements, such guarantees are not expected to result in financial loss to the Group.
 
As of December 31, 2006,2007, the GroupCompany had outstanding letters of credit of £31 million mainly relating to self-insurance programs.
 
The Company may guarantee loans made to facilitate third-party ownership of hotels in which the GroupCompany has an equity interest and also a management contract. As of December 31, 2006,2007, the GroupCompany was a guarantor of loans which could amount to a maximum exposure of £13£14 million.
 
The Company has given warranties in respect of the disposal of certain of its former subsidiaries. The Company believes that, other than to the extent that liabilities have been provided for in the Consolidated Financial Statements, such warranties are not expected to result in financial loss to the Group.Company.
Pension Plan Commitments
Pension Plan Commitments
 
IHG operates two main schemes; the InterContinental Hotels UK Pension Plan and, in the US basedUnited States, the InterContinental Hotels Pension Plan.Plan and the InterContinental Hotelsnon-qualified plans.

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The InterContinental Hotels UK Pension Plan was established with effect from April 1, 2003. On an IAS 19 “Employee Benefits” basis, at December 31, 20062007 the Plan had a deficitsurplus of £29£30 million. The defined benefits section of this Plan is generally closed to new members. In addition, there are unfunded UK pension arrangements for certain members affected by the lifetime allowance; at December 31, 2007, these arrangements had an IAS 19 deficit of £23 million. In 2008, the GroupCompany expects to make projected regular contributions to the UK principalpension plan of £7£6 million. In addition, the GroupCompany has agreed to pay special contributions of £40£20 million to the UK Pension Plan; £20 million in 2007,pension plan; £10 million in 2008 and £10 million in 2009.
 
The US based InterContinental Hotels Pension Plan isUS-based plans are closed to new members and pensionable service no longer accrues for current employee members. On an IAS 19 basis, at December 31, 20062007 the Planplans had a combined deficit of $65$45 million. In 2008, the Company expects to make regular contributions to these plans of $4 million.
 
The GroupCompany is exposed to the funding risks in relation to the defined benefit sections of the InterContinental Hotels UK Pension Plan and the US basedUS-based InterContinental Hotels Pension Plan, as explained in “Item 3. Key Information — Risk Factors”.


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ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
DIRECTORS AND SENIOR MANAGEMENT
 
Overall strategic direction of the Group is provided by the board of directors, comprising executive and non-executive directors, and by members of the executive committee.
 
The directors and officers of InterContinental Hotels Group PLC as at March 16, 200714, 2008 are:
Directors
           
    Initially
  Date of next
 
    appointed to
  reappointment
 
Name
 
Title
 the board  by shareholders 
 
Andrew Cosslett(3)
 Director and Chief Executive  2005   2008 
David Kappler(1)(3)
 Director and Senior Independent Director  2004   2008 
Ralph Kugler(1)(3)
 Director  2003   2008 
Jennifer Laing(1)
 Director  2005   2009 
Robert C. Larson(1)(2)
 Director  2003   2008 
Jonathan Linen(1)
 Director  2005   2009 
Stevan Porter Director and President, The Americas  2003   2009 
Sir David Prosser(1)(5)
 Director  2003   — 
Richard Solomons Director and Finance Director  2003   2010 
David Webster Chairman  2003   2010 
Ying Yeh(1)(4)
 Director  2007   2008 
Directors
           
    Initially Date of next
    appointed to reappointment
Name Title the board by shareholders*
       
Andrew Cosslett Director and Chief Executive  2005   2008 
Richard Hartman(2)
 Director and President, EMEA  2003   N/A 
David Kappler(1)
 Director and Senior Independent Director  2004   2008 
Ralph Kugler(1)
 Director  2003   2008 
Jennifer Laing(1)
 Director  2005   2009 
Robert C. Larson(1)
 Director  2003   2007 
Jonathan Linen(1)
 Director  2005   2009 
Stevan Porter Director and President, The Americas  2003   2009 
Sir David Prosser(1)
 Director  2003   2007 
Richard Solomons Director and Finance Director  2003   2007 
David Webster Chairman  2003   2007 
(1)Non-executive independent director.
 
(2)Richard Hartman due to retire in September 2007.
* Robert C. Larson, beinghaving served for over the age of 70,9 years as a director, is required to retire and stand forre-election at each Annual General Meeting, if he wishes to continue to serve as a director. SirHe is planning to retire as a director on December 31, 2008.
(3)Andrew Cosslett, David ProsserKappler and David WebsterRalph Kugler are required, under the Company’s articlesArticles of association,Association, to stand forre-election at the 20072008 Annual General Meeting. Richard Solomons
(4)Ying Yeh is also standing for re-election at the 2007 meeting on a voluntary basis. Andrew Cosslett, David Kappler and Ralph Kugler will be required to stand for re-election atelection by shareholders for the 2008 Annual General Meeting. Any further appointments at the 2008 meeting would be onfirst time since her appointment as a voluntary basis.

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director in December 2007.
(5)OfficersSir David Prosser is planning to retire as a director on May 31, 2008.
Officers
       
Name
 
Title
 Initially appointed
 
Tom Conophy Executive Vice President and Chief Information Officer  2006 
Information Officer
Peter GowersExecutive Vice President and Chief Marketing2003
Officer
Patrick Imbardelli President, Asia Pacific  2003
Kirk KinsellPresident, EMEA2007 
Tracy Robbins Executive Vice President, Global Human Resources  2005 
Tom SeddonExecutive Vice President and Chief Marketing Officer2007
Richard Winter Executive Vice President, Corporate Services,2003
General Counsel and Company Secretary  2003 
Former Directors and Officers
 Sir Howard Stringer
Former Directors and Officers
Richard Hartman served as Director and President, EMEA from 2003 until September 2007. Patrick Imbardelli served as President, Asia Pacific, from 2003 until June 2007. Anthony South, a senior employee of the Company, served as acting Chief Executive, Asia Pacific, from June 2007 to November 2007, at which time Peter Gowers assumed the role of President, Asia Pacific.


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Directors and Officers
David Webster
Appointed Deputy Chairman and Senior Independent Director of InterContinental Hotels Group on the separation of Six Continents PLC in April 2003. AppointedNon-Executive Chairman on 1 January 2004. AlsoNon-Executive Chairman of Makinson Cowell Limited, a capital markets advisory firm, and a member of the Appeals Committee of the Panel on Takeovers and Mergers. Formerly Chairman of Safeway plc and aNon-Executive Director of Reed Elsevier PLC. Chairman of the Nomination Committee. Age 63.
Andrew Cosslett
Appointed Chief Executive in February 2005, joining the Group from Cadbury Schweppes plc where he was most recently President, Europe, Middle East & Africa. During his career at Cadbury Schweppes he held a variety of senior regional management and marketing roles in UK and Asia Pacific. Also has over 11 years’ experience in brand marketing with Unilever.Non-Executive Chairman of Duchy Originals Limited. Age 52.
Richard Solomons
Qualified as a chartered accountant in 1985, followed by seven years in investment banking, based in London and New York. Joined the Group in 1992 and held a variety of senior finance and operational roles. Appointed Finance Director of the Hotels business in October 2002 in anticipation of the separation of Six Continents PLC in April 2003. Responsible for corporate and regional finance, Group financial control, strategy, investor relations, tax and treasury. Age 46.
Stevan Porter
Previously 13 years with Hilton Corporation in a variety of senior management positions. Joined the Group in 2001 as Chief Operating Officer, The Americas. Subsequently, as President, The Americas, he was appointed an independent non-executive director fromExecutive Director in April 2003. Responsible for business development and performance of all the hotel brands and properties in the Americas region. Additionally, has responsibility for the development and deployment of best practice in franchising, globally. Age 53.
David Kappler
Appointed a Director and Senior Independent Director in June 2004.Non-Executive Chairman of Premier Foods plc and aNon-Executive Director of Shire plc. A qualified accountant and formerly Chief Financial Officer of Cadbury Schweppes plc until April 2004. Also served as aNon-Executive Director of Camelot Group plc and of HMV Group plc. Chairman of the Audit Committee. Age 61.
Ralph Kugler
Appointed a Director in April 2003, until November 2006.he is President, Unilever Home and Personal Care, and joined the boards of Unilever plc and Unilever NV in May 2005. Held a variety of senior positions globally for Unilever and has experience of regional management in Asia, Latin America and Europe, with over 25 years’ experience of general management and brand marketing. Will step down from the Unilever boards in May 2008. Will become Chairman of the Remuneration Committee following the retirement of Sir David Prosser on 31 May 2008. Age 52.
Directors and Officers
     Tom ConophyJennifer Laing
 
Appointed a Director in August 2005, she was Associate Dean, External Relations at London Business School, until 2007. A fellow of the Marketing Society and of the Institute of Practitioners in Advertising, she has over 30 years’ experience in advertising including 16 years with Saatchi & Saatchi, to whom she sold her own agency. Also serves as aNon-Executive Director of Hudson Highland Group Inc., a US human resources company. Age 61.


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Robert C Larson
Appointed a Director in April 2003, he is a Managing Director of Lazard Alternative Investments LLC and Chairman of Lazard Real Estate Partners, LLC. Also Chairman of Larson Realty Group and Non-Executive Chairman of UDR, Inc. Served as a Non-Executive Director of Six Continents PLC (formerly Bass PLC) from 1996 until April 2003. Will retire from the Board on 31 December 2008. Age 73.
Jonathan Linen
Appointed a Director in December 2005, he was formerly Vice Chairman of the American Express Company, having held a range of senior positions throughout his career of over 35 years with American Express. Also serves as aNon-Executive Director of Yum! Brands, Inc. and on a number of US Councils and advisory boards. Age 64.
Sir David Prosser
Qualified actuary with over 40 years’ experience in financial services. Appointed a Director in April 2003, he was formerly Group Chief Executive of Legal & General Group Plc. Also aNon-Executive Director of Investec plc and of Investec Limited, a Director of the Royal Automobile Club Limited and of Epsom Downs Racecourse Limited. Chairman of the Remuneration Committee. Will retire from the Board on 31 May 2008. Age 64.
Ying Yeh
Appointed a Director in December 2007, she is Chairman and President, North Asia Region, President, Business Development, Asia Pacific Region and Vice President, Eastman Kodak Company. Also aNon-Executive Director of AB Volvo. Prior to joining Kodak in 1997 she was, for 15 years, a diplomat with the US Foreign Service in Hong Kong and Beijing. Age 59.
Other members of the Executive Committee
Richard Winter
Solicitor, qualified in 1973 with over 20 years’ commercial law experience in private practice. Joined the Group in 1994 as Director of Group Legal and was appointed Company Secretary in 2000. Now responsible for corporate governance, corporate responsibility, risk management, insurance, internal audit, data privacy, company secretariat and Group legal matters. Age 59.
Tom Conophy
Has over 2627 years’ experience in the IT industry, including management and development of new technology solutions within the travel and hospitality business. He joinedJoined the Group in February 2006 from Starwood Hotels & Resorts International where he held the position of Executive Vice President & Chief Technology Officer. Responsible for global technology, including IT systems and information management throughout the Group. Age 46.47.
     Andrew CosslettPeter Gowers
 Appointed Chief Executive in February 2005. He joined
Joined the Group from Cadbury Schweppes plc wherein 1999. Following appointments as Executive Vice President, Global Brand Services in 2003, and as Chief Marketing Officer in 2005, he was most recentlyappointed President, Europe, Middle East & Africa. During his career at Cadbury Schweppes he held a varietyAsia Pacific in November 2007. Now has responsibility for the business development and performance of senior regional managementall the hotel brands and marketing rolesproperties in the UK and Asia Pacific. He also has over 11 years’ experience in brand marketing with Unilever. He is Non-Executive Chairman of Duchy Originals Limited. Age 51.
     Peter Gowers
Pacific region. Has previous international experience in management consultancy, based in London and Singapore. He joined the Group in 1999 and was appointed Executive Vice President, Global Brand Services in January 2003. Appointed Chief Marketing Officer in 2005, he now has responsibility for worldwide brand management, reservations, e-commerce, global sales, relationship and distribution marketing and loyalty program. Age 34.35.
     Richard HartmanKirk Kinsell
 
Has over 4025 years’ experience in the hotelhospitality industry, including 30 yearssenior franchise positions with Sheraton. HeHoliday Inn Corporation and ITT Sheraton, prior to joining the group in 2002 as Senior Vice President, Chief Development Officer for the Americas region. Promoted to the role of President, EMEA and joined the GroupExecutive Committee in 1999 as Managing Director, Asia Pacific. Subsequently, as Managing Director, Europe, Middle East and Africa, he was appointed an Executive Director in April 2003.


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September 2007. Responsible for the business development and performance of all the Hotelhotel brands and properties in the EMEA region. He will retire from the Group in September 2007. Age 61.53.
     Patrick ImbardelliTracy Robbins
 
Has over 25 years’ experience in the hotel industry including 12 years with Southern Pacific Hotels Corporation. He joined the Group in 2000 and was appointed Managing Director, Asia Pacific in January

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2003. Responsible for the business development and performance of all the Hotel brands and properties in the Asia Pacific region. Age 46.
     David Kappler
      Appointed a Director and Senior Independent Director in June 2004. He is Non-Executive Chairman of Premier Foods plc and a Non-Executive Director of Shire plc. A qualified accountant and formerly Chief Financial Officer of Cadbury Schweppes plc until April 2004, he also served as a Non-Executive Director of Camelot Group plc and HMV Group plc. Chairman of the Audit Committee. Age 60.
     Ralph Kugler
      Appointed a Director in April 2003, he is President, Unilever Home and Personal Care, and joined the Boards of Unilever plc and Unilever NV in May 2005. He has held a variety of senior positions globally for Unilever and has experience of regional management in Asia, Latin America and Europe, with over 25 years’ experience of general management and brand marketing. Age 51.
     Jennifer Laing
      Appointed a Director in August 2005, she is Associate Dean, External Relations at the London Business School. A fellow of the Marketing Society and of the Institute of Practitioners in Advertising, she has over 30 years’ experience in advertising including 16 years with Saatchi & Saatchi, to whom she sold her own agency. She also serves as a Non-Executive Director of Hudson Highland Group Inc., a US human resources company. Age 60.
     Robert C Larson
      Appointed a Director in April 2003, he is a Managing Director of Lazard Frères Alternative Investments LLC and Chairman of Lazard Frères Real Estate Investors, LLC. He is also Chairman of Larson Realty Group and Non-Executive Chairman of United Dominion Realty Trust Inc. and Commonwealth Atlantic Properties Inc. He served as a Non-Executive Director of Six Continents PLC (formerly Bass PLC) from 1996 until April 2003. Age 72.
     Jonathan Linen
      Appointed a Director in December 2005, he was formerly Vice Chairman of the American Express Company, having held a range of senior positions including in New Product Development, Marketing and Sales and Travel Services throughout his career of over 35 years with American Express. A management development graduate of Harvard Business School, he also serves on the Board and Executive Committees of a number of US companies and Councils. Age 63.
     Stevan Porter
      Previously 13 years with Hilton Corporation in a variety of senior management positions. He joined the Group in 2001 as Chief Operating Officer, The Americas. Subsequently, as President, The Americas, he was appointed an Executive Director in April 2003. Responsible for the business development and performance of all the Hotel brands and properties in the Americas region. Additionally, he has responsibility for the development and deployment of best practice in franchising, globally. Age 52.
     Sir David Prosser
      Qualified actuary with over 40 years’ experience in financial services. Appointed a Director in April 2003, he was formerly Group Chief Executive of Legal & General Group Plc. He is a Non-Executive Director of Investec plc and of Investec Limited, a Director of the Royal Automobile Club Limited and of Epsom Downs Racecourse Limited. Chairman of the Remuneration Committee. Age 63.

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     Tracy Robbins
      Has over 2122 years’ experience in line and HR roles in service industries. She joinedJoined the Group in December 2005 from Compass Group PLC, a world leading food service company, where she was Group Human Resources Leadership & Development Director. Previously Group HR Director for Forte Hotels Group. Responsible for global talent management and leadership development, reward strategy and implementation. Age 43.44.
     Richard SolomonsTom Seddon
 Qualified as a chartered accountant
Has over 15 year’s experience in 1985, followed by seven yearssales and marketing in investment banking, based in London and New York. He joinedthe hospitality industry, including with IHG’s predecessor parent companies from 1994 to 2004. Rejoined the Group in 1992 and held a variety of senior finance and operational roles. Appointed Finance Director of the HotelsNovember 2007, from restaurant business in October 2002 in anticipation of the Separation. Responsible for corporate and regional finance, Group financial control, asset management, strategy and corporate development, investor relations, tax and treasury. Age 45.
     David Webster
      Appointed Deputy Chairman and Senior independent Director of InterContinental Hotels Group upon the Separation. Appointed Non-Executive Chairman on 1 January 2004. He is also Non-Executive Chairman of Makinson Cowell Limited, a capital markets advisory firm. HeSUBWAY® where he was formerly Chairman of Safeway plc and a Non-Executive Director of Reed Elsevier PLC. Chairman of the Nomination Committee. Age 62.
     Richard Winter
      Solicitor, qualified in 1973 with over 20 years’ commercial law experience in private practice. He joined the Group in 1994 as Director of Group Legal and was appointed Company Secretary in 2000. Now responsible for corporate governance, corporate socialworldwide sales and marketing activities. Has in the past held senior positions in management consulting and at Motorola. Has responsibility risk management, insurance, internal audit, data privacy, company secretariatfor worldwide brand management; reservations,e-commerce, global sales, relationship and group legal matters.distribution marketing and loyalty programmes. Age 57.39.
 
There are no family relationships between any of the persons named above.
 
There are no arrangements or understandings with major shareholders, customers, suppliers or others, pursuant to which any person named above was selected as a director or member of senior management.
COMPENSATION
 
In fiscal 2006,2007, the aggregate compensation (including pension contributions, bonus and awards under the long term incentive plans) of the directors and officers of the Company was £17.9£10.06 million. The aggregate amount set aside or accrued by the Company in fiscal 20062007 to provide pension retirement or similar benefits for those individuals was £858,900.£656,000. An amount of £7.9£2.04 million was charged in fiscal 20062007 in respect of bonuses payable to them under performance related cash bonus schemes and long term incentive plans.
 
Note 3 of Notes to the Financial Statements sets out the individual compensation of the directors. The following are details of the Company’s principal share schemes, in which the directors of the Company participated during the period.
Share Plans
 
Under the terms of the Separation, holders of options under the Six Continents Executive Share Option Schemes were given the opportunity to exchange their Six Continents options for equivalent value new options over IHG PLC shares. At December 31, 2006 4,055,6742007 2,696,883 such options were outstanding.
Short Term Deferred Incentive Plan
The IHG Short Term Deferred Incentive Plan (STDIP), now called the Annual Bonus Plan, enables eligible employees, including Executive Directors, to receive all or part of their bonus in the form of shares together with, in certain cases, a matching award of free shares up to half the deferred amount. The bonus and matching shares in the 2004 and 2005 plans are deferred and released in three equal tranches on the first, second and third anniversaries of the award date. The bonus and matching shares in the 2006 and 2007 plans are released on the third anniversary of the award date. Under the 2006 and 2007 plans a percentage of the award (Board members — 100% other eligible employees — 50%) must be taken in shares and deferred.
Participants may defer the remaining amount on the same terms or take it in cash. The awards in all of the plans are conditional on the participants remaining in the employment of a participating company. Participation in the STDIP is at the discretion of the Remuneration Committee. The number of shares is calculated by dividing a specific percentage of the participant’s annual performance related bonus by the middle market quoted prices on the three consecutive dealing days immediately preceding the date of grant. A number of executives participated in the plan during the year and conditional rights over 675,515 shares were awarded to participants.


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Long Term Incentive Plan
The Long Term Incentive Plan (LTIP), previously called the Performance Restricted Share Plan (PRSP), allows Executive Directors and eligible employees to receive share awards, subject to the satisfaction of a performance condition, set by the Remuneration Committee, which is normally measured over a three year period. Awards are normally made annually and, except in exceptional circumstances, will not exceed three times salary for Executive Directors and four times salary in the case of other eligible employees. During the year, conditional rights over 3,538,535 shares were awarded to employees under the plan. The plan provides for the grant of nil cost options’ to participate as an alternative to conditional share awards.
Executive Share Option Plan
 The Remuneration Committee, consisting solely of independent non-executive directors, may select employees within the Group, including executive directors, of the Company, to receive a grant of
For options to

65

acquire ordinary shares in the Company. Under the terms of the Plangranted, the option price mayis not be less than the market value of an ordinary share, or the nominal value if higher. The market value is either the quoted price on the business day preceding the date of grant, or the average of the middle market quoted prices on the three consecutive dealing days immediately preceding the date of grant. The international schedule to the share plan extends it to executives outside the United Kingdom. Grants of options under the Executive Share Option Plan have normally been made annually and except in exceptional circumstances, have not, in any year, exceeded three times annual salary for executive directors.grant. A performance condition musthas to be met before options can be exercised. The performance condition is set by the Remuneration Committee.
      Following a full review of incentive arrangements, The plan was not operated during 2007 and no options were granted in the Remuneration Committee concluded in 2005 that share options are not the most effective incentive for the foreseeable future and therefore no further grants of options have been made or are expected to be made. However, the Remuneration Committee believes that share ownership by executive directors and senior executives strengthens the link between the individual’s personal interest and that of the shareholders.
      As of March 16, 2007, options over 13,540,481 IHG PLC shares were outstandingyear under the Executive Share Option Plan.plan. The latest date that any options may be exercised is April 2015.
     Short Term Deferred IncentiveSharesave Plan
 The IHG Short Term Deferred Incentive Plan (the “STDIP”) enables eligible employees, including executive directors, to receive all or part of their bonus in the form of IHG shares on a deferred basis. Matching shares may also be awarded up to half the deferred amount. The bonus and matching shares are deferred and will normally be released at the end of the three years following deferral. Participation in the STDIP is at the discretion of the IHG directors. The number of shares is calculated by dividing a specific percentage of the participant’s salary by the average share price for a period of days prior to the date on which the shares are granted. As of March 16, 2007, there were 716,257 IHG shares over which conditional rights had been awarded to participants under the Plan.
     Performance Restricted Share Plan
      The Performance Restricted Share Plan allows executive directors and eligible employees to receive share awards, subject to the satisfaction of a performance condition, set by the Remuneration Committee, which is normally measured over a three-year period. Awards are normally made annually and, except in exceptional circumstances, will not exceed three times annual salary for executive directors. In determining the level of awards within this maximum limit, the Committee takes into account the level of Executive Share Options already granted to the same person. The grant of awards is restricted so that in each year the aggregate of (i) 20% of the market value of the executive share options and (ii) 33% of the market value of performance restricted shares, will not exceed 130% of annual salary, taking the market value in each case as at the date of grant. As of March 16, 2007 there were 8,653,114 IHG shares over which conditional rights had been awarded to employees under the Plan. The Plan provides for the grant of “nil cost options” to participants as an alternative to share awards. As of March 16, 2007, no such nil cost options had been granted.
     Sharesave Plan
The Sharesave Plan is a savings plan whereby employees contract to save a fixed amount each month with a Savings Institutionsavings institution for three or five years. At the end of the savings term, employees are given the option to purchase shares at a price set before savings began. The Sharesave Plan is available to all UK employees (including executive directors)Executive Directors) employed by participating Group companies provided that they have been employed for at least one year. The Planplan provides for the grant of options to subscribe for ordinary shares at the higher of nominal value and not less than 80% of the middle market quotations of the ordinary shares on the three dealing days immediately before invitations go out. As of March 16,preceding the invitation date. The plan was not operated during 2007 and no options over 83,111 IHG shares were outstandinggranted in the year under the Sharesave Plan at a subscription price of 420.5p, exercisable up toplan. The latest date that any options may be exercised under the year 2009.three-year plan is 29 February 2008 and under the five-year plan is 28 February 2010.

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Options and Ordinary Shares held by Directors
 
Options and Ordinary Shares held by Directors
Details of the directors’ interests in the Company’s shares are set out on page 7062 and page F-41.pages F-36 toF-40.
BOARD PRACTICES
Contracts of Service
Contracts of Service
 
The Remuneration Committee’s policy is for Executive Directors to have rolling contracts with a notice period of 12 months.
 
Andrew Cosslett, Richard Hartman, Stevan Porter and Richard Solomons have service agreements with a notice period of 12 months. All new appointments are intended to have12-month notice periods. However, on occasion, to complete an external recruitment successfully, a longer initial period reducing to 12 months may be useful.
 
David Webster’s appointment as non-executive Chairman, effective from January 1, 2004, is subject to six months’ notice.
 
Non-executive directors, Ralph Kugler, Robert C Larson and Sir David Prosser signed letters of appointment effective from the listing of IHG in April 2003. These were renewed, effective from completion of the capital reorganisation of the Group and the listing of new IHG shares on June 27, 2005. David Kappler signed a letter of appointment effective from his date of original appointment to the Board on June 21, 2004. This was also renewed, effective from June 27, 2005. Jennifer Laing and Jonathan Linen signed letters of appointment effective from their appointment dates, respectively August 25, 2005 and December 1, 2005. Ying Yeh signed a letter of appointment effective from her appointment date of December 1, 2007.


58

Directors’ Contracts
 All non-executive directors’ appointments, with the exception of the Chairman, are subject to three months’ notice.
Directors’ Contracts
         
  Contract
 Unexpired term/
Directors
 date notice period
 
Andrew Cosslett  2.3.05   12 months 
Richard Hartman4.15.036 months(1)
Stevan Porter  4.15.03   12 months 
Richard Solomons  4.15.03   12 months 
 
(1) Richard Hartman is due to retire in September 2007. Having given contractual notice, his unexpired term of office as at the date of this report is six months.
Each of the executive directorsExecutive Directors signed a letter of appointment, effective from completion of the capital reorganization of the Company and the listing of new IHG shares on June 27, 2005. The terms of each appointment were as set out in each executive director’s original service agreement.
 On September 25, 2006 IHG announced the forthcoming retirement of Richard Hartman who will leave the Group in September 2007.
See Note 3 of the Notes to the Consolidated Financial Statements for details of directors’ service contracts.
Payments on Termination
Payments on Termination
 
No provisions for compensation for termination following change of control, or for liquidated damages of any kind, are included in the current directors’ contracts. In the event of any early termination of an executive director’s contract the policy is to seek to minimize any liability.
 
Upon retirement, and under certain other specified circumstances on termination of his employment, a director will become eligible to receive benefit from his participation in a Company pension plan. See Note 3 of Notes to the Financial Statements for details of directors’ pension entitlements at December 31, 2006.2007.

67

Committees
 
Committees
Each Committee of the Board has written terms of reference which have been approved by the Board.
Executive Committee
 
The Executive Committee is chaired by the Chief Executive. It consists of the executive directors and senior executives from the Group and the regions and usually meets monthly. Its role is to consider and manage a range of important strategic and business issues facing the Group. It is responsible for monitoring the performance of the regional Hotels businesses and, until its flotation as an independent company in December 2005, the Britvic business.businesses. It is authorised to approve capital and revenue investment within levels agreed by the Board. It reviews and recommends to the Board the most significant investment proposals.
Audit Committee
 
The Audit Committee is chaired by David Kappler who has significant recent and relevant financial experience and is the Committee’s financial expert. During 2006,2007, the other Audit Committee members were Sir David Prosser, Ralph Kugler and Jennifer Laing. All Audit Committee members are independent. The Audit Committee is scheduled to meet at least four times a year. All Audit Committee members attended every meeting.year and met six times in 2007.
 
The Audit Committee’s principal responsibilities are as follows:to:
 • review the Group’s public statements on internal control and corporate governance compliance prior to their consideration by the Board;
 
 • review the Group’s processes for detecting and addressing fraud, misconduct and control weaknesses and to consider the response to any such occurrence, including overseeing the process enabling the anonymous submission of concerns;
 
 • review reports from management, internal audit and external audit concerning the effectiveness of internal control, financial reporting and risk management processes;
 
 • review with management and the external auditor any financial statements required under UK or US legislation before submission to the Board;
 
 • establish, review and maintain the role and effectiveness of the Internal Auditinternal audit function, including overseeing the appointment of the Head of Internal Audit;


59

 • assumingassume responsibility for the appointment, compensation, resignation, dismissal and the oversightoverseeing of the external auditor, including review of the external audit, its cost and effectiveness;
 
 • pre-approve non-audit work to be carried out by the external auditor and the fees to be paid for that work along with the monitoring of the external auditor’s independence; and
 
 • adoptoversee the Group’s Code of Ethics and Business Conduct and oversight of associated procedures for monitoring adherence.
 
The Audit Committee discharges its responsibilities through a series of Audit Committee meetings during the year at which detailed reports are presented for review. The Audit Committee commissions reports, either from external advisers, the Head of Internal Audit, or Group management, after consideration of the major risks to the Group or in response to developing issues. The external auditor attends its meetings as does the Head of Internal Audit, both of whom have the opportunity to meet privately with the Audit Committee, in the absence of Group management, at the conclusion of each meeting.
 
All proposals for the provision of non-audit services by the external auditor are pre-approved by the Audit Committee or its delegated member, the overriding consideration being to ensure that the provision of non-audit services does not impact the external auditors independence and objectivity.

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Remuneration Committee
 
The Remuneration Committee, chaired by Sir David Prosser, also comprises the following non-executive, independent directors: David Kappler, Robert C Larson, Jonathan Linen and, Sir Howard Stringer (until November 10, 2006).from December 1 , 2007, Ying Yeh. It meets at least three times a year. The Remuneration Committee advises the Board on overall remuneration policy. The Remuneration Committee also determines, on behalf of the Board, and with the benefit of advice from external consultants and members of the Human Resources department, the remuneration packages of the executive directors and other members of the Executive Committee. No member of the Remuneration Committee has any personal financial interest, other than as a shareholder, in the matters to be decided by the Remuneration Committee. It met six times in the year.
Nomination Committee
 
The Nomination Committee’s quorumCommittee comprises any three non-executive, independent directorsNon-Executive Directors although, where possible, all non-executive directorsNon-Executive Directors are present. It is chaired by the Chairman of the Company. Its terms of reference reflect the principal duties proposed as good practice and referred to in the Combined Code. The Nomination Committee is responsiblenominates, for nominating, for the approval ofby the Board, candidates for appointment to the Board, and also for succession planning.Board. The Nomination Committee generally engages external consultants to advise on candidates for Board appointments and did so in connection with the appointmentsappointment of Jennifer Laing and Jonathan Linen.Ying Yeh. Candidate profiles and objective selection criteria wereare prepared in advance of theseany engagements. The NominationsNomination Committee also has responsibility for succession planning and assists the Board in identifying and developing the role of the Senior Independent Director. The Nomination Committee met seven times during the year.
Disclosure Committee
 
The Disclosure Committee, chaired by the Group’s Financial Controller, and comprising of the Company Secretary and other senior executives, reports to the Chief Executive and the Finance Director, and to the Audit Committee. Its duties include ensuring that information required to be disclosed in reports pursuant to UK and US accounting, statutory or listing requirements, fairly representrepresents the Group’s position in all material respects.
General Purposes Committee
 
The General Purposes Committee comprises any two executive directors or any one executive directorExecutive Committee member together with a senior officer from an agreed and restricted list of senior executives. It is always chaired by a director.an Executive Committee member. It attends to business of a routine nature and to the administration of matters, on an ad hoc basis, the principles of which have been agreed previously by the Board or an appropriate Committee.committee.


60

A description of the significant ways in which the Company’s actual corporate governance practices differ from the New York Stock Exchange corporate governance requirements followed by U.S.US companies can be found on the Company’s website at www.ihg.com.
EMPLOYEES
 
The Group employed an average of 11,45610,366 people worldwide in the year ended December 31, 2006.2007. Of these, approximately 88%94% were employed on afull-time basis and 12%6% were employed on apart-time basis.

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The table below analyzes the distribution of the average number of employees for the last three fiscal periods by division and by geographic region.
                     
    Rest of Europe,      
    the Middle East      
  United Kingdom and Africa United States Asia Pacific Total
           
2006
  960   3,763   4,268   2,465   11,456 
                
2005:
                    
Hotels  4,610   6,145   6,329   1,911   18,995 
Soft Drinks(i)
  2,991   —   —   —   2,991 
                
InterContinental Hotels Group  7,601   6,145   6,329   1,911   21,986 
                
2004:
                    
Hotels  9,676   6,601   8,241   2,317   26,835 
Soft Drinks(i)
  2,824   —   —   —   2,824 
                
InterContinental Hotels Group  12,500   6,601   8,241   2,317   29,659 
                
 
                     
  EMEA  Americas  Asia Pacific  Central  Total 
 
2007
  2,739   3,761   2,716   1,150   10,366 
                     
2006
  4,437   3,771   2,225   1,023   11,456 
                     
2005:
                    
Hotels  10,477   5,832   1,737   949   18,995 
Soft Drinks(i)
  2,991   —   —   —   2,991 
                     
Total  13,468   5,832   1,737   949   21,986 
                     
(i)With effect from December 14, 2005, the Group no longer employed any individuals in the Soft Drinks Sector.
 
Under EU law, many employees of Group companies are now covered by the Working Time Regulations which came into force in the United Kingdom on October 1, 1998. These regulations implemented the European Working Time Directive and parts of the Young Workers Directive, and lay down rights and protections for employees in areas such as maximum working hours, minimum rest time, minimum days off and paid leave.
 
In the United Kingdom there is in place a national minimum wage under the National Minimum Wage Act. At December 31, 2006,2007, the minimum wage for individuals between 18 and under the age of 22 was £4.45£4.60 per hour and £5.35£5.52 per hour for individuals age 22 and above. This particularly impacts businesses in the hospitality and retailing sectors. Compliance with the National Minimum Wage Act is being monitored by the Low Pay Commission, an independent statutory body established by the UK Government.
 
Less than 5% of the Group’s UK employees are covered by collective bargaining agreements with trade unions.
 
Continual attention is paid to the external market in order to ensure that terms of employment are appropriate. The Group believes the Group companies will be able to conduct their relationships with trade unions and employees in a satisfactory manner.


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70

SHARE OWNERSHIP
 
The interests of the directors and officers of the Company at March 16, 200714, 2008 were as follows:
         
  Ordinary shares % of shares
  of 113/7 pence outstanding
     
Directors
        
Andrew Cosslett  111,243   0.03 
Richard Hartman  84,114   0.02 
David Kappler  1,669   N/A 
Ralph Kugler  1,393   N/A 
Jennifer Laing  1,673   N/A 
Robert C. Larson  6,874(1)  N/A 
Jonathan Linen  8,750(1)  N/A 
Stevan Porter  200,364   0.06 
Sir David Prosser  2,863   N/A 
Richard Solomons  186,838   0.05 
David Webster  31,975   0.01 
Officers
        
Tom Conophy  Nil   N/A 
Peter Gowers  93,990   0.03 
Patrick Imbardelli  101,723   0.03 
Tracy Robbins  11,740   N/A 
Richard Winter  105,637   0.03 
 
         
  Ordinary shares
  % of shares
 
  of 1329/47 pence  outstanding 
 
Directors
        
Andrew Cosslett  240,229   0.08 
David Kappler  1,400   N/A 
Ralph Kugler  1,169   N/A 
Jennifer Laing  1,404   N/A 
Robert C. Larson(1)
  10,269   N/A 
Jonathan Linen(1)
  7,343   N/A 
Stevan Porter  230,303   0.08 
Sir David Prosser  2,402   N/A 
Richard Solomons  225,287   0.07 
David Webster  31,938   0.01 
Ying Yeh  Nil   N/A 
Officers
        
Tom Conophy  35,112   0.01 
Peter Gowers  139,790   0.05 
Tracy Robbins  32,833   0.01 
Richard Winter  139,088   0.05 
Kirk Kinsell  61,910   0.02 
Tom Seddon  24,000   N/A 
(1)Held in the form of American Depositary Receipts
 
The above shareholdings are all beneficial interests and include shares held for the benefit of directors and officers by trustees of the Company’s Executive Share Ownership Trust.interests. The percentage of ordinary share capital owned by each of the directors is negligible.
 On March 16, 2007, the executive directors’ technical interest in unallocated IHG ordinary shares held by the Trustees of the Employee Share Ownership Trust was 2,410,526 shares.
The directors’ interests in options to subscribe for shares in InterContinental Hotels Group PLC as at December 31, 20062007 are set out onpage F-40.F-39.
 
The directors do not have different voting rights from other shareholders of the Company.


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ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
MAJOR SHAREHOLDERS
 
As far as is known to management, IHG is not directly or indirectly owned or controlled by another corporation or by any government. Under the provisions of the Companies Act, the Company has been advised of the following interests in its shares, being greater than 3% of its issued share capital as of March 16, 2007:14, 2008:
                         
  March 2007 March 2006 April 2005
       
  Number of Percent Number of Percent Number of Percent
Identity of person or group shares/ADSs of class shares/ADSs of class shares/ADSs of class
             
Ellerman Corporation Limited  25,286,950   7.13%    (1)   (1)   (1)   (1)
Lloyds TSB Group Plc  13,619,563   3.84%   19,534,651   4.51%   26,773,575   4.44% 
Legal & General Group Plc  11,927,715   3.37%   13,753,588   3.17%   24,233,225   4.02% 
Barclays PLC   (1)   (1)   (1)   (1)  20,246,584   3.36% 
AXA SA   (1)   (1)   (1)   (1)  18,121,201   3.00% 
 
                         
  March 2008  March 2007  March 2006 
  Number of
  Percent
  Number of
  Percent
  Number of
  Percent
 
Identity of person or group
 shares/ADSs  of class  shares/ADSs  of class  shares/ADSs  of class 
 
Ellerman Corporation Limited  29,921,742   10.00%  25,286,950   7.13%  (1)  (1)
Morgan Stanley Investment Management Limited  16,494,690   5.60%  (1)  (1)  (1)  (1)
Cedar Rock Capital Limited  14,923,417   5.07%  (1)  (1)  (1)  (1)
Morgan Stanley Institutional Securities Group & Global Wealth Management  13,551,634   4.60%  (1)  (1)  (1)  (1)
Legal & General Group Plc  12,179,257   4.09%  11,927,715   3.37%  13,753,588   3.17%
Lloyds TSB Group Plc  13,619,563   3.84%  13,619,563   3.84%  19,534,651   4.51%
(1)No notification of an above 3% shareholding received.

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The Company’s major shareholders do not have different voting rights from other shareholders of the Company. The Company does not know of any arrangements the operation of which may result in a change in its control.
 
As of March 16, 2007, 26,610,30014, 2008, 19,909,509 ADSs equivalent to 26,610,30019,909,509 ordinary shares, or approximately 7.51%6.8% of the total ordinary shares in issue, were outstanding and were held by 1,009916 holders. Since certain ordinary shares are registered in the names of nominees, the number of shareholders of record may not be representative of the number of beneficial owners.
 
As of March 16, 2007,14, 2008, there were a total of 67,40262,133 record holders of ordinary shares, of whom 200287 had registered addresses in the United States and held a total of 519,278904,114 ordinary shares (0.15%(0.3% of the total issued).
RELATED PARTY TRANSACTIONS
 
The Company has not entered into any related party transactions or loans for the period beginning January 1, 20062007 up to March 16, 2007.14, 2008.
ITEM 8.FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
Financial Statements
Financial Statements
 
See “Item 18. Financial Statements”.
Legal Proceedings
Legal Proceedings
 
Group companies have extensive operations in the United Kingdom, as well as internationally, and are involved in a number of legal and arbitration proceedings incidental to those operations. It is the Company’s view that such proceedings, either individually or in the aggregate, have not in the recent past and are not likely to have a significant effect on the Group’s financial position or profitability.
Dividends
Dividends
 
See “Item 3. Key Information — Dividends”.


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SIGNIFICANT CHANGES
 
None.
ITEM 9.THE OFFER AND LISTING
 
The principal trading market for the Company’s ordinary shares is the London Stock Exchange on which Six Continents shares were traded since its incorporation in 1967 until Separation in 2003 and on which InterContinental Hotels Group shares have been traded since Separation. The ordinary shares are also listed on the New York Stock Exchange trading in the form of ADSs evidenced by ADRs. Each ADS represents one ordinary share. InterContinental Hotels Group has a sponsored ADR facility with JPMorgan Chase Bank, N.A. as Depositary.
 
The following tables show, for the fiscal periods indicated, the reported high and low middle market quotations (which represent an average of closing bid and ask prices) for the ordinary shares on the London

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Stock Exchange, as derived from the Daily Official List of the UK Listing Authority, and the highest and lowest sales prices of the ADSs as reported on the New York Stock Exchange composite tape.
                 
  £ per  
  ordinary share $ per ADS
     
Year ended September 30 High Low High Low
         
2002  7.83   5.41   11.73   7.49 
                 
  £ per  
  ordinary share $ per ADS
     
15 months ended December 31 High Low High Low
         
2003 — October 1 to April 11 Six Continents  6.35   4.61   10.08   7.49 
2003 — April 15 to December 31 IHG  5.55   3.38   9.82   5.26 

Year ended December 31
                
             
 
2004  6.91   4.79   13.09   8.70 
2005  8.42   6.12   14.53   11.49 
                 
  £ per  
  ordinary share $ per ADS
     
Year ended December 31 High Low High Low
         
2005
                
First quarter  6.97   6.17   13.06   11.65 
Second quarter  7.06   6.12   12.99   11.49 
Third quarter  7.57   7.01   13.81   12.44 
Fourth quarter  8.42   6.88   14.53   12.04 
2006
                
First quarter  9.01   8.07   15.83   14.40 
Second quarter(1)
  10.00   8.98   21.21   16.54 
Third quarter  9.56   8.37   17.91   15.99 
Fourth quarter  12.65   9.31   26.27   17.64 
2007
                
First quarter (through March 16, 2007)  13.15   11.82   25.86   22.80 
 
             
  £ per
  
  ordinary share $ per ADS
15 Months ended December 31
 High Low High Low
 
2003 — October 1 to April 11 Six Continents  6.35  4.61  10.08  7.49
2003 — April 15 to December 31 IHG  5.55  3.38  9.82  5.26
Year ended December 31
            
2004  6.91  4.79  13.09  8.70
2005  8.42  6.12  14.53  11.49
             
  £ per
  
  ordinary share $ per ADS
Year ended December 31
 High Low High Low
 
2006
            
First quarter  9.01  8.07  15.83  14.40
Second quarter(1)
  10.00  8.98  21.21  16.54
Third quarter  9.56  8.37  17.91  15.99
Fourth quarter  12.65  9.31  26.27  17.64
2007
            
First quarter  13.42  12.06  30.81  27.17
Second quarter(2)
  14.20  12.41  32.59  24.78
Third quarter  13.16  9.19  26.59  18.52
Fourth quarter  11.20  8.73  23.34  17.37
2008
            
First quarter (through March 14, 2008)  8.61  6.44  16.88  13.26
(1)Prices adjusted for the share consolidation effective June 12, 2006. Unadjusted prices for the quarter were £10.01 and £8.98 and $18.56 and $15.06, respectively.
(2)Prices adjusted for the share consolidation effective June 4, 2007. Unadjusted prices for the quarter were £14.13 and £12.16 and $28.18 and $24.17 respectively.
                 
  £ per  
  ordinary share $ per ADS
     
Month ended High Low High Low
         
September 2006  9.47   9.15   17.91   17.35 
October 2006  10.19   9.31   19.50   17.64 
November 2006  10.66   10.02   20.44   19.29 
December 2006  12.65   10.18   26.27   20.37 
January 2007  13.08   11.84   25.79   23.12 
February 2007  13.15   12.00   25.86   22.97 
March 2007 (through to March 16, 2007)  12.43   11.82   24.03   22.80 


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  £ per
  
  ordinary share $ per ADS
Month ended
 High Low High Low
 
September 2007  10.38  9.19  21.06  18.52
October 2007  11.20  9.93  23.34  20.39
November 2007  11.06  9.04  22.87  18.63
December 2007  9.64  8.73  19.66  17.37
January 2008  8.61  6.44  16.88  13.26
February 2008  8.47  7.24  16.82  14.24
March 2008 (through to March 14, 2008)  7.96  7.62  15.85  15.15
 
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.

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On June 4, 2007, the share capital of the Company was consolidated on the basis of 47 new ordinary shares for every 56 existing ordinary shares.
PLAN OF DISTRIBUTION
 
Not applicable.
SELLING SHAREHOLDERS
 
Not applicable.
DILUTION
 
Not applicable.
EXPENSES OF THE ISSUE
 
Not applicable.
ITEM 10.ADDITIONAL INFORMATION
MEMORANDUM AND ARTICLES OF ASSOCIATION
 
The following summarizes material rights of holders of the Company’s ordinary shares under the material provisions of the Company’s memorandum and articles of association and English law. This summary is qualified in its entirety by reference to the Companies Act and the Company’s memorandum and articles of association. The Company’s memorandum and articles of association wereare filed as an exhibit to the Company’s Registration Statement on Form S-8 (File No. 333-126139) filed with the SEC on June 27, 2005.this 20-F.
 
The Company’s shares may be held in certificated or uncertificated form. No holder of the Company’s shares will be required to make additional contributions of capital in respect of the Company’s shares in the future.
 
In the following description, a “shareholder” is the person registered in the Company’s register of members as the holder of the relevant share.
Principal Objects
Principal Objects
 
The Company is incorporated under the name InterContinental Hotels Group PLC and is registered in England and Wales with registered number 5134420. The Company’s memorandum of association provides that its objects include to acquire certain predecessor companies and carry on business as an investment holding company, licensed victuallers, to deal in commodities, to acquire and operate breweries, hotels and restaurants, as well as to carry on any other business which the Company may judge capable of enhancing the value of the Company’s property or rights. The memorandum grants to the Company a range of corporate capabilities to effect these objects.


65

Directors
Directors
 
Under the Company’s articles of association, a director may not vote in respect of any proposal in which he, or any person connected with him, has any material interest other than by virtue of his interests in securities of, or otherwise in or through, the Company. This is subject to certain exceptions relating to proposals (a) indemnifying him in respect of obligations incurred on behalf of the Company, (b) indemnifying a third party in respect of obligations of the Company for which the director has assumed responsibility under an indemnity or guarantee, (c) relating to an offer of securities in which he will be interested as an underwriter, (d) concerning another body corporate in which the director is beneficially interested in less than one percent of the issued shares of any class of shares of such a body corporate, (e) relating to an employee benefit in which the director will share equally with other employees and (f) relating to liability insurance that the Company is empowered to purchase for the benefit of directors of the Company in respect of actions undertaken as directors (or officers) of the Company.

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The directors are empowered to exercise all the powers of the Company to borrow money, subject to the limitation that the aggregate amount of all moneys borrowed by the Company and its subsidiaries shall not exceed an amount equal to three times the Company’s share capital and aggregateconsolidated reserves, unless sanctioned by an ordinary resolution of the Company.
 
Directors are not required to hold any shares of the Company by way of qualification.
Rights Attaching to Shares
Rights Attaching to Shares
 
Under English law, dividends are payable on the Company’s ordinary shares only out of profits available for distribution, as determined in accordance with accounting principles generally accepted in the United Kingdom and by the Companies Act. Holders of the Company’s ordinary shares are entitled to receive such dividends as may be declared by the shareholders in general meeting, rateably according to the amounts paid up on such shares, provided that the dividend cannot exceed the amount recommended by the directors.
 
The Company’s board of directors may pay shareholders such interim dividends as appear to them to be justified by the Company’s financial position. If authorized by an ordinary resolution of the shareholders, the board of directors may also direct payment of a dividend in whole or in part by the distribution of specific assets (and in particular of paid up shares or debentures of any other company).
 
Any dividend unclaimed after six years from the date the dividend was declared, or became due for payment, will be forfeited and will revert to the Company.
Voting Rights
Voting Rights
 
Voting at any general meeting of shareholders is by a show of hands unless a poll, which is a written vote, is duly demanded. On a show of hands, every shareholder who is present in person or by proxy at a general meeting has one vote regardless of the number of shares held. On a poll, every shareholder who is present in person or by proxy has one vote for every 1113329/747 pence in nominal amount of the shares held by that shareholder. A poll may be demanded by any of the following:
 • the chairman of the meeting;
 
 • at least five shareholders present in person or by proxy and entitled to vote at the meeting;
 
 • any shareholder or shareholders representing in the aggregate not less than one-tenth of the total voting rights of all shareholders entitled to vote at the meeting; or
 
 • any shareholder or shareholders holding shares conferring a right to vote at the meeting on which there have beenpaid-up sums in the aggregate equal to not less than one-tenth of the total sum paid up on all the shares conferring that right.
 
A proxy form will be treated as giving the proxy the authority to demand a poll, or to join others in demanding one.


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The necessary quorum for a general meeting is three persons carrying a right to vote upon the business to be transacted, whether present in person or by proxy.
 
Matters are transacted at general meetings of the Company by the proposing and passing of resolutions, of which there are three kinds:
 • an ordinary resolution, which includes resolutions for the election of directors, the approval of financial statements, the cumulative annual payment of dividends, the appointment of auditors, the increase of authorized share capital or the grant of authority to allot shares;
 
 • a special resolution, which includes resolutions amending the Company’s memorandum and articles of association, disapplying statutory pre-emption rights or changing the Company’s name; and

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 • an extraordinary resolution, which includes resolutions modifying the rights of any class of the Company’s shares at a meeting of the holders of such class or relating to certain matters concerning the Company’s winding up.
 
An ordinary resolution requires the affirmative vote of a majority of the votes of those persons voting at a meeting at which there is a quorum.
 
Special and extraordinary resolutions require the affirmative vote of not less than three-fourths of the persons voting at a meeting at which there is a quorum.
 
In the case of an equality of votes, whether on a show of hands or on a poll, the chairman of the meeting is entitled to cast the deciding vote in addition to any other vote he may have.
 
Annual General Meetings must be convened upon advance written notice of 21 days. Other meetings must be convened upon advance written notice of 21 days for the passing of a special resolution and 14 days for any other resolution, depending on the nature of the business to be transacted. The days of delivery or receipt of the notice are not included. The notice must specify the nature of the business to be transacted. The board of directors may if they choose make arrangements for shareholders who are unable to attend the place of the meeting to participate at other places.
 
Each Director shall retire every three years inat the Annual General Meeting and unless otherwise decided by the Directors, shall be eligible for re-election. Any director attaining 70 years
Variation of age shall retire at the next Annual General Meeting. Such a director may be re-elected but shall retire every year (and be eligible for re-election) at the next, and all subsequent, Annual General Meetings.Rights
Variation of Rights
If, at any time, the Company’s share capital is divided into different classes of shares, the rights attached to any class may be varied, subject to the provisions of the Companies Act, with the consent in writing of holders of three-fourths in nominal value of the issued shares of that class or upon the adoption of an extraordinary resolution passed at a separate meeting of the holders of the shares of that class. At every such separate meeting, all of the provisions of the articles of association relating to proceedings at a general meeting apply, except that the quorum is to be the number of persons (which must be two or more) who hold or represent by proxy not less than one-third in nominal value of the issued shares of the class.
Rights in a Winding-up
Rights in aWinding-up
 
Except as the Company’s shareholders have agreed or may otherwise agree, upon the Company’s winding up, the balance of assets available for distribution:
 • after the payment of all creditors including certain preferential creditors, whether statutorily preferred creditors or normal creditors; and
 
 • subject to any special rights attaching to any class of shares;
is to be distributed among the holders of ordinary shares according to the amountspaid-up on the shares held by them. This distribution is generally to be made in cash. A liquidator may, however, upon the adoption of an extraordinary resolution of the shareholders, divide among the shareholders the whole or any part of the Company’s assets in kind.


67

Limitations on Voting and Shareholding
Limitations on Voting and Shareholding
 
There are no limitations imposed by English law or the Company’s memorandum or articles of association on the right of non-residents or foreign persons to hold or vote the Company’s ordinary shares or ADSs, other than the limitations that would generally apply to all of the Company’s shareholders.

76

MATERIAL CONTRACTS
 
The following contracts have been entered into otherwise than in the course of ordinary business by members of the Group either (i) in the two years immediately preceding the date of this document in the case of contracts which are or may be material or (ii) which contain provisions under which any Group member has any obligation or entitlement which is material to the Group as at the date of this document. To the extent that these agreements include representations, warranties and indemnities, such provisions are considered standard in an agreement of that nature, save to the extent identified below.
IHG Facility Agreement
IHG Facility Agreement
 
On November 9, 2004, InterContinental Hotels Limited signed a five year £1,600 million bank facility agreement (the “IHG Facility Agreement”) with The Bank of Tokyo-Mitsubishi, Ltd., Barclays Capital, Citigroup Global Markets Limited, HSBC Bank plc, J.P. Morgan plc, Lloyds TSB Bank plc, The Royal Bank of Scotland plc, SG Corporate & Investment Banking (the corporate and investment banking division of Société Generale) and WestLB AG, London Branch, all acting as mandated lead arrangers and underwriters and HSBC Bank plc as agent bank.
 
The facility was split into a £1.1 billion five year revolving credit facility and a £500 million 364 day revolving credit facility. The latter was canceled in November 2005.
 
The interest margin payable on borrowings under the IHG Facility Agreement is linked to IHG’s consolidated net debt to consolidated EBITDA ratio; initially the margin was set at LIBOR + 0.375% p.a. The margin can vary between LIBOR + 0.325% and LIBOR + 0.60% depending on the level of the ratio.
 
As part of this refinancing the Group repurchased its euro and sterling denominated bonds. The Group’s new parent company InterContinental Hotels Group PLC, acceded to the IHG Facility Agreement in July 2005, following thea capital restructuring described in Item 4.June 2005.
Disposal to Hospitality Properties Trust
Disposal to Hospitality Properties Trust
 
On December 17, 2004, BHR Texas L.P., InterContinental Hotels Group Resources, Inc., Crowne Plaza LAX, LLC, Crowne Plaza Hilton Head Holding Company, Holiday Pacific Partners Limited Partnership, 220 Bloor Street Hotel Inc. and Staybridge Markham, Inc. (together, the “Vendors”) entered into a Purchase and Sale Agreement (as amended and restated on February 9, 2005) with HPT IHG — 2 Properties Trust (“HPT IHG-2”), pursuant to which HPT IHG-2 purchased from the Vendors 12 hotels situated in the United States and Canada. On the same date, Six Continents International Holdings B.V. (“SIH”), entered into a Stock Purchase Agreement (as amended and restated on February 9, 2005) with HPT IHG-2, pursuant to which HPT IHG-2 purchased from SIH all of the shares in Crowne Plaza (Puerto Rico) Inc., which is the owner of a hotel in Puerto Rico. The total consideration payable by HPT IHG-2 for the sales amounted to US$425 million, before transaction costs, equivalent to net book value (of which US$395 million was received upon the main completion of the sale on February 16, 2005, with the remaining US$30 million received upon the completion of the sale of the InterContinental Hotel in Austin, on June 1, 2005). The Group continues to manage the hotels.
 
Under the Purchase and Sale Agreement and Stock Purchase Agreement, the Vendors have given certain customary warranties and indemnities to HPT IHG-2.
 
In connection with the disposals referred to above, IHG has agreed to guarantee certain amounts payable to HPT IHG and HPT IHG-2 in relation to the managed hotels sold by the Group to HPT IHG and HPT IHG-2. The guarantee is for a maximum amount of $125 million and requires amounts to be paid by IHG to HPT IHGand/or


68

HPT IHG-2 (and/or their designated affiliate) irrespective of the revenue generated by the relevant hotels. The guarantee may be terminated if certain financial tests are met.

77

UK Hotels Disposal
 
UK Hotels Disposal
A Share Purchase Agreement (the “SPA”) was entered into on March 10, 2005 between Six Continents, IHC London (Holdings) Limited (“IHC Holdings”) and LRG. Pursuant to the SPA, Six Continents and IHC Holdings (the “Sellers”) agreed to sell all of the issued ordinary share capital of Six Continents Hotels & Holidays Limited, Holiday Inn Limited, NAS Cobalt No. 2 Limited and London Forum Hotel Limited respectively (together, the “LRG Shares”) to LRG and to transfer to LRG certain contractual rights to the extent they related to the hotels LRG indirectly acquired under the SPA (the “LRG Hotels”) and which remained to be completed or performed, or remained in force, after completion of the sale of the LRG Shares to LRG.
 
The agreed sale price for the LRG Shares was £1 billion. Proceeds of £40 million were deferred and are contingent upon certain pre-agreed performance targets being reached. Following completion, the Group continues to manage the LRG Hotels.
 
Under the SPA, the Sellers gave certain warranties in relation to the assets disposed of and LRG gave certain warranties in relation to its authority to enter into the SPA and its capacity to perform its obligations under the SPA. Certain indemnities were also given by the Sellers.
Australasian Hotels Disposals
Australasian Hotels Disposals
 
On September 1, 2005, Holiday Inn Holdings (Australia) Pty Limited, SPHC Group Pty Limited and HIA(T) Pty Limited (for the Australian assets) and Hale International Limited (for the New Zealand asset), all three of which are members of the Group, (“IHG”) entered into two sale and purchase agreements with HANZ (Australia) Pty Limited (for the Australian assets) and HANZ Holdings (New Zealand) Limited (for the New Zealand asset), both companies being subsidiaries of the Hotel Alternative (Australia and New Zealand) Private Syndicate managed by Eureka Funds Management Limited (“Eureka”) pursuant to which Eureka purchased from IHG nine hotels situated in Australia and New Zealand for AUS$390 million in cash (before transaction costs) which is AUS$75 million above the net book value of AUS$315 million. IHG gave to Eureka normal warranties in relation to the hotels and an indemnity for pre-completion tax liabilities. The transaction completed on October 31, 2005.
 
The Group continues to manage the hotels for Eureka under ten year management contracts entered into at the time of the transaction, with an option to extend for ten further years at the Group’s discretion.
Disposal to Dabicam SAS
Disposal to Dabicam SAS
 
On September 8, 2005, a sale and purchase agreement (“SPA”) was entered into between BHR Holdings BV, a wholly owned subsidiary of IHG, and Dabicam SAS, an affiliate of GIC Real Estate Pte. Ltd. Under the SPA the seller agreed to sell the InterContinental Hotel Paris. The agreed sale price for the hotel was€315 €315 million. The hotel is no longer operated under an IHG brand. Under the SPA the sellers gave certain customary warranties and indemnities to the purchaser. Following receipt of shareholder approval, in connection with the sale, at an Extraordinary General Meeting of IHG on October 26, 2005 the sale was completed on November 1, 2005.
Britvic Underwriting Agreement
Britvic Underwriting Agreement
 
An Underwriting Agreement was entered into on November 25, 2005 between, inter alia, Britvic, IHG in its capacity as a selling shareholder, the directors of Britvic, Citigroup and Deutsche Bank AG (as joint sponsors) and Citigroup, Deutsche Bank AG, Lehman Brothers International (Europe) and Merrill Lynch International (as joint Underwriters). This set out the mechanics for the Britvic initial public offering and included customary termination rights. Britvic gave customary warranties, indemnities and undertakings in the context of an agreement of this sort. IHG also gave customary warranties and indemnities in its capacity as a selling shareholder. Under this agreement, each of the selling shareholders paid a commission equal to 2% of the offer price multiplied by the number of shares sold by that selling shareholder to the joint Underwriters.


69

78

Disposal to Westbridge
Disposal to Westbridge
 
On March 10, 2006 a Sale and Purchase Agreement (“SPA”) was entered into between BHR Luxembourg S.a.r.l. and other wholly owned subsidiaries of IHG as sellers (BHR Luxembourg S.a.r.l. being the principal seller) and Cooperatie Westbridge Europe I U.A. as purchaser and Westbridge Hospitality Fund L.P. as the purchaser’s guarantor. Under the SPA the sellers agreed to sell 23 hotels situated across Europe in France, Germany, Belgium, the Netherlands, Austria, Italy and Spain.
 
The agreed sale price was€352 €352 million. IHG’s share of the proceeds was€345.2 €345.2 million (before transaction costs), in cash and the assumption of debt, and the balance of€6.8 €6.8 million relates to third-party minority interests.
 
The hotels continue to be operated by the purchaser under the same IHG brands under 15 year franchise agreements.
 
Under the SPA the sellers gave certain customary warranties and indemnities to the purchaser.
Disposal to Morgan Stanley Real Estate Funds
Disposal to Morgan Stanley Real Estate Funds
 
On July 13, 2006 a sale and purchase agreement (“SPA”) was entered into between BHR Holdings BV and other wholly owned subsidiaries of IHG as sellers (BHR Holdings BV being the principal seller) and a subsidiary of Morgan Stanley Real Estate Funds MSREF VI Danube BV. Under the SPA the sellers agreed to sell seven InterContinental branded hotels situated across Europe in France, Germany, the Netherlands, Austria, Hungary, Italy and Spain.
 
The agreed sale price for the seven hotels was€634 €634 million. IHG retained 30 year management contracts on the hotels, with two ten year renewals at IHG’s discretion, giving a total potential contract length of 50 years.
 
Under the SPA the sellers gave certain customary warranties and indemnities to the purchaser.
EXCHANGE CONTROLS
 
There are no restrictions on dividend payments to US citizens.
 
Although there are currently no UK foreign exchange control restrictions on the export or import of the capital or the payment of dividends on the ordinary shares or the ADSs, from time to time English law imposes restrictions on the payment of dividends to persons resident (or treated as so resident) in or governments of (or persons exercising public functions in) certain countries (each of the foregoing, a “Prohibited Person”).
 
There are no restrictions under the articles of association or under English law that limit the right of non-resident or foreign owners to hold or vote the ordinary shares. However, under current English law, ordinary shares or ADSs may not be owned by a Prohibited Person. In addition, the Company’s articles of association contain certain limitations on the voting and other rights of any holder of ordinary shares, whose holding may, in the opinion of the directors, result in the loss or failure to secure the reinstatement of any license or franchise from any US governmental agency held by Six Continents Hotels Inc or any subsidiary thereof.
TAXATION
 
This section provides a summary of the material US federal income tax and UK tax consequences to US holders, as defined below, of owning and disposing of ordinary shares or ADSs of the Company. This section addresses only the tax position of a US holder who holds ordinary shares or ADSs as capital assets. This section does not, however, discuss the tax consequences of members of special classes of holders subject to special rules, such as
 •certain financial institutions;
 
 •insurance companies;

79

 •dealers and traders in securities or foreign currencies;
 
 •persons holding ordinary shares or ADSs as part of a hedge, straddle, conversion transaction, integrated transaction or other integratedsimilar transaction;


70

 •persons whose functional currency for U.S.US federal income tax purposes is not the U.S.US dollar;
 
 •partnerships or other entities classified as partnerships for U.S.US federal income tax purposes;
 
 •persons liable for the alternative minimum tax;
 
 •tax-exempt organizations;
 
 •persons who acquired our ADSs or shares pursuant to the exercise of any employee stock option or otherwise as compensation.compensation;
• holders that, directly or indirectly, hold 10% or more of the Company’s voting stock.
and holders that, directly or indirectly, hold 10% or more of the Company’s voting stock.
This section does not generally deal with the position of a US holder who is resident or ordinarily resident in the United Kingdom for UK tax purposes or who is subject to UK taxation on capital gains or income by virtue of carrying on a trade, profession or vocation in the United Kingdom.Kingdom through a branch, agency or permanent establishment and such ADSs or ordinary shares are or have been used, held or acquired for the purposes of such trade, profession or vocation.
 
A US holder is a beneficial owner of shares or ADSs that is for US federal income tax purposes (i) a citizen or resident of the US, (ii) a US domestic corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States or any political subdivision thereof; or (iii) an estate whose income is subject to US federal income tax regardless of its source, or (iv) a trust if a US court can exercise primary supervision over the trust’s administration and one or more United States persons are authorized to control all substantial decisions of the trust.
 
This section is based on the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations, published rulings and court decisions, and on UK tax laws and published practice of the UK HM Revenue and Customs, all as of the date hereof, and on the current Double Taxation Convention between the United States and the United Kingdom (the “Treaty”). These laws are subject to change, possibly on a retroactive basis.
 
This section is further based in part upon the representations of the Depositary and assumes that each obligation in the Company ADR Deposit Agreement and any related agreement will be performed in accordance with its terms. For US federal income tax purposes, a holder of ADRs evidencing ADSs will be treated as the owner of the shares represented by those ADRs. Generally, exchanges of ordinary shares for ADRs, and ADRs for ordinary shares, will not be subject to US federal income tax or UK taxation on capital gains.
 
The US Treasury has previously expressed concerns that parties to whom ADRs are pre-released may be taking actions that are inconsistent with the claiming of foreign tax credits for US holders of ADRs. Such actions would also be inconsistent with the claiming of the reduced rate of tax, described below, for qualified dividend income. Accordingly, the analysis of the availability of the reduced rate of tax for qualified dividend income described below could be affected by actions taken by parties to whom the ADRs are pre-released.
 
Investors should consult their own tax advisor regarding the US federal, state and local, the UK and other tax consequences of owning and disposing of shares and ADSs in their particular circumstances, and in particular whether they are eligible for the benefits of the Treaty.
Taxation of Dividends
Taxation of Dividends
United Kingdom Taxation
 
United Kingdom Taxation
Under current UK tax law, the Company will not be required to withhold tax at source from dividend payments it makes.
A US holder who is not resident or ordinarily resident for United Kingdom tax purposes in the United Kingdom will generally not be liable for UK taxation on dividends received in respect of the ADSs or ordinary shares.


71

80

United States Federal Income Taxation
United States Federal Income Taxation
 
Subject to the passive foreign investment company (“PFIC”) rules discussed below, a US holder is subject to US federal income taxation on the gross amount of any dividend paid by the Company out of its current or accumulated earnings and profits (as determined for US federal income tax purposes). Subject to applicable limitations and the discussion above regarding concerns expressed by the US Treasury, dividends paid to a non-corporate US holder in taxable years beginning before January 1, 2011 that constitute qualified dividend income will be taxable to the holder at a maximum tax rate of 15%. The Company expects that dividends paid by the Company with respect to the shares or ADSs will constitute qualified dividend income. If the preferential rates apply and the special dividend of June 2007 exceeds 10 percent of a US holder’s adjusted basis in its ordinary shares or ADSs (or, if the preferential rates apply and the special dividend and any other dividends with ex-dividend dates during the same period of 365 consecutive days in the aggregate exceed 20 percent of such basis), any loss on the sale or exchange of such ordinary shares of ADSs would be treated as long-term capital loss to the extent of such dividend(s). U.S. Holders should consult their own tax advisors to determine whether they are subject to any special rules that limit their ability to be taxed at this favorable rate.
 
Dividends must be included in income when the US holder, in the case of shares, or the Depositary, in the case of ADSs, actually or constructively receives the dividend, and will not be eligible for thedividends-received deduction generally allowed to US corporations in respect of dividends received from other US corporations. For foreign tax credit limitation purposes, dividends will be income from sources outside the United States.
 
The amount of any dividend paid in pounds will be the US dollar value of the pound sterling payments made, determined at the spot pound sterling/US dollar rate on the date the dividend distribution is includible in income, regardless of whether the payment is in fact converted into US dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date the dividend payment is includible in income to the date the payment is converted into US dollars will be treated as ordinary income or loss and, for foreign tax credit limitation purposes, from sources within the United States.
 
Distributions in excess of the Company’s current and accumulated earnings and profits, as determined for US federal income tax purposes, will be treated as a return of capital to the extent of the US holder’s basis in the shares or ADSs and thereafter as capital gain. Because the Company has not historically maintained, and does not currently maintain, books in accordance with US tax principles, the Company does not expect to be in a position to determine whether any distribution will be in excess of the Company’s current and accumulated earnings and profits as computed for US federal income tax purposes. As a result, the Company expects that amounts distributed will be reported to the Internal Revenue Service as dividends.
Taxation of Capital Gains
Taxation of Capital Gains
United Kingdom Taxation
 
United Kingdom Taxation
A US holder who is not resident or ordinarily resident for United KingdomUK tax purposes in the United Kingdom will not generally be liable for UK taxation on capital gains realized or accrued on the sale or other disposal of ADSs or ordinary shares unless, at the time of the sale or other disposal, the US holder carries on a trade, profession or vocation in the United Kingdom through a branch, agency or permanent establishment and such ADSs or ordinary shares are or have been used, held or acquired for the purposes of such trade, profession or vocation.
 
A US holder of ADSs or ordinary shares who is an individual and who, broadly, has temporarily ceased to be resident or ordinarily resident in the UK or has become temporarily treated as non-resident for UK tax purposes for a period of less than five years of assessment and who disposes of ordinary shares or ADSs during that period may, for the year of assessment when that individual becomes resident again in the UK, also be liable to UK tax on capital gains (subject to any available exemption or relief), notwithstanding the fact that such US holder was not resident or ordinarily resident in the United Kingdom at the time of the sale or other disposal.
United States Federal Income Taxation
United States Federal Income Taxation
 
Subject to the PFIC rules discussed below, a US holder that sells or otherwise disposes of shares or ADSs will recognize a capital gain or loss for US federal income tax purposes equal to the difference between the US dollar


72

value of the amount realized and its tax basis, determined in US dollars, in the shares or ADSs.

81

Generally, Subject to the discussion above relating to the special dividend (see Taxation of Dividends — United States Federal Income Taxation), such capital gain of a non-corporate US holder that is recognized in tax years beginning before January 1, 2011 is taxed at a maximum rate of 15%or loss will be long-term capital gain or loss where the holder has a holding period greater than one year. The gain or loss will generally be income or loss from sources within the United States for foreign tax credit limitation purposes. The deductibility of losses is subject to limitations.
PFIC Rules
PFIC Rules
 
The Company believes that the Company shares and ADSs willit was not be treated as stock of a PFIC for US federal income tax purposes for its 20062007 taxable year. However, this conclusion is an annual factual determination and thus may be subject to change. Unless a US holder elects to be taxed annually on a mark-to-market basis with respect to the Company shares or ADSs, ifIf the Company were to be treated as a PFIC, gain realized on the sale or other disposition of Company shares or ADSs would in general not be treated as capital gain. Instead, gain would be treated as if the US holder had realized such gain ratably over the holding period for the Company shares or ADSs and, to the extent allocated to the taxable year of the sale or other exchange and to any year before the Company became a PFIC, would be taxed as ordinary income. The amount allocated to each other taxable year would be taxed at the highest tax rate in effect for each such year to which the gain was allocated, together with an interest charge in respect of the tax attributable to each such year. In addition, similar rules would apply to any “excess distribution” received on the Company shares or ADSs (generally, the excess of any distribution received on the Company shares or ADSs during the taxable year over 125% of the average amount of distributions received during a specified prior period), and the preferential rate for “qualified dividend income” received by certain non-corporate US holders would not apply. Certain elections may be available (including a market-to-market election) to US holders that may mitigate the adverse tax consequences resulting from PFIC status.
Additional Tax Considerations
Additional Tax Considerations
United States Backup Withholding and Information Reporting
Payments of dividends and other proceeds with respect to ADSs may be reported to the IRS and to the US holder in accordance with applicable regulations. Backup withholding may apply to these payments if the US holder fails to provide an accurate taxpayer identification number or certification of exempt status or fails to report all interest and dividends required to be shown on its US federal income tax returns. Certain US holders (including, among others, corporations) are not subject to backup withholding. US holders should consult their tax advisers as to their qualification for exemption from backup withholding and the procedure for obtaining an exemption.
United Kingdom Inheritance Tax
 
An individual who is domiciled in the United States (for the purposes of the Estate and Gift Tax Convention) and is not a UK national as defined in the Convention will not be subject to UK inheritance tax in respect of ADSs on the individual’s death or on a transfer of the ADSs during their lifetime, provided that any applicable US federal gift or estate tax is paid, unless the ADSs are part of the business property of a UK permanent establishment or pertain to a UK fixed base of an individual used for the performance of independent personal services. Where the ADSs have been placed in trust by a settlor, they may be subject to UK inheritance tax unless, when the trust was created, the settlor was domiciled in the United States and was not a UK national. Where ADSs are subject to both UK inheritance tax and to US federal gift or estate tax, the Estate and Gift Tax Convention generally provides for either a credit against US federal tax liabilities for UK inheritance tax paid or for a credit against UK inheritance tax liabilities for US federal tax paid, as the case may be.
United Kingdom Stamp Duty and Stamp Duty Reserve Tax (“SDRT”)
 
The transfer of ordinary shares will generally be liable to stamp duty at the rate of 0.5% of the amount or value of the consideration given (rounded up to the nearest £5). An unconditional agreement to transfer ordinary shares will generally be subject to SDRT at 0.5% of the agreed consideration. However, if within the period of six years of the date of such agreement becoming unconditional an instrument of transfer is executed pursuant to the agreement and duly stamped, any liability to SDRT will usually be repaid, if already paid, or canceled. The liability to pay stamp duty or SDRT is generally satisfied by the purchaser or transferee.


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No stamp duty or SDRT will generally arise on a transfer of ordinary shares into CREST, unless such transfer is made for a consideration in money or money’s worth, in which case a liability to SDRT will arise, usually at the rate of 0.5% of the value of the consideration.
 
A transfer of ordinary shares effected on a paperless basis within CREST will generally be subject to SDRT at the rate of 0.5% of the value of the consideration.

82

 
Stamp duty, or SDRT, is generally payable upon the transfer or issue of ordinary shares to, or to a nominee or, in some cases, agent of, a person whose business is or includes issuing depositary receipts or the provision of clearance services. For these purposes, the current rate of stamp duty and SDRT is usually 1.5% (rounded up, in the case of stamp duty, to the nearest £5). The rate is applied, in each case, to the amount or value of the consideration or, in some circumstances, to the value or the issue price of the ordinary shares. In accordance with the terms of the deposit agreement, any tax or duty payable on deposits of ordinary shares by the depositary or by the custodian of the depositary will be charged to the party to whom ADSs are delivered against such deposits.
 
Provided that the instrument of transfer is not executed in the United Kingdom and remains at all subsequent times outside the United Kingdom, no stamp duty should be payable on the transfer of ADSs. An agreement to transfer ADSs in the form of depositary receipts will not give rise to a liability to SDRT.
DOCUMENTS ON DISPLAY
 
It is possible to read and copy documents referred to in this annual report onForm 20-F that have been filed with the SEC at the SEC’s public reference room located at 100 F Street, NE Washington, D.C. 20549. Please call the SEC at1-800-SEC-0330 for further information on the public reference rooms and their copy charges. The Company’s SEC filings since May 22, 2002 are also publicly available through the SEC’s website located at http://www.sec.gov.
ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Exchange and Interest Rate Risk, and Financial Instruments
 
The Company’s treasury policy is to manage the financial risks that arise in relation to the underlying business needs. The activities of the treasury function are carried out in accordance with board approved policies and are subject to regular internal audit. The treasury function does not operate as a profit center.
Treasury Risk Management
 
The treasury function seeks to reduce the financial risk of the Company and manages liquidity to meet all foreseeable cash needs. Treasury activities include money market investments, spot and forward foreign exchange instruments, currency options, currency swaps, interest rate swaps, options and forward rate agreements. One of the primary objectives of the Company’s treasury risk management policy is to mitigate the adverse impact of movements in interest rates and foreign exchange rates. Derivatives are not used for trading or speculative purposes.
Credit Risk
 
Credit Risk on treasury transactions is minimisedminimized by operating a policy on the investment of surplus funds that generally restricts counterparties to those with an A credit rating or better, or those providing adequate security. Limits are also set for individual counterparties. Most of the Company’s surplus funds are held in the UKUnited Kingdom or USUnited States and there are no material funds where repatriation is restricted as a result of foreign exchange regulations.
Interest Rate Risk
 
The Company has an exposure to interest rate fluctuations on its borrowings and it seeks to manage these by the use of interest rate swaps and options, and forward rate agreements. The Company takes out interest rate swaps to fix the interest flows on between 25% and 75% of its borrowings in major currencies.


74

At December 31, 2006,2007, the Company held interest rate swaps with notional principals of US$100 million, and€80£150 million, (2005and €75 million (2006 US$200100 million and€160 €80 million).
Based on the year end net debt position and given the underlying maturity profile of investments, borrowings and hedging instruments at that date, a one percentage point rise in US dollar interest rates would increase the annual net interest charge by approximately £1£2.9 million. A similar rise in euro and sterling interest rates would increase the annual net interest charge by approximately £0.6 million and £1.6 million respectively.

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Currency Risk
 
The US dollar is the predominant currency of the Company’s revenue and cash flows, and movements in foreign exchange rates, particularly the US dollar and euro, can affect the company’s reported profits, net assets and interest cover. To hedge this translation exposure the Company denominates the currency of its debt (either directly or via derivatives) to match the currency of its net assets, whilst trying to maximise the amount of US dollars borrowed. At December 31, 2006,2007, the Company held outstanding forward foreign exchange contracts of £224£6 million which were used as effective hedges against the currency of the Company’s net assets.
 A general weakening of the US dollar (specifically as a one cent rise in the sterling: US dollar rate) would have reduced the Company’s profit before tax by an estimated £1 million.
The Company is exposed to foreign currency risk on income streams denominated in foreign currencies. Foreign exchange transaction exposure is managed by forward purchase or sale of foreign currencies or the use of currency options. Most significant exposures of the Company are in currencies that are freely convertible. At the year end there were no outstanding contracts hedging currency risk on income streams.
A general weakening of the US dollar (specifically a five cent rise in the sterling: US dollar rate) would reduce the Company’s profit before tax by an estimated £4.2 million and increase net assets by an estimated £4.4 million. Similarly, a general weakening of the euro (specifically a five cent rise in the sterling : euro rate) would reduce the Company’s profit before tax by an estimated £0.8 million and decrease net assets by an estimated £3.0 million.
Quantitative Information about Market Risk
Interest Rate Sensitivity
Interest Rate Sensitivity
 
The tables below provide information about the Company’s derivative and other financial instruments that are sensitive to changes in interest rates, including interest rate swaps and debt obligations. For long-term debt obligations (excluding debt due entirely within one year), the table presents principal cash flows and related weighted average interest rates by expected maturity dates. For interest rate swaps and forward rate agreements, the table presents notional amounts and weighted average interest rates by expected maturity dates. Weighted average variable rates are based on rates set at the balance sheet date. The actual currencies of the instruments are indicated in parentheses.
At December 31, 20062007
                                 
  Expected to mature before December 31,    
       
  2007 2008 2009 2010 2011 Thereafter Total Fair value(i)
                 
  (£ million, except percentages)
Long-Term Debt:
                                
Fixed Rate lease debt (US dollar)  3   7   6   6   5   70   97   97 
Average dollar interest rate  9.7%  9.7%  9.7%  9.7%  9.7%  9.7%  9.7%    
Variable Rate (various currencies)  7   —   209   —   —   —   216   216 
Average interest rate  7.5%      5.3%              5.3%    
                                 
  Expected to mature before December 31,    
       
  2007 2008 2009 2010 2011 Thereafter Total Fair value(i)
                 
  (local currency million, except percentages)
Interest Rate Swaps and Forward rate agreements:
                                
Principal (US dollar)  —   100   —   —   —   —   100   — 
Fixed rate payable      4.5%                  4.5%    
Variable rate receivable      5.7%                  5.7%    
Principal (euro)  —   80   —   —   —   —   80   — 
Fixed rate payable      3.0%                  3.0%    
Variable rate receivable      4.0%                  4.0%    
 
                          
  Expected to mature before December 31,      
  2008 2009  2010  2011 Thereafter  Total  Fair value(i)
  (£ million, except percentages)      
 
Long-Term Debt:
                         
Fixed Rate lease debt (US dollar)  —  —   —   —  100   100   126
Average dollar interest rate                9.7%  9.7%   
Variable Rate (various currencies)  —  773   4   —  —   777   777
Average interest rate     5.9%  8.2%         5.9%   


75

                          
  Expected to mature before December 31,      
  2008  2009  2010 2011 Thereafter Total  Fair value(i) 
  (local currency million, except percentages)    
 
Interest Rate Swaps:
                         
Principal (US dollar)  100   —   —  —  —  100   — 
Fixed rate payable  4.7%               4.7%    
Variable rate receivable  5.1%               5.1%    
Principal (euro)  75   75   —  —  —  150   — 
Fixed rate payable  3.9%  4.2%           4.0%    
Variable rate receivable  4.5%  4.5%           4.5%    
Principal (sterling)  75   75   —  —  —  150   (1)
Fixed rate payable  6.3%  6.3%           6.3%    
Variable rate receivable  6.2%  6.3%           6.3%    
(i)Represents the net present value of the expected cash flows discounted at current market rates of interest.

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Exchange Risk Sensitivity
 
Exchange Risk Sensitivity
The following information provides details of the Company’s derivative and other financial instruments by currency presented in sterling equivalents. Forward exchange contracts provide a currency hedge against currency net assets. All forward exchange agreements mature within one year.
         
  Pay Receive
  2006 2006
     
  (local currency (£ million)
  million)  
Sale of US dollars against sterling  (251)  130 
Sale of euros against sterling  (70)  47 
Sale of Hong Kong dollars against sterling  (690)  47 
         
  Pay
 Receive
  2007 2007
  (local currency
 (£ million)
  million)  
 
Sale of US dollars against sterling  12.5   6 
ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
 
Not applicable.
PART II
ITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
 
None.
ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
 
None.
ITEM 15.CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
 
Disclosure Controls and Procedures
As at the end of the period covered by this report, the Company carried out an evaluation under the supervision and with the participation of the Company’s management, including the Chief Executive and Finance Director, of the effectiveness of the design and operation of the disclosure controls and procedures (as defined inRules 13a-15(c) and15d-15(e)). These are defined as those controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the specified periods. Based on that evaluation, the Chief Executive and Finance Director concluded that the Company’s disclosure controls and procedures were effective.

76

Management’s Report on Internal Control Over Financial Reporting
Management’s Report on Internal Control Over Financial Reporting
 
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined inRule 13a-15(f) or15d-15(f) promulgated under the Securities Exchange Act of 1934.
 
Management has issued a report on the effectiveness of the Company’s Internal Control over Financial reporting as at December 31, 2006.2007. This report appears onpage F-1 of the Company’s Consolidated Financial Statements contained in this Annual Report.
 
Ernst & Young LLP, an independent registered public accounting firm, has issued an attestation report on management’s assessment of the Company’s internal control over financial reporting. This report appears onpage F-2 of the Company’s consolidated financial statements contained in this Annual Report.

85

Changes in Internal Control Over Financial Reporting
 
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal controls over financial reporting that occurred during the period covered by thisForm 20-F that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 16.[RESERVED]
ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERT
 
The Senior Independent Director David Kappler, who has significant recent and relevant financial experience is the “Audit Committee Financial Expert” as defined under the regulations of the US Securities and Exchange Commission. David Kappler is independent as that term is defined under the listing Standardsstandards of the NYSE.
ITEM 16B.CODE OF ETHICS
ITEM 16B.     CODE OF ETHICS
The board has adopted a global Code of Ethics and Business Conduct that applies to all directors, officers and employees of IHG, including the Chief Executive and Finance Director. This Code of Ethics has been signed by the Chief Executive and the Finance Director of the Company and by the Group Financial Controller and regional financial heads. The Company has published its Code of Ethics and Business Conduct on its website www.ihg.com.
ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICES
ITEM 16C.     PRINCIPAL ACCOUNTANT FEES AND SERVICES
Fees for professional services provided by Ernst & Young LLP, the Group’s independent auditors in each of the last two fiscal periods in each of the following categories are:
         
  Year ended Year ended
  December 31, December 31,
  2006 2005
     
  (£ million)
Audit Fees  2.4   3.9 
Audit Related Fees  2.1   2.7 
Tax Fees  0.7   0.6 
       
Total  5.2   7.2 
       
 
         
  Year ended December 31, 
  2007  2006 
  (£ million) 
 
Audit Fees  2.2   2.4 
Audit Related Fees  2.0   2.1 
Tax Fees  0.4   0.7 
         
Total  4.6   5.2 
         
Further detail is provided in Note 4 “Auditor’s remuneration paid to Ernst & Young LLP” of Item 18 — Financial Statements.
 
Audit fees in respect of the pension scheme were not material.
 
The Audit Committee has a process to ensure that any non-audit services do not compromise the independence and objectivity of the external auditor and that relevant UK and US professional and regulatory requirements are met. A number of criteria are applied when deciding whether pre-approval for such services should be given. These include the nature of the service, the level of fees, and the practicality of appointing an alternative provider, having regard to the skills and experience required to supply the service effectively. Cumulative fees for audit and non-audit


77

services are presented to the Audit Committee on a quarterly basis for review. The Audit Committee is responsible for monitoring adherence to the pre-approval policy.

86

ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
 
Not applicable.
ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
                 
        (d) Maximum
      (c) Total number number (or
      of shares (or approximate dollar
    (b) Average units) purchased value) of shares (or
  (a) Total number price paid as part of publicly units) that may yet be
  of shares (or per share announced plans purchased under the
Period of fiscal year units) purchased (or unit) or programs plans or programs
         
Month 1 (no purchases in this month)  0   0.00   0   55,178,065.00 
Month 2 (no purchases in this month)  0   0.00   0   55,178,065.00 
Month 3 (03.03.06 – 03.28.06)  3,195,000   8.68   3,195,000   51,983,065.00 
Month 4 (04.03.06 – 04.25.06)  3,327,752   9.41   3,327,752   48,655,313.00 
Month 5 (05.19.06 – 05.25.06)  4,500,000   9.18   4,500,000   44,155,313.00 
Month 6 (06.05.06 – 06.03.06)  1,645,001   9.19   1,645,001   53,805,720.00 
Month 7 (07.03.06 – 07.31.06)  6,522,000   9.12   6,522,000   47,283,720.00 
Month 8 (08.01.06 – 08.31.06)  5,710,000   8.62   5,710,000   41,573,720.00 
Month 9 (09.04.06 – 09.29.06)  1,763,000   9.29   1,763,000   39,810,720.00 
Month 10 (10.03.06 – 10.13.06)  815,000   9.53   815,000   38,995,720.00 
Month 11 (no purchases in this month)  0   0.00   0   38,995,720.00 
Month 12 (12.05.06 – 12.11.06)  932,000   10.73   932,000   38,063,720.00 
 
                 
           (d) Maximum
 
        (c) Total number
  number (or
 
        of shares (or
  approximate dollar
 
     (b) Average
  units) purchased
  value) of shares (or
 
  (a) Total number
  price paid
  as part of publicly
  units) that may yet be
 
  of shares (or
  per share
  announced plans
  purchased under the
 
Period of fiscal year units) purchased  (or unit)  or programs  plans or programs 
 
Month 1 (no purchases in this month)  0   0.00   0.   38,063,720 
Month 2 02.21.07 — 02.28.07  1,770,739   12.27   1,770,739   36,292,981 
Month 3 03.01.07 — 03.01.07  280,000   11.95   280,000   36,012,981 
Month 4 (no purchases in this month)  0   0.00   0   36,012,981 
Month 5 05.16.07 — 05.25.07  186,525   12.80   186,525   35,826,456 
Month 6 06.26.07 — 06.28.07  260,351   12.73   260,351   44,371,983 
Month 7 (no purchases in this month)  0   0.00   0   44,371,983 
Month 8 (no purchases in this month)  0   0.00   0   44,371,983 
Month 9 09.05.07 — 09.28.07  2,373,182   9.53   2,373,182   41,998,801 
Month 10 10.03.07 — 10.05.07  273,788   10.18   273,788   41,725,013 
Month 11 11.06.07 — 11.21.07  2,255,716   9.61   2,255,716   39,469,297 
Month 12 12.17.07 — 12.18.07  324,543   8.98   324,543   39,144,754 
The first share repurchase program was announced on March 11, 2004 with the intention to repurchase £250 million worth of shares (US$456,525,000). A second £250 million share repurchase program followed, announced September 9, 2004. These programs were completed on December 20, 2004 and April 11, 2006, respectively.
On September 8, 2005, the Company announced a further £250 million share repurchase program. By December 31, 2006 23.9 million shares had been repurchasedIn June 2007 the Company completed this repurchase program at an average price per share of 913 pence (approximately GBP£219 million). By March 16, 2007 a total of 26.05 million shares had been repurchased under the third repurchase program at an average price of 938 pence per share (approximately £244 million).943 pence.
 
During fiscal 2006, 4,997,6992007, 5,866,817 ordinary shares were purchased by the Company’s Employee Share Ownership Trust at prices ranging from 839931 pence to 10541349 pence per share, for the purpose of satisfying future share awards to employees.
 
On February 20, 2007, the Company announced a fourth, £150 million share repurchase program. By March 16, 2007 no14, 2008, 6,312,024 shares had been repurchased under the fourth repurchase program.at an average price of 926 pence per share (approximately £58 million).
PART III
ITEM 17.FINANCIAL STATEMENTS
 
Not applicable.


78

87

 

ITEM 18.FINANCIAL STATEMENTS
 
The following consolidated financial statements and related schedule, together with the report thereon of Ernst & Young LLP, are filed as part of this Annual Report:
     
  Page
 
Management’s Report on Internal Control over Financial Reporting
  F-1 
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting
  F-2 
Report and Consent of Independent Registered Public Accounting Firm
  F-3 
Financial Statements    
Consolidated Income Statement for the years ended December 31, 2007, 2006 2005 and 20042005.
  F-5 
Consolidated Statement of Recognized Income and Expense for the years ended December 31, 2007, 2006 2005 and 20042005.
  F-6 
Consolidated Balance Sheet for the years ended December 31, 20062007 and 20052006.
  F-7 
Consolidated Statement of Changes in Shareholders’ Funds for the years ended December 31, 2007, 2006 2005 and 20042005
  F-8 
Consolidated Cash Flow Statement for the years ended December 31, 2007, 2006 2005 and 20042005.
  F-10 
Notes to the Financial Statements
  F-11 
Schedule for the years ended December 31, 2007, 2006 2005 and 20042005.    
Schedule II — Valuation and Qualifying Accounts
  S-1 
Exhibit 1
Exhibit 8
Exhibit 12.A
Exhibit 12.B
Exhibit 13.A
ITEM 19.EXHIBITS
 
The following exhibits are filed as part of this Annual Report:
Exhibit 1Memorandum and Articles of Association of IHG (incorporated by reference to Exhibit 4 of InterContinental Hotels Group’s Registration Statement on S-8 (File No. 333-126139) filed with the SEC on June 27, 2005)
Exhibit 4(a)(i)£1,600 million Facility Agreement dated November 9, 2004 among Bank of Tokyo-Mitsubishi, Ltd., Barclays Capital, Citigroup Global Markets Limited, HSBC Bank plc, JP Morgan plc, Lloyds Bank plc, The Royal Bank of Scotland plc, SG Corporate & Investment Banking and West LB AG (incorporated by reference to Exhibit 4(ii) of InterContinental Hotels Group PLC Annual Report onForm 20-F (File No 1-10409) dated May 3, 2005)
Exhibit 4(b)(i)Amended and Restated Purchase and Sale Agreement dated February 9, 2005 among BHR Texas L.P., InterContinental Hotels Group Resources Inc, Crowne Plaza LAX, LLC, Crowne Plaza Hilton Head Holding Company, Holiday Pacific Partners Limited Partnership, Staybridge Markham and HPT (incorporated by reference to Exhibit 4(b)(ii) of InterContinental Hotels Group PLC Annual Report onForm 20-F (FileNo. 1-10409) dated May 3, 2005)
Exhibit 4(b)(ii)Amended and Restated Stock Purchase Agreement dated February 9, 2005 between Six Continents International Holdings, B.V. and HPT IHG-2 (incorporated by reference to Exhibit 4(b)(v) of InterContinental Hotels Group PLC Annual Report onForm 20-F (FileNo. 1-10409) dated May 3, 2005)
Exhibit 4(b)(iii)Share Purchase Agreement dated March 10, 2005 between IHC London (Holdings) Limited, and LGR Acquisition (currently LRG Acquisition) and LGR Holdings Limited (currently LRG Holdings Limited) (incorporated by reference to Exhibit 4(b)(iv) of InterContinental Hotels Group PLC Annual Report onForm 20-F (FileNo. 1-10409) dated May 3, 2005)

88

Exhibit 4(b)(iv)New Zealand Share Sale Deed dated September 1, 2005 between Hale International Limited, Six Continents Limited, HANZ Holdings (New Zealand) Limited and Eureka Funds Management Limited (incorporated by reference to Exhibit 4(b)(v) of the InterContinental Hotels Group PLC Annual Report onForm 20-F (FileNo. 1-10409) dated March 31, 2006)


79

 
Exhibit 4(b)(v)Australia Share and Unit Sale Deed dated September 1, 2005 between Holiday Inns Holdings (Australia) Pty Limited, SPHC Group Pty Limited, HIA(T) Pty Ltd, Six Continents Limited, HANZ (Australia) Pty Limited and Eureka Funds Management Limited (incorporated by reference to Exhibit 4(b)(vi) of the InterContinental Hotels Group PLC Annual Report onForm 20-F (FileNo. 1-10409) dated March 31, 2006)
Exhibit 4(b)(vi)Sale and Purchase Agreement dated September 8, 2005 between BHR Holdings BV and DABICAM SAS relating to the sale of the InterContinental Hotel, Paris.
Paris (incorporated by reference to Exhibit 4(b)(vi) of the InterContinental Hotels Group PLC Annual Report onForm 20-F (FileNo. 1-10409) dated March 30, 2007)
Exhibit 4(b)(vii)Britvic Underwriting Agreement dated November 25, 2005 between, inter alia, Britvic, IHG, the directors of Britvic, Citigroup and Deutsche Bank AG (as joint sponsors) and Citigroup, Deutsche Bank AG, Lehman Brothers International (Europe) and Merrill Lynch International (as joint Underwriters) (incorporated by reference to Exhibit 4(b)(vii) of the InterContinental Hotels Group PLC Annual Report onForm 20-F (FileNo. 1-10409) dated March 31, 2006)
Exhibit 4(b)(viii)Sale and Purchase Agreement dated March 10, 2006 among BHR Luxembourg S.à.r.l., Others, Cooperatie Westbridge Europe I.U.A., Others and Westbridge Hospitality Fund L.P. relating to a portfolio of certain companies and businesses in continental Europe (incorporated by reference to Exhibit 4(b)(viii) of the InterContinental Hotels Group PLC Annual Report onForm 20-F (FileNo. 1-10409) dated March 31, 2006)
Exhibit 4(b)(ix)Sale and Purchase Agreement dated July 13, 2006 between BHR Holdings BV and MSREF VI Danube BV relating to the sale of certain companies and businesses in continental Europe and Side Letter dated September 5, 2006.
Exhibit 4(c)(i)Richard Hartman’s service contract dated February 12, 20032006 (incorporated by reference to Exhibit 4(c)(i) of InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated April 8, 2004)
Exhibit 4(c)(ii)Richard Hartman’s letter of appointment dated April 2005, effective from June 27, 2005 on completion of the Scheme of Arrangement and the introduction of the new parent company to the Group (incorporated by reference to Exhibit 4(c)(ii)4(b)(ix) of the InterContinental Hotels Group PLC Annual Report onForm 20-F (FileNo. 1-10409) dated March 31, 2006)
30, 2007)
Exhibit 4(c)(iii)(i)Stevan Porter’s service contract dated February 12, 2003 (incorporated by reference to Exhibit 4(c)(iii) of InterContinental Hotels Group PLC Annual Report onForm 20-F (FileNo. 1-10409) dated April 8, 2004)
Exhibit 4(c)(iv)(ii)Stevan Porter’s letter of appointment dated April 2005, effective from June 27, 2005 on completion of the Scheme of Arrangement and the introduction of the new parent company to the Group (incorporated by reference to Exhibit 4(c)(iv) of the InterContinental Hotels Group PLC Annual Report onForm 20-F (FileNo. 1-10409) dated March 31, 2006)
Exhibit 4(c)(v)(iii)Richard Solomons’ service contract dated February 12, 2003 (incorporated by reference to Exhibit 4(c)(iv) of InterContinental Hotels Group PLC Annual Report onForm 20-F (FileNo. 1-10409) dated April 8, 2004)

89

Exhibit 4(c)(vi)(iv)Richard Solomons’ letter of appointment dated April 2005, effective from June 27, 2005 on completion of the Scheme of Arrangement and the introduction of the new parent company to the Group (incorporated by reference to Exhibit 4(c)(vi) of the InterContinental Hotels Group PLC Annual Report onForm 20-F (FileNo. 1-10409) dated March 31, 2006)
Exhibit 4(c)(vii)(v)Andrew Cosslett’s service contract dated December 13, 2004 (incorporated by reference to Exhibit 4(c)(v) of InterContinental Hotels Group PLC Annual Report onForm 20-F (FileNo. 1-10409) dated May 3, 2005)
Exhibit 4(c)(viii)(vi)Andrew Cosslett’s letter of appointment dated April 2005, effective from June 27, 2005 on completion of the Scheme of Arrangement and the introduction of the new parent company to the Group (incorporated by reference to Exhibit 4(c)(viii) of the InterContinental Hotels Group PLC Annual Report onForm 20-F (FileNo. 1-10409) dated March 31, 2006)
 
Exhibit 8List of Subsidiaries
Exhibit 12(a)Certification of Andrew Cosslett filed pursuant to 17 CFR 240.13a-14(a)
Exhibit 12(b)Certification of Richard Solomons filed pursuant to 17 CFR 240.13a-14(a)

80

 
Exhibit 13(a)Certification of Andrew Cosslett and Richard Solomons furnished pursuant to 17 CFR 240.13a-14(b) and 18 U.S.C.1350
Exhibit 15(a)Consent of Ernst & Young LLP (included onpage F-4)

81

90

MANAGEMENT’S REPORT ON

INTERNAL CONTROL OVER FINANCIAL REPORTING
 
Management of InterContinental Hotels Group PLC (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of internal control over financial reporting. As defined by the Securities and Exchange Commission, internalInternal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements for external purposes in accordance with generally accepted accounting principles.
 
The Company’s internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the Company’s transactions and dispositions of the Company’s assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the consolidated financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizationsauthorisations of the Company’s management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorizedunauthorised acquisition, use or disposition of the Company’s assets that could have a material effect on the consolidated financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
In connection with the preparation of the Company’s annual consolidated financial statements, management has undertaken an assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006,2007 based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring OrganizationsOrganisations of the Treadway Commission (the “COSO Framework”“COSO”). Management’s assessment included an evaluation of the design of the Company’s internal control over financial reporting and testing of the operational effectiveness of those controls.
 
Based on this assessment, management has concluded that as of December 31, 2006,2007, the Company’s internal control over financial reporting is effective based on those criteria.
 
Ernst & Young LLP, the independent registered public accounting firm that audited the Company’s consolidated financial statements, has issued an attestation report on management’s assessment ofthe Company’s internal control over financial reporting, a copy of which appears on the next page of this annual report.Annual Report.


F-1

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

ON INTERNAL CONTROL OVER FINANCIAL REPORTING
To the Board of Directors and Shareholders of InterContinental Hotels Group PLC:
 
We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that InterContinental Hotels Group PLC maintained effectivePLC’s internal control over financial reporting as of December 31, 2006,2007, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). InterContinental Hotels Group PLC’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting.reporting included in the accompanying Form 20-F. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment,assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
 
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
In our opinion, management’s assessment that InterContinental Hotels Group PLC maintained, in all material aspects, effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, InterContinental Hotels Group PLC maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006,2007, based on the COSO criteria.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the accompanying Consolidated Balance Sheets of InterContinental Hotels Group PLC as of December 31, 20062007 and 2005,2006, and the related Consolidated Income Statements, Consolidated Statements of Recognized Income and Expense, Consolidated Statements of Changes in Shareholders’ Funds and Consolidated Cash Flow Statements for each of the three years in the period ended December 31, 2006,2007, and the financial statement schedule listed in the Index at Item 18.Financial Statements, and our report dated March 30, 200728, 2008 expressed an unqualified opinion thereon.
Ernst & Young LLP
London, England
ERNST & YOUNG LLP
London, England
March 30, 200728, 2008


F-2

F-2

INTERCONTINENTAL HOTELS GROUP PLC
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of InterContinental Hotels Group PLC
 
We have audited the accompanying Consolidated Balance Sheets of InterContinental Hotels Group PLC as of December 31, 20062007 and 2005,2006, and the related Consolidated Income Statements, Consolidated Statements of Recognized Income and Expense, Consolidated Statements of Changes in Shareholders’ Funds and Consolidated Cash Flow Statements for each of the three years in the period ended December 31, 2006.2007. Our audits also included the financial statementstatements schedule listed in the indexIndex at Item 18. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includesstatements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of InterContinental Hotels Group PLC at December 31, 20062007 and 2005,2006, and the consolidated results of its operations and its consolidated cash flows for each of the three years in the period ended December 31, 2006,2007, in conformityaccordance with International Financial Reporting Standards as adopted by the European Union which differ in certain respects from United States generally accepted accounting principles (see Note 32 of Notes toand International Financial Reporting Standards as issued by the Consolidated Financial Statements).International Accounting Standards Board. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of InterContinental Hotels Group PLC’s internal control over financial reporting as of December 31, 2006,2007, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 30, 200728, 2008 expressed an unqualified opinion thereon.
 As discussed in Note 32 of the Notes to the Consolidated Financial Statements, the Company changed its method of accounting for financial instruments in 2005.
Ernst & YoungERNST & YOUNG LLP
London, England
March 30, 2007.28, 2008.


F-3

F-3

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
We consent to the incorporation by reference in the Registration Statements (Form F-3 No. (Form F-3No. 333-108084 andForm S-8 Nos. 333-01572, 333-08336, 333-99785, 333-104691333-01572,333-08336,333-99785,333-104691 and333-126139) of InterContinental Hotels Group PLC of the reference to our name in “Item 3. Key Information” and our reports dated March 30, 2007,28, 2008, with respect to the Consolidated Financial Statements and Schedule of InterContinental Hotels Group PLC, InterContinental Hotels Group PLC management’s assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of InterContinental Hotels Group PLC, included in this Annual Report (Form (Form 20-F) for the year ended December 31, 2006.2007.
Ernst & Young
ERNST & YOUNG LLP
London, England
March 30, 200728, 2008


F-4

F-4

INTERCONTINENTAL HOTELS GROUP PLC
CONSOLIDATED INCOME STATEMENT
                                      
  Year ended December 31, Year ended December 31, Year ended December 31,
  2006 2005 2004
       
  Continuing Discontinued   Continuing Discontinued   Continuing Discontinued  
  operations operations Total operations operations Total operations operations Total
                   
      (£ million, except per ordinary share amounts)    
Revenue(Note 2)
  805   155   960   713   1,197   1,910   606   1,598   2,204 
Cost of sales  (364)  (121)  (485)  (333)  (884)  (1,217)  (300)  (1,177)  (1,477)
Administrative expenses  (180)  —   (180)  (150)  (74)  (224)  (140)  (68)  (208)
                            
   261   34   295   230   239   469   166   353   519 
Depreciation and amortization (Note 2)  (60)  (4)  (64)  (57)  (73)  (130)  (46)  (127)  (173)
Other operating income and expenses (Note 5)  27   —   27   (22)  —   (22)  (49)  —   (49)
                            
Operating profit(Note 2)
  228   30   258   151   166   317   71   226   297 
Financial income (Note 6)  26   —   26   30   —   30   70   —   70 
Financial expenses (Note 6)  (37)  —   (37)  (54)  (9)  (63)  (103)  —   (103)
                            
Profit before tax
  217   30   247   127   157   284   38   226   264 
Tax (Note 7)  50   (9)  41   (24)  (56)  (80)  196   (69)  127 
                            
Profit after tax
  267   21   288   103   101   204   234   157   391 
Gain on disposal of assets, net of tax charge of £6 million (2005 £38 million: 2004 credit of £4 million)  —   117   117   —   311   311   —   19   19 
                            
Profit for the year
  267   138   405   103   412   515   234   176   410 
                            
Attributable to:
                                    
 
Equity holders of the parent(i)
  267   138   405   103   393   496   234   149   383 
 Minority equity interest  —   —   —   —   19   19   —   27   27 
                            
Profit for the year
  267   138   405   103   412   515   234   176   410 
                            
Earnings per ordinary share:(Note 9)
                                    
 Basic  68.6p   35.5p   104.1p   19.8p   75.4p   95.2p   32.9p   21.0p   53.9p 
 Diluted  66.9p   34.6p   101.5p   19.3p   73.8p   93.1p   32.6p   20.7p   53.3p 
 
                                     
  Year ended December 31,
  Year ended December 31,
  Year ended December 31,
 
  2007  2006  2005 
  Before
  Exceptional
     Before
  Exceptional
     Before
  Exceptional
    
  exceptional
  items
     exceptional
  items
     exceptional
  items
    
For the year ended 31 December 2007
 items  (Note 5)  Total  items  (Note 5)  Total  items  (Note 5)  Total 
  (£ million) 
 
Revenue (Note 2)
  883   —   883   786   —   786   697   —   697 
Cost of sales  (411)  —   (411)  (355)  —   (355)  (323)  —   (323)
Administrative expenses  (188)  (7)  (195)  (180)  —   (180)  (150)  —   (150)
Other operating income and expenses  8   38   46   4   27   31   3   (15)  (12)
                                     
   292   31   323   255   27   282   227   (15)  212 
Depreciation and amortization(Note 2)  (55)  (1)  (56)  (55)  —   (55)  (52)  —   (52)
                                     
Operating profit (Note 2)
  237   30   267   200   27   227   175   (15)  160 
Financial income (Note 6)  9   —   9   26   —   26   30   —   30 
Financial expenses (Note 6)  (54)  —   (54)  (37)  —   (37)  (54)  —   (54)
                                     
Profit before tax
  192   30   222   189   27   216   151   (15)  136 
Tax (Note 7)  (42)  30   (12)  (41)  94   53   (30)  8   (22)
                                     
Profit for the year from continuing operations
  150   60   210   148   121   269   121   (7)  114 
Profit for the year from discontinued operations (Note 11)  5   16   21   19   117   136   97   304   401 
                                     
Profit for the year
  155   76   231   167   238   405   218   297   515 
                                     
Attributable to:
                                    
Equity holders of the parent  155   76   231   167   238   405   199   297   496 
Minority equity interest  —   —   —   —   —   —   19   —   19 
                                     
   155   76   231   167   238   405   218   297   515 
                                     
Earnings per ordinary share (Note 9)
                                    
Continuing operations:                                    
Basic          65.6p           69.1p           21.9p 
Diluted          63.8p           67.4p           21.4p 
Total operations:                                    
Basic          72.2p           104.1p           95.2p 
Diluted          70.2p           101.5p           93.1p 
(i)A summary of the significant adjustments to profit available for IHG equity holders of the parent that would be required had United States generally accepted accounting principles been applied instead of International Financial Reporting Standards as adopted by the European Union is set out in Note 32 of Notes to the Consolidated Financial Statements.
The Notes to the Consolidated Financial Statements are an integral part of these Financial Statements.


F-5

F-5

INTERCONTINENTAL HOTELS GROUP PLC
CONSOLIDATED STATEMENT OF RECOGNIZED INCOME AND EXPENSE
              
  Year ended Year ended Year ended
  December 31, December 31, December 31,
  2006 2005 2004
       
  (£ million)
Income and expense recognized directly in equity
            
Gains on valuation of available-for-sale assets  16   31   — 
Gains on cash flow hedges  1   1   — 
Exchange differences on retranslation of foreign operations  (30)  29   (12)
Actuarial losses on defined benefit pension plans  (2)  (23)  (51)
Deficit transferred in respect of previous acquisition  —   —   (6)
          
   (15)  38   (69)
          
Transfers to the income statement
            
On cash flow hedges  (1)  (6)  — 
On disposal of foreign operations  4   2   — 
On disposal of available-for-sale assets  (14)  —   — 
          
   (11)  (4)  — 
          
Tax
            
Tax on items above taken directly to or transferred from equity  4   (1)  14 
Deferred tax related to share schemes recognized directly in equity  26   8   — 
          
   30   7   14 
          
Net income/(expense) recognized directly in equity
  4   41   (55)
Profit for the year
  405   515   410 
          
Total recognized income and expense for the year(i)
  409   556   355 
          
Attributable to:            
 Equity holders of the parent  409   541   338 
 Minority equity interest  —   15   17 
          
   409   556   355 
          
Effects of changes in accounting policy
            
Losses on valuation of available-for-sale assets  —   (10)  — 
Gains on cash flow hedges  —   6   — 
          
   —   (4)  — 
          
 
             
  Year ended
  Year ended
  Year ended
 
  December 31,
  December 31,
  December 31,
 
  2007  2006  2005 
  (£ million) 
 
Income and expense recognized directly in equity
            
Gains on valuation of available-for-sale assets  4   16   31 
(Losses)/gains on cash flow hedges  (1)  1   1 
Exchange differences on retranslation of foreign operations  10   (30)  29 
Actuarial gains/(losses) on defined benefit pension plans  12   (2)  (23)
             
   25   (15)  38 
             
Transfers to the income statement
            
On cash flow hedges: interest payable  (1)  (1)  (6)
On disposal of foreign operations: gain on disposal of assets  —   4   2 
On disposal of available-for-sale assets: other operating income and expenses  (10)  (14)  — 
             
   (11)  (11)  (4)
             
Tax
            
Tax on items above taken directly to or transferred from equity  (3)  4   (1)
Tax related to share schemes recognized directly in equity  (2)  26   8 
             
   (5)  30   7 
             
Net income recognized directly in equity
  9   4   41 
Profit for the year
  231   405   515 
             
Total recognized income and expense for the year
  240   409   556 
             
Attributable to:            
Equity holders of the parent  240   409   541 
Minority equity interest  —   —   15 
             
   240   409   556 
             
Effects of changes in accounting policy
            
Losses on valuation of available-for-sale assets  —   —   (10)
Gains on cash flow hedges  —   —   6 
             
   —   —   (4)
             
(i)The statement of comprehensive income required under United States generally accepted accounting principles is set out in Note 32 of Notes to the Consolidated Financial Statements.
The Notes to the Consolidated Financial Statements are an integral part of these Financial Statements.

F-6

INTERCONTINENTAL HOTELS GROUP PLC
CONSOLIDATED BALANCE SHEET
         
  December 31, December 31,
  2006 2005
     
  (£ million)
ASSETS
        
Property, plant and equipment — (Note 10)  997   1,356 
Goodwill — (Note 12)  109   118 
Intangible assets — (Note 13)  154   120 
Investment in associates — (Note 14)  32   42 
Other financial assets — (Note 15)  96   113 
       
Total non-current assets
  1,388   1,749 
       
Inventories — (Note 16)  3   3 
Trade and other receivables — (Note 17)  237   252 
Current tax receivable  23   22 
Cash and cash equivalents — (Note 18)  179   324 
Other financial assets — (Note 15)  13   106 
       
Total current assets
  455   707 
Non-current assets classified as held for sale — (Note 11)  50   279 
       
Total assets
  1,893   2,735 
       
LIABILITIES
        
Loans and other borrowings — (Note 20)  (10)  (2)
Trade and other payables — (Note 19)  (402)  (468)
Current tax payable  (231)  (324)
       
Total current liabilities
  (643)  (794)
       
Loans and other borrowings — (Note 20)  (303)  (410)
Employee benefits — (Note 3)  (71)  (76)
Trade and other payables — (Note 19)  (109)  (107)
Deferred tax payable — (Note 25)  (79)  (210)
       
Total non-current liabilities
  (562)  (803)
Liabilities classified as held for sale — (Note 11)  (2)  (34)
       
Total liabilities
  (1,207)  (1,631)
       
Net assets
  686   1,104 
       
EQUITY
        
Equity share capital  66   49 
Capital redemption reserve  4   1 
Shares held by employee share trusts  (17)  (22)
Other reserves  (1,528)  (1,528)
Unrealized gains and losses reserve  27   23 
Currency translation reserve  (3)  19 
Retained earnings  2,129   2,542 
       
IHG shareholders’ equity(i)
  678   1,084 
Minority equity interest —(Note 26)
  8   20 
       
Total equity
  686   1,104 
       
(i) A summary of the significant adjustments to IHG shareholders’ equity that would be required had United States generally accepted accounting principles been applied instead of International Financial Reporting Standards as adopted by the European Union is set out in Note 32 of Notes to the Consolidated Financial Statements.
The Notes to the Consolidated Financial Statements are an integral part of these Financial Statements.

F-7

INTERCONTINENTAL HOTELS GROUP PLC
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ FUNDS
                                          
  Share Capital Retained earnings and other reserves
     
      Shares  
      held by  
  Number of     Capital   employee Unrealized Currency   Total IHG
  ordinary Ordinary Share redemption Other share gains and translation Retained shareholders’
  shares(i) shares(i) premium(ii) reserve(ii) reserves(iii) trusts(iv) losses(v) reserve(vi) earnings equity
                     
  (£ million, except per ordinary share amounts)
At January 1, 2004
  739   739   14   —   1,462   (11)  —   —   119   2,323 
Total recognized income and expense for the year  —   —   —   —   —   —   —   (12)  350   338 
Share capital consolidation  (75)  —   —   —   —   —   —   —   —   — 
Issue of ordinary shares  4   4   12   —   —   —   —   —   —   16 
Repurchase of shares  (46)  (46)  —   —   —   —   —   —   (211)  (257)
Transfer to capital redemption reserve  —   —   —   46   —   —   —   —   (46)  — 
Purchase of own shares by employee share trusts  —   —   —   —   —   (33)  —   —   —   (33)
Release of own shares by employee share trusts  —   —   —   —   —   22   —   —   (6)  16 
Equity-settled share-based cost  —   —   —   —   —   —   —   —   18   18 
Equity dividends paid  —   —   —   —   —   —   —   —   (600)  (600)
                               
At December 31, 2004
  622   697   26   46   1,462   (22)  —   (12)  (376)  1,821 
Effect of implementing IAS 32/39  —   —   —   —   —   —   3   —   (7)  (4)
                               
At January 1, 2005
  622   697   26   46   1,462   (22)  3   (12)  (383)  1,817 
Total recognized income and expense for the year  —   —   —   —   —   —   20   31   490   541 
Issue of ordinary shares  1   1   3   —   —   —   —   —   —   4 
Repurchase of shares  (19)  (22)  —   —   —   —   —   —   (102)  (124)
Transfer to capital redemption reserve  —   —   —   22   —   —   —   —   (22)  — 
Capital reorganization  (161)  (632)  (29)  (68)  (2,990)  —   —   —   2,723   (996)
Proceeds from capital reorganization  —   —   —   —   —   4   —   —   —   4 
Issue of ordinary shares  1   —   6   —   —   —   —   —   —   6 
Repurchase of shares  (11)  (1)  —   —   —   —   —   —   (82)  (83)
Transfer to capital redemption reserve  —   —   —   1   —   —   —   —   (1)  — 
Purchase of own shares by                                        
 employee share trusts  —   —   —   —   —   (29)  —   —   —   (29)
Release of own shares by employee share trusts  —   —   —   —   —   25   —   —   (17)  8 
Equity-settled share-based cost  —   —   —   —   —   —   —   —   17   17 
Equity dividends paid  —   —   —   —   —   —   —   —   (81)  (81)
                               
At December 31, 2005
  433 �� 43   6   1   (1,528)  (22)  23   19   2,542   1,084 
Total recognized income and expense for the year  —   —   —   —   —   —   4   (22)  427   409 
Issue of ordinary shares  4   1   19       —   —   —   —   —   20 
Repurchase of shares  (28)  (3)  —   —   —   —   —   —   (257)  (260)
Share capital consolidation  (53)  —   —   —   —   —   —   —   —   — 
Transfer to capital redemption reserve  —   —   —   3   —   —   —   —   (3)  — 
Purchase of own shares by                                        
 employee share trusts  —   —   —   —   —   (47)  —   —   —   (47)
Release of own shares by employee share trusts  —   —   —   —   —   52   —   —   (37)  15 
Equity-settled share-based cost  —   —   —   —   —   —   —   —   18   18 
Equity dividends paid  —   —   —   —   —   —   —   —   (561)  (561)
                               
At December 31, 2006
  356   41   25   4   (1,528)  (17)  27   (3)  2,129   678 
                               
At December 31, 2003 the authorized share capital was £10,000,050,000 comprising 10,000,000,000 ordinary shares of £1 each and one redeemable preference share of £50,000.
The Notes to the Consolidated Financial Statements are an integral part of these Financial Statements.


F-6

F-8

INTERCONTINENTAL HOTELS GROUP PLC
CONSOLIDATED BALANCE SHEET
         
  December 31,
  December 31,
 
  2007  2006 
  (£ million) 
 
ASSETS
        
Property, plant and equipment — (Note 10)  962   997 
Goodwill — (Note 12)  110   109 
Intangible assets — (Note 13)  167   154 
Investment in associates — (Note 14)  33   32 
Retirement benefit assets — (Note 3)  32   — 
Other financial assets — (Note 15)  93   96 
         
Total non-current assets
  1,397   1,388 
         
Inventories — (Note 16)  3   3 
Trade and other receivables — (Note 17)  235   237 
Current tax receivable  54   23 
Cash and cash equivalents — (Note 18)  52   179 
Other financial assets — (Note 15)  9   13 
         
Total current assets
  353   455 
         
Non-current assets classified as held for sale — (Note 11)  57   50 
         
Total assets (Note 2)
  1,807   1,893 
         
         
LIABILITIES
        
Loans and other borrowings — (Note 20)  (8)  (10)
Trade and other payables — (Note 19)  (390)  (402)
Current tax payable  (212)  (231)
         
Total current liabilities
  (610)  (643)
         
Loans and other borrowings — (Note 20)  (869)  (303)
Retirement benefit obligations — (Note 3)  (55)  (71)
Trade and other payables — (Note 19)  (139)  (109)
Deferred tax payable — (Note 25)  (82)  (79)
         
Total non-current liabilities
  (1,145)  (562)
         
Liabilities classified as held for sale — (Note 11)  (3)  (2)
         
Total liabilities (Note 2)
  (1,758)  (1,207)
         
Net assets
  49   686 
         
         
EQUITY
        
Equity share capital  81   66 
Capital redemption reserve  5   4 
Shares held by employee share trusts  (41)  (17)
Other reserves  (1,528)  (1,528)
Unrealized gains and losses reserve  19   27 
Currency translation reserve  6   (3)
Retained earnings  1,504   2,129 
         
IHG shareholders’ equity
  46   678 
Minority equity interest — (Note 26)  3   8 
         
Total equity
  49   686 
         
The Notes to the Consolidated Financial Statements are an integral part of these Financial Statements.


F-7

INTERCONTINENTAL HOTELS GROUP PLC
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ FUNDS
                                         
        Retained earnings and other reserves 
                 Shares
             
  Share Capital           held by
  Unrealized
          
  Number of
        Capital
     employee
  gains and
  Currency
     Total IHG
 
  ordinary
  Ordinary
  Share
  redemption
  Other
  share
  losses
  translation
  Retained
  shareholders’
 
  shares(i)  shares(i)  premium(ii)  reserve(ii)  reserves(iii)  trusts(iv)  reserve(v)  reserve(vi)  earnings  equity 
  (£ million, except per ordinary share amounts) 
 
At January 1, 2005
  622   697   26   46   1,462   (22)  3   (12)  (383)  1,817 
Total recognized income and expense for the year  —   —   —   —   —   —   20   31   490   541 
Issue of ordinary shares  1   1   3   —   —   —   —   —   —   4 
Repurchase of shares  (19)  (22)  —   —   —   —   —   —   (102)  (124)
Transfer to capital redemption reserve  —   —   —   22   —   —   —   —   (22)  — 
Capital reorganization  (161)  (632)  (29)  (68)  (2,990)  —   —   —   2,723   (996)
Proceeds from capital reorganization  —   —   —   —   —   4   —   —   —   4 
Issue of ordinary shares  1   —   6   —   —   —   —   —   —   6 
Repurchase of shares  (11)  (1)  —   —   —   —   —   —   (82)  (83)
Transfer to capital redemption reserve  —   —   —   1   —   —   —   —   (1)  — 
Purchase of own shares by employee share trusts  —   —   —   —   —   (29)  —   —   —   (29)
Release of own shares by employee share trusts  —   —   —   —   —   25   —   —   (17)  8 
Equity-settled share-based cost  —   —   —   —   —   —   —   —   17   17 
Equity dividends paid  —   —   —   —   —   —   —   —   (81)  (81)
                                         
At December 31, 2005
  433   43   6   1   (1,528)  (22)  23   19   2,542   1,084 
Total recognized income and expense for the year  —   —   —   —   —   —   4   (22)  427   409 
Issue of ordinary shares  4   1   19   —   —   —   —   —   —   20 
Repurchase of shares  (28)  (3)  —   —   —   —   —   —   (257)  (260)
Share capital consolidation  (53)  —   —   —   —   —   —   —   —   — 
Transfer to capital redemption reserve  —   —   —   3   —   —   —   —   (3)  — 
Purchase of own shares by employee share trusts  —   —   —   —   —   (47)  —   —   —   (47)
Release of own shares by employee share trusts  —   —   —   —   —   52   —   —   (37)  15 
Equity-settled share-based cost  —   —   —   —   —   —   —   —   18   18 
Equity dividends paid  —   —   —   —   —   —   —   —   (561)  (561)
                                         
At December 31, 2006
  356   41   25   4   (1,528)  (17)  27   (3)  2,129   678 
Total recognized income and expense for the year  —   —   —   —   —   —   (8)  9   239   240 
Issue of ordinary shares  4   —   16   —   —   —   —   —   —   16 
Repurchase of shares  (8)  (1)  —   —   —   —   —   —   (80)  (81)
Share capital consolidation  (57)  —   —   —   —   —   —   —   —   — 
Transfer to capital redemption reserve  —   —   —   1   —   —   —   —   (1)  — 
Purchase of own shares by employee share trusts  —   —   —   —   —   (69)  —   —   —   (69)
Release of own shares by employee share trusts  —   —   —   —   —   45   —   —   (40)  5 
Equity-settled share-based cost  —   —   —   —   —   —   —   —   30   30 
Equity dividends paid  —   —   —   —   —   —   —   —   (773)  (773)
                                         
At December 31, 2007
  295   40   41   5   (1,528)  (41)  19   6   1,504   46 
                                         
At December 31, 2004 the authorized share capital was £10,000,049,999 comprising 8,928,571,428 ordinary shares of 112 pence each and one redeemable preference share of £50,000.
The Notes to the Consolidated Financial Statements are an integral part of these Financial Statements.


F-8

(i)The Company was incorporated and registered in England and Wales with registered number 5134420 on May 21, 2004 as a limited company under the Companies Act 1985 with the name Hackremco (No. 2154) Limited. On March 24, 2005 Hackremco (No. 2154) Limited changed its name to New InterContinental Hotels Group Limited. On April 27, 2005 New InterContinental Hotels Group Limited re-registered as a public limited company and changed its name to New InterContinental Hotels Group PLC. On June 27, 2005 New InterContinental Hotels Group PLC changed its name to InterContinental Hotels Group PLC.
On May 21, 2004 the Company had an authorized share capital of £100, divided into 100 ordinary shares of £1 each, of which one ordinary share was allotted, called up and fully paid on incorporation.
 
On December 10, 2004 shareholders approved a share capital consolidation on the basis of 25 new ordinary shares for every 28 existing ordinary shares. This provided for all the authorized ordinary shares of £1 each (whether issued or unissued) to be consolidated into new ordinary shares of 112 pence each. The share capital consolidation became effective on December 13, 2004. The consolidation had no impact on the authorized redeemable preference share.
On April 21, 2005 the authorized share capital was increased to £50,100 by the creation of one redeemable preference share of £50,000. The redeemable preference share so created was allotted and treated as paid up in full on this date.
 
On May 20, 2005 the authorized share capital of the Company was increased from £50,100 to £10,000,050,000 by the creation of 9,999,999,900 ordinary shares of £1 each. On May 20, 2005 all of the ordinary shares of £1 each were consolidated into ordinary shares of £6.25 each.
 
On June 27, 2005 the capital reorganization (by means of a scheme of arrangement under Section 425 of the Companies Act 1985) was completed. Under the arrangement, shareholders received 11 new ordinary shares and £24.75 cash in exchange for every 15 existing ordinary shares held on June 24, 2005. The entire issued share capital of InterContinental Hotels Group PLC was transferred to New InterContinental Hotels Group PLC at fair market value, in exchange for the issue of 443 million fully paid ordinary shares of 10 pence each, which were admitted to the Official List of the UK Listing Authority and admitted to trading on the London Stock Exchange on that date. In accordance with the merger relief provisions of Sections 131 and 133 of the Companies Act 1985, the 443 million shares are recorded only at nominal value.
 
On June 30, 2005 £6.15 on every £6.25 ordinary share was canceled, thereby reducing the nominal value of each ordinary share to 10 pence.
 
On September 8, 2005 the redeemable preference share was redeemed at par value. The redeemable preference share did not carry any right to receive dividends nor to participate in the profits of the Company.
 
During 2004 and 2005, the Company undertook to return funds of up to £750 million to shareholders by way of three consecutive £250 million share repurchase program, the third of which is expected to bewas completed in the first half of 2007. In June 2007, a further £150 million share repurchase program commenced. During the year, 7,724,844 (2006 28,409,753, (2005 30,600,010; 2004 46,385,981)2005 30,600,010) ordinary shares were repurchased and canceled under the authorities granted by shareholders at general meetings held during 2003, 2004, 2005, 2006 and 2006.2007. Of these, 11,122,753 were 10 pence shares in the capital of InterContinental Hotels Group PLC and 17,287,0002,237,264 were 113/7 pence shares in the capital of InterContinental Hotels Group PLC.and 5,487,580 were 1329/47 pence shares.
 
On June 1, 2006, shareholders approved a share capital consolidation on the basis of seven new ordinary shares for every eight existing ordinary shares. This provided for all the authorized ordinary shares of 10 pence each (whether issued or unissued) to be consolidated into new ordinary shares of 113/7 pence each. The share capital consolidation became effective on June 12, 2006.
 
On June 1, 2007, shareholders approved a share capital consolidation on the basis of 47 new ordinary shares for every 56 existing ordinary shares. This provided for all the authorized ordinary shares of 113/7 pence each (whether issued or unissued) to be consolidated into new ordinary shares of 1329/47 pence each. The share capital consolidation became effective on June 4, 2007.
Whilst the authorized share capital includes one redeemable preference share of £50,000, following its redemption in September 2005, this redeemable preference share has not been re-issued.
 
The authority given to the Company at the AnnualExtraordinary General Meeting on June 1, 20062007 to purchase its own shares was still valid at December 31, 2006.2007. A resolution to renew the authority will be put to shareholders at the Annual General Meeting on June 1, 2007.May 30, 2008.
 
At December 31, 20062007, the authorized share capital was £160,050,000, comprising 1,400,000,0001,175,000,000 ordinary shares of 1113329/747 pence each and one redeemable preference share of £50,000.
(ii)The share premium account and capital redemption reserve are not distributable.
 
(iii)Other reserves comprises the revaluation reserve previously recognized under UK GAAP and athe merger reserve.
 
(iv)The shares held by employee share trusts comprises £41.1 million (2006 £16.8 million, (20052005 £21.7 million, 2004 £21.8 million) in respect of 3.4 million (2006 1.7 million, (20052005 2.9 million; 2004 3.1 million) InterContinental Hotels Group PLC ordinary shares held by employee share trusts, with a market value at December 31, 20062007 of £30 million (2006 £21 million, (20052005 £25 million, 2004 £20 million).
 
(v)The net unrealized gains and losses reserve records movements for available-for-sale financial assets to fair value and the effective portion of the cumulative net change in the fair value of the cash flow hedging instruments related to hedged transactions that have not yet occurred. The fair value of cashflow hedging instruments outstanding at December 31, 20062007 was a £2 million liability (2006 £1 million asset, (20052005 £1 million 2004 £nil)asset).
(vi)The currency translation reserve records the movement in exchange differences arising from the translation of the financial statements of foreign operations and exchange differences on foreign currency borrowings and derivative instruments that provide a hedge against net investments in foreign operations. On adoption of IFRS, cumulative exchange differences were deemed to be zero£nil as permitted by IFRS 1. During the year ended December 31, 2006,2007, the impact of hedging net investments in foreign operations was to reduce the amount recorded in the currency translation reserve by £7 million (2006 £32 million, (20052005 £9 million, 2004 £54 million). The fair value of derivative instruments designated as hedges of net investments in foreign operations outstanding at December 31, 20062007 was a£nil (2006 £3 million net asset, (20052005 £5 million net liability, 2004 £nil million)liability).
The Notes to the Consolidated Financial Statements are an integral part of these Financial Statements.

F-9

INTERCONTINENTAL HOTELS GROUP PLC
CONSOLIDATED CASH FLOW STATEMENT
              
  Year ended Year ended Year ended
  December 31, December 31, December 31,
  2006 2005 2004
       
  (£ million)
Profit for the year
  405   515   410 
Adjustments for:            
 Net financial expense  11   33   33 
 Income tax (credit)/charge  (41)  80   (127)
 Gain on disposal of assets, net of tax  (117)  (311)  (19)
 Other operating income and expenses  (27)  22   49 
 Depreciation and amortization  64   130   173 
 Equity settled share-based cost, net of payments  14   12   12 
 Other gains and losses  —   —   4 
          
Operating cash flow before movements in working capital  309   481   535 
Decrease in inventories  —   —   1 
Increase in receivables  (31)  —   (13)
Increase/(decrease) in provisions and other payables  10   (32)  50 
Employee benefit contributions, net of cost  —   (26)  (58)
          
Cash flow from operations
  288   423   515 
Interest paid  (33)  (59)  (91)
Interest received  24   29   72 
Tax paid  (49)  (91)  (35)
          
Net cash from operating activities
  230   302   461 
          
Cash flow from investing activities
            
Purchases of property, plant and equipment — Hotels  (87)  (107)  (143)
Purchases of intangible assets — Hotels  (23)  (19)  (33)
Purchases of other financial assets — Hotels  (8)  (10)  (11)
Acquisition of subsidiary, net of cash acquired  (6)  —   — 
Disposal of assets, net of cash disposed of — Hotels  620   1,816   101 
Proceeds from other financial assets — Hotels  124   10   5 
Purchases of property, plant and equipment — Soft Drinks  —   (47)  (70)
Disposal of business, net of cash disposed of — Soft Drinks  —   220   — 
          
Net cash from investing activities
  620   1,863   (151)
          
Cash flow from financing activities
            
Proceeds from the issue of share capital  20   10   16 
Purchase of own shares  (260)  (207)  (257)
Payment to shareholders as a result of the capital reorganisation on June 27, 2005  —   (996)  — 
Purchase of own shares by employee share trusts  (47)  (29)  (33)
Proceeds on release of own shares by employee share trusts  19   16   16 
Dividends paid to shareholders  (561)  (81)  (600)
Dividends paid to minority interests  (1)  (177)  (26)
(Decrease)/increase in borrowings  (172)  (442)  258 
Costs associated with new facilities  —   —   (5)
Financial expense on early settlement of debt  —   —   (17)
          
Net cash from financing activities
  (1,002)  (1,906)  (648)
          
Net movement in cash and cash equivalents in the year
  (152)  259   (338)
Cash and cash equivalents at beginning of the year  324   72   411 
Exchange rate effects  7   (7)  (1)
          
Cash and cash equivalents at end of the year
  179   324   72 
          
The significant differences between the cash flow statement presented above and that required under United States generally accepted accounting principles are described in Note 32 of Notes to the Consolidated Financial Statements.
The Notes to the Consolidated Financial Statements are an integral part of these Financial Statements.


F-9

F-10

Note 1 — Corporate Information and Accounting PoliciesINTERCONTINENTAL HOTELS GROUP PLC
CONSOLIDATED CASH FLOW STATEMENT
             
  Year ended
  Year ended
  Year ended
 
  December 31,
  December 31,
  December 31,
 
  2007  2006  2005 
  (£ million) 
 
Profit for the year
  231   405   515 
Adjustments for:            
Net financial expense  45   11   33 
Income tax charge/(credit)  15   (41)  80 
Exceptional operating items before depreciation  (31)  (27)  22 
Gain on disposal of assets, net of tax  (16)  (117)  (311)
Depreciation and amortization  58   64   130 
Equity-settled share-based cost, net of payments  24   14   12 
Other non-cash items  (2)  —   — 
             
Operating cash flow before movements in working capital  324   309   481 
Increase in trade and other receivables  (15)  (31)  — 
Increase/(decrease) in trade and other payables  26   10   (32)
Retirement benefit contributions, net of charge  (33)  —   (26)
             
Cash flow from operations
  302   288   423 
Interest paid  (42)  (33)  (59)
Interest received  9   24   29 
Tax paid on operating activities  (37)  (43)  (80)
             
Net cash from operating activities
  232   236   313 
             
Cash flow from investing activities
            
Purchases of property, plant and equipment — Hotels  (57)  (87)  (107)
Purchases of intangible assets — Hotels  (20)  (23)  (19)
Purchases of associates and other financial assets — Hotels  (16)  (8)  (10)
Acquisition of subsidiary, net of cash acquired  —   (6)  — 
Disposal of assets, net of costs and cash disposed of — Hotels  49   620   1,816 
Proceeds from associates and other financial assets — Hotels  57   124   10 
Purchases of property, plant and equipment — Soft Drinks  —   —   (47)
Disposal of business, net of cash disposed of — Soft Drinks  —   —   220 
Tax paid on disposals  (32)  (6)  (11)
             
Net cash from investing activities
  (19)  614   1,852 
             
Cash flow from financing activities
            
Proceeds from the issue of share capital  16   20   10 
Purchase of own shares  (81)  (260)  (207)
Payment to shareholders as a result of the capital reorganisation on June 27, 2005  —   —   (996)
Purchase of own shares by employee share trusts  (69)  (47)  (29)
Proceeds on release of own shares by employee share trusts  10   19   16 
Dividends paid to shareholders  (773)  (561)  (81)
Dividends paid to minority interests  —   (1)  (177)
Increase/(decrease) in borrowings  553   (172)  (442)
             
Net cash from financing activities
  (344)  (1,002)  (1,906)
             
Net movement in cash and cash equivalents in the year
  (131)  (152)  259 
Cash and cash equivalents at beginning of the year  179   324   72 
Exchange rate effects  4   7   (7)
             
Cash and cash equivalents at end of the year
  52   179   324 
             
The Notes to the Consolidated Financial Statements are an integral part of these Financial Statements.


F-10

Note 1 —Corporate informationInformation and Accounting Policies
 
Corporate information
The consolidated financial statements of InterContinental Hotels Group PLC (“IHG”(the “Company” or “IHG”) were prepared under IFRS for the year ended December 31, 20062007 were authorized for issue in accordance with a resolution of the Directors on February 19, 2007.18, 2008. InterContinental Hotels Group PLC (the “Company”) is incorporated in Great Britain and registered in England and Wales.
Summary of significant accounting policies
Summary of significant accounting policies
Basis of preparation
 
The consolidated financial statements are presented in sterling and all values are rounded to the nearest million except where otherwise indicated.
Statement of compliance
Statement of compliance
 
The consolidated financial statements of IHG have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and in accordance with IFRS as adopted by the European Union (“EU”), and as applied in accordance with the provisions of the Companies Act 1985. IFRS as adopted by the EU differs in certain respects from IFRS as issued by the IASB, however, the differences have no impact on the Company’s consolidated financial statements for the years presented.
 New
The Company has early adopted International Financial Reporting Interpretations Committee 14 “IAS 19 -The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction” (“IFRIC 14”). IFRIC 14 provides guidance on assessing the limit in International Accounting Standard 19 “Employee Benefits” (“IAS 19”) on the amount of the surplus that can be recognized as an asset. It also explains how the pension asset or liability may be affected by a statutory or contractual minimum funding requirement. Under IFRIC 14, the Company has recognized retirement benefit assets of £32 million on the balance sheet at December 31, 2007.
The Company has also adopted International Financial Reporting Standard 7 ‘‘Financial Instruments: Disclosures” (“IFRS 7”) for the first time in these financial statements. This is a disclosure standard only which has had no impact on the Company’s results or net assets. The new disclosures are included throughout the financial statements.
Other new accounting standards and interpretations issued by the International Accounting Standard Board (“IASB”)IASB and the International Financial Reporting Interpretations Committee (“IFRIC”), becoming effective during the year, have not had a material impact on the Company’s financial statements.
 
The principal accounting policies of the Company are set out below.
Basis of consolidation
Basis of consolidation
 
The consolidated financial statements comprise the financial statements of the parent company and entities controlled by the Company. All inter-company balances and transactions have been eliminated.
 
The results of those businesses acquired or disposed of are consolidated for the period during which they were under the Company’s control.
Foreign currencies
Foreign currencies
 
Transactions in foreign currencies are translated intoto the functional currency at the exchange rates ruling on the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated to the functional currency at the relevant rates of exchange ruling at the balance sheet date. All foreign exchange differences arising on translation are recognized in the income statement except on foreign currency borrowings that provide a hedge against a net investment in a foreign operation. These are taken directly to the currency


F-11

translation reserve until the disposal of the net investment, at which time they are recycled against the gain or loss on disposal.
 
The assets and liabilities of foreign operations, including goodwill, are translated into sterling at the relevant rates of exchange ruling at the balance sheet date. The revenues and expenses of foreign operations are translated into sterling at weighted average rates of exchange for the period. The exchange differences arising on the retranslation are taken directly to the currency translation reserve. On disposal of a foreign operation, the cumulative amount recognized in the currency translation reserve relating to that particular foreign operation is recycled against the gain or loss on disposal.
Derivative financial instruments and hedging
Derivative financial instruments and hedging
 
Derivatives designated as hedging instruments are accounted for in line with the nature of the hedging arrangement. The Company’s detailed accounting policies with respect to hedging instruments are set out in Note 21. Documentation outlining the measurement and effectiveness of the hedging arrangement is maintained throughout the life of the hedge relationship. Any ineffective element of a hedge arrangement is recognized in financial income or expense.
Interest arising from currency swap agreements is taken to financial income or expense on a gross basis over the term of the relevant agreements. Interest arising from other currency derivatives and interest rate swaps is taken to financial income or expense on a net basis over the term of the agreement.

F-11

 
Foreign exchange gains and losses on currency instruments are recognized in financial income and expense unless they form part of effective hedge relationships.
 Derivatives designated as hedging instruments are accounted for in line with the nature of the hedging arrangement. The Company’s detailed accounting policies with respect to hedging instruments are set out in note 21. Documentation outlining the measurement and effectiveness of the hedging arrangement is maintained throughout the life of the hedge relationship. Any ineffective element of a hedge arrangement is recognized in financial income or expense.
The fair value of derivatives is calculated by discounting the expected future cash flows at prevailing interest rates.
Property, plant and equipment
Property, plant and equipment
 
Property, plant and equipment are stated at cost less depreciation and any impairment.
 
Borrowing costs are not capitalized. Repairs and maintenance costs are expensed as incurred.
 
Land is not depreciated. All other property, plant and equipment are depreciated to a residual value over their estimated useful lives, namely:
   
Buildings lesser of 50 years and unexpired term of lease; and
Fixtures, fittings and equipment 3-25 years; and
Plant and machinery4-203 to 25 years.
 
All depreciation is charged on a straight linestraight-line basis. Residual value is reassessed annualy.
 
Property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. Assets that do not generate independent cash flows are combined into cash-generating units. If carrying values exceed estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amount. Recoverable amount is the greater of fair value less cost to sell and value in use. Value in use is assessed based on estimated future cash flows discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
Goodwill
On adoption of IFRS the Company retained previous revaluations of property, plant and equipment at deemed cost as permitted by IFRS 1 “First-time Adoption of International Financial Reporting Standards.”
 
Goodwill
Goodwill arises on consolidation and is recorded at cost, being the excess of the cost of acquisition over the fair value at the date of acquisition of the Company’s share of identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses.


F-12

Goodwill is tested for impairment at least annualy by comparing carrying values of cash-generating units with their recoverable amounts.
Intangible assets
Intangible assets
Software
 
Acquired software licenses and software developed in-house are capitalized on the basis of the costs incurred to acquire and bring to use the specific software. Costs are amortized over estimated useful lives of three to sevenfive years on a straight linestraight-line basis.
Management contracts
 
When assets are sold and a purchaser enters into a management or franchise contract with the Company, the Company capitalizes as part of the gain or loss on disposal an estimate of the fair value of the contract entered into. The value of management contracts is amortized over the life of the contract which ranges from six to 50 years on a straight linestraight-line basis.

F-12

Other intangible assets
 
Amounts paid to hotel owners to secure management contracts and franchise agreements are capitalized and amortized over the shorter of the contracted period and 10 years on a straight linestraight-line basis.
 
Internally generated development costs are expensed unless forecast revenues exceed attributable forecast development costs, at which time they are capitalized and amortized over the life of the asset.
 
Intangible assets are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable.
Associates
Associates
 
An associate is an entity over which the Company has the ability to exercise significant influence, but not control, through participation in the financial and operating policy decisions of the entity.
 
Associates are accounted for using the equity method unless the associate is classified as held for sale. Under the equity method, the Company’s investment is recorded at cost adjusted by the Company’s share of post acquisition profits and losses. When the Company’s share of losses exceeds its interest in an associate, the Company’s carrying amount is reduced to £nil and recognition of further losses is discontinued except to the extent that the Company has incurred legal or constructive obligations or made payments on behalf of an associate.
Financial assets
Financial assets
 Under IAS 39 “Financial Instruments: Recognition and Measurement” current and non-current
The Company classifies its financial assets are classified asinto one of the two following categories: loans and receivables; held-to-maturity investments;receivables or as available-for-sale. The Companyavailable-for-sale financial assets. Management determines the classification of its financial assets aton initial recognition and they are subsequently held at amortized cost (loans and receivables) or fair value or amortized cost.(available-for-sale financial assets). Interest on loans and receivables is calculated using the effective interest rate method and is recognized in the income statement as interest income. Changes in fair values of available-for-sale financial assets are recorded directly in equity within the unrealized gains and losses reserve. On disposal, the accumulated fair value adjustments recognized in equity are recycled to the income statement. Dividends from available-for-sale financial assets are recognized in the income statement as operating income and expenses.
 
Financial assets are tested for impairment at each balance sheet date. If an available-for-sale financial asset is impaired, the difference between carrying valueoriginal cost and fair value is transferred from equity to the income statement to the extent that there is sufficient surplusof any cumulative loss recorded in equity;equity with any excess goescharged directly to the income statement.


F-13

Financial liabilities
Financial liabilities
Financial liabilities are measured at amortized cost using the effective interest rate method. A financial liability is derecognized when the obligation under the liability expires, is discharged canceled or expires.canceled.
Inventories
Inventories
 
Inventories are stated at the lower of cost and net realizable value.
Trade receivables
Trade receivables
 
Trade receivables are recorded at their original amount less an allowanceprovision for any doubtful amounts. An allowanceimpairment. It is made when collectionthe Company’s policy to provide for 100% of the full amountprevious month’s aged receivables balances which are more than 180 days past due. Adjustments to the policy may be made due to specific or exceptional circumstances when collection is no longer considered probable. The carrying amount of the receivable is reduced through the use of a provision account and movements in the provision are recognized in the income statement within cost of sales. When a previously provided trade receivable is uncollectable, it is written off against the provision.
Cash and cash equivalents
Cash and cash equivalents
 
Cash comprises cash in hand and demand deposits.
 
Cash equivalents are short-term highly liquid investments with an original maturity of three months or less that are readily convertible to known amounts of cash and subject to insignificant risk of changes in value.
 
In the cash flow statement cash and cash equivalents are shown net of short-term overdrafts which are repayable on demand and form an integral part of the Company’s cash management.

F-13

Assets held for sale
 
Assets held for sale
Non-current assets and associated liabilities are classified as held for sale when their carrying amount will be recovered principally through a sale transaction rather than continuing use and a sale is highly probable.
 
Assets designated as held for sale are held at the lower of carrying amount at designation and sales value less cost to sell.
 
Depreciation is not charged against property, plant and equipment classified as held for sale.
Trade payables
Trade payables
 
Trade payables are non interest bearing and are stated at their nominal value.
Loyalty program
Loyalty program
 
The hotel loyalty program, Priority Club Rewards, enables members to earn points, funded through hotel assessments, during each stay at an IHG hotel and redeem the points at a later date for free accommodation or other benefits. The future redemption liability is included in trade and other payables and is estimated using actuarial methods to give eventual redemption rates determined by actuarial methods and points values.
 
The Company pays interest to the loyalty program on the accumulated cash received in advance of redemption of the points awarded.
Self insurance
Self insurance
 
The Company is self insured for various levels ofinsurable risks including general liability, workers’ compensation and employee medical and dental coverage. Insurance reserves include projected settlements for known and incurred but not reported claims. Projected settlements are estimated based on historical trends and actuarial data.


F-14

Provisions
Provisions
 
Provisions are recognized when the Company has a present obligation as a result of a past event, it is probable that a payment will be made and a reliable estimate of the amount payable can be made. If the effect of the time value of money is material, the provision is discounted.
Bank and other borrowings
Bank and other borrowings
 
Bank and other borrowings are initially recognized at the fair value of the consideration received less directly attributable transaction costs. They are subsequently measured at amortized cost. Finance charges, including issue costs, are charged to the income statement using an effective interest rate method.
 
Borrowings are classified as non-current when the repayment date is more than 12 months from the balance sheet date or where they are drawn on a facility with more than 12 months to expiry.
Employee benefits
Retirement benefits
Defined contribution plans
 
Payments to defined contribution schemes are charged to the income statement as they fall due.
Defined benefit plans
 
Plan assets are measured at fair value and plan liabilities are measured on an actuarial basis, using the projected unit credit method and discounting at an interest rate equivalent to the current rate of return on a high quality corporate bond of equivalent currency and term to the plan liabilities. The difference between the value of plan assets and liabilities at the balance sheet date is the amount of surplus or deficit recorded on the balance sheet as an asset or liability. An asset is recognized in full when the employer has an unconditional right to use the surplus at some point during the life of the plan or on its wind up.
 
The service cost of providing pension benefits to employees for the year is charged to the income statement. The cost of making improvements to pensions is recognized in the income statement on a straight

F-14

linestraight-line basis over the period during which any increase in benefits vests. To the extent that improvements in benefits vest immediately, the cost is recognized immediately as an expense.
 
Actuarial gains and losses may result from: differences between the expected return and the actual return on plan assets; differences between the actuarial assumptions underlying the plan liabilities and actual experience during the year; or changes in the actuarial assumptions used in the valuation of the plan liabilities. Actuarial gains and losses, and taxation thereon, are recognized in the consolidated statement of recognized income and expense.
 
Actuarial valuations are normally carried out every three years and are updated for material transactions and other material changes in circumstances (including changes in market prices and interest rates) up to the balance sheet date.
Taxes
Taxes
Current tax
 
Current tax
Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the tax authorities.authorities including interest. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date.
Deferred tax
Deferred tax
 
Deferred tax assets and liabilities are recognized in respect of temporary differences between the tax base and carrying value of assets and liabilities, including accelerated capital allowances, unrelieved tax losses, unremitted profits from overseas where the Company does not control remittance, gains rolled over into replacement assets, gains on previously revalued properties and other short-term temporary differences.


F-15

Deferred tax assets are recognized to the extent that it is regarded as probable that the deductible temporary differences can be realized. The recoverability of all deferred tax assets is reassessed at each balance sheet date.
 
Deferred tax is calculated at the tax rates that are expected to apply in the periods in which the asset or liability will be settled, based on rates enacted or substantively enacted at the balance sheet date.
Revenue recognition
Revenue recognition
 
Revenue is derived from the following sources: owned and leased properties; management fees; franchise fees; sale of soft drinksfees and other revenues which are ancillary to the Company’s operations.
 
Generally, revenue represents sales (excluding VAT and similar taxes) of goods and services, net of discounts, provided in the normal course of business and recognized when services have been rendered. The following is a description of the composition of revenues of the Company.
 
Owned and leased — primarily derived from hotel operations, including the rental of rooms and food and beverage sales from owned and leased hotels operated under the Company’s brand names. Revenue is recognized when rooms are occupied and food and beverages are sold.
 
Management fees — earned from hotels managed by the Company, usually under long-term contracts with the hotel owner. Management fees include a base fee, which is generally a percentage of hotel revenue, and an incentive fee, which is generally based on the hotel’s profitability or cash flows. Revenue is recognized when earned and realized or realizable under the terms of the contract.
 
Franchise fees — received in connection with the license of the Company’s brand names, usually under long-term contracts with the hotel owner. The Company charges franchise royalty fees as a percentage of room revenue. Revenue is recognized when earned and realized or realizable under the terms of the agreement.

F-15

Share-based payments
 
Share-based payments
The cost of equity-settled transactions with employees is measured by reference to fair value at the date at which the shares are granted. Fair value is determined by an external valuer using option pricing models.
 
The cost of equity-settled transactions is recognized, together with a corresponding increase in equity, over the period in which any performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (vesting date).
 
The income statement charge for a period represents the movement in cumulative expense recognized at the beginning and end of that period. No expense is recognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied.
 
The Company has taken advantage of the transitional provisions of “IFRS”IFRS 2“Share-based “Share-based Payments” in respect of equity-settled awards and has applied “IFRS”IFRS 2 only to equity-settled awards granted after November 7, 2002 that had not vested before January 1, 2005.
Leases
Leases
 
Operating lease rentals are charged to the income statement on a straight linestraight-line basis over the term of the lease.
 
Assets held under finance leases, which transfer to the Company substantially all the risks and benefits incidental to ownership of the leased item, are capitalized at the inception of the lease, with a corresponding liability being recognized for the fair value of the leased asset or, if lower, the present value of the minimum lease payments. Lease payments are apportioned between the reduction of the lease liability and finance charges in the income statement so as to achieve a constant rate of interest on the remaining balance of the liability. Assets held under finance leases are depreciated over the shorter of the estimated useful life of the asset and the lease term.


F-16

Disposal of non-current assets
Disposal of non-current assets
 
The Company recognizes the sales proceeds and related gain or loss on disposal on completion of the sales process. In determining whether revenue andthe gain or loss should be recorded, the Company considers whether it:
 • has a continuing managerial involvement to the degree associated with asset ownership;
 
 • has transferred the significant risks and rewards associated with asset ownership; and
 
 • can reliably measure and will actually receive the proceeds.
Discontinued operations
Discontinued operations
 
Discontinued operations are those relating to hotels sold or those classified as held for sale when the results relate to a separate line of business, geographical area of operations, or where there is a co-ordinated plan to dispose of a separate line of business or geographical area of operations.
Special items
Exceptional items
 
The Company discloses certain financial information both including and excluding specialexceptional items. The presentation of information excluding specialexceptional items allows a better understanding of the underlying trading performance of the Company and provides consistency with the Company’s internal management reporting. SpecialExceptional items which include other operating income and expenses, are identified by virtue of either their size or incidencenature so as to facilitate comparison with prior periods and to assess underlying trends in financial performance. SpecialExceptional items can include, but are not restricted to, gains and losses on the disposal of assets, impairment charges and reversals, restructuring costs and the release of tax provisions.

F-16

Use of accounting estimates and judgments
 
Amounts that have previously been disclosed as special items have now been called exceptional items in accordance with market practice. There have been no change to the Company’s accounting policy for identifying these items.
Use of accounting estimates and judgments
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates under different assumptions and conditions.
 
The estimates and assumptions that have the most significant effect on the amounts recognized in the financial statements are:
 • Impairment — the Company determines whether goodwill is impaired on an annual basis or more frequently if there are indicators of impairment. Other non-current assets, including property, plant and equipment, are tested for impairment if there are indicators of impairment. Impairment testing requires an estimate of future cash flows and the choice of a suitable discount rate and, in the case of hotels, an assessment of recoverable amount based on comparable market transactions.
 
 • PensionRetirement and other post-employment benefits — the cost of defined benefit pension plans and other post-employment benefits is determined using actuarial valuations. The actuarial valuation involves making assumptions about discount rates, expected rates of return on assets, future salary increases, mortality rates and future pension increases.
 
 • Tax — provisions for tax accruals require judgments on the interpretation of tax legislation, developments in tax case law and the potential outcomes of tax audits and appeals. In addition, deferred tax assets are recognized for unused tax attributes to the extent that it is probable that taxable profit will be available against which they can be utilized. Judgment is required as to the amount that can be recognized based on the likely amount and timing of future taxable profits, taking into account expected tax planning.


F-17

 • Loyalty program — the future redemption liability included in trade and other payables is estimated using actuarial methods based on statistical formulae that project the timing of future point redemptions based on historical levels to give eventual redemption rates and points values.
 
 • Trade receivables — an allowancea provision for doubtful amountsimpairment of trade receivables is made on the basis of historical experience and other factors considered relevant by management.
 
 • Other — the Company also makes estimates and judgments in the valuation of management and franchise agreements acquired on asset disposals, the valuation of financial assets classified as available-for-sale, the outcome of legal proceedings and claims and in the valuation of share-based payment costs.
New standards and interpretations
New standards and interpretations
 
The International Accounting Standards Board (“IASB”)IASB and International Financial Reporting Interpretations Committee (“IFRIC”)IFRIC issued the following standards and interpretations with an effective date after the date of these financial statements. They have not been adopted early by the Company and the Directors do not anticipate that the adoption of these standards and interpretations will have a material impact on the Company’s reported income or net assets in the period of adoption.
   
IFRS 73R Financial Instruments: DisclosuresBusiness Combinations
Effective from JanuaryJuly 1, 20072009
IFRS 8 Operating Segments
Effective from January 1, 2009
IFRIC 10IAS 23 Interim Financial Reporting and ImpairmentBorrowing Costs (Amendment)
Effective from NovemberJanuary 1, 20062009
IAS 27RConsolidated and Separate Financial Statements Effective from July 1, 2009.
IFRIC 11 Group and Treasury Share Transactions
Effective from March 1, 2007
IFRIC 13Customer Loyalty Programmes
Effective from July 1, 2008.
Note: the effective dates are in respect of accounting periods beginning on or after the date.

F-17

Note 2 —Segmental Information
Exchange Rates
 
The results of foreign operations have been translated into sterling at the weighted average rates of exchange for the period. In the case of the US dollar, the translation rate is £1 = $1.84 (2005$2.01 (2006 £1 = $1.83, 2004$1.84, 2005 £1 = $1.82)$1.83). In the case of the euro, the translation rate is £1 = €1.47 (2005€1.46 (2006 £1 = €1.46, 2004€1.47, 2005 £1 = €1.47)€1.46).
 
Foreign currency denominated assets and liabilities have been translated into sterling at the rates of exchange on the balance sheet date. In the case of the US dollar, the translation rate is £1 = $1.96 (2005$2.01 (2006 £1 = $1.73, 2004$1.96, 2005 £1 = $1.93)$1.73). In the case of the euro, the translation rate is £1 = €1.49 (2005€1.36 (2006 £1 = €1.46; 2004€1.49, 2005 £1 = €1.41)€1.46).
Hotels
 
The primary segmental reporting format is determined to be three main geographical regions:
 the
Americas;
 
Europe, the Middle East and Africa (“EMEA”); and
 
Asia Pacific.
 
These, together with Central functions, form the principal format by which management is organized and makes operational decisions.


F-18

The Company further breaks each geographical region into three distinct business models which offer different growth, return, risk and reward opportunities:
Franchised
Franchised
 
Where the Company neither owns nor manages the hotel, but licenses the use of a Company brand and provides access to reservation systems, loyalty schemes, and know-how. The Company derives revenues from a brand royalty or licensing fee, based on a percentage of room revenue.
Managed
Managed
 
Where, in addition to licensing the use of a Company brand, the Company manages the hotel for third party owners. The Company derives revenues from base and incentive management fees and provides the system infrastructure necessary for the hotel to operate. Management contract fees are generally a percentage of hotel revenue and may have an additional incentive fee linked to profitability or cash flow. The terms of these agreements vary, but are often long-termlong term (for example, 10 years or more). The Company’s responsibilities under the management agreement typically include hiring, training and supervising the managers and employees that operate the hotels under the relevant brand standards. In order to gain access to central reservation systems, global and regional brand marketing and brand standards and procedures, owners are typically required to make a further contribution.
Owned and leased
Owned and leased
 
Where the Company both owns (or leases) and operates the hotel and, in the case of ownership, takes all the benefits and risks associated with ownership.
 
Segmental results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.
Soft Drinks
 
This business, which manufactures a variety of soft drink brands with distribution concentrated mainly in the UK, was sold in December 2005.


F-19

F-18

Segmental Information
Year ended December 31, 2007
Revenue
                     
        Asia
       
  Americas  EMEA  Pacific  Central  Total 
  (£ million) 
 
Hotels
                    
Owned and leased  128   121   73   —   322 
Managed  78   84   49   —   211 
Franchised  244   40   8   —   292 
Central  —   —   —   58   58 
                     
Continuing operations  450   245   130   58   883 
Discontinued operations — owned and leased  31   9   —   —   40 
                     
   481   254   130   58   923 
                     
Segmental result
                     
        Asia
       
  Americas  EMEA  Pacific  Central  Total 
  (£ million) 
 
Hotels
                    
Owned and leased  20   17   18   —   55 
Managed  21   43   23   —   87 
Franchised  212   29   3   —   244 
Regional and central  (33)  (22)  (13)  (81)  (149)
                     
Continuing operations  220   67   31   (81)  237 
Discontinued operations — owned and leased  8   —   —   —   8 
                     
   228   67   31   (81)  245 
Exceptional operating items  9   10   8   3   30 
                     
Operating profit  237   77   39   (78)  275 
                     
             
  Continuing  Discontinued  Total 
  (£ million) 
 
Operating profit
  267   8   275 
Net finance costs  (45)  —   (45)
             
Profit before tax  222   8   230 
Tax  (12)  (3)  (15)
             
Profit after tax  210   5   215 
Gain on disposal of assets, net of tax  —   16   16 
             
Profit for the year
  210   21   231 
             


F-20

Year ended December 31, 2007
Assets and liabilities
                     
        Asia
       
  Americas  EMEA  Pacific  Central  Total 
  (£ million) 
 
Segment assets  614   613   334   83   1,644 
Non-current assets classified as held for sale  57   —   —   —   57 
                     
   671   613   334   83   1,701 
                     
Unallocated assets:                    
Current tax receivable                  54 
Cash and cash equivalents                  52 
                     
Total assets
                  1,807 
                     
Segment liabilities  (280)  (237)  (67)  —   (584)
Liabilities classified as held for sale  (3)  —   —   —   (3)
                     
   (283)  (237)  (67)  —   (587)
                     
Unallocated liabilities:                    
Current tax payable                  (212)
Deferred tax payable                  (82)
Loans and other borrowings                  (877)
                     
Total liabilities
                  (1,758)
                     
Other segmental information
                     
        Asia
       
  Americas  EMEA  Pacific  Central  Total 
  (£ million) 
 
Continuing operations:                    
Capital expenditure(i)
  29   20   20   23   92 
Additions to:                    
Property, plant and equipment  16   14   14   10   54 
Intangible assets  4   5   3   13   25 
Depreciation and amortization(ii)
  16   18   11   11   56 
Reversal of previously recorded impairment  —   —   3   —   3 
Discontinued operations:                    
Capital expenditure(i)
  1   —   —   —   1 
Depreciation and amortization(ii)
  1   1   —   —   2 
Year ended December 31, 2006
     Revenue
                      
      Asia   Total
  Americas EMEA Pacific Central Group
           
  (£ million)
Hotels
                    
 Owned and leased  115   100   71   —   286 
 Managed  77   71   36   —   184 
 Franchised  241   35   4   —   280 
 Central  —   —   —   55   55 
                
 Continuing operations  433   206   111   55   805 
 Discontinued operations — owned and leased  30   125   —   —   155 
                
   463   331   111   55   960 
                
Segmental result
                      
          Total
  Americas EMEA Asia Pacific Central Group
           
  (£ million)
Hotels
                    
 Owned and leased  14   (5)  17   —   26 
 Managed  27   37   21   —   85 
 Franchised  208   24   3   —   235 
 Regional and central  (32)  (20)  (12)  (81)  (145)
                
 Continuing operations  217   36   29   (81)  201 
 Discontinued operations — owned and leased  4   26   —   —   30 
                
   221   62   29   (81)  231 
                
Year ended December 31, 2006
              
  Continuing Discontinued Group
       
  (£ million)
Group
            
 Hotels  201   30   231 
Other operating income and expenses  27   —   27 
          
Operating profit
  228   30   258 
Net finance costs  (11)  —   (11)
          
Profit before tax  217   30   247 
Tax  50   (9)  41 
          
Profit after tax  267   21   288 
Gain on disposal of assets, net of tax  —   117   117 
          
Profit for the year
  267   138   405 
          

F-19

Assets and liabilities
                      
      Asia   Total
  Americas EMEA Pacific Central Group
           
  (£ million)
Segment assets  647   583   338   73   1,641 
Non-current assets classified as held for sale  40   10   —   —   50 
                
   687   593   338   73   1,691 
                
Unallocated assets:                    
 Current tax receivable                  23 
 Cash and cash equivalents                  179 
                
Total assets
                  1,893 
                
 
Segment liabilities  295   234   53   —   582 
Liabilities classified as held for sale  2   —   —   —   2 
                
   297   234   53   —   584 
                
Unallocated liabilities:                    
 Current tax payable                  231 
 Deferred tax payable                  79 
 Loans and other borrowings                  313 
                
Total liabilities
                  1,207 
                
Year ended December 31, 2006
Other segmental information
                       
      Asia   Total
  Americas EMEA Pacific Central Group
           
  (£ million)
Continuing operations:                    
 
Capital expenditure(i)
  34   50   17   15   116 
 Additions to:                    
  Property, plant and equipment  116   53   9   4   182 
  Intangible assets  10   31   1   11   53 
 
Depreciation and amortization(ii)
  18   19   10   13   60 
 Reversal of previously recorded impairment  —   (2)  —   —   (2)
Discontinued operations:                    
 
Capital expenditure(i)
  1   7   —   —   8 
 Additions to property, plant and equipment  —   4   —   —   4 
 
Depreciation and amortization(ii)
  1   3   —   —   4 
 Impairment of assets held for sale  3   —   —   —   3 
(i)Comprises purchases of property, plant and equipment, intangible assets and other financial assets and acquisitions of subsidiaries as included in the consolidated cash flow statement.
(ii)Included in the £58 million of depreciation and amortization is £20 million relating to administrative expenses and £38 million relating to cost of sales.


F-21

Year ended December 31, 2006
Revenue
                     
        Asia
       
  Americas  EMEA  Pacific  Central  Total 
  (£ million) 
 
Hotels
                    
Owned and leased  104   92   71   —   267 
Managed  77   71   36   —   184 
Franchised  241   35   4   —   280 
Central  —   —   —   55   55 
                     
Continuing operations  422   198   111   55   786 
Discontinued operations — owned and leased  41   133   —   —   174 
                     
   463   331   111   55   960 
                     
Segmental result
                     
  Americas  EMEA  Asia Pacific  Central  Total 
  (£ million) 
 
Hotels
                    
Owned and leased  12   (4)  17   —   25 
Managed  27   37   21   —   85 
Franchised  208   24   3   —   235 
Regional and central  (32)  (20)  (12)  (81)  (145)
                     
Continuing operations  215   37   29   (81)  200 
Discontinued operations — owned and leased  6   25   —   —   31 
                     
   221   62   29   (81)  231 
Exceptional operating items  25   2   —   —   27 
                     
Operating profit  246   64   29   (81)  258 
                     
             
  Continuing  Discontinued  Total 
  (£ million) 
 
Operating profit
  227   31   258 
Net finance costs  (11)  —   (11)
             
Profit before tax  216   31   247 
Tax  53   (12)  41 
             
Profit after tax  269   19   288 
Gain on disposal of assets, net of tax  —   117   117 
             
Profit for the year
  269   136   405 
             


F-22

Year ended December 31, 2006
Assets and liabilities
                     
        Asia
       
  Americas  EMEA  Pacific  Central  Total 
  (£ million) 
 
Segment assets  647   583   338   73   1,641 
Non-current assets classified as held for sale  40   10   —   —   50 
                     
   687   593   338   73   1,691 
                     
Unallocated assets:                    
Current tax receivable                  23 
Cash and cash equivalents                  179 
                     
Total assets
                  1,893 
                     
Segment liabilities  (295)  (234)  (53)  —   (582)
Liabilities classified as held for sale  (2)  —   —   —   (2)
                     
   (297)  (234)  (53)  —   (584)
                     
Unallocated liabilities:                    
Current tax payable                  (231)
Deferred tax payable                  (79)
Loans and other borrowings                  (313)
                     
Total liabilities
                  (1,207)
                     
Other segmental information
                     
        Asia
       
  Americas  EMEA  Pacific  Central  Total 
  (£ million) 
 
Continuing operations:                    
Capital expenditure(i)
  34   49   17   15   115 
Additions to:                    
Property, plant and equipment  116   53   9   4   182 
Intangible assets  10   31   1   11   53 
Depreciation and amortization(ii)
  15   17   10   13   55 
Reversal of previously recorded impairment  —   2   —   —   2 
Discontinued operations:                    
Capital expenditure(i)
  1   8   —   —   9 
Additions to property, plant and equipment  —   4   —   —   4 
Depreciation and amortization(ii)
  4   5   —   —   9 
Impairment of assets held for sale  3   —   —   —   3 
(i)Comprises purchases of property, plant and equipment, intangible assets and other financial assets and acquisitions of subsidiaries as included in the consolidated cash flow statement.
(ii)Included in the £64 million of depreciation and amortization is £21 million relating to administrative expenses and £43 million relating to cost of sales.


F-23

F-20

Year ended December 31, 2005*
Revenue
                     
        Asia
     Total
 
  Americas  EMEA  Pacific  Central  Hotels 
  (£ million) 
Hotels
                    
Owned and leased  98   102   59   —   259 
Managed  65   55   25   —   145 
Franchised  213   35   3   —   251 
Central  —   —   —   42   42 
                     
Continuing operations  376   192   87   42   697 
Discontinued operations — owned and leased  69   419   54   —   542 
                     
   445   611   141   42   1,239 
                     
             
  Continuing  Discontinued  Group 
  (£ million) 
Group
            
Hotels  697   542   1,239 
Soft Drinks  —   671   671 
             
Total revenue
  697   1,213   1,910 
             
Segmental result
                     
              Total
 
  Americas  EMEA  Asia Pacific  Central  Hotels 
  (£ million) 
Hotels
                    
Owned and leased  14   (3)  11   —   22 
Managed  20   31   16   —   67 
Franchised  186   26   2   —   214 
Regional and central  (34)  (21)  (8)  (65)  (128)
                     
Continuing operations  186   33   21   (65)  175 
Discontinued operations — owned and leased  12   71   11   —   94 
                     
   198   104   32   (65)  269 
                     
             
  Continuing  Discontinued  Total 
  (£ million) 
Group
            
Hotels  175   94   269 
Soft Drinks  —   70   70 
             
   175   164   339 
Exceptional operating items  (15)  (7)  (22)
             
Operating profit
  160   157   317 
Net finance costs  (24)  (9)  (33)
             
Profit before tax  136   148   284 
Tax  (22)  (58)  (80)
             
Profit after tax  114   90   204 
Gain on disposal of assets, net of tax  —   311   311 
             
Profit for the year
  114   401   515 
             
Year ended December 31, 2005*
     Revenue
                      
      Asia   Total
  Americas EMEA Pacific Central Hotels
           
  (£ million)
Hotels
                    
 Owned and leased  106   110   59   —   275 
 Managed  65   55   25   —   145 
 Franchised  213   35   3   —   251 
 Central  —   —   —   42   42 
                
 Continuing operations  384   200   87   42   713 
 Discontinued operations — owned and leased  61   411   54   —   526 
                
   445   611   141   42   1,239 
                
              
  Continuing Discontinued Group
       
  (£ million)
Group
            
 Hotels  713   526   1,239 
 Soft Drinks  —   671   671 
          
Total revenue
  713   1,197   1,910 
          
Year ended December 31, 2005*
Segmental result
                      
          Total
  Americas EMEA Asia Pacific Central Hotels
           
  (£ million)
Hotels
                    
 Owned and leased  14   (5)  11   —   20 
 Managed  20   31   16   —   67 
 Franchised  186   26   2   —   214 
 Regional and central  (34)  (21)  (8)  (65)  (128)
                
 Continuing operations  186   31   21   (65)  173 
 Discontinued operations — owned and leased  12   73   11   —   96 
                
   198   104   32   (65)  269 
                

F-21

              
  Continuing Discontinued Group
       
  (£ million)
Group
            
 Hotels  173   96   269 
 Soft Drinks  —   70   70 
          
   173   166   339 
Other operating income and expenses  (22)  —   (22)
          
Operating profit
  151   166   317 
Net finance costs  (24)  (9)  (33)
          
Profit before tax  127   157   284 
Tax  (24)  (56)  (80)
          
Profit after tax  103   101   204 
Gain on disposal of assets, net of tax  —   311   311 
          
Profit for the year
  103   412   515 
          
*Other than for Soft Drinks which reflects the 50 weeks and three days ended December 14.


F-24

Year ended December 31, 2005*
Assets and liabilities
                             
        Asia
     Total
  Soft
    
  Americas  EMEA  Pacific  Central  Hotels  Drinks  Total 
  (£ million) 
Segment assets  689   987   346   88   2,110   —   2,110 
Non-current assets classified as held for sale  21   258   —   —   279   —   279 
                             
   710   1,245   346   88   2,389   —   2,389 
Unallocated assets:                            
Current tax receivable                  22   —   22 
Cash and cash equivalents                  324   —   324 
                             
Total assets
                  2,735   —   2,735 
                             
Segment liabilities  (340)  (261)  (50)  —   (651)  —   (651)
Liabilities classified as held for sale  (1)  (33)  —   —   (34)  —   (34)
                             
   (341)  (294)  (50)  —   (685)  —   (685)
Unallocated liabilities:                            
Current tax payable                  (324)  —   (324)
Deferred tax payable                  (210)  —   (210)
Loans and other borrowings                  (412)  —   (412)
                             
Total liabilities
                  (1,631)  —   (1,631)
                             
Other segmental information
                             
        Asia
     Total
  Soft
    
  Americas  EMEA  Pacific  Central  Hotels  Drinks  Total 
  (£ million) 
Continuing operations:                            
Capital expenditure(i)
  17   19   28   13   77   —   77 
Additions to:                            
Property, plant and equipment  7   15   30   6   58   —   58 
Intangible assets  27   51   9   7   94   —   94 
Depreciation and amortization(ii)
  16   13   8   15   52   —   52 
Impairment of property, plant and equipment  —   7   —   —   7   —   7 
Discontinued operations:                            
Capital expenditure(i)
  11   44   4   —   59   47   106 
Additions to:                            
Property, plant and equipment  9   33   4   —   46   36   82 
Intangible assets  —   —   —   —   —   7   7 
Depreciation and amortization(ii)
  4   26   3   —   33   45   78 
*Other than for Soft Drinks which reflects the 50 weeks and three days ended December 14.
Year ended December 31, 2005*
(i)Assets and liabilities
                              
      Asia   Total Soft Total
  Americas EMEA Pacific Central Hotels Drinks Group
               
  (£ million)
Segment assets  689   987   346   88   2,110   —   2,110 
Non-current assets classified as held for sale  21   258   —   —   279   —   279 
                      
   710   1,245   346   88   2,389   —   2,389 
                      
Unallocated assets:                            
 Current tax receivable                  22   —   22 
 Cash and cash equivalents                  324   —   324 
                      
Total assets
                  2,735   —   2,735 
                      
 
Segment liabilities  340   261   50   —   651   —   651 
Liabilities classified as held for sale  1   33   —   —   34   —   34 
                      
   341   294   50   —   685   —   685 
                      
Unallocated liabilities:                            
 Current tax payable                  324   —   324 
 Deferred tax payable                  210   —   210 
 Loans and other borrowings                  412   —   412 
                      
Total liabilities
                  1,631   —   1,631 
                      

F-22

Other segmental information
                               
      Asia   Total Soft Total
  Americas EMEA Pacific Central Hotels Drinks Group
               
  (£ million)
Continuing operations:                            
 
Capital expenditure(i)
  22   19   28   13   82   —   82 
 Additions to:                            
  Property, plant and equipment  12   15   30   6   63   —   63 
  Intangible assets  27   51   9   7   94   —   94 
 
Depreciation and amortization(ii)
  19   15   8   15   57   —   57 
 Impairment of property, plant and equipment  —   7   —   —   7   —   7 
Discontinued operations:                            
 
Capital expenditure(i)
  6   44   4   —   54   47   101 
 Additions to:                            
  Property, plant and equipment  4   33   4   —   41   36   77 
  Intangible assets  —   —   —   —   —   7   7 
 
Depreciation and amortization(ii)
  1   24   3   —   28   45   73 
*Other than for Soft Drinks which reflects the 50 weeks and three days ended December 14.
(i)Comprises purchases of property, plant and equipment, intangible assets and other financial assets and acquisitions of subsidiaries as included in the cash flow statement.
(ii)Included in the £130 million of depreciation and amortization is £23 million relating to administrative expenses and £107 million relating to cost of sales.


F-25

Year ended December 31, 2004**
Revenue
                      
      Asia   Total
  Americas EMEA Pacific Central Hotels
           
  (£ million)
Hotels
                    
 Owned and leased  80   116   50   —   246 
 Managed  30   43   21   —   94 
 Franchised  196   27   3   —   226 
 Central  —   —   —   40   40 
                
 Continuing operations  306   186   74   40   606 
 Discontinued operations — owned and leased  189   643   60   —   892 
                
   495   829   134   40   1,498 
                
              
  Continuing Discontinued Group
       
  (£ million)
Group
            
 Hotels  731   767   1,498 
 Soft Drinks  —   706   706 
          
Total revenue
  731   1,473   2,204 
          

F-23

     Segmental result
                      
      Asia   Total
  Americas EMEA Pacific Central Hotels
           
  (£ million)
Hotels
                    
 Owned and leased  3   (11)  9   —   1 
 Managed  6   24   14   —   44 
 Franchised  167   21   2   —   190 
 Regional and central  (27)  (23)  (8)  (57)  (115)
                
 Continuing operations  149   11   17   (57)  120 
 Discontinued operations — owned and leased  24   118   7   —   149 
                
   173   129   24   (57)  269 
                
Year ended December 31, 2004**
              
  Continuing Discontinued Group
       
  (£ million)
Group
            
 Hotels  120   149   269 
 Soft Drinks  —   77   77 
          
   120   226   346 
Other operating income and expenses  (49)  —   (49)
          
Operating profit
  71   226   297 
Net finance costs  (33)  —   (33)
          
Profit before tax  38   226   264 
Tax  196   (69)  127 
          
Profit after tax  234   157   391 
Gain on disposal of assets, net of tax  —   19   19 
          
Profit available for shareholders
  234   176   410 
          
** Other than for Soft Drinks which reflects the 53 weeks ended December 25.

F-24

     Assets and liabilities
                              
      Asia   Total Soft Total
  Americas EMEA Pacific Central Hotels Drinks Group
               
  (£ million)
Segment assets  583   1,202   437   86   2,308   458   2,766 
Non-current assets classified as held for sale  424   1,402   —   —   1,826   —   1,826 
                      
   1,007   2,604   437   86   4,134   458   4,592 
                      
Unallocated assets:                            
 Current tax receivable                  14   —   14 
 Cash and cash equivalents                  60   12   72 
                      
Total assets
                  4,208   470   4,678 
                      
Segment liabilities  300   290   28   —   618   291   909 
Liabilities classified as held for sale  24   124   —   —   148   —   148 
                      
   324   414   28   —   766   291   1,057 
                      
Unallocated liabilities:                            
 Current tax payable                  248   13   261 
 Deferred tax payable                  246   (12)  234 
 Loans and other borrowings                  1,185   3   1,188 
                      
Total liabilities
                  2,445   295   2,740 
                      
Year ended December 31, 2004**
     Other segmental information
                               
      Asia   Total Soft Total
  Americas EMEA Pacific Central Hotels Drinks Group
               
  (£ million)
Continuing operations:                            
 
Capital expenditure(i)
  43   14   15   12   84   —   84 
 Additions to:                            
  Property, plant and equipment  32   16   10   —   58   —   58 
  Intangible assets  4   —   1   12   17   —   17 
 
Depreciation and amortization(ii)
  11   14   6   15   46   —   46 
 Impairment of property, plant and equipment  14   30   4   —   48   —   48 
Discontinued operations:                            
 
Capital expenditure(i)
  17   81   5   —   103   70   173 
 Additions to:                            
  Property, plant and equipment  17   81   5   —   103   56   159 
  Intangible assets  —   —   —   —   —   16   16 
 
Depreciation and amortization(ii)
  18   56   7   —   81   46   127 
**Other than for Soft Drinks which reflects the 53 weeks ended December 25.
(i)Comprises purchases of property, plant and equipment, intangible assets and other financial assets of subsidiaries as included in the cash flow statement.
(ii)Included in the £173 million of depreciation and amortization is £23 million relating to administrative expenses and £150 million relating to cost of sales.

F-25

Note 3 —Staff costs and Directors’ emoluments
Costs
              
  Year ended Year ended Year ended
  December 31, December 31, December 31,
  2006 2005 2004
       
  (£ million)
Wages and salaries  301   465   570 
Social security costs  38   61   66 
Pension and other post-retirement benefits:            
 Defined benefit plans  6   19   21 
 Defined contribution plans  11   15   12 
          
   356   560   669 
          
Employee numbers
 
Staff
             
  Year ended December 31, 
  2007  2006  2005 
  (£ million) 
 
Costs:            
Wages and salaries  292   301   465 
Social security costs  31   38   61 
Pension and other post-retirement benefits:            
Defined benefit plans  4   6   19 
Defined contribution plans  12   11   15 
             
   339   356   560 
             
Employee numbers
Average number of employees, including part-time employees:
             
  Year ended Year ended Year ended
  December 31, December 31, December 31,
  2006 2005 2004
       
  (Number)
Hotels  11,456   18,995   26,835 
Soft Drinks  —   2,991   2,824 
          
   11,456   21,986   29,659 
          
             
  Year ended December 31, 
  2007  2006  2005 
  (Number) 
 
Americas  3,761   3,771   5,832 
EMEA  2,739   4,437   10,477 
Asia Pacific  2,716   2,225   1,737 
Central  1,150   1,023   949 
             
Hotels  10,366   11,456   18,995 
Soft Drinks  —   —   2,991 
             
   10,366   11,456   21,986 
             
Employee benefits
 
Retirement benefits
Retirement and death in service benefits are provided for eligible employees in the United Kingdom principally by the InterContinental Hotels UK Pension Plan. The plan, which is funded and HM Revenue & Customs registered covers approximately 440 (2006 410, (20052005 400) employees, of which 200 (2006 220, (20052005 240) are in the defined benefit section which provides pensions based on final salaries and 240 (2006 190, (20052005 160) are in the defined contribution section. The deferred benefit section of the plan closed to new entrants during 2002 with new members provided with defined contribution arrangements The assets of the plan are held in self-administered trust funds separate from the Company’s assets. In addition, there are unfunded UK pension arrangements for certain members affected by the lifetime allowance. The Company also maintains athe following US-based deferred benefit plans; the funded InterContinental Hotels Pension Plan, unfunded InterContinental Hotels non-qualified pension plans and post-employment benefits scheme. This plan isschemes. These plans are now closed to new members and pensionable service no longer accrues for current employee members. In addition, theThe Company also operates a number of minor pension schemes outside the United Kingdom, the most significant of which is a defined contribution scheme in the United States; there is no material difference between the pension costs of, and contributions to, those schemes.
 
On December 14, 2005, the Soft Drinks business, including the Britvic Pension Plan, was sold. The comparative information provided below includes movements for the Britvic Pension Plan up to the date of disposal.


F-26

F-26

The amounts recognized in the consolidated income statement in respect of the defined benefit plans are:
                                                 
  Pension plans        
    Post-      
      employment  
  UK US benefits Total
         
Recognized in administrative expenses 2006 2005 2004 2006 2005 2004 2006 2005 2004 2006 2005 2004
                         
  (£ million)
Current service costs  5   19   18   —   —   —   —   —   —   5   19   18 
Past service costs  —   —   1   —   —   —   —   —   —   —   —   1 
Interest cost on benefit obligation  13   30   27   5   6   5   1   1   1   19   37   33 
Expected return on plan assets  (14)  (32)  (27)  (4)  (5)  (4)  —   —   —   (18)  (37)  (31)
                                     
   4   17   19   1   1   1   1   1   1   6   19   21 
                                     
Recognized in other operating income and expense
                                                
                                     
Plan curtailment  —   (7)  —   —   —   —   —   —   —   —   (7)  — 
                                     
                                                 
        Post-
    
  Pension plans  employment
    
  UK  US and other  benefits  Total 
Recognized in administrative expenses
 2007  2006  2005  2007  2006  2005  2007  2006  2005  2007  2006  2005 
  (£ million) 
 
Current service costs  5   5   19   —   —   —   —   —   —   5   5   19 
Interest cost on benefit obligation  15   13   30   5   5   6   1   1   1   21   19   37 
Expected return on plan assets  (17)  (14)  (32)  (5)  (4)  (5)  —   —   —   (22)  (18)  (37)
                                                 
   3   4   17   —   1   1   1   1   1   4   6   19 
                                                 
Recognized in other operating income and expense
                                                
Plan curtailment  —   —   (7)  —   —   —   —   —   —   —   —   (7)
                                                 
The curtailment gain arose as a result of the sale of 73 UKUnited Kingdom hotel properties.
 
The amounts recognized in the consolidated statement of recognized income and expense are:
                                                 
  Pension plans            
           
      Post-employment  
  UK US benefits Total
         
Actuarial gains and losses 2006 2005 2004 2006 2005 2004 2006 2005 2004 2006 2005 2004
                         
  (£ million)
Actual return on scheme assets  21   79   41   6   4   5   —   —   —   27   83   46 
Less: expected return on scheme assets  (14)  (32)  (27)  (4)  (5)  (4)  —   —   —   (18)  (37)  (31)
                                     
   7   47   14   2   (1)  1   —   —   —   9   46   15 
Other actuarial gains and losses  (12)  (67)  (60)  —   (3)  (5)  1   1   (1)  (11)  (69)  (66)
                                     
   (5)  (20)  (46)  2   (4)  (4)  1   1   (1)  (2)  (23)  (51)
                                     
Deficit transferred in respect of previous acquisition  —   —   (6)  —   —   —   —   —   —   —   —   (6)
                                     
 
                                                 
  Pension plans  Post-employment
    
  UK  US and other  benefits  Total 
Actuarial gains and losses
 2007  2006  2005  2007  2006  2005  2007  2006  2005  2007  2006  2005 
  (£ million) 
 
Actual return on plan assets  14   21   79   5   6   4   —   —   —   19   27   83 
Less: expected return on plan assets  (17)  (14)  (32)  (5)  (4)  (5)  —   —   —   (22)  (18)  (37)
                                                 
   (3)  7   47   —   2   (1)  —   —   —   (3)  9   46 
Other actuarial gains and losses  15   (12)  (67)  —   —   (3)  —   1   1   15   (11)  (69)
                                                 
   12   (5)  (20)  —   2   (4)  —   1   1   12   (2)  (23)
                                                 
The assets and liabilities of the schemes and the amounts recognised in the consolidated balance sheet are:
                                  
  Pension plans      
    Post-    
      employment  
  UK US benefits Total
         
  2006 2005 2006 2005 2006 2005 2006 2005
                 
  (£ million)
Fair value of scheme assets  269   250   56   62   —   —   325   312 
Present value of benefit obligations  (298)  (274)  (89)  (103)  (9)  (11)  (396)  (388)
                         
Employee benefits liability  (29)  (24)  (33)  (41)  (9)  (11)  (71)  (76)
                         
Comprising:                                
 Funded plans  (6)  (2)  (9)  (14)  —   —   (15)  (16)
 Unfunded plans  (23)  (22)  (24)  (27)  (9)  (11)  (56)  (60)
                         
   (29)  (24)  (33)  (41)  (9)  (11)  (71)  (76)
                         
                                 
  Pension plans             
  UK  US and other  Post-employment benefits  Total 
  2007  2006  2007  2006  2007  2006  2007  2006 
           (£ million)          
 
Schemes in surplus
                                
Fair value of plan assets  304   —   7   —   —   —   311   — 
Present value of benefit obligations  (274)  —   (5)  —   —   —   (279)  — 
                                 
Retirement benefit assets  30   —   2   —   —   —   32   — 
                                 
Schemes in deficit
                                
Fair value of plan assets  —   269   65   56   —   —   65   325 
Present value of benefit obligations  (23)  (298)  (87)  (89)  (10)  (9)  (120)  (396)
                                 
Retirement benefit obligations  (23)  (29)  (22)  (33)  (10)  (9)  (55)  (71)
                                 
Total fair value of plan assets  304   269   72   56   —   —   376   325 
                                 
Total present value of benefit obligations  (297)  (298)  (92)  (89)  (10)  (9)  (399)  (396)
                                 
The “US and other” surplus of £2 million relates to a defined benefit pension scheme in Hong Kong.


F-27

F-27

Assumptions
The principal financial assumptions used by the actuaries to determine the benefit obligation were:are:
                                     
  Pension plans      
     
      Post-employment
  UK US benefits
       
  2006 2005 2004 2006 2005 2004 2006 2005 2004
                   
  (%)
Wages and salaries increases  4.6   4.3   4.3   —   —   —   4.0   4.0   4.0 
Pensions increases  3.1   2.8   2.8   —   —   —   —   —   — 
Discount rate  5.0   4.7   5.3   5.8   5.5   5.8   5.8   5.5   5.8 
Inflation rate  3.1   2.8   2.8   —   —   —   —   —   — 
Healthcare cost trend rate assumed for next year                          10.0   9.0   9.5 
Ultimate rate that the cost trend rate trends to                          5.0   4.5   4.5 
 
                                     
  Pension plans          
  UK  US  Post-employment benefits 
  2007  2006  2005  2007  2006  2005  2007  2006  2005 
  (%) 
 
Wages and salaries increases  4.9   4.6   4.3   —   —   —   4.0   4.0   4.0 
Pensions increases  3.4   3.1   2.8   —   —   —   —   —   — 
Discount rate  5.5   5.0   4.7   5.8   5.8   5.5   5.8   5.8   5.5 
Inflation rate  3.4   3.1   2.8   —   —   —   —   —   — 
Healthcare cost trend rate assumed for next year                          10.0   10.0   9.0 
Ultimate rate that the cost trend rate trends to                          5.0   5.0   4.5 
Mortality is the most significant demographic assumption. In 2017respect of the UK plans, the specific mortality rates used are in line with the PA92 medium cohort tables, with age rated down by one year, implying the following life expectancies at retirement. In the US, life expectancy is determined by reference to the RP-2000 healthy tables.
                         
  Pension plans 
  UK  US 
  2007  2006  2005  2007  2006  2005 
  (years) 
 
Current pensioners at 65 — male(i)
  23   23   21   18   18   17 
Current pensioners at 65 — female(i)
  26   26   24   20   20   22 
Future pensioners at 65 — male(ii)
  24   24   22   18   18   17 
Future pensioners at 65 — female(ii)
  27   27   25   20   20   22 
(i)Relates to assumptions based on longevity (in years) following retirement at the balance sheet date.
(ii)Relates to assumptions based on longevity (in years) relating to an employee retiring in 2027.
The assumptions allow for expected increases in longevity.
Sensitivities
The value of scheme assets is sensitive to market conditions, particularly equity value. Changes in assumptions used for determining retirement benefit costs and obligations may have a material impact on the income statement and the balance sheet. The main assumptions are the discount rate, the rate of inflation and the assumed mortality rate. The following table provides an estimate of the potential impacts of each of these variables on the pension plans.
                 
  UK  US 
  Higher/
  Increase/
  Higher/
  Increase/
 
  (lower)
  (decrease)
  (lower)
  (decrease)
 
  pension cost  in liabilities  pension cost  in liabilities 
  (£ million) 
 
Discount rate — 0.25% decrease  0.4   15.6   —   2.4 
Discount rate — 0.25% increase  (0.4)  (14.7)  —   (2.3)
Inflation rate — 0.25% increase  0.9   14.6   —   — 
Inflation rate — 0.25% decrease  (0.9)  (13.8)  —   — 
Mortality rate — one year increase  0.6   6.8   —   2.7 


F-28

In 2018 the healthcare cost trend rate reaches the assumed ultimate rate. A one per centpercentage point increase/(decrease) in assumed healthcare costs trend rate would increase/(decrease) the accumulated post-employment benefit obligations as ofon December 31, 2007, 2006 2005 and 2004,2005, by approximately £1 million and would increase/(decrease) the total of the service and interest cost components of net post-employment healthcare cost for the period then ended by approximately £nil.
                         
  Pension plans
   
  UK US
     
Post-retirement mortality (years) 2006 2005 2004 2006 2005 2004
             
Current pensioners at 65 – male(i)
  23   21   21   18   17   17 
Current pensioners at 65 – female(i)
  26   24   24   20   22   22 
Future pensioners at 65 – male(ii)
  24   22   22   18   17   17 
Future pensioners at 65 – female(ii)
  27   25   25   20   22   22 
 
                                 
     Post-
    
  Pension plans  employment
       
  UK  US and other  benefits  Total 
Movement in benefit obligation
 2007  2006  2007  2006  2007  2006  2007  2006 
  (£ million) 
 
Benefit obligation at beginning of year  298   274   89   103   9   11   396   388 
Current service cost  5   5   —   —   —   —   5   5 
Members’ contributions  1   1   —   —   —   —   1   1 
Interest expense  15   13   5   5   1   1   21   19 
Benefits paid  (7)  (7)  (5)  (6)  (1)  (1)  (13)  (14)
Reclassification(i)  —   —   5   —   —   —   5   — 
Actuarial (gain)/ loss arising in the year  (15)  12   —   —   —   (1)  (15)  11 
Exchange adjustments  —   —   (2)  (13)  1   (1)  (1)  (14)
                                 
Benefit obligation at end of year  297   298   92   89   10   9   399   396 
                                 
Comprising:                                
Funded plans  274   275   70   65   —   —   344   340 
Unfunded plans  23   23   22   24   10   9   55   56 
                                 
   297   298   92   89   10   9   399   396 
                                 
                                 
     Post-
       
  Pension plans  employment
       
  UK  US and other  benefits  Total 
Movement in plan assets
 2007  2006  2007  2006  2007  2006  2007  2006 
  (£ million) 
 
Fair value of plan assets at beginning of year  269   250   56   62   —   —   325   312 
Company contributions  27   4   10   1   1   1   38   6 
Members’ contributions  1   1   —   —   —   —   1   1 
Benefits paid  (7)  (7)  (5)  (6)  (1)  (1)  (13)  (14)
Reclassification(i)  —   —   7   —   —   —   7   — 
Expected return on assets  17   14   5   4   —   —   22   18 
Actuarial (loss)/gain arising in the year  (3)  7   —   2   —   —   (3)  9 
Exchange adjustments  —   —   (1)  (7)  —   —   (1)  (7)
                                 
Fair value of plan assets at end of year  304   269   72   56   —   —   376   325 
                                 
(i)Relates to assumptions based on longevity (in years) following retirement at the balance sheet date.
(ii)Relates to assumptions based on longevity (in years) relating to an employee retiring in 2026.recognition of the gross assets and obligations of the Hong Kong pension scheme.
 The post-retirement mortality assumptions allow for
Normal company contributions are expected increasesto be £8 million in longevity.2008. In addition, the Company has agreed to pay special contributions of £20 million to the UK pension plan; £10 million in 2008 and £10 million in 2009.
                                 
  Pension plans      
    Post-    
      employment  
  UK US benefits Total
         
Movement in benefit obligation 2006 2005 2006 2005 2006 2005 2006 2005
                 
  (£ million)
Benefit obligation at beginning of year  274   600   103   88   11   11   388   699 
Current service cost  5   19   —   —   —   —   5   19 
Past service cost  —   —   —   —   —   —   —   — 
Members’ contributions  1   2   —   —       —   1   2 
Interest expense  13   30   5   6   1   1   19   37 
Benefits paid  (7)  (11)  (6)  (6)  (1)  (1)  (14)  (18)
Plan curtailment  —   (7)  —   —   —   —   —   (7)
Deficit transferred in respect of previous acquisition  —   —   —   —   —   —   —   — 
Actuarial loss/(gain) arising in the year  12   67   —   3   (1)  (1)  11   69 
Separation of Soft Drinks  —   (426)  —   —   —   —   —   (426)
Exchange adjustments  —   —   (13)  12   (1)  1   (14)  13 
                         
Benefit obligation at end of year  298   274   89   103   9   11   396   388 
                         


F-29

F-28

      The defined benefit obligation comprises £340 million (2005 £328 million) arising from plans that are wholly or partly funded and £56 million (2005 £60 million) arising from unfunded plans.
The combined assets of the principal schemesplans and expected rate of return were:are:
                         
  2006 2005 2004
       
  Long-term   Long-term   Long-term  
  rate of   rate of   rate of  
  return   return   return  
  expected Value expected Value expected Value
             
  (%) (£ million) (%) (£ million) (%) (£ million)
UK Schemes
                        
Equities  7.9   128   7.5   125   8.0   272 
Bonds  4.6   123   4.2   110   4.9   173 
Other  7.9   18   7.5   15   8.0   25 
                   
Total market value of assets
      269       250       470 
                   
US Schemes
                        
Equities  9.5   34   9.6   38   9.6   34 
Fixed income  5.5   22   5.5   24   5.5   22 
                   
Total market value of assets
      56       62       56 
                   
 
                         
  2007  2006  2005 
  Long-term
     Long-term
     Long-term
    
  rate of
     rate of
     rate of
    
  return
     return
     return
    
  expected  Value  expected  Value  expected  Value 
  (%)  (£ million)  (%)  (£ million)  (%)  (£ million) 
 
UK pension plans
                        
Equities  7.9   109   7.9   128   7.5   125 
Bonds  4.8   179   4.6   123   4.2   110 
Other  7.9   16   7.9   18   7.5   15 
                         
Total market value of assets
      304       269       250 
                         
US pension plans
                        
Equities  9.5   39   9.5   34   9.6   38 
Fixed income  5.5   26   5.5   22   5.5   24 
                         
Total market value of assets
      65       56       62 
                         
The expected rate of return on assets has been determined following advice from the plans’ independent actuaries and is based on the expected return on each asset class together with consideration of the long-term asset strategy.
                                 
  Pension plans      
    Post-    
      employment  
  UK US benefits Total
         
Movement in benefit obligation 2006 2005 2006 2005 2006 2005 2006 2005
                 
  (£ million)
Fair value of plan assets at beginning of year  250   470   62   56   —   —   312   526 
Company contributions  4   45   1   2   1   1   6   48 
Members’ contributions  1   2   —   —   —   —   1   2 
Assets transferred in respect of previous acquisition  —   —   —   —   —   —   —   — 
Benefits paid  (7)  (11)  (6)  (6)  (1)  (1)  (14)  (18)
Expected return on assets  14   32   4   5   —   —   18   37 
Actuarial gain/(loss) arising in the year  7   47   2   (1)  —   —   9   46 
Separation of Soft Drinks  —   (335)  —   —   —   —   —   (335)
Exchange adjustments  —   —   (7)  6   —   —   (7)  6 
                         
Fair value of plan assets at end of year  269   250   56   62   —   —   325   312 
                         
 Normal company contributions are expected to be £7 million in 2007. In addition, the Company has agreed to pay special contributions of £40 million to the UK Pension Plan; £20 million in 2007, £10 million in 2008 and £10 million in 2009.

F-29

History of experience gains and losses:
                 
UK Pension plans 2006 2005 2004 2003
         
  (£ million)
Fair value of scheme assets  269   250   470   353 
Present value of benefit obligations  (298)  (274)  (600)  (477)
             
Deficit in the scheme  (29)  (24)  (130)  (124)
Experience adjustments arising on plan liabilities  (12)  (67)  (60)    
Experience adjustments arising on plan assets  7   47   14     
                 
US Pension plans 2006 2005 2004 2003
         
  (£ million)
Fair value of scheme assets  56   62   56   48 
Present value of benefit obligations  (89)  (103)  (88)  (91)
             
Deficit in the scheme  (33)  (41)  (32)  (43)
Experience adjustments arising on plan liabilities  —   (3)  (5)    
Experience adjustments arising on plan assets  2   (1)  1     
                 
US Post-employment benefits 2006 2005 2004 2003
         
  (£ million)
Present value of benefit obligations  (9)  (11)  (11)  (11)
Experience adjustments arising on plan liabilities  1   1   (1)    
 
                     
UK pension plans
 2007  2006  2005  2004  2003 
  (£ million) 
 
Fair value of plan assets  304   269   250   470   353 
Present value of benefit obligations  (297)  (298)  (274)  (600)  (477)
                     
Surplus/(deficit) in the plans  7   (29)  (24)  (130)  (124)
Experience adjustments arising on plan liabilities  15   (12)  (67)  (60)    
Experience adjustments arising on plan assets  (3)  7   47   14     
                     
US pension plans
 2007  2006  2005  2004  2003 
  (£ million) 
 
Fair value of plan assets  65   56   62   56   48 
Present value of benefit obligations  (87)  (89)  (103)  (88)  (91)
                     
Deficit in the plans  (22)  (33)  (41)  (32)  (43)
Experience adjustments arising on plan liabilities  —   —   (3)  (5)    
Experience adjustments arising on plan assets  —   2   (1)  1     
                     
US post-employment benefits
 2007  2006  2005  2004  2003 
  (£ million) 
 
Present value of benefit obligations  (10)  (9)  (11)  (11)  (11)
Experience adjustments arising on plan liabilities  —   1   1   (1)    
The cumulative amount of actuarial gains and losses recognized since January 1, 2004 in the consolidated statement of recognized income and expense is £64 million (2006 £76 million, (20052005 £74 million, 2004 £51 million). The Company is unable to determine how much of the pension scheme deficit recognized on transition to IFRS of £178 million and taken directly to total equity is attributable to actuarial gains and losses since inception of the schemes. Therefore, the Company is unable to determine the amount of actuarial gains and losses that would have been recognized in the consolidated statement of recognized income and expense before January 1, 2004.


F-30

Policy on remuneration of Executive Directors and senior executives
Policy on remuneration of Executive Directors and senior executives
 
The following policy has applied throughout the year and, except where stated, will apply in future years, subject to ongoingregular review.
Total level of remuneration
Total level of remuneration
 
The Remuneration Committee aims to ensure that overall remuneration packages areis offered which:
 • attract high qualityattracts high-quality executives in an environment where compensation levels are based on global market practice;
 
 • provideprovides appropriate retention strength against loss of key executives;
 
 • drivedrives aligned focus and attention to key business initiatives and appropriately rewardrewards their achievement;
 
 • supportsupports equitable treatment between members of the same executive team; and
 
 • facilitatefacilitates global assignments and relocation.
 
The Remuneration Committee is aware that, as the Company’s primary listing is on the London Stock Exchange, IHG’s incentive arrangements may be expected to recognize UK investor guidelines. However, given the global nature of the Hotels business, an appropriate balance needs to be drawn in the design of relevant remuneration packages between domestic and international expectations.

F-30

Key developments
During 2007, the Remuneration Committee undertook a major review of the executive remuneration structure. The purpose of the review was to ensure that executive remuneration arrangements are simple, relevant to participants and easily understood.
The review resulted in two main amendments to the executive incentives:
The main components• restructuring of the Short Term Incentive Plan and the Short Term Deferred Incentive Plan into a single plan, renamed the Annual Bonus Plan; and
• a change to the Total Shareholder Return (“TSR”) performance measure linked to the Performance Restricted Share Plan, which has been renamed the Long Term Incentive Plan.
 
Further details of the changes are included in the relevant sections below.
The Remuneration Committee believes that the changes will enhance the effectiveness of the arrangements in support of the aims of attracting, retaining, and motivating high-quality executives in the highly competitive global environment in which the Company hasoperates. The greater simplification introduced will make overall reward more transparent and motivational to executives. The changes to the performance measures are intended to generate a more robust alignment between reward and performance.
The main components
The components of overall reward place a strong emphasis on performance-related reward policies. Thesereward. The individual elements are designed to provide the appropriate balance between fixed remuneration and variable ‘risk’“risk” reward, which is linked to the performance of both the Company and the individual. Company performance-related measures are chosen carefully to ensure a strong link between reward and true underlying financial performance, and emphasis is placed on particular areas requiring executive focus.
 
The normal policy for all Executive Directors is that, using ‘target’“target” or ‘expected value’“expected value” calculations, their performance-related incentives will equate to approximately 70% of total annual remuneration (excluding pensions & benefits).


F-31

The main components of remuneration are as follows:
 
BasicBase salary and benefitsThe salary for each Executive Director is reviewed annuallyannualy and based on both individual performance and on the most recent relevant market information provided from independent professional sources on comparable salary levels. Internal relativities and salary levels in the wider employment market are also taken into account.
Basic Base salary is the only element of remuneration which is pensionable.
 
In addition, benefits are provided to Executive Directors in accordance with the policy applying to other executives in their geographic location.
 
In assessing levels of pay and benefits, IHG compares the packagesanalyzes those offered by different groups of comparator companies. These groups are chosen having regard to participants’:
 • size — turnover, profits and the number of people employed;
 
 • diversity and complexity of businesses;
 
 • geographical spread of businesses; and
 
 • relevance to the hotel industry.
 
Annual Performance BonusThis has  During 2007, and in previous years, the annual performance bonus consisted of two elements, — the Short Term Incentive Plan (“STI”) and the Short Term Deferred Incentive Plan (“STDIP”). Both elements require the achievement of challenging performance goals before target bonus is payable.
 The STI is linked to individual performance as measured by an assessment of comprehensive business unit deliverables, demonstrated leadership behaviours, and the achievement of specific Key Performance Objectives that are linked directly to the Company’s strategic priorities. For Executive Directors, the target
Any bonus opportunityfor 2007 earned under the STI in 2007arrangement is 40% of salary, payable in cash.cash in 2008, based on individual performance relative to personal objectives and leadership competencies.
 The STDIP is linked to the Company’s financial and operational performance. The target
100% of any bonus opportunityearned under the STDIP infor 2007 is 50% of salary of which half is linked to net annual room additions and half is linked to earnings before special items, interest and taxation.
      It is possible for participants to earn maximum bonuses of double the targets under the STI and the STDIP. No bonus is payable if financial and operational performance is less than 90% of target and maximum bonus is payable if performance exceeds 110% of target.
      Under the 2006 STDIP, 80% of bonus must be paidin 2008 in shares and deferred.deferred on a mandatory basis. Participants may defer the remaining 20% of bonus on the same terms. For 2007, 100% of the bonus will be paid incould also receive matching shares and deferred. Matching shares may also be awarded up to half of the total deferred amount. AnyThis matching award iswas taken into account when the Remuneration Committee decidesdecided the basic level of payment under the STDIP. Therefore, there is no separate performance test governing the vesting of matching awards. Such awards are, however, conditional on the Directors’ continued employment with the Company until the release date. The shares will normally be released at the end of the three years following deferral.

F-31

 
For awards to be made in respect of financial year 2008 onwards, the STI and STDIP will be combined, so that all Executive Directors will participate in the Annual Bonus Plan. Cash bonuses will no longer be payable under the STI. Existing powers within the STDIP, renamed the Annual Bonus Plan, will be used to pay both cash and share bonuses. The maximum bonus amount a participant can receive in any one year is 200% of salary. The target award level will be 115% of salary. Half of any bonus earned will be deferred in the form of shares for three years. Matching shares will no longer be awarded. The first cash and share awards will be made under the new arrangements in 2009, in respect of the 2008 financial year.
Awards under the Annual Bonus Plan will be linked to individual performance (30% of total award), Earnings Before Interest and Tax (“EBIT”) (50% of total award) and net annual rooms additions (20% of total award). Individual performance is measured by the achievement of specific Key Performance Restricted SharesObjectives that are linked directly to the Company’s strategic priorities, and an assessment of performance against leadership competencies and behaviours.
Under the financial measure (EBIT), threshold payout is 90% of target performance, with maximum payout at 110% of target. If performance under the financial measure in any year is below threshold, payouts on all other measures are reduced by half.
Long Term Incentive Plan  The Long Term Incentive Plan (“LTIP”) was formerly called the Performance Restricted Share Plan (“PRSP”)Plan. It allows Executive Directors and eligible employees to receive share awards, subject to the satisfaction of a performance condition, set by the Remuneration Committee, which is normally measured over a three-year period. Awards are normally made annuallyannualy and, other than in exceptional circumstances, will not exceed three times annual salary for Executive Directors.


F-32

For the 2006/08 PRSP2007/09 LTIP cycle, performance will be measured by reference to:
 • the increase in IHG’s Total Shareholder Return (“TSR”) over the performance period relative to nine*eight* identified comparator companies: Accor, Hilton Hotels Corp., Choice, Marriott Hotels, Millennium & Copthorne, NH Hotels, Sol Melia, Starwood Hotels and Wyndham Worldwide; and
 
 • the cumulative annual growth in the number of rooms within the IHG systemadjusted Earnings Per Share (“EPS”) over the performance period relative to eight identified comparator companies: Carlson Hospitality Worldwide, Choice, Hilton Hotels Corp., Hyatt Hotels & Resorts, Marriott Hotels, Sol Melia, Starwood Hotels and Wyndham Worldwide.period.
*    Following the delisting of De Vere Group Plc SharesHilton Hotels Corp. shares in September 2006.October 2007.
 
In respect of TSR performance, 10% of the award will be released for the achievement of fifth place within the TSR groupmedian performance and 50% of the award will be released for the achievement of first place only (previously first or second place.place). In respect of rooms growthEPS performance, 10% of the award will be released for the achievement of medianif adjusted EPS growth is 10% per annum and 50% of the award will be released for the achievement of upper quartile growth. if adjusted EPS growth is 20% per annum or more.
Vesting between all stated points will continue to be on a straight line basis which is the simplest and fairest method of calculating awards that lie between threshold and maximum levels.
straight-line basis. Awards under the PRSPLTIP lapse if the performance conditions are not met —– there is no retesting.
 As indicated in last year’s report, the Remuneration Committee believes that relative TSR and a rooms growth related performance measure are appropriate performance measures, effectively aligning appropriate elements of incentive pay with shareholder interests and the Company’s stated objective of increasing organic growth and the number of rooms in the IHG system.
      The target date for achieving the current rooms growth objective is the end of 2008 and therefore the Remuneration Committee has concluded that a rooms growth related measure is now more appropriately measured and awarded through the annual bonus plan. For the 2007/092008/10 cycle, the performance measures for the PRSPLTIP will therefore be as follows:
 • 50% of the award will continue to be based on IHG’s TSR relative to its peer comparator companies.the Dow Jones World Hotels Index. 10% of the award will be released for the achievement of median growth equal to the index and 50% of the award will be released for the achievementout-performance of first place only (previously first or second place).the index by 8% per annum. Vesting between all stated points will continue to be on a straight line basis.straight-line basis; and
 
 • Thethe other 50% of the award will depend on growth in adjusted earnings per share (“EPS”)EPS over the period. 10% of the award will be released if adjusted EPS growth is 10% per annumfor threshold performance and 50% of the award will be released if adjustedfor superior performance. The Remuneration Committee reviews the EPS growth is 20% per annum or more. Theretargets each year and, at the time of this report, the target had not yet been determined. It will be no adjustmentdisclosed when awards are made in due course. In setting the target, the Remuneration Committee will take into account a range of factors, including IHG’s strategic plans, City analysts’ expectations for any increase inIHG’s performance and for the UK Retail Price Index (“RPI”) because this does not significantly affect IHG’s results.industry as a whole, the historical performance of the industry and FTSE 100 market practice.
 
Executive Share OptionsAs reported last year,  Since 2006, executive share options dohave not presently formformed part of the Company’s remuneration strategy. Details of prior executive share option grants are given in the table onpage F-40.F-39.
 
For options granted in 2004 and 2005, a performance condition has to be met before options can be exercised. For both grants, theThe Company’s adjusted EPS over a three-year period must increase by at least nine percentage points over the increase in RPIthe UK Retail Price Index (“RPI”) for the same period for one-third of the options granted to vest; 12 percentage points over the increase in RPI for the same period for two-thirds of the options granted to vest; and 15 percentage points over the increase in RPI for the same period for the full award to vest.

F-32

 
Share capital  During 2007, no awards or grants over shares were made that would be dilutive of the Company’s ordinary share capital. Current policy is to settle all awards or grants under any of the Company’s share plans with shares purchased in the market, with the exception of a number of options granted before 2005, which are yet to be exercised and settled with the issue of new shares.
Share OwnershipThe Remuneration Committee believes that share ownership by Executive Directors and senior executives strengthens the link between the individual’s personal interest and that of the shareholders.
 
The Executive Directors are expected to hold all shares earned (net of any share sales required to meet personal tax liabilities) from the Company’s remuneration plans while the value of their holding is less than twice their base salary or three times in the case of the Chief Executive.
Policy on external appointments
Policy on external appointments
 
The Company recognizes that its Directors may be invited to become Non-Executive Directors of other companies and that such duties can broaden experience and knowledge, and benefit the business. Executive Directors are, therefore, allowed to accept one Non-Executive appointment (excluding(not including positions where the


F-33

Director is appointed as the Group’s representative), subject to Board approval, as long as this is not likely to lead to a conflict of interest, and to retain the fees received.
 
Andrew Cosslett is Non-Executive Chairman of Duchy Originals Limited, for which he receives no remuneration.
Contracts of service
Contracts of servicea)  
a) Policy
 
The Remuneration Committee’s policy is for Executive Directors to have rolling contracts with a notice period of 12 months. Andrew Cosslett, Richard Hartman, Stevan Porter and Richard Solomons have service agreements with a notice period of 12 months. All new appointments are intended to have12-month notice periods. However, on occasion, to complete an external recruitment successfully, a longer initial period reducing to 12 months may be used, following guidance in the Combined Code.
 
No provisions for compensation for termination following change of control, or for liquidated damages of any kind, are included in the current Directors’ contracts. In the event of any early termination of an Executive Director’s contract, the policy is to seek to minimise any liability.
 
Non-Executive Directors have letters of appointment. David Webster’s appointment as Non-Executive Chairman, effective from January 1, 2004, is subject to six months’ notice. The dates of appointment of the otherNon-Executive Directors are set out on page 58. All other Non-Executive Directors’ appointments and subsequent reappointments are subject to three months’ notice.election andre-election by shareholders.
     b) Directors’ contracts
b)  Directors’ contracts
         
  Contract(1)
 Unexpired term/
Director Unexpired term/
Director
effective date1 notice period
 
Andrew Cosslett  02.03.05   12 months 
Richard Hartman(2)
  04.15.03   6 monthsN/A2
Stevan Porter  04.15.03   12 months 
Richard Solomons  04.15.03   12 months 
 
1 (1)Each of the Executive Directors signed a letter of appointment, effective from completion of the June 2005 capital reorganisationreorganization of the Company on the same terms as their original service agreements.
 
2 (2)Richard Hartman is due to retireretired in September 2007. Having given contractual2007, at which point his rolling contract with 12 months’ notice his unexpired term of office as at the date of this report is six months.expired.
Policy regarding pensions
 
Andrew Cosslett, Richard Solomons and other seniorUK-based employees participate on the same basis in the executive section of the registered InterContinental Hotels UK Pension Plan and, if appropriate, the InterContinental ExecutiveTop-Up Scheme. The latter is an unfunded arrangement, but with appropriate security provided via a fixed charge on a hotel asset. Currently, pensions benefits are provided from both the registered InterContinental Hotels UK Pension Plan and the unfunded InterContinental Executive Top-Up Scheme.

F-33

      In response to the new pension regime resulting from the Finance Act 2004, from 2006 these plans were amended to continue to provide, tax efficiently, similar benefits in total, but with a different split of benefits between the two plans. As an alternative to these arrangements, a cash allowance may be taken.
 
Stevan Porter and seniorUS-based executives participate in US retirement benefits plans.
 
With effect from January 30, 2006, Richard Hartman ceased to be an active member of the InterContinental Hotels UK Pension Plan and InterContinental Executive Top-Up Scheme, and from that date participatesup to his retirement on September 25, 2007, he participated in the InterContinental Hotels Group International Savings and Retirement Plan.
Executives in other countries participate in these plans or local plans.
Policy on remuneration of Non-Executive Directors
Non-Executive Directors are paid a fee which is approved by the Board on the recommendation of the Executive Directors, having taken account of the fees paid in other companies of a similar complexity, and the skills and experience of the individual. Higher fees are payable to the Chairman of the Remuneration Committee and to


F-34

the Senior Independent Director, who chairs the Audit Committee, reflecting the additional responsibilities of these roles.
Non-Executive Directors’ fee levels were last established by the Board on January 1, 2007. Having taken into account the global nature, scale and complexity of the Company’s business, and current competitive fee levels, the following annual fee rates apply:
Role
Fee
Chairman£390,000
Senior Independent Director & Chairman of Audit Committee£95,000
Chairman of Remuneration Committee£80,000
Other Non-Executive Directors£60,000
Directors’ emoluments
                     
           Total emoluments excluding pensions 
  Base salaries
  Performance
     Jan 1, 2007 to
  Jan 1, 2006 to
 
  and fees  payments(1)  Benefits(2)  Dec 31, 2007  Dec 31, 2006 
  (£ thousands) 
Executive Directors
                    
Andrew Cosslett  732   519   25   1,276   1,268 
Richard Hartman(3)
  398   201   247   846   1,005 
Stevan Porter(4)
  416   253   8   677   726 
Richard Solomons  468   285   18   771   806 
Non-Executive Directors
                    
David Webster  390   —   2   392   354 
David Kappler  95   —   —   95   80 
Ralph Kugler(5)
  60   —   —   60   50 
Jennifer Laing  60   —   —   60   50 
Robert C Larson  60   —   —   60   50 
Jonathan Linen  60   —   —   60   50 
Sir David Prosser  80   —   —   80   65 
Sir Howard Stringer(6)
  —   —   —   —   43 
Ying Yeh(7)
  5   —   —   5   — 
Former Directors(8)
  —   —   1   1   1 
                     
Total  2,824   1,258   301   4,383   4,548 
                     
Directors’ emoluments
                     
        Total emoluments
        excluding pensions
  Base      
  salaries Performance   1.1.06 to 1.1.05 to
  and fees payments1 Benefits2 12.31.06 12.31.05
           
  £000 £000 £000 £000 £000
Executive Directors
                    
Andrew Cosslett  688   549   31   1,268   663 
Richard Hartman  503   203   299   1,005   798 
Stevan Porter3
  427   290   9   726   429 
Richard Solomons  440   351   15   806   423 
Non-executive Directors
                    
David Webster4
  350   —   4   354   522 
David Kappler5
  80   —   —   80   80 
Ralph Kugler6
  50   —   —   50   50 
Jennifer Laing6
  50   —   —   50   18 
Robert C. Larson6
  50   —   —   50   50 
Jonathan Linen6
  50   —   —   50   4 
Sir David Prosser7
  65   —   —   65   65 
Sir Howard Stringer8
  43   —   —   43   50 
Former directors9
  —   —   1   1   917 
                
Total  2,796   1,393   359   4,548   4,069 
                
1 (1)“Performance payments”payments include bonus awards in cash in respect of participation in the Short Term Incentive Plan (“STI”) Plan and the Short Term Deferred Incentive Plan (“STDIP”) but exclude bonus awards in deferred shares and any matching shares, details of which are set out in the STDIP table onpage F-36.
 
2 (2)“Benefits”Benefits incorporate all tax assessable benefits arising from the individual’s employment. For Messrs Cosslett, Hartman and Solomons, this relates in the main to the provision of a fully expensed company car and private healthcare cover. In addition, Mr.Mr Hartman received housing, child education and other expatriate benefits. For Stevan Porter, benefits relate in the main to private healthcare cover and financial counselling.
 
3 (3)Richard Hartman retired as a Director on September 25, 2007.
(4)Emoluments for Stevan Porter include £51,413£79,051 that was chargeable to UK income tax.
 
4 (5)With effect from January 1, 2007, David Webster is paid an annual fee of £390,000.
5 With effect from January 1, 2007, David Kappler is paid a total annual fee of £95,000, reflecting his roles as Senior Independent Director and Chairman of the Audit Committee.
6 With effect from January 1, 2007, an annual fee of £60,000 is payable to each of Ralph Kugler, Jennifer Laing, Robert C. Larson and Jonathan Linen. All fees due to Ralph Kugler arewere paid to Unilever.
 
7 (6)With effect from January 1, 2007, Sir David Prosser is paid a total annual fee of £80,000, reflecting his role as Chairman of the Remuneration Committee.
8 Sir Howard Stringer resigned as a Director on November 10, 2006.
 
9 (7)Ying Yeh was appointed as a Director on December 1, 2007.
(8)Sir Ian Prosser retired as a Director on December 31, 2003. However, he had an ongoing healthcare benefit of £1,027£1,150 during the year.


F-35

F-34

Long-term Reward
     Short-TermLong-term reward
Short Term Deferred Incentive Plan (“STDIP”) — now called the Annual Bonus Plan
 
Messrs Cosslett, Hartman, Porter and Solomons participated in the STDIP during the year ended December 31, 2006,2007, and received an award on February 26, 2007.
25, 2008. Directors’ pre-tax interests during the year were:
                                             
    STDIP     STDIP           Value
    shares awarded   Market shares vested   Market       based on
  STDIP during the   price per during the   price per   STDIP   share price
  shares held year 1.1.06 to Award share at year 1.1.06 Vesting share at Value at shares held Planned of 1262.0p
  at 1.1.06 12.31.06 date award to 12.31.06 date vesting vesting at 12.31.06 vesting date at 12.31.06
                       
                £     £
Directors
                                            
Andrew Cosslett  39,9161      4.1.05   617.5p   39,916   4.3.06   942p   376,009   —         
   39,9161      4.1.05   617.5p                   39,916   4.1.07   503,740 
       105,2763,7  3.8.06   853.67p                   32,168   3.8.07   405,961 
                                   32,167   3.8.08   405,948 
                                   32,168   3.8.09   405,961 
                                  
Total
                                  136,419       1,721,610 
                                  
Richard Hartman  29,4472      3.16.05   654p   29,447   3.16.06   891.58p   262,544   —         
   29,4472      3.16.05   654p                   29,447   3.16.07   371,622 
   29,4472      3.16.05   654p                   29,447   3.16.08   371,622 
       64,5184,7  3.8.06   853.67p                   19,714   3.8.07   248,791 
                                   19,714   3.8.08   248,791 
                                   19,713   3.8.09   248,779 
                                             
Total
                                  118,035       1,489,605 
                                  
Stevan Porter  26,9782      3.16.05   654p   26,978   3.16.06   891.58p   240,5308  —         
   26,9782      3.16.05   654p                   26,978   3.16.07   340,463 
   26,9782      3.16.05   654p                   26,978   3.16.08   340,463 
       67,5575,7  3.8.06   853.67p                   20,643   3.8.07   260,515 
                                   20,642   3.8.08   260,503 
                                   20,642   3.8.09   260,503 
                                  
Total
                                  115,883       1,462,447 
                                  
Richard Solomons  29,0202      3.16.05   654p   29,020   3.16.06   891.58p   258,737   —         
   29,0202      3.16.05   654p                   29,020   3.16.07   366,233 
   29,0212      3.16.05   654p                   29,021   3.16.08   366,246 
       67,2966,7  3.8.06   853.67p                   20,563   3.8.07   259,506 
                                   20,562   3.8.08   259,493 
                                   20,563   3.8.09   259,506 
                                             
Total
                                  119,729       1,510,984 
                                  
 
                                             
                                Value
 
                                based on
 
     STDIP shares
        STDIP shares
                 share
 
     awarded
     Market
  vested
     Market
     STDIP
     price of
 
     during
     price
  during
     price
     shares
     884.0 pence
 
  STDIP shares
  the year
     per share
  the year
     per share
  Value
  held at
  Planned
  at Dec 31,
 
  held at
  Jan 1, 2007
  Award
  at award
  Jan 1, 2007 to
  Vesting
  at vesting
  at vesting
  Dec 31,
  vesting
  2007
 
Directors Jan 1, 2007  to Dec 31, 2007  date  (pence)  Dec 31, 2007  date  (pence)  (£)  2007  date  (£) 
Andrew Cosslett  39,916(1)      4.1.05   617.5   39,916   4.1.07   1260.0   502,942   —         
   32,168(3)      3.8.06   853.67   32,168   3.8.07   1239.6   398,755   —         
   32,167(3),(8)      3.8.06   853.67                   28,877   3.8.08   255,273 
   32,168(3),(8)      3.8.06   853.67                   28,878   3.8.09   255,282 
       62,575(4),(8),(9)  2.26.07   1235                   55,870   2.26.10   493,891 
                                             
Total                                  113,625       1,004,446 
                                             
Richard Hartman  29,447(2)      3.16.05   653.67   29,447   3.16.07   1210.5   356,456   —         
   29,447(2)      3.16.05   653.67                   29,447   3.16.08   260,312 
   19,714(3)      3.8.06   853.67   19,714   3.8.07   1239.6   244,375   —         
   19,714(3),(8)      3.8.06   853.67                   17,698   3.8.08   156,451 
   19,713(3),(8)      3.8.06   853.67                   17,696   3.8.09   156,433 
       51,281(5),(9)  2.26.07   1235                   51,281   2.26.10   453,325 
                                             
Total                                  116,122       1,026,521 
                                             
Stevan Porter  26,978(2)      3.16.05   653.67   26,978   3.16.07   1210.5   326,569(10)  —         
   26,978(2)      3.16.05   653.67                   26,978   3.16.08   238,486 
   20,643(3)      3.8.06   853.67   20,643   3.8.07   1239.6   255,891(10)  —         
   20,642(3),(8)      3.8.06   853.67                   18,531   3.8.08   163,815 
   20,642(3),(8)      3.8.06   853.67                   18,530   3.8.09   163,806 
       33,352(6),(8),(9)  2.26.07   1235                   29,778   2.26.10   263,238 
                                             
Total                                  93,817       829,345 
                                             
Richard Solomons  29,020(2)      3.16.05   653.67   29,020   3.16.07   1210.5   351,287   —         
   29,021(2)      3.16.05   653.67                   29,021   3.16.08   256,546 
   20,563(3)      3.8.06   853.67   20,563   3.8.07   1239.6   254,899   —         
   20,562(3),(8)      3.8.06   853.67                   18,459   3.8.08   163,178 
   20,563(3),(8)      3.8.06   853.67                   18,459   3.8.09   163,178 
       40,048(7),(8),(9)  2.26.07   1235                   35,757   2.26.10   316,092 
                                             
Total                                  101,696       898,994 
                                             
1 (1)This special award was made to Andrew Cosslett as part of his overall recruitment terms. The shares were to vest in equal portions on the first and second anniversary of the award date, subject to his continued employment until that time. The firstsecond half of the award vested on April 3, 2006 and the second half of the award is due to vest on April 2,1, 2007.
 
2 (2)This award was based on financial year 2004 performance where the performance measures were related to earnings per share (“EPS”), earnings before interest and tax (“EBIT”) and personal performance. Total Sharesshares held include matching shares.
 
3 (3)This award was based on financial year 2005 performance where the performance measures were related to EPS, EBIT and personal performance. Total shares held include matching shares.
(4)This award was based on financial year 2006 performance and the bonus target was 50% of base salary. Andrew Cosslett was awarded 70% of his bonus target50% for EPS performance 69.4% of his bonus targetand 42% for Group EBIT performance and 45% of his bonus target for his personal performance. Andrew Cosslett’s total bonus was therefore 184.4%92% of his bonus target.base salary. One matching share was awarded for every two bonus shares earned.
 
4 (5)This award was based on financial year 20052006 performance and the bonus target was 50% of base salary. Richard Hartman was awarded 70% of his bonus target50% for EPS performance 46.2% of his bonus targetand 34.3% for EMEA EBIT performance and 30% of his bonus target for

F-35

his personal performance. Richard Hartman’s total bonus was therefore 146.2%84.3% of his base salary. One matching share was awarded for every two bonus target.shares earned.


F-36

(6)This award was based on financial year 2006 performance and the bonus target was 50% of base salary. Stevan Porter was awarded 50% for EPS performance and 33.8% for Americas EBIT performance. Stevan Porter’s total bonus was therefore 83.8% of his base salary. One matching share was awarded for every two bonus shares earned.
 
5 (7)This award was based on financial year 20052006 performance and the bonus target was 50% of base salary. Stevan PorterRichard Solomons was awarded 70% of his bonus target50% for EPS performance 64.4% of his bonus targetand 42% for The AmericasGroup EBIT performance and 45% of his bonus target for his personal performance. Stevan Porter’sRichard Solomons’ total bonus was therefore 179.4%92% of his bonus target.base salary. One matching share was awarded for every two bonus shares earned.
 
6 (8)This award was based on financial year 2005 performance and the bonus target was 50% of base salary. Richard Solomons was awarded 70% of his bonus target for EPS performance, 69.4% of his bonus target for Group EBIT performance and 45% of his bonus target for his personal performance. Richard Solomons’ total bonus was therefore 184.4% of his bonus target. One matching share was awarded for every two bonus shares earned.
7 TheseA proportion of these share interests were in InterContinental Hotels Group PLC 10p113/7 pence ordinary shares priorwhich were subject to the share consolidation effective from June 12, 2006.4, 2007. For every eight56 existing InterContinental Hotels Group PLC shares held on June 9, 2006,1, 2007, shareholders received seven47 new ordinary shares of 1113329/747p pence each and 118pa special dividend of 200 pence per existing ordinary share. As a consequence, shares held at December 31, 20062007 have been reduced accordingly.
 
8 (9)Under the financial year 2006 STDIP, paid in 2007, 80% of the bonus award was paid in shares and deferred for a full three-year period. Participants could also defer the remaining 20% of bonus on the same terms.
(10)The value of Stevan Porter’s shares at vesting includes £17,037£67,953 that was chargeable to UK income tax.


F-37

F-36

Long Term Incentive Plan (“LTIP”) — previously called the Performance Restricted Share Plan (“PRSP”)
 
In 2006,2007, there were three cycles in operation and one cycle which vested.
 
The awards made in respect of the Performance Restricted Share Plan cycles ending on December 31, 2005, December 31, 2006, December 31, 2007, 2008 and December 31, 20082009 and the maximum pre-tax number of ordinary shares due if performance targettargets are achieved in full are set out in the table below. In respect of the cycle ending on December 31, 2006,2007, the Company finished in thirdfourth place in the TSR group and achieved ROCEa relative cumulative annual rooms growth (“CAGR”) of 98.2%3.1%. Accordingly, 62.4%55.3% of the award vested on February 21, 2007.20, 2008.
                                             
    Maximum                  
    PRSP     PRSP            
    shares     shares         Maximum Expected
  Maximum awarded     vested       Maximum value based value
  PRSP during   Market during Market   Actual/ PRSP on share based on
  shares the year   price per the year price per   planned shares price of share price
  held at 1.1.06 to Award share at 1.1.06 to share at Value at vesting held at 1262.0p at of 1262.0p
  1.1.06 12.31.06 date award 12.31.06 vesting vesting date 12.31.06 12.31.06 at 12.31.06
                       
              £     £ £
Directors
                                            
Andrew Cosslett  68,2161      4.1.05   617.5p   29,196   858p   250,502   3.3.06   —         
   136,4322      4.1.05   617.5p   —           2.21.07   136,432   1,721,772   1,074,3868
   276,2003      6.29.05   706p   —           2.20.08   276,200   3,485,644     
       200,7404  4.3.06   941.5p   —           2.18.09   200,740   2,533,339     
                                  
Total
                                  613,372   7,740,755     
                                  
Richard Hartman  167,9001      6.18.03   445p   71,861   858p   616,567   3.3.06   —         
   165,1302      6.24.04   549.5p   —           2.21.07   165,130   2,083,941   1,300,3808
   214,8703      6.29.05   706p   —           2.20.08   214,870   2,711,660     
       146,1104  4.3.06   941.5p   —           2.18.09   146,110   1,843,909     
                                  
Total
                                  526,110   6,639,510     
                                  
Stevan Porter  170,7101      6.18.03   445p   73,063   858p   626,8817  3.3.06   —         
   142,2902      6.24.04   549.5p   —           2.21.07   142,290   1,795,700   1,120,5178
   174,9003      6.29.05   706p   —           2.20.08   174,900   2,207,238     
       132,2404  4.3.06   941.5p   —           2.18.09   132,240   1,668,869     
                                  
Total
                                  449,430   5,671,807     
                                  
Richard Solomons  165,1601      6.18.03   445p   70,688   858p   606,503   3.3.06   —         
   144,9902      6.24.04   549.5p   —           2.21.07   144,990   1,829,774   1,141,7798
   176,5503      6.29.05   706p   —           2.20.08   176,550   2,228,061     
       128,4704  4.3.06   941.5p   —           2.18.09   128,470   1,621,292     
                                  
Total
                                  450,010   5,679,127     
                                  
Former Directors
                                            
Richard North  259,5451,5      6.18.03   445p   111,085   858p   953,109   3.3.06   —         
   144,9932,5      6.24.04   549.5p   —           2.21.07   144,993   1,829,812   1,141,8038
                                  
Total
                                  144,993   1,829,812     
                                  
Sir Ian Prosser  65,4101,6      6.18.03   445p   27,995   858p   240,197   3.3.06   —         
                                  
Total
  —                               —         
                                  
Total
                                      27,561,011     
                                  
 
                                             
                             Maximum
  Expected
 
     Maximum
        LTIP shares
              value
  value
 
     LTIP shares
        vested
              based on
  based on
 
     awarded
        during
              share
  share
 
     during
     Market
  the year
  Market
        Maximum
  price of
  price of
 
  Maximum
  the year
     price
  Jan 1, 2007
  price
     Actual/
  LTIP shares
  884.0 pence
  884.0 pence
 
  LTIP shares
  Jan 1, 2007
     per share
  to
  per share
  Value
  planned
  held at
  at Dec 31,
  at Dec 31,
 
  held at
  to Dec 31,
  Award
  at award
  Dec 31,
  at vesting
  at vesting
  vesting
  Dec 31,
  2007
  2007
 
Directors Jan 1, 2007  2007  date  (pence)  2007  (pence)  (£)  date  2007  (£)  (£) 
Andrew Cosslett  136,432(1)      4.1.05   617.5   85,133   1249   1,063,311   2.21.07   —         
   276,200(2)      6.29.05   706   —           2.20.08   276,200   2,441,608   1,350,010(8)
   200,740(3)      4.3.06   941.5   —           2.18.09   200,740   1,774,542     
       159,506(4)  4.2.07   1256   —           2.17.10   159,506   1,410,034     
                                             
Total                                  636,446   5,626,184     
                                             
Richard Hartman  165,130(1)      6.24.04   549.5   103,041   1249   1,286,982   2.21.07   —         
   214,870(2)      6.29.05   706   —           2.20.08   196,964(5)  1,741,162   962,863(8)
   146,110(3)      4.3.06   941.5   —           2.18.09   85,230(5)  753,434     
       113,731(4)  4.2.07   1256   —           2.17.10   28,432(5)  251,339     
                                             
Total                                  310,626   2,745,935     
                                             
Stevan Porter  142,290(1)      6.24.04   549.5   88,788   1249   1,108,962(6)  2.21.07   —         
   174,900(2)      6.29.05   706   —           2.20.08   174,900   1,546,116   855,003(8)
   132,240(3)      4.3.06   941.5   —           2.18.09   132,240   1,169,002     
       92,667(4)  4.2.07   1256   —           2.17.10   92,667   819,177     
                                             
Total                                  399,807   3,534,295     
                                             
Richard Solomons  144,990(1)      6.24.04   549.5   90,473   1249   1,130,008   2.21.07   —         
   176,550(2)      6.29.05   706   —           2.20.08   176,550   1,560,702   863,069(8)
   128,470(3)      4.3.06   941.5   —           2.18.09   128,470   1,135,675     
       102,109(4)  4.2.07   1256   —           2.17.10   102,109   902,644     
                                             
Total                                  407,129   3,599,021     
                                             
Former Directors                                            
Richard North  144,993(1),(7)      6.24.04   549.5   90,475   1249   1,130,033   2.21.07   —         
                                             
Total                                  —         
                                             
1 (1)This award was based on performance to December 31, 20052006 where the performance measure related to both the Company’s Total Shareholder Return (“TSR”)TSR against a group of 11eight other comparator companies and growth in return on capital employed (“ROCE”). The number of shares released was graded, according to a) where the Company finished in the TSR comparator group, with 50% of the award being released for first or second position and 10% of the award being released for sixth place, and b) growth in ROCE, with 50%

F-37

of the award being released for 80% growth and 10% of the award being released for 30% growth. The Company finished in fifth place in the TSR group and achieved ROCE growth of 46%. Accordingly 42.8% of the award vested on March 3, 2006.
2 This award is based on performance to December 31, 2006 where the performance measure relates to both the Company’s TSR against a group of eight other comparator companies and growth in ROCE. The number of shares released is graded, according to a) where the Company finishes in the TSR comparator group, with 50% of the award being released for first or second position and 10% of the award being released for fifth place; and b) growth in ROCE, with 50% of the award being released for 141.6% growth and 10% of the award being released for 70% growth.
3 This award is based on performance to December 31, 2007 where the performance measure relates to both the Company’s TSR against a group of eight other comparator companies and the relative cumulative annual growth rate of rooms in the IHG system.
4 This award is based on performance to December 31, 2008 where the performance measure relates to both the Company’s TSR against a group of nine other comparator companies and the relative cumulative annual growth of rooms in the IHG system.
5 Richard North’s awards were pro-rated to reflect his contractual service during the applicable performance periods.
6 Sir Ian Prosser’s award was pro-rated to reflect his actual service during the applicable performance period.
7 The value of Stevan Porter’s shares at vesting includes £44,404 that was chargeable to UK income tax.
8 The Company finished in third place in the TSR group and achieved ROCE growth of 98.2%. Accordingly, 62.4% of the award vested on February 21, 2007.
(2)This award is based on performance to December 31, 2007 where the performance measure relates to both the Company’s TSR against a group of seven other comparator companies and the cumulative annual growth rate (“CAGR”) of rooms in the IHG system relative to a group of five other comparator companies. The number of shares released is graded, according to a) where the Company finished in the TSR comparator group, with 50% of the award being released for first or second position and 10% of the award being released for median position; and b) relative CAGR with 50% of the award being released for 3.4% (upper quartile) CAGR and 10% of the award being released for 2.4% (median) CAGR.


F-38

F-38

(3)This award is based on performance to December 31, 2008 where the performance measure relates to both the Company’s TSR against a group of eight other comparator companies and the relative CAGR of rooms in the IHG system.
(4)This award is based on performance to December 31, 2009 where the performance measure relates to both the Company’s TSR against a group of eight other comparator companies and the compound annual growth rate in earnings per share (“EPS”) over the performance period.
(5)Richard Hartman’s awards were pro-rated to reflect his contractual service during the applicable performance periods.
(6)The value of Stevan Porter’s shares at vesting includes £129,378 that was chargeable to UK income tax.
(7)Richard North’s award was pro-rated to reflect his contractual service during the applicable performance period.
(8)The Company finished in fourth place in the TSR group and achieved CAGR of 3.1%. Accordingly, 55.3% of the award vested on February 20, 2008.
Share options
 In
Between 2003 Directors and other executives with outstanding2005, grants of options were made under the Six ContinentsIHG Executive Share Option Schemes were permitted to roll over thosePlan. No executive share options into options of equivalent value over shares.have been granted since 2005. In 2003, a grant of options was made under the IHG all-employee Sharesave Plan. In 2003, 2004 and 2005, grants of options were made under the IHG Executive Share Option Plan.
                             
  Ordinary shares under option    
    Weighted  
  Options held at Granted Lapsed Exercised Options average  
  1.1.06 or date during the during the during the held at option Option
Directors of appointment year year year 12.31.06 price price
               
            (pence) (pence)
Andrew Cosslett                            
   157,300                   619.83     
                   157,3001        
                      
Total
  157,300   —   —   —   157,300   619.83     
                      
 
Richard Hartman  952,832                   458.66     
               136,795           349.13 
               105,332           422.81 
               122,261           434.22 
               250,684           438.00 
                   337,7601  538.37     
                      
Total
  952,832   —   —   615,072   337,760   538.37     
                      
 
Stevan Porter  576,513                   490.34     
               254,8833          438.00 
                   321,6301  531.82     
                      
Total
  576,513   —   —   254,883   321,630   531.82     
                      
 
Richard Solomons  574,3652                  494.24     
               239,726           438.00 
                   334,6391,2  531.10     
                      
Total
  574,365   —   —   239,726   334,639   531.10     
                      
 
                             
                 Weighted
    
  Ordinary shares under option  average
    
     Granted
  Lapsed
  Exercised
  Options
  option
  Option
 
  Options held
  during
  during
  during
  held at
  price
  price
 
Directors at Jan 1, 2007  the year  the year  the year  Dec 31, 2007  (pence)  (pence) 
Andrew Cosslett  157,300                         
B                  157,300       619.83 
                             
Total  157,300   —   —   —   157,300   619.83     
                             
Richard Hartman  337,760                         
               218,950           494.17 
B                  118,810       619.83 
                             
Total  337,760   —   —   218,950   118,810   619.83     
                             
Stevan Porter  321,630                         
A                  225,260       494.17 
B                  96,370       619.83 
                             
Total  321,630   —   —   —   321,630   531.82     
                             
Richard Solomons  334,639                         
A                  230,320       494.17 
B                  100,550       619.83 
C                  3,769       420.50 
                             
Total  334,639   —   —   —   334,639   531.10     
                             
1 AWhere options are not yet exercisable. Sharesave options granted in 2003 are exercisable for six months from March 2009.at December 31, 2007. Executive share options granted in 2004 are exercisable betweenup to April 2007 and April 2014.
BWhere options are not yet exercisable at December 31, 2007. Executive share options granted in 2005 are exercisable between April 2008 andup to April 2015. The performance condition relating to both the 2004 and 2005 grantsgrant of executive share options is set out onpage F-33.
 
2 CIncludes 3,769 Sharesave options granted in 2003.
3 The value of Stevan Porter’s shares on exercise includes £91,778 that was chargeable to UK income tax. These are exercisable between March and September 2009.
 
Option prices range from 308.48420.50 pence to 619.83 pence per IHG share. The closing market value share price on December 29, 200631, 2007 was 1262.00884.00 pence and the range during the year was 806.69873.50 pence to 1265.001413.00 pence per share.
 The
No serving Director exercised options during the year; therefore there is no disclosable gain on exercise by Directors in aggregate was £6,662,750 infor the year ended December 31, 2006 (£1,658,109 in the year ended December 31, 2005)2007 (2006 £6,662,750).
Richard Hartman was a Director until his retirement on September 25, 2007. He subsequently exercised options at an option price of 494.17 pence per share. The market value share pricesprice on the exercise of options by Richard Hartman, Stevan Porter and Richard Solomons were 1047.34 pence, 946.35 pence and 1054.12was 911.78 pence per share, respectively.share.


F-39

F-39

     Directors’ shareholdings
         
  December 31, 2006 January 1, 20061
  InterContinental Hotels Group PLC InterContinental Hotels Group PLC
  ordinary shares of 113/7 pence3 ordinary shares of 10 pence
     
Executive Directors
        
Andrew Cosslett  42,063   7,332 
Richard Hartman  —   70,117 
Stevan Porter  114,446   64,589 
Richard Solomons  104,247   60,339 
Non-executive Directors
        
David Kappler  1,669   1,908 
Ralph Kugler  572   654 
Jennifer Laing  872   — 
Robert C Larson  6,8742  7,8572
Jonathan Linen  8,7502  — 
Sir David Prosser  2,863   3,273 
David Webster  31,975   31,823 
 
  Directors’ shareholdings
         
  December 31, 2007
  January 1, 2007
 
  InterContinental Hotels Group PLC
  InterContinental Hotels Group PLC
 
  ordinary shares of 1329/47 pence(2)  ordinary shares of 113/7 pence(1) 
Executive Directors
        
Andrew Cosslett  133,101   42,063 
Stevan Porter  168,162   114,446 
Richard Solomons  156,810   104,247 
Non-Executive Directors
        
David Kappler  1,400   1,669 
Ralph Kugler  1,169   572 
Jennifer Laing  1,404   875 
Robert C Larson  10,269(3)  6,874(3)
Jonathan Linen  7,343(3)  8,750(3)
Sir David Prosser  2,402   2,863 
David Webster  31,938   31,975 
Ying Yeh  —   — 
1 (1)These share interests were in InterContinental Hotels Group PLC 10113/7 pence ordinary shares prior to the share consolidation effective from June 12, 2006.4, 2007. For every eight56 existing InterContinental Hotels Group PLC shares held on June 9, 2006,1, 2007, shareholders received seven47 new ordinary shares of 1113329/747 pence each and 118200 pence per existing ordinary share.
 
2 (2)Held in the form of American Depositary Receipts.
3 These shareholdings are all beneficial interests and include shares held by Directors’ spouses and other connected persons. None of the Directors has a beneficial interest in the shares of any subsidiary.
(3)Held in the form of American Depositary Receipts.
 At December 31, 2006, the Executive Directors of the Company, as potential beneficiaries under the Company’s Employee Benefit Trust (the Trust), were each technically deemed to be interested in 1,324,110 unallocated shares held by the Trust (2,924,775 Shares as at December 31, 2005). In the period from December 31, 2006 to March 16, 2007, a further 1,543,646 shares were released from the Trust. The Directors hold a residual interest to 2,410,526 shares in total.
      The Company’s Register of Directors’ Interests, which is open to inspection at the Registered Office, contains full details of Directors’ shareholdings and share options.
Directors’ pensions
 
The following information relates to the pension arrangements provided for Messrs Cosslett, Hartman and Solomons under the executive section of the InterContinental Hotels UK Pension Plan (the “IC(“the IC Plan”) and the unfunded InterContinental ExecutiveTop-Up Scheme (“ICETUS”).
 
The executive section of the IC Plan is a funded, registered, final salary, occupational pension scheme. The main features applicable to the Executive Directors are: a normal pension age of 60; pension accrual of 1/30th1/30th of final pensionable salary for each year of pensionable service; life assurance cover of four times pensionable salary; pensions payable in the event of ill health; and spouses’, partners’ and dependants’ pensions on death. When benefits would otherwise exceed a member’s lifetime allowance under the post-April 2006 pensions regime, these benefits are limited in the IC Plan, but the balance is provided instead by ICETUS.
 
Richard Hartman, who reached the IC Plan normal pension age of 60 on January 30, 2006, ceased to be an active member of the IC Plan and ICETUS with effect from thethat date, and, up to his retirement on September 25, 2007, instead participatesparticipated in the InterContinental Hotels Group International Savings and Retirement Plan (“IS&RP”), which is a Jersey-based defined contribution plan to which the Company contributes.

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Stevan Porter has retirement benefits provided via the 401(k) Retirement Plan for employees of Six Continents Hotels Inc. (“401(k)”) and the Six Continents Hotels Inc. Deferred Compensation Plan (“DCP”).
 
The 401(k) is a tax qualified plan providing benefits on a defined contribution basis, with the member and the relevant company both contributing. The DCP is a non-tax qualified plan, providing benefits on a defined contribution basis, with the member and the relevant company both contributing.


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Directors’ pension benefits
                                 
              Increase/
          
              (decrease) in
          
              transfer value
  Increase/
  Increase/
    
     Directors’
  Transfer value of
  over the year,
  (decrease) in
  (decrease)
  Accrued
 
     contributions
  accrued benefits  less Directors’
  accrued
  in accrued
  pension at
 
  Age at
  in the year(1)
  Jan 1, 2007
  Dec 31, 2007
  contributions
  pension(2)
  pension(3)
  Dec 31, 2007(4)
 
Directors Dec 31, 2007  (£)  (£)  (£)  (£)  (£ pa)  (£ pa)  (£ pa) 
Andrew Cosslett  52   34,400   595,300   1,184,200   554,500   27,100   25,300   70,900 
Richard Hartman  61   —   1,935,400   1,812,600   (122,800)  (19,300)  (23,300)  75,400(5)
Richard Solomons  46   22,000   1,470,500   2,371,600   879,100   24,900   18,700   168,700 
Directors’ pension benefits
                                 
          Increases in      
        transfer value      
      Transfer value over the      
    Directors’ of accrued benefits year, less Increase Increase Accrued
  Age at contributions   Directors’ in accrued in accrued pension at
  12.31.06 in the year 1.1.06 12.31.06 contributions pension pension 12.31.06
                 
      £ £ £      
    (note 1)       (note 2) (note 3) (note 4)
    £       £ pa £ pa £ pa
Directors
                                
Andrew Cosslett  51   28,300   266,900   595,300   300,100   24,200   23,600   43,800 
Richard Hartman  60   1,300   1,848,200   1,935,400   85,900   8,100   5,600   94,700 
Richard Solomons  45   19,500   1,227,100   1,470,200   223,900   24,500   21,000   143,800 
note 1: (1)Contributions paid in the year by the Directors under the terms of the plans. Contributions increased in April 2006 under the new pensions regime, tohave been 5% of full pensionable salary.
 
note 2: (2)The absolute increase or decrease in accrued pension during the year.
 
note 3: (3)The increase or decrease in accrued pension during the year, excluding any increase for inflation, on the basis that increases or decreases to accrued pensions are applied at October 1.
 
note 4: (4)Accrued pension is that which would be paid annuallyannualy on retirement at 60, based on service to December 31, 2006, except that for2007.
(5)When Richard Hartman the figure shown is theretired on September 25, 2007, his pension at age 60, increase to allow for its late payment.was £97,600 per annum pre-commutation. He took a tax-free cash sum of £385,400, leaving a residual pension of £75,400 per annum.
 
The figures shown in the above table relate to the final salary plans only. For defined contribution plans, the contributions made by and in respect of Stevan Porter during the year are:
                   
Director’s contribution to Company’s contribution to
  DCP 401(k)   DCP 401(k)
           
   
  £ £   £ £
Stevan Porter  43,300   6,000  Stevan Porter  80,900   4,900 
   
 
                 
  Director’s contribution to Company contribution to
  DCP
 401(k)
 DCP
 401(k)
  (£) (£) (£) (£)
Stevan Porter  105,000   5,600   74,700   4,500 
The Company contributions made in respect of Richard Hartman to the IS&RP during the year are £183,100.were £159,300. He made no contributions.
Note 4 —Auditor’s Remuneration paid to Ernst & Young LLP
         
  Year ended Year ended
  December 31, December 31,
  2006 2005
     
  (£ million)
Audit fees  0.9   1.0 
Audit fees in respect of subsidiaries  1.4   2.1 
Tax fees  0.7   0.6 
Fees in respect of reporting under Sarbanes Oxley Act  1.0   — 
Interim review fees  0.2   0.2 
Other services pursuant to legislation  0.1   0.8 
Corporate finance fees  0.1   1.8 
Other  0.8   0.7 
       
   5.2   7.2 
       

F-41

 
             
  Year ended December 31, 
  2007  2006  2005 
  (£ million) 
 
Audit fees  0.8   0.9   1.0 
Audit fees in respect of subsidiaries  1.3   1.4   2.1 
Tax fees  0.4   0.7   0.6 
Fees in respect of reporting under Sarbanes Oxley Act  0.6   1.0   — 
Interim review fees  0.2   0.2   0.2 
Other services pursuant to legislation  0.1   0.1   0.8 
Corporate finance fees  —   0.1   1.8 
Other  1.2   0.8   0.7 
             
   4.6   5.2   7.2 
             
Audit fees in respect of the pension scheme were not material.
 
The Audit Committee has a process to ensure that any non-audit services do not compromise the independence and objectivity of the external auditor and that relevant United Kingdom and United States professional and regulatory requirements are met. A number of criteria are applied when deciding whether pre-approval for such services should be given. These include the nature of the service, the level of fees, and the practicality of appointing an alternative provider, having regard to the skills and experience required to supply the service effectively. Cumulative fees for audit and non-audit services are presented to the Audit Committee on a quarterly basis for review. The Audit Committee is responsible for monitoring adherence to the pre-approval policy.


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Note 5 —Exceptional Items
             
  Year ended December 31, 
  2007  2006  2005 
  (£ million) 
 
Continuing operations
            
Exceptional operating items
            
Gain on sale of associate investments*  11   —   — 
Gain on sale of investments in FelCor Lodging Trust, Inc.*  —   25   — 
Gain on sale of other financial assets*  18   —   — 
Reversal of previously recorded impairment*  3   2   — 
Office reorganizations(i)
  (2)  —   — 
Restructuring costs*(ii)
  —   —   (13)
Property damage*(iii)
  —   —   (9)
Employee benefits curtailment gain*(iv)
  —   —   7 
             
   30   27   (15)
             
Tax
            
Tax charge on exceptional operating items  —   (6)  — 
Exceptional tax credit(v)
  30   100   8 
             
   30   94   8 
             
   60   121   (7)
             
             
Discontinued operations
            
Exceptional operating items
            
Impairment of property, plant and equipment(vi)
  —   —   (7)
             
Gain on disposal of assets
            
Gain on disposal of assets  20   123   349 
Tax charge  (4)  (6)  (38)
             
   16   117   311 
             
   16   117   304 
             
Note 5 —*    Special ItemsIncluded within other operating income and expenses.
             
  Year ended Year ended Year ended
  December 31, December 31, December 31,
  2006 2005 2004
       
  (£ million)
Other operating income and expenses
            
Gain on sale of investment(i)
  25   —   — 
Reversal of previously recorded impairment(ii)
  2   —   — 
Impairment of property, plant and equipment(iii)
  —   (7)  (48)
Restructuring costs(iv)
  —   (13)  (11)
Property damage(v)
  —   (9)  — 
Employee benefits curtailment gain(vi)
  —   7   — 
Reversal of previously recorded provisions(vii)
  —   —   20 
Provision for investment in associates(viii)
  —   —   (16)
Provision for investment in other financial assets  —   —   (2)
Write back of provision for investment in other financial assets  —   —   8 
          
   27   (22)  (49)
          
Financing
            
Financial income(ix)
  —   —   22 
Financial expenses(x)
  —   —   (16)
Financial expense on early settlement of debt(xi)
  —   —   (17)
          
   —   —   (11)
          
Tax
            
Tax (charge)/credit on other operating income and expenses  (6)  —   22 
Special tax credit(xii)
  100   8   161 
          
   94   8   183 
          
Gain on disposal of assets
            
Gain on disposal of assets  123   349   15 
Tax (charge)/credit  (6)  (38)  4 
          
   117   311   19 
          
 
The above items are treated as specialexceptional by reason of their size or incidence (see Note 9).nature.
(i)GainProfit on sale and leaseback of new head office less costs incurred to date on the saleoffice move and closure of the Company’s investmentAylesbury facility. Costs will continue to be incurred during the first half of 2008. Costs of £7 million are included in FelCor Lodging Trust, Inc.administrative expenses and £1 million in depreciation and amortization. Income of £6 million is included in other operating income and expenses.
 
(ii)Relates to the reversal of impairment in value of an associate investment.

F-42

(iii)Property, plant and equipment were written down by £7 million in 2005 (2004 £48 million) following an impairment review of the hotel estate.
(iv)Restructuring costs relate to the delivery of the further restructuring of the Hotels business.
 
(v)(iii) Damage to properties resulting from fire and natural disasters.
 
(vi)(iv) A curtailment gain arising as a result of the sale of UK hotel properties.
 
(vii)(v) Following adoption of IAS 39 at January 1, 2005, adjustmentsThe exceptional tax credit relates to market value are recorded directly in equity. In 2004, under UK GAAP, the adjustment is a reversal of previously recorded provisions.
(viii)Relates to an impairment in value of associate investments.
(ix)Relates to interest on special tax refunds.
(x)Relates to costs of closing out currency swaps and costs related to refinancing the Company’s debt.
(xi)Relates to premiums paid on the repurchase of the Company’s public debt.
(xii)Represents the release of provisions which are specialexceptional by reason of their size or incidencenature relating to tax matters which have been settled or in respect of which the relevant statutory limitation period has expired, principally relating to intra-group financing and internal restructuring, together with, in 2004 and 2006, a credit in respect of previously unrecognized losses.
(vi) Property, plant and equipment were written down by £7 million in 2005 following an impairment review of the hotel estate.


F-42

Note 6 —Finance costs
Note 6 — Finance costs
             
  Year ended Year ended Year ended
  December 31, December 31, December 31,
  2006 2005 2004
       
  (£ million)
Financial income
            
Interest on tax refunds  —   —   22 
Interest income  21   28   48 
Fair value gains  5   2   — 
          
   26   30   70 
          
Financial expenses
            
Financial expense on early settlement of debt  —   —   17 
Costs of closing out currency swaps and refinancing the Company’s debt  —   —   16 
Interest expense — Hotels  33   51   70 
Interest expense — Soft Drinks  —   9   — 
Finance charge payable under finance leases  4   —   — 
          
   37   60   103 
Fair value charge  —   3   — 
          
   37   63   103 
          
             
  Year ended December 31, 
  2007  2006  2005 
  (£ million) 
 
Financial income
            
Interest income  8   21   28 
Fair value gains  1   5   2 
             
   9   26   30 
             
Financial expenses
            
Interest expense — Hotels  45   33   51 
Interest expense — Soft Drinks  —   —   9 
Finance charge payable under finance leases  9   4   — 
             
   54   37   60 
Fair value charge  —   —   3 
             
   54   37   63 
             
 
Interest income and expense relate to financial assets and liabilities held at amortized cost, calculated using the effective interest rate method.
Included within the Hotels interest expense is £10 million (2005(2006 £10 million, 2005 £5 million, 2004 £2 million) payable to the Company’s loyalty program relating to interest paid on the accumulated balance of cash received in advance of the redemption of points awarded.


F-43

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Note 7 — Tax
Note 7 —Income taxTax
                
  Year ended Year ended Year ended
  December 31, December 31, December 31,
  2006 2005 2004
       
  (£ million)
UK corporation tax at 30% (2005 30%: 2004 30%):            
 Current period  16   11   23 
 Benefit of tax reliefs on which no deferred tax previously recognized  (10)  —   — 
 Adjustments in respect of prior periods  (4)  (6)  (48)
          
   2   5   (25)
          
Foreign tax:            
 Current period  72   149   62 
 Benefit of tax reliefs on which no deferred tax previously recognized  (1)  (2)  (9)
 Adjustments in respect of prior periods  (94)  (19)  (82)
          
   (23)  128   (29)
          
Total current tax  (21)  133   (54)
          
Deferred tax:            
 Origination and reversal of temporary differences  27   (3)  18 
 Changes in tax rates  (4)  (2)  (11)
 Adjustments to estimated recoverable deferred tax assets  (13)  1   12 
 Adjustments in respect of prior periods  (24)  (11)  (96)
          
Total deferred tax  (14)  (15)  (77)
          
Total income tax on profit for the year
  (35)  118   (131)
          
Further analyzed as tax relating to:            
 Profit before special items  53   88   56 
 Special items (Note 5):            
  Other operating income and expenses:            
   Gain on sale of investment  6   —   — 
   Impairment of property, plant and equipment  —   —   (14)
   Restructuring costs  —   —   (8)
   Provision for investment in other financial assets  —   —   3 
  Financing:            
   Financial expense on early settlement of debt  —   —   (5)
   Other  —   —   2 
  
Special tax credit(i)
  (100)  (8)  (161)
          
Tax (credit)/charge  (41)  80   (127)
Gain on disposal of assets  6   38   (4)
          
   (35)  118   (131)
          
The total tax (credit)/charge can be further analyzed as relating to:            
 Profit on continuing operations  (50)  24   (196)
 Profit on discontinued operations  9   56   69 
 Gain on disposal of assets  6   38   (4)
          
   (35)  118   (131)
          
 
Income tax
             
  Year ended December 31, 
  2007  2006  2005 
  (£ million) 
 
UK corporation tax at 30% (2006 30%, 2005 30%):            
Current period  23   16   11 
Benefit of tax reliefs on which no deferred tax previously recognized  (1)  (10)  — 
Adjustments in respect of prior periods  (16)  (4)  (6)
             
   6   2   5 
             
Foreign tax:            
Current period  100   72   149 
Benefit of tax reliefs on which no deferred tax previously recognized  (8)  (1)  (2)
Adjustments in respect of prior periods  (50)  (94)  (19)
             
   42   (23)  128 
             
Total current tax  48   (21)  133 
             
Deferred tax:            
Origination and reversal of temporary differences  (34)  27   (3)
Changes in tax rates  (2)  (4)  (2)
Adjustments to estimated recoverable deferred tax assets  3   (13)  1 
Adjustments in respect of prior periods  4   (24)  (11)
             
Total deferred tax  (29)  (14)  (15)
             
Total income tax charge/(credit) on profit for the year
  19   (35)  118 
             
Further analyzed as tax relating to:            
Profit before exceptional items  45   53   88 
Exceptional items (Note 5):            
Exceptional operating items  —   6   — 
Exceptional tax credit(i)
  (30)  (100)  (8)
Gain on disposal of assets  4   6   38 
             
   19   (35)  118 
             
The total tax charge/(credit) can be further analyzed as relating to:            
Profit on continuing operations  12   (53)  22 
Profit on discontinued operations  3   12   58 
Gain on disposal of assets  4   6   38 
             
   19   (35)  118 
             
(i)Represents the release of provisions which are specialexceptional by reason of their size or incidencenature relating to tax matters which have been settled or in respect of which the relevant statutory limitation period has expired, principally relating to intra-group financing and internal restructuring, together with, in 2004 and 2006, a credit in respect of previously unrecognized losses.


F-44

F-44

Reconciliation of tax charge/(credit) on total profit, including gain on disposal of assets
             
  Year ended December 31, 
  2007  2006  2005 
  (%) 
 
UK corporation tax at standard rate  30.0   30.0   30.0 
Permanent differences  5.6   3.7   1.3 
Net effect of different rates of tax in overseas businesses  1.8   3.5   2.9 
Effect of changes in tax rates  (1.0)  (1.0)  (0.3)
Benefit of tax reliefs on which no deferred tax previously recognized  (3.3)  (3.0)  (0.1)
Effect of adjustments to estimated recoverable deferred tax assets  1.3   (0.2)  0.1 
Adjustment to tax charge in respect of prior periods  (11.0)  (6.9)  (4.5)
Other  0.4   0.4   (0.1)
Exceptional items and gain on disposal of assets  (16.3)  (36.1)  (10.7)
             
   7.5   (9.6)  18.6 
             
Tax paid
Total tax paid during the year of £69 million (2006 £49 million, 2005 £91 million) comprises £37 million (2006 £43 million, 2005 £80 million) in respect of operating activities and £32 million (2006 £6 million, 2005 £11 million) in respect of investing activities.
Note 8 —Tax reconciliationsDividends paid and proposed
Reconciliation of tax (credit)/charge on total profit, including gain on disposal of assets
             
  Year ended Year ended Year ended
  December 31, December 31, December 31,
  2006 2005 2004
       
    %  
UK corporation tax at standard rate  30.0   30.0   30.0 
Permanent differences  3.7   1.3   1.5 
Net effect of different rates of tax in overseas businesses  3.5   2.9   6.3 
Effect of changes in tax rates  (1.0)  (0.3)  (3.9)
Benefit of tax reliefs on which no deferred tax previously recognized  (3.0)  (0.1)  (1.1)
Effect of adjustments to estimated recoverable deferred tax assets  (0.2)  0.1   4.3 
Adjustment to tax charge in respect of prior periods  (6.9)  (4.5)  (22.6)
Other  0.4   (0.1)  0.6 
Special items and gain on disposal of assets  (36.1)  (10.7)  (61.9)
          
   (9.6)  18.6   (46.8)
          
                                 
  Year ended December 31,       
  2007  
 2006 
  2005  2007  
 2006 
  2005       
     (pence per share)        (£ million)          
 
Paid during the year:                                
Final (declared in previous year)  13.3   10.7   10.0   47   46   61         
Interim  5.7   5.1   4.6   17   18   20         
Special interim  200.0   118.0   —   709   497   —         
                                 
   219.0   133.8   14.6   773   561   81         
                                 
                                 
Proposed for approval at the Annual General Meeting (not recognized as a liability at December 31):
                                 
Final  14.9   13.3   10.7   44   47   46         
                                 
Note 8 — Dividends paid and proposed
                          
  Year ended Year ended Year ended Year ended Year ended Year ended
  December 31, December 31, December 31, December 31, December 31, December 31,
  2006 2005 2004 2006 2005 2004
             
  (pence per share) (£ million)
Paid during the year:                        
 Final (declared in previous year)  10.70   10.00   9.45   46   61   70 
 Interim  5.10   4.60   4.30   18   20   29 
 Special interim  118.00   —   72.00   497   —   501 
                         
   133.80   14.60   85.75   561   81   600 
                         
 Proposed for approval at the Annual General Meeting (not recognized as a liability at December 31):
                         
Final  13.30   10.70   10.00   47   46   62 
                         
The proposed final dividend is payable on the shares in issue at March 23, 2007.
Note 9 — Earnings per ordinary share28, 2008.
 
Note 9 —Earnings per ordinary share
Basic earnings per ordinary share is calculated by dividing the profit for the year available for IHG equity holders by the weighted average number of ordinary shares, excluding investment in own shares, in issue during the year.
 
Diluted earnings per ordinary share is calculated by adjusting basic earnings per ordinary share to reflect the notional exercise of the weighted average number of dilutive ordinary share options outstanding during the year.
 
On June 1, 2006,2007, shareholders approved a share capital consolidation on the basis of seven47 new ordinary shares for every eight56 existing ordinary shares, together with a special dividend of 118200 pence per existing ordinary share. The overall effect of the transaction was that of a share repurchase at fair value, therefore no adjustment has been made to comparative data.

F-45

 
Adjusted earnings per ordinary share is disclosed in order to show performance undistorted by specialexceptional items, to give a more meaningful comparison of the Company’s performance.
                         
  Year ended Year ended Year ended
  December 31, December 31, December 31,
  2006 2005 2004
       
  Continuing   Continuing   Continuing  
  operations Total operations Total operations Total
             
Basic earnings per share
                        
Profit available for equity holders (£ million)  267   405   103   496   234   383 
Basic weighted average number of ordinary shares (millions)  389   389   521   521   710   710 
Basic earnings per share (pence)  68.6   104.1   19.8   95.2   32.9   53.9 
                   
Diluted earnings per share
                        
Profit available for equity holders (£ million)  267   405   103   496   234   383 
Diluted weighted average number of ordinary shares (millions) (see below)  399   399   533   533   718   718 
Diluted earnings per share (pence)  66.9   101.5   19.3   93.1   32.6   53.3 
                   
              
  2006 2005 2004
       
  (millions)
Diluted weighted average of ordinary shares is calculated as:            
 Basic weighted average number of ordinary shares  389   521   710 
 Dilutive potential ordinary shares — employee share options  10   12   8 
          
   399   533   718 
          
                          
  Year ended Year ended Year ended
  December 31, December 31, December 31,
  2006 2005 2004
       
  Continuing   Continuing   Continuing  
  operations Total operations Total operations Total
             
  (£ million)
Adjusted earnings per share
                        
Profit available for equity holders  267   405   103   496   234   383 
Less adjusting items (Note 5):                        
 Other operating income and expenses  (27)  (27)  22   22   49   49 
 Financing  —   —   —   —   11   11 
 Tax on other operating income and expenses  6   6   —   —   (22)  (22)
 Special tax credit  (100)  (100)  (8)  (8)  (161)  (161)
 Gain on disposal of assets, net of tax  —   (117)  —   (311)  —   (19)
                   
Adjusted earnings  146   167   117   199   111   241 
Basic weighted average number of ordinary shares (millions)  389   389   521   521   710   710 
Adjusted earnings per share (pence)  37.5   42.9   22.5   38.2   15.6   33.9 
                   
Diluted weighted average number of ordinary shares (millions)  399   399   533   533   718   718 
Adjusted diluted earnings per share (pence)  36.6   41.8   21.9   37.3   15.5   33.6 
                   


F-45

F-46

Note 10 — Property, Plant and Equipment
                  
  Land Fixtures,    
  and fittings and Plant and  
  buildings equipment machinery Total
         
  (£ million)
Year ended December 31, 2005
                
Cost:                
At January 1, 2005  1,421   985   182   2,588 
 Exchange and other adjustments  34   13   —   47 
 Additions  15   107   18   140 
 Net transfers to non-current assets classified as held for sale  (163)  (150)  —   (313)
 Disposals  (152)  (333)  (200)  (685)
 Impairment  —   (7)  —   (7)
             
At December 31, 2005  1,155   615   —   1,770 
             
Depreciation:                
At January 1, 2005  (132)  (425)  (105)  (662)
 Exchange and other adjustments  —   (14)  —   (14)
 Provided  (11)  (88)  (17)  (116)
 Net transfers to non-current assets classified as held for sale  10   58   —   68 
 On disposals  32   156   122   310 
             
At December 31, 2005  (101)  (313)  —   (414)
             
Net book value at December 31, 2005  1,054   302   —   1,356 
             
Year ended December 31, 2006
                
Cost:                
At January 1, 2006  1,155   615   —   1,770 
 Exchange and other adjustments  (73)  (42)  —   (115)
 Additions  104   82   —   186 
 Transfers to non-current assets classified as held for sale  (363)  (118)  —   (481)
 Disposals  (2)  (31)  —   (33)
             
At December 31, 2006  821   506   —   1,327 
             
Depreciation:                
At January 1, 2006  (101)  (313)  —   (414)
 Exchange and other adjustments  7   23   —   30 
 Provided  (7)  (41)  —   (48)
 Transfers to non-current assets classified as held for sale  17   55   —   72 
 On disposals  2   28   —   30 
             
At December 31, 2006  (82)  (248)  —   (330)
             
Net book value at December 31, 2006  739   258   —   997 
             
 On adoption of IFRS the Company retained previous revaluations of property, plant and equipment as deemed cost as permitted by IFRS 1“First-time Adoption of International Financial Reporting Standards.”
                         
  Year ended December 31, 
  2007  2006  2005 
  Continuing
     Continuing
     Continuing
    
  operations  Total  operations  Total  operations  Total 
 
Basic earnings per share
                        
Profit available for equity holders (£ million)  210   231   269   405   114   496 
Basic weighted average number of ordinary shares (millions)  320   320   389   389   521   521 
Basic earnings per share (pence)  65.6   72.2   69.1   104.1   21.9   95.2 
                         
Diluted earnings per share
                        
Profit available for equity holders (£ million)  210   231   269   405   114   496 
Diluted weighted average number of ordinary shares (millions)  329   329   399   399   533   533 
Diluted earnings per share (pence)  63.8   70.2   67.4   101.5   21.4   93.1 
                         
 
             
  2007  2006  2005 
  (millions) 
 
Diluted weighted average of ordinary shares is calculated as:            
Basic weighted average number of ordinary shares  320   389   521 
Dilutive potential ordinary shares — employee share options  9   10   12 
             
   329   399   533 
             
                         
  Year ended December 31, 
  2007  2006  2005 
  Continuing
     Continuing
     Continuing
    
  operations  Total  operations  Total  operations  Total 
 
Adjusted earnings per share
                        
Profit available for equity holders (£ million)  210   231   269   405   114   496 
Less adjusting items (Note 5):                        
Exceptional operating items (£ million)  (30)  (30)  (27)  (27)  15   15 
Tax on exceptional operating items (£ million)  —   —   6   6   —   — 
Exceptional tax credit (£ million)  (30)  (30)  (100)  (100)  (8)  (8)
Impairment of property, plant and equipment (£ million)  —   —   —   —   —   7 
Gain on disposal of assets, net of tax (£ million)  —   (16)  —   (117)  —   (311)
                         
Adjusted earnings (£ million)  150   155   148   167   121   199 
Basic weighted average number of ordinary shares (millions)  320   320   389   389   521   521 
Adjusted earnings per share (pence)  46.9   48.4   38.0   42.9   23.2   38.2 
                         
                         
Adjusted earnings (£ million)  150   155   148   167   121   199 
Diluted weighted average number of ordinary shares (millions)  329   329   399   399   533   533 
Adjusted diluted earnings per share (pence)  45.6   47.1   37.1   41.8   22.7   37.3 
                         


F-46

Note 10 —Property, Plant and Equipment
       ��     
  Land
  Fixtures,
    
  and
  fittings and
    
  buildings  equipment  Total 
  (£ million) 
 
Year ended December 31, 2006
            
Cost:            
At January 1, 2006  1,155   615   1,770 
Additions  104   82   186 
Transfers to non-current assets classified as held for sale  (363)  (118)  (481)
Disposals  (2)  (31)  (33)
Exchange and other adjustments  (73)  (42)  (115)
             
At December 31, 2006  821   506   1,327 
             
Depreciation:            
At January 1, 2006  (101)  (313)  (414)
Provided  (7)  (41)  (48)
Transfers to non-current assets classified as held for sale  17   55   72 
On disposals  2   28   30 
Exchange and other adjustments  7   23   30 
             
At December 31, 2006  (82)  (248)  (330)
             
Net book value at December 31, 2006  739   258   997 
             
Year ended December 31, 2007
            
Cost:            
At January 1, 2007  821   506   1,327 
Additions  5   49   54 
Reclassifications  15   (20)  (5)
Net transfers to non-current assets classified as held for sale  (38)  (44)  (82)
Disposals  (7)  (19)  (26)
Exchange and other adjustments  3   3   6 
             
At December 31, 2007  799   475   1,274 
             
Depreciation:            
At January 1, 2007  (82)  (248)  (330)
Provided  (6)  (33)  (39)
Net transfers to non-current assets classified as held for sale  17   15   32 
Reversal of impairment  —   3   3 
On disposals  7   18   25 
Exchange and other adjustments  —   (3)  (3)
             
At December 31, 2007  (64)  (248)  (312)
             
Net book value at December 31, 2007  735   227   962 
             
At December 31, 2005 property, plant and equipment2007 a previously recorded impairment charge of £3 million was written down by £7 million (2004 £48 million)reversed following an impairment review of hotel assets based on current market trading conditions. No impairment charge, or subsequent reversal, was required at December 31, 2006.

F-47

 
The carrying value of land and buildings held under finance leaseleases at December 31, 2006 is2007 was £104 million (2006 £93 million (2005 £nil)million).


F-47

Note 11 — Held for Sale and Discontinued Operations
Note 11 —HotelsHeld for Sale and Discontinued Operations
 
Hotels
During the year ended December 31, 2006,2007, the Company sold three hotels (2006 32 hotels, (20052005 112 hotels, 2004 10 hotels) and two associates (2006 nil, 2005 nil), continuing the asset disposal program commenced in 2003, and an2003. An additional 10three hotels and two associates were classified as held for sale.sale during the year, whilst one hotel previously classified as held for sale was reclassified as property, plant and equipment. At December 31, 2006,2007, three hotels (2006 four hotels (2005 26 hotels) and two associates, (2005 nil)2005 26 hotels) were classified as held for sale.
 
At December 31, 2006, an impairment loss of £3 million has beenwas recognized on the remeasurement of a property that had previously beenwas classified as held for sale. The loss, which reduced the carrying amount of the asset to fair value less costs to sell, has beenwas recognized in the income statement in gain on disposal of assets. Fair value was determined by an independent property valuation. No impairment losses have been recognized at December 31, 2007.

F-48

              
  Year ended December 31,
   
  2006 2005 2004
Net assets of hotels on disposal      
  (£ million)
Property, plant and equipment  648   1,961   100 
Goodwill  —   20   — 
Net working capital  (22)  1   (1)
Cash and cash equivalents  31   16   — 
Loans and other borrowings  (10)  —   — 
Deferred tax  (117)  (121)  (5)
Minority equity interest  (13)  —   (11)
          
Company’s share of net assets disposed of  517   1,877   83 
          
Consideration
            
Current year disposals:            
 Cash consideration, net of cost paid  628   1,832   101 
 Deferred consideration  10   40   — 
 Management contract value  30   82   — 
 Other  (14)  (12)  (3)
          
   654   1,942   98 
 
Net assets disposed of  (517)  (1,877)  (83)
Other, including tax and impairment  (20)  (38)  4 
          
Gain on disposal of assets, net of tax  117   27   19 
          
Net cash inflow
            
Current year disposals:            
 Cash consideration, net of costs paid  628   1,832   101 
 Cash disposed of  (31)  (16)  — 
 Prior year disposal  23   —   — 
          
   620   1,816   101 
          
Assets and liabilities held for sale
            
Non-current assets classified as held for sale:            
 Property, plant and equipment  40   279   1,826 
 Associates  10   —   — 
          
   50   279   1,826 
          
Liabilities classified as held for sale:            
 Deferred tax  (2)  (34)  (148)
          
Cash flows related to discontinued operations
            
Operating profit before interest, depreciation and amortization  34   124   203 
Investing activities  (8)  (54)  (78)
Financing activities  (25)  (16)  (3)
          

F-49

             
  Year ended December 31, 
  2007  2006  2005 
  (£ million) 
 
Net assets of hotels sold
            
Property, plant and equipment  35   648   1,961 
Goodwill  —   —   20 
Net working capital  1   (22)  1 
Cash and cash equivalents  —   31   16 
Loans and other borrowings  —   (10)  — 
Deferred tax  —   (117)  (121)
Minority equity interest  (6)  (13)  — 
             
Company’s share of net assets disposed of  30   517   1,877 
             
Consideration
            
Current year disposals:            
Cash consideration, net of costs paid  47   628   1,832 
Deferred consideration  —   10   40 
Management contract value  3   30   82 
Other  —   (14)  (12)
             
   50   654   1,942 
Net assets disposed of  (30)  (517)  (1,877)
Provision against deferred consideration  —   (10)  — 
Other, including impairment of held for sale asset  —   (4)  — 
Tax  (4)  (6)  (38)
             
Gain on disposal of assets, net of tax(i)  16   117   27 
             
Net cash inflow
            
Current year disposals:            
Cash consideration, net of costs paid  47   628   1,832 
Cash disposed of  —   (31)  (16)
Prior year disposals  2   23   — 
             
   49   620   1,816 
             
Assets and liabilities held for sale
            
Non-current assets classified as held for sale:            
Property, plant and equipment  57   40   279 
Associates  —   10   — 
             
   57   50   279 
             
Liabilities classified as held for sale:            
Deferred tax  (3)  (2)  (34)
             
(i)Soft DrinksReported within discontinued operations.
 
Soft Drinks
During December 2005, the Company disposed of all of its interests in the Soft Drinks business with the initial public offering of Britvic plc.


F-48

     
  Year ended
  December 31,
  2005
  (£ million)
Net liabilities of Soft Drinks on disposal
    
Property, plant and equipment  234 
Goodwill  18 
Software  25 
Inventories  36 
Trade and other receivables  141 
Cash and cash equivalents  1 
Current liabilities  (162)
Borrowings  (341)
Employee benefits  (91)
Deferred tax  8 
Minority equity interest  66 
    
Company’s share of net liabilities disposed of  (65)
    
Consideration
    
Cash consideration, net of costs paid  221 
Other  (2)
    
   219 
Net liabilities disposed of  65 
    
Gain on disposal of assets, net of tax  284 
    
Net cash inflow
    
Cash consideration, net of costs paid  221 
Cash disposed of  (1)
    
   220 
    
             
  Year ended
  December 31,
   
  2006 2005 2004
       
  (£ million)
Cash flows related to discontinued operations
            
Operating profit before interest, depreciation and amortization  —   115   123 
Investing activities  —   (47)  (70)
Financing activities  —   162   (25)
             
  Year ended December 31, 
  2007  2006  2005 
  (£ million) 
 
Cash flows attributable to discontinued operations
            
Hotels
            
Operating profit before interest, depreciation and amortization  10   40   127 
Investing activities  (1)  (9)  (59)
Financing activities  —   (25)  (16)
             
Soft Drinks
            
Operating profit before interest, depreciation and amortization  —   —   115 
Investing activities  —   —   (47)
Financing activities  —   —   162 
             

F-49

F-50

             
  Year ended
 
  December 31, 
  2007  2006  2005 
  (£ million) 
 
Results of discontinued operations
            
Revenue  40   174   1,213 
Cost of sales  (30)  (134)  (897)
Administrative expenses  —   —   (74)
             
   10   40   242 
Depreciation and amortization  (2)  (9)  (78)
             
Operating profit before exceptional operating items  8   31   164 
Exceptional operating items  —   —   (7)
             
Operating profit  8   31   157 
Financial expenses  —   —   (9)
             
Profit before tax  8   31   148 
Tax  (3)  (12)  (58)
             
Profit after tax  5   19   90 
Gain on disposal of assets, net of tax (Note 5)  16   117   311 
             
Profit for the year from discontinued operations  21   136   401 
             
Attributable to:
            
Equity holders of the parent  21   136   382 
Minority equity interest  —   —   19 
             
   21   136   401 
             
             
  2007  2006  2005 
  Pence
  Pence
  Pence
 
  per share  per share  per share 
 
Earnings per share from discontinued operations
            
Basic  6.6   35.0   73.3 
Diluted  6.4   34.1   71.7 
The effect of discontinued operations on segmental results is shown in Note 12 — Goodwill2.
          
  At
  December 31,
   
  2006 2005
     
  (£ million)
At January 1  118   152 
 Acquisition of subsidiary (note 31)  2   — 
 Disposals  —   (44)
 Exchange and other adjustments  (11)  10 
       
At December 31  109   118 
       
 
Note 12 —Goodwill
         
  At December 31, 
  2007  2006 
  (£ million) 
 
At January 1  109   118 
Acquisition of subsidiary (Note 31)  —   2 
Exchange and other adjustments  1   (11)
         
At December 31  110   109 
         
Goodwill arising on business combinations that occurred before January 1, 2005 was not restated on adoption of IFRS as permitted by IFRS 1.


F-50

Goodwill has been allocated to cash-generating units (“CGUs”) for impairment testing as follows:
         
  At December 31,
   
  2006 2005
     
  (£ million)
The Americas managed operations  72   82 
Asia Pacific managed and franchised operations  37   36 
       
   109   118 
       
 
         
  At December 31, 
  2007  2006 
  (£ million) 
 
Americas managed operations  70   72 
Asia Pacific managed and franchised operations  40   37 
         
   110   109 
         
The Company tests goodwill for impairment annually,annualy, or more frequently if there are any indications that an impairment may have arisen.
The recoverable amounts of the CGUs are determined from value in use calculations. The key assumptions for the value in use calculations are those regarding discount rates and growth rates. Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the CGUs. Growth rates are based on management expectations and industry growth forecasts. The growth rates used to determine cash flows beyond five years do not exceed the averagelong-term growth rate for the relevant markets.
The Americas managed operations
Americas managed operations
 
The Company prepares cash flow forecasts derived from the most recent financial budgets approved by management for the next year and extrapolates cash flows for the following four years based on an estimated growth rate of 4% (2005 4%4.0% (2006 4.0%, 2004 5%2005 4.0%). After this period, the terminal value of future cash flows is calculated based on a perpetual growth rate of approximately 3% (2005 3%2.7% (2006 3.0%, 2004 3%2005 3.0%). The rate used to discount the forecast cash flowflows is 10.5% (200510.0% (2006 10.5%, 20042005 10.5%).
Asia Pacific managed and franchised operations
Asia Pacific managed and franchised operations
 
The Company prepares cash flow forecasts derived from the most recent financial budgets approved by management for the next year and extrapolates cash flows for the following four years based on an estimated growth rate of 15% (2005 15%15.0% (2006 15.0%, 2004 7%2005 15.0%). After this period, the terminal value of future cash flows is calculated based on a perpetual growth rate of approximately 4% (2005 4%4.0% (2006 4.0%, 2004 4%2005 4.0%). The rate used to discount the forecast cash flows is 11.0% (2005(2006 11.0%, 20042005 11.0%).
 
With regard to the assessment of value in use, management believe that the carrying values of the CGUs would only exceed their recoverable amounts in the event of highly unlikely changes in the key assumptions.


F-51

F-51

Note 13 — Intangible assets
                  
    Management Other  
  Software contracts intangibles Total
         
    (£ million)  
Year ended December 31, 2005
                
Cost:                
At January 1, 2005  52   —   22   74 
 Additions  14   82   5   101 
 Disposals  (32)  —   (1)  (33)
 Exchange and other adjustments  4   2   2   8 
             
At December 31, 2005  38   84   28   150 
             
Amortization:                
At January 1, 2005  (13)  —   (7)  (20)
 Provided  (9)  (3)  (2)  (14)
 On disposals  7   —   —   7 
 Exchange and other adjustments  (2)  —   (1)  (3)
             
At December 31, 2005  (17)  (3)  (10)  (30)
             
Net book value at December 31, 2005  21   81   18   120 
             
Year ended December 31, 2006
                
Cost:                
At January 1, 2006  38   84   28   150 
 Additions  10   30   13   53 
 Acquisition of subsidiary (note 32)  1   7   —   8 
 Disposals  —   —   (2)  (2)
 Exchange and other adjustments  (6)  (4)  (3)  (13)
             
At December 31, 2006  43   117   36   196 
             
Amortization:                
At January 1, 2006  (17)  (3)  (10)  (30)
 Provided  (9)  (4)  (3)  (16)
 Exchange and other adjustments  3   —   1   4 
             
At December 31, 2006  (23)  (7)  (12)  (42)
             
Net book value at December 31, 2006  20   110   24   154 
             
Note 13 —Intangible assets
                 
     Management
  Other
    
  Software  contracts  intangibles  Total 
     (£ million)    
 
Year ended December 31, 2006
                
Cost:                
At January 1, 2006  38   84   28   150 
Additions  10   30   13   53 
Acquisition of subsidiary (note 31)  1   7   —   8 
Disposals  —   —   (2)  (2)
Exchange and other adjustments  (6)  (4)  (3)  (13)
                 
At December 31, 2006  43   117   36   196 
                 
Amortization:                
At January 1, 2006  (17)  (3)  (10)  (30)
Provided  (9)  (4)  (3)  (16)
Exchange and other adjustments  3   —   1   4 
                 
At December 31, 2006  (23)  (7)  (12)  (42)
                 
Net book value at December 31, 2006  20   110   24   154 
                 
Year ended December 31, 2007
                
Cost:                
At January 1, 2007  43   117   36   196 
Additions  13   5   7   25 
Reclassifications  5   —   —   5 
Disposals  —   —   (1)  (1)
Exchange and other adjustments  (1)  2   —   1 
                 
At December 31, 2007  60   124   42   226 
                 
Amortization:                
At January 1, 2007  (23)  (7)  (12)  (42)
Provided  (9)  (6)  (4)  (19)
Disposals  —   —   1   1 
Exchange and other adjustments  1   —   —   1 
                 
At December 31, 2007  (31)  (13)  (15)  (59)
                 
Net book value at December 31, 2007  29   111   27   167 
                 
The weighted average remaining amortization period for management contracts is 24 years (2006 24 years).


F-52

F-52

Note 14 — Investments in associates
Note 14 —Investments in associates
The Company holds six (2005 eight)seven investments (2006 six) accounted for as associates. The following table summarizes the financial information of the associates.
         
  At At
  December 31, December 31,
  2006 2005
     
  (£ million)
Share of associates’ balance sheet
        
Current assets  2   4 
Non-current assets  50   93 
Current liabilities  (5)  (9)
Non-current liabilities  (15)  (46)
       
Net assets  32   42 
       
Share of associates’ revenue and profit
        
Revenue  22   18 
Net profit  2   1 
       
Related party transactions
        
Revenue from related parties  4   3 
Amounts owed by related parties  1   2 
       
Note 15 — Other Financial Assets
         
  At At
  December 31, December 31,
  2006 2005
     
  (£ million)
Non-current
        
Equity securities available-for-sale  48   41 
Other  48   72 
       
   96   113 
       
Current
        
Equity securities available-for-sale  9   104 
Derivatives  4   2 
       
   13   106 
       
 
         
  At
  At
 
  December 31,
  December 31,
 
  2007  2006 
  (£ million) 
 
Share of associates’ balance sheet
        
Current assets  3   2 
Non-current assets  52   50 
Current liabilities  (8)  (5)
Non-current liabilities  (14)  (15)
         
Net assets  33   32 
         
Share of associates’ revenue and profit
        
Revenue  16   22 
Net profit  1   2 
         
Related party transactions
        
Revenue from related parties  3   4 
Amounts owed by related parties  1   1 
         
Note 15 —Other Financial Assets
         
  At
  At
 
  December 31,
  December 31,
 
  2007  2006 
  (£ million) 
 
Non-current
        
Equity securities available-for-sale  46   48 
Other  47   48 
         
   93   96 
         
Current
        
Equity securities available-for-sale  —   9 
Derivatives  —   4 
Other  9   — 
         
   9   13 
         
Available-for-sale financial assets, which are held on the balance sheet at fair value, consist of equity investments in listed and unlisted shares. Of the total amount of equity investments at December 31, 2007, £2 million (2006 £nil) were listed securities and £44 million (2006 £57 million) unlisted; £28 million (2006 £27 million) were denominated in US dollars, £8 million (2006 £11 million) in Hong Kong dollars and £10 million (2006 £19 million) in other currencies. Unlisted equity shares are mainly investments in entities that own hotels which the Company manages. The fair value of unlisted equity shares has been estimated using valuation guidelines issued by the British Venture Capital Association and is based on assumptions regarding expected future earnings. Listed equity share valuation is based on observable market prices. Dividend income fromavailable-for-sale equity securities of £8 million (2006 £4 million) is reported as other operating income and expenses in the consolidated income statement.
 
Other financial assets consist mainly of trade deposits, made in the normal course of business. The depositsrestricted cash and deferred consideration on asset disposals. These amounts have been designated as loans“loans and receivablesreceivables” and are held at amortized cost. Restricted cash of £27 million (2006 £25 million) relates to cash held in bank accounts which is pledged as collateral to insurance companies for risks retained by the Company.


F-53

Derivatives, including those within trade and other payables, are held on the balance sheet at fair value. The fairFair value is the estimated amount that the Company could expect to receive on the termination of the agreement,using discounted future cash flows taking into consideration interest and exchange rates prevailing at the balance sheet date.

F-53

Note 16 — Inventories
         
  At At
  December 31, December 31,
  2006 2005
     
  (£ million)
Finished goods  1   2 
Consumable stores  2   1 
       
   3   3 
       
Note 17 — The movement in the provision for impairment of other financial assets during the year is as follows:
         
  At
  At
 
  December 31,
  December 31,
 
  2007  2006 
  (£ million) 
 
At January 1,  (21)  (16)
Provided and charged to gain on disposal of assets  —   (10)
Recoveries  2   3 
Disposals  3   — 
Amounts written off against the financial asset  12   1 
Exchange and other adjustments  —   1 
         
At December 31,  (4)  (21)
         
The provision is used to record impairment losses unless the Company is satisfied that no recovery of the amount is possible; at that point the amount considered irrecoverable is written off against the financial asset directly with no impact on the income statement.
Note 16 —Inventories
         
  At
  At
 
  December 31,
  December 31,
 
  2007  2006 
  (£ million) 
 
Finished goods  1   1 
Consumable stores    2     2 
         
   3   3 
         
Note 17 —Trade and other receivables
         
  At
  At
 
  December 31,
  December 31,
 
  2007  2006 
  (£ million) 
 
Trade receivables  180   163 
Other receivables  29   51 
Prepayments  26   23 
         
   235   237 
         
Trade and other receivables are designated as ‘‘loans and receivables’’ and are held at amortized cost.
         
  At At
  December 31, December 31,
  2006 2005
     
  (£ million)
Trade receivables  163   160 
Other receivables  51   66 
Other prepayments  23   26 
       
   237   252 
       
 An allowance has been made for doubtful amounts
Trade receivables arenon-interest bearing and are generally on payment terms of £39 million (2005 £38 million) in respectup to 30 days. The fair value of trade and other receivables approximates their carrying value.


F-54

The maximum exposure to credit risk for trade and £4 million (2005 £9 million)other receivables, excluding prepayments, at the balance sheet date by geographic region is:
         
  At
  At
 
  December 31,
  December 31,
 
  2007  2006 
  (£ million) 
 
Americas  115   105 
Europe, the Middle East and Africa  70   78 
Asia Pacific  24   31 
         
   209   214 
         
The aging of trade and other receivables, excluding prepayments, at the balance sheet date is:
                         
  At December 31, 2007  At December 31, 2006 
  Gross  Provision  Net  Gross  Provision  Net 
  (£ million) 
 
Not past due  141   (1)  140   118   —   118 
Past due 1 to 30 days  37   (1)  36   62   (1)  61 
Past due 31 to 180 days  39   (8)  31   49   (16)  33 
More than 181 days  40   (38)  2   28   (26)  2 
                         
   257   (48)  209   257   (43)  214 
                         
The movement in respectthe provision for impairment of trade and other receivables.receivables during the year is as follows:
Note 18 — Cash and cash equivalents
         
  At At
  December 31, December 31,
  2006 2005
     
  (£ million)
Cash at bank and in hand  30   34 
Short-term deposits  149   290 
       
   179   324 
       
         
  At
  At
 
  December 31,
  December 31,
 
  2007  2006 
  (£ million) 
 
At January 1,  (43)  (47)
Provided  (12)  (16)
Amounts written off  6   15 
Exchange and other adjustments  1   5 
         
At December 31,  (48)  (43)
         
 
Note 18 —Cash and cash equivalents
         
  At
  At
 
  December 31,
  December 31,
 
  2007  2006 
  (£ million) 
 
Cash at bank and in hand  26   30 
Short-term deposits  26   149 
         
   52   179 
         
Short-term deposits are highly liquid investments with an original maturity of three months or less, in various currencies.


F-55

F-54

Note 19 —
Note 19 —Trade and other payables
         
  At
  At
 
  December 31,
  December 31,
 
  2007  2006 
  (£ million) 
 
Current
        
Trade payables  49   47 
Other tax and social security payable  19   26 
Other payables  172   190 
Accruals  148   139 
Derivatives  2   — 
         
   390   402 
         
Non-current
        
Other payables  139   109 
         
Trade payable are non-interest bearing and other payablesare normally settled within 45 days.
         
  At At
  December 31, December 31,
  2006 2005
     
  (£ million)
Current
        
Trade payables  47   84 
Other tax and social security payable  26   12 
Other payables  190   174 
Accruals  139   186 
Derivatives  —   6 
Provisions (Note 24)  —   6 
       
   402   468 
       
Non-current
        
Other payables  109   107 
Provisions (Note 24)  —   — 
       
   109   107 
       
 
Other payables includes £180£212 million (2005 £162(2006 £180 million) relating to the future redemption liability of the Company’s loyalty program, of which £83£84 million (2005 £71(2006 £83 million) is classified as current and £97£128 million (2005 £91(2006 £97 million) as non-current.
Note 20 — Loans and other borrowings
                         
  At December 31, 2006 At December 31, 2005
     
  Current Non-current Total Current Non-current Total
             
  (£ million)
Secured bank loans  4   3   7   2   36   38 
Finance leases  3   94   97   —   —   — 
Unsecured bank loans  3   206   209   —   374   374 
Other unsecured borrowings  —   —   —   —   —   — 
                   
Total borrowings  10   303   313   2   410   412 
                   
Note 20 —Secured bank loansLoans and other borrowings
 
                         
  At December 31, 2007  At December 31, 2006 
  Current  Non-current  Total  Current  Non-current  Total 
  (£ million) 
 
Secured bank loans  —   3   3   4   3   7 
Finance leases  8   92   100   3   94   97 
Unsecured bank loans  —   774   774   3   206   209 
                         
Total borrowings  8   869   877   10   303   313 
                         
Denominated in the following currencies:                        
Pounds sterling  —   275   275   —   102   102 
US dollars  8   425   433   10   145   155 
Euro  —   121   121   —   54   54 
Other  —   48   48   —   2   2 
                         
   8   869   877   10   303   313 
                         
Secured bank loans
These mortgages are secured on the hotel properties to which they relate. The rates of interest and currencies of these loans vary. Non-current amounts include £nil (2005 £15 million) repayable by instalment. Amounts shown as current are the mortgage repayments falling due within one year.


F-56

F-55

Finance leases
 
Finance leases
Finance lease liabilities,obligations, which relate to the 99 year lease on the InterContinental Boston, are payable as follows:
         
  At
  December 31,
  2006
   
  Minimum Present
  lease value of
  payments payments
     
  (£ million)
Less than one year  3   3 
Between one and five years  33   24 
More than five years  1,745   70 
       
   1,781   97 
Less amount representing finance charges  (1,684)  — 
       
   97   97 
       
 
                 
  At December 31, 2007  At December 31, 2006 
  Minimum
  Present
  Minimum
  Present
 
  lease
  value of
  lease
  value of
 
  payments  payments  payments  payments 
  (£ million) 
 
Less than one year  8   8   3   3 
Between one and five years  32   24   33   24 
More than five years  1,689   68   1,745   70 
                 
   1,729   100   1,781   97 
Less amount representing finance charges  (1,629)  —   (1,684)  — 
                 
   100   100   97   97 
                 
The Company has the option to extend the term of the lease for two additional 20 year terms. Payments under the lease step up at regular intervals over the lease term.
Unsecured bank loans
Unsecured bank loans
 
Unsecured bank loans are borrowings under the Company’s 2009 £1.1 billion Syndicated Facility and its short-term bilateral loan facilities. Amounts are classified as current wherenon-current when the loan facility expires within one year.facilities have more than 12 months to expiry. These facilities contain financial covenants and as at the balance sheet date the Company was not in breach of the covenants.covenants, nor had any breaches or defaults occurred during the year.
Facilities provided by banks
                         
  At December 31, 2007  At December 31, 2006 
  Utilized  Unutilized  Total  Utilized  Unutilized  Total 
  (£ million) 
 
Committed  777   377   1,154   213   944   1,157 
Uncommitted  —   25   25   3   36   39 
                         
   777   402   1,179   216   980   1,196 
                         
         
  At December 31, 
  2007  2006 
  (£ million) 
 
Unutilized facilities expire:        
within one year  75   86 
after one but before two years  327   — 
after two years  —   894 
         
   402   980 
         
Note 21 —Facilities provided by banks
                         
  At December 31, 2006 At December 31, 2005
     
  Utilized Unutilized Total Utilized Unutilized Total
             
  (£ million)
Committed  213   944   1,157   412   751   1,163 
Uncommitted  3   36   39   —   14   14 
                   
   216   980   1,196   412   765   1,177 
                   
          
  At December
  31,
   
  2006 2005
     
  (£ million)
Unutilized facilities expire:        
 within one year  86   39 
 after one year but before two years  —   — 
 after two years  894   726 
       
   980   765 
       
Note 21 — Financial risk management policies
Financial instrumentsrisk management policies
 
Overview
The Company’s treasury policy is to manage financial risks that arise in relation to underlying business needs. The activities of the treasury function are carried out in accordance with Board approved policies and are subject to regular audit. The treasury function does not operate as a profit center.


F-57

F-56

The treasury function seeks to reduce the financial risk of the Company and manages liquidity to meet all foreseeable cash needs. Treasury activities include money market investments, spot and forward foreign exchange instruments, currency options, currency swaps, interest rate swaps and options and forward rate agreements. One of the primary objectives of the Company’s treasury risk management policy is to mitigate the adverse impact of movements in interest rates and foreign exchange rates.
 
Market risk exposure
The US dollar is the predominant currency of the Company’s revenue and cash flows and movementsflows. Movements in foreign exchange rates, particularly the US dollar and euro can affect the Company’s reported profit, net assets and interest cover. To hedge this translation exposure the Company matches the currency of its debt (either directly or via derivatives) to the currency of its net assets, whilst maximising the amount of US dollars borrowed.
 
Foreign exchange transaction exposure is managed by the forward purchase or sale of foreign currencies or the use of currency options. Most significant exposures of the Company are in currencies that are freely convertible.
 
Interest rate exposure is managed within parameters that stipulate that fixed rate borrowings should normally account for no less than 25% and no more than 75% of net borrowings for each major currency. This is achieved through the use of interest rate swaps and options and forward rate agreements.
 
Based on the year end net debt position and given the underlying maturity profile of investments, borrowings and hedging instruments at that date, a one percentage point rise in US dollar interest rates would increase the annual net interest charge by approximately £2.9 million (2006 £1.4 million, 2005 £1.3 million). A similar rise in euro and sterling interest rates would increase the annual net interest charge by approximately £0.6 million (2006 £0.4 million, 2005 £4.0 million) and £1.6 million (2006 £1.0 million, 2005 £nil) respectively.
A general weakening of the US dollar (specifically a five cent rise in the sterling : US dollar rate) would reduce the Company’s profit before tax by an estimated £4.2 million (2006 £4.9 million, 2005 £6.0 million) and increase net assets by an estimated £4.4 million (2006 £2.6 million, 2005 £nil). Similarly, a general weakening of the euro (specifically a five cent rise in the sterling: euro rate) would reduce the Company’s profit before tax by an estimated £0.8 million (2006 £0.9 million, 2005 increase of £0.1 million) and decrease net assets by an estimated £3.0 million (2006 £4.0 million, 2005 £5.5 million).
Liquidity risk exposure
The treasury function ensures that the Company has access to sufficient funds to allow the implementation of the strategy set by the Board. At the year end, the Company had access to £944£377 million of undrawn committed facilities. Medium and long-term borrowing requirements are met through the £1.1 billion Syndicated Facility and short-term borrowing requirements are met from drawings under bilateral bank facilities. The Company is in compliance with all of the financial covenants in its loan documents, none of which is expected to present a material restriction on funding or investment policy in the near future. In addition,
At the year end, the Company had surplus cash of £179£52 million which is held inshort-term deposits and cash funds which allow daily withdrawals of cash. Most of the Company’s surplus funds are held in the United Kingdom or United States and there are no material funds where repatriation is restricted as a result of foreign exchange regulations.
Credit risk exposure
Credit risk on treasury transactions is minimisedminimized by operating a policy on the investment of surplus cash that generally restricts counterparties to those with an A credit rating or better or those providing adequate security.
Sensitivities
The Company trades only with recognized, creditworthy third parties. It is the Company’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures.
 Based
In respect of credit risk arising from financial assets, the Company’s exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments.


F-58

Capital risk management
The Company manages its capital to ensure that it will be able to continue as a going concern. The capital structure consists of net debt, issued share capital and reserves. The structure is managed to minimize the Company’s cost of capital, to provide ongoing returns to shareholders and to service debt obligations, whilst maintaining maximum operational flexibility. Surplus cash is either reinvested in the business, used to repay debt or returned to shareholders. The Group maintains a conservative level of debt. The level of debt is monitored on the year-endbasis of a cashflow leverage ratio, which is net debt positiondivided by EBITDA. Net debt is calculated as total borrowings less cash and given the underlying maturity profile of investments, borrowingscash equivalents. EBITDA is earnings before interest, tax, depreciation and hedging instruments at that date, a one percentage point rise in US dollar interest rates would increase the annual net interest charge by approximately £1 million (2005 £1 million, 2004 £2 million).amortization.
 A general weakening of the US dollar (specifically a one cent rise in the sterling : US dollar rate) would have reduced the Company’s profit before tax by an estimated £1 million (2005 £1 million).
Hedging
Hedging
Interest rate risk
 
Interest rate risk
The Company hedges its interest rate risk by taking out interest rate swaps to fix the interest flows on between 25% and 75% of its net borrowings in major currencies. At December 31, 20062007, the Company held interest rate swaps with notional principals of US $100 million and€80 £150 million (2005and €75 million (2006 US $200$100 million,€160 €80 million). The interest rate swaps are designated as cash flow hedges of borrowings under the syndicated loan facility and they are held on the balance sheet at fair value in other financial assets and other payables.
 
Changes in the fair value of cash flow hedge fair valueshedges are recognized in the unrealized gains and losses reserve to the extent that the hedges are effective. When the hedged item is recognized, the cumulative gains and losses on the hedging instrument are recycled to the income statement. No ineffectiveness was recognized during the current or prior year.

F-57

Foreign currency risk
 
Foreign currency risk
The Company is exposed to foreign currency risk on income streams denominated in foreign currencies. When appropriate, the Company hedges a portion of forecast foreign currency income and asset disposal proceeds by taking out forward exchange contracts. When hedge accountingThe designated risk is applied, the spot foreign exchange rate is designated as the hedged risk and so the Company takes the forward points on these contracts through financial income or expense.
risk. Forward contracts are held at fair value on the balance sheet as other financial assets and other payables.
 
During the year, a £nil (2006 £3 million, (2005 £nil, 20042005 £nil) foreign exchange gain was recognized in financefinancial income, relating to gains on forward contracts that were not classified as hedging instruments under IAS 39. During 2005, gains
Hedge of £6 million were recycled to the income statement from the unrealized gains and losses reservenet investment in respect of effective hedges.foreign operations
Hedge of net investment in a foreign operation
The Company designates its foreign currency bank borrowings and currency derivatives as net investment hedges of foreign operations. The designated risk is the spot foreign exchange risk; the interest on these financial instruments is taken through financial income or expense and the derivatives are held on the balance sheet at fair value in other financial assets and other payables.
Hedge effectiveness is measured at calendar quarter ends. Variations in fair value due to changes in the underlying exchange rates are taken to the currency translation reserve until an operation is sold, at which point the cumulative currency gains and losses are recycled against the gain or loss on sale. No ineffectiveness was recognized on net investment hedges during the current or prior year.
Note 22 — Financial Instruments
At December 31, 2007, the Company held foreign exchange derivatives with a principal of £6 million (2006 £220 million) and a fair value of £nil (2006 £3.5 million). The maximum amount of foreign exchange derivatives held during the year as net investment hedges and measured at calendar quarter ends had a principal of £272 million (2006 £220 million) and a fair value of £1.6 million (2006 £3.5 million).


F-59

Note 22 —Interest rate riskFinancial Instruments
 
Liquidity risk
The following are the undiscounted contractual cash flows of financial liabilities, including interest payments.
                     
  Less than
  Between 1 and
  Between 2 and
  More than
    
December 31, 2007
 1 year  2 years  5 years  5 years  Total 
  (£ million) 
 
Secured bank loans  1   1   4   —   6 
Finance lease obligations  8   8   24   1,689   1,729 
Unsecured bank loans  781   —   —   —   781 
Trade and other payables  388   64   50   55   557 
Derivatives  6   —   —   —   6 
                     
                     
  Less than
  Between 1 and
  Between 2 and
  More than
    
December 31, 2006
 1 year  2 years  5 years  5 years  Total 
  (£ million) 
 
Secured bank loans  4   1   5   —   10 
Finance lease obligations  3   8   25   1,745   1,781 
Unsecured bank loans  214   —   —   —   214 
Trade and other payables  402   47   36   53   538 
Derivatives  57   —   —   —   57 
                     
Cash flows relating to unsecured bank loans are classified according to the maturity date of the loan drawdown rather than the facility maturity date.
Credit risk
The carrying amount of financial assets represents the maximum exposure to credit risk.
         
  At
  At
 
  December 31,
  December 31,
 
  2007  2006 
  (£ million) 
 
Equity securities available-for-sale  46   57 
Loans and receivables:        
Cash and cash equivalents  52   179 
Other financial assets  56   48 
Trade and other receivables excluding prepayments  209   214 
Derivatives  —   4 
         
   363   502 
         


F-60

Interest rate risk
For each class of interest bearing financial asset and financial liability, the following table indicates the range of interest rates effective at the balance sheet date, the carrying amount on the balance sheet and the periods in which they reprice, if earlier than the maturity date.
                          
      Repricing analysis
    Total  
  Effective carrying Less than 6 months   More than
As at December 31, 2006 interest rate amount 6 months -1 year 1-2 years 5 years
             
  (%) (£ million)
Cash and cash equivalents  0.0-5.2   (179)  (179)  —   —   — 
Secured bank loans (floating)  8.5   7   7   —   —   — 
Obligations under finance leases  9.7   97   —   —   —   97 
Unsecured bank loans:                        
 Euro floating rate  4.0   54   54   —   —   — 
 — effect of euro interest rate swaps*  (1.0)      (54)  —   54   — 
 US dollar floating rate  5.7   53   53   —   —   — 
  — effect of US dollar interest rate swaps*  (1.2)      (51)  —   51   — 
 Sterling floating rate  5.6   102   102   —   —   — 
                   
Net debt      134   (68)  —   105   97 
Foreign exchange contracts      (4)  (4)  —   —   — 
                   
       130   (72)  —   105   97 
                   
 
                         
        Repricing analysis 
     Total
     Between
  Between
    
  Effective
  carrying
  Less than
  6 months
  1 and 2
  More than
 
As at December 31, 2007
 interest rate  amount  6 months  and 1 year  years  5 years 
  (%)  (£ million) 
 
Cash and cash equivalents  0.0-5.9   (52)  (52)  —   —   — 
Secured bank loans  8.2   3   3   —   —   — 
Finance lease obligations*  9.7   100   —   —   —   100 
Unsecured bank loans:                        
Euro floating rate  5.3   121   121   —   —   — 
— effect of euro interest rate swaps*  (0.6)  —   (55)  —   55   — 
US dollar floating rate  5.5   333   333   —   —   — 
— effect of US dollar interest rate swaps*  (0.4)  —   (50)  50   —   — 
Sterling floating rate  6.9   275   275   —   —   — 
— effect of sterling interest rate swaps  0.0   —   (75)  —   75   — 
HK dollar floating rate  4.5   45   45   —   —   — 
                         
Net debt      825   545   50   130   100 
                         
* These items bear interest at a fixed rate.

F-58

                          
      Repricing analysis
    Total  
  Effective carrying Less than 6 months 1–2 More than
As at December 31, 2005 interest rate amount 6 months –1 year years 5 years
             
  % (£ million)
Cash and cash equivalents  0.0 – 4.5   (324)  (324)  —   —   — 
Secured bank loans (fixed)*  6.5 – 7.8   28   —   —   28   — 
Secured bank loans (floating)  2.9 – 8.5   10   10   —   —   — 
Unsecured bank loans:                        
 Euro floating rate  2.9   141   141   —   —   — 
 — effect of euro interest rate swaps*  (0.4)      (55)  —   55   — 
 US dollar floating rate  4.7   162   162   —   —   — 
 — effect of US dollar interest rate swaps*  0.2       (87)  87   —   — 
 Hong Kong dollar floating rate  4.7   71   71   —   —   — 
                   
Net debt      88   (82)  87   83   — 
Effect of currency swaps:                        
 Receive and pay fixed*  (1.5)  3   3   —   —   — 
 Receive and pay floating  (2.0)  2   2   —   —   — 
                   
       93   (77)  87   83   — 
                   
* These items bear interest at a fixed rate.
 
                         
        Repricing analysis 
     Total
     Between
  Between
    
  Effective
  carrying
  Less than
  6 months
  1 and 2
  More than
 
As at December 31, 2006
 interest rate  amount  6 months  and 1 year  years  5 years 
  (%)        (£ million)       
 
Cash and cash equivalents  0.0-5.2   (179)  (179)  —   —   — 
Secured bank loans  8.5   7   7   —   —   — 
Finance lease obligations*  9.7   97   —   —   —   97 
Unsecured bank loans:                        
Euro floating rate  4.0   54   54   —   —   — 
— effect of euro interest rate swaps*  (1.0)  —   (54)  —   54   — 
US dollar floating rate  5.7   53   53   —   —   — 
— effect of US dollar interest rate swaps*  (1.2)  —   (51)  —   51   — 
Sterling floating rate  5.6   102   102   —   —   — 
                         
Net debt      134   (68)  —   105   97 
Foreign exchange contracts      (4)  (4)  —   —   — 
                         
       130   (72)  —   105   97 
                         
* These items bear interest at a fixed rate.
Interest rate swaps are included in the above tables to the extent that they effect the Company’s interest rate repricing risk. The swaps hedge the floating rate debt by fixing the interest rate,rate. The effect shown above as the effectis their


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impact on the debt’s floating rate, onfor an amount equal to their notional principal for a period(principal and maturity of time represented by the figuresswap is shown in each column.repricing analysis). The fair values of derivatives are recorded in other financial assets and other payables.
 No currency swaps were held at December 31, 2006.
Trade and other receivables and trade and other payables are not included above as they are not interest bearing.
 The future redemption liability relating to the Company’s loyalty program incurs interest at US dollar LIBOR.

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Fair values
Fair values
 
The table below compares carrying amounts and fair values of the Company’s financial instruments.assets and liabilities.
                 
  At December 31, 2006 At December 31, 2005
     
  Carrying   Carrying  
  value Fair value value Fair value
         
  (£ million)
Financial assets
                
Cash and cash equivalents (note 18)  179   179   324   324 
Equity securities available-for-sale (note 15)  57   57   145   145 
Derivatives (note 15)  4   4   2   2 
Other financial assets (note 15)  48   48   72   72 
Financial liabilities
                
Borrowings, excluding finance lease liabilities (note 20)  (216)  (216)  (412)  (412)
Liabilities under finance leases (note 20)  (97)  (97)  —   — 
Derivatives (note 19)  —   —   (6)  (6)
 
                 
  At December 31, 2007  At December 31, 2006 
  Carrying
     Carrying
    
  value  Fair value  value  Fair value 
  (£ million) 
 
Financial assets
                
Equity securities available-for-sale (Note 15)  46   46   57   57 
Loans and receivables:                
Cash and cash equivalents (Note 18)  52   52   179   179 
Other financial assets (Note 15)  56   56   48   48 
Trade and other receivables, excluding prepayments (Note 17)  209   209   214   214 
Derivatives (Note 15)  —   —   4   4 
                 
Financial liabilities
                
Borrowings, excluding finance lease obligations (Note 20)  (777)  (777)  (216)  (216)
Finance lease obligations (Note 20)  (100)  (126)  (97)  (97)
Trade and other payables (Note 19)  (527)  (527)  (511)  (511)
Derivatives (Note 19)  (2)  (2)  —   — 
                 
The fair value of cash and cash equivalents approximates book value due to the short maturity of the investments and deposits. Equity securitiesavailable-for-sale and derivatives are held on the balance sheet at fair value as set out in noteNote 15. The fair value of other financial assets approximates book value based on prevailing market rates. The fair value of borrowings, excluding finance lease liabilities,obligations, approximates book value as interest rates reset to market rates on a frequent basis. The fair value of the finance lease liabilityobligation is deemed to be its carryingcalculated by discounting future cash flows at prevailing interest rates. The fair value as the inception of the lease was shortly before December 31, 2006.
      Tradetrade and other receivables and trade and other payables are not included in the above tables as their carrying value approximates to their faircarrying value, including the future redemption liability of the Company’s loyalty program.
Note 23 — Share-based payments
Note 23 —Short Term Deferred Incentive PlanNet debt
 
         
  At December 31,
  At December 31,
 
  2007  2006 
  (£ million) 
 
Cash and cash equivalents  52   179 
Loans and other borrowings — current  (8)  (10)
Loans and other borrowings — non-current  (869)  (303)
         
Net debt  (825)  (134)
         


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  Year ended
  Year ended
 
  December 31,
  December 31,
 
  2007  2006 
  (£ million) 
 
Movement in net debt
        
Net decrease in cash and cash equivalents  (131)  (152)
Add back cash flows in respect of other components of net debt:        
(Increase)/decrease in borrowings  (553)  172 
         
(Increase)/decrease in net debt arising from cash flows  (684)  20 
Non-cash movements:        
Finance lease liability  (9)  (103)
Exchange and other adjustments  2   37 
         
Increase in net debt  (691)  (46)
Net debt at beginning of the year  (134)  (88)
         
Net debt at end of the year  (825)  (134)
         
Note 24 —Share-based payments
Short Term Deferred Incentive Plan
The IHG Short Term Deferred Incentive Plan (“STDIP”), now called the Annual Bonus Plan, enables eligible employees, including Executive Directors, to receive all or part of their bonus in the form of shares together with, in certain cases, a matching award of free shares up to half the deferred amount. The bonus and matching shares in the 2004 and 2005 plans are deferred and released in three equal tranches on the first, second and third anniversaries of the award date. The bonus and matching shares in the 2006 planand 2007 plans are released on the third anniversary of the award date. Under the 2006 planand 2007 plans a percentage of the award (Board members — 100% (2006 80%); other eligible employees — 50%) must be taken in shares and deferred. Participants may defer the remaining amount on the same terms or take it in cash. The cash portion is accrued for in liabilities. The awards in all of the plans are conditional on the participants remaining in the employment of a participating company. Participation in the STDIP is at the discretion of the Remuneration Committee. The number of shares is calculated by dividing a specific percentage of the participant’s annual performance related bonus by the middle market quoted prices on the three consecutive dealing days immediately preceding the date of grant. A number of executives participated in the plan during the year and conditional rights over 569,293(i)
(2005 624,508)675,515 (2006 606,573) shares were awarded to participants.
Performance Restricted Share Plan
Long Term Incentive Plan
 
The Long Term Incentive Plan (“LTIP”), previously called the Performance Restricted Share Plan (“PRSP”), allows Executive Directors and eligible employees to receive share awards, subject to the satisfaction of a performance condition, set by the Remuneration Committee, which is normally measured over a three year period. Awards are normally made annuallyannualy and,
(i)Adjusted for the share capital consolidation on June 12, 2006.

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except in exceptional circumstances, will not exceed three times salary for Executive Directors and four times salary in the case of other eligible employees. In determining the level of awards within this maximum limit, the Remuneration Committee takes into account the level of Executive Share Options granted to the same person. During the year, conditional rights over 4,277,550 (2005 5,173,633)3,538,535 (2006 4,277,550) shares were awarded to employees under the plan. The plan provides for the grant of ‘nil“nil cost options’’ to participants as an alternative to conditional share awards.
Executive Share Option Plan
Executive Share Option Plan
 
For options granted, the option price is not less than the market value of an ordinary share, or the nominal value if higher. The market value is the quoted price on the business day preceding the date of grant, or the average of the middle market quoted prices on the three consecutive dealing days immediately preceding the date of grant. A performance condition has to be met before options can be exercised and is normally measured over a three year period.exercised. The performance condition is set by the Remuneration Committee. The plan was not operated in 2006during 2007 and no options were granted in the year under the plan. The latest date that any options may be exercised is April 2015.

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Sharesave Plan
 
Sharesave Plan
The Sharesave Plan is a savings plan whereby employees contract to save a fixed amount each month with a savings institution for three or five years. At the end of the savings term, employees are given the option to purchase shares at a price set before savings began. The Sharesave Plan is available to all United Kingdom employees (including Executive Directors) employed by participating Group companies provided that they have been employed for at least one year. The plan provides for the grant of options to subscribe for ordinary shares at the higher of nominal value and not less than 80% of the middle market quotations of the ordinary shares on the three dealing days immediately preceding the invitation date. The plan was not operated during 2005 or 20062007 and no options were granted in the year under the plan. The latest date that any options may be exercised under thethree-year plan is February 29, 2008 and under thefive-year plan is February 28, 2010.
US Employee Stock Purchase Plan
US Employee Stock Purchase Plan
 
The US Employee Stock Purchase Plan will allow eligible employees resident in the United States an opportunity to acquire Company American Depositary Shares (“ADS”s) on advantageous terms. The plan, when operational, will comply with Section 423 of the US Internal Revenue Code of 1986. The option to purchase ADSs may be offered only to employees of designated subsidiary companies. The option price may not be less than the lesser of either 85% of the fair market value of an ADS on the date of grant or 85% of the fair market value of an ADS on the date of exercise. Options granted under the plan must generally be exercised within 27 months from the date of grant. The plan was not operated during 2005 or 20062007 and at December 31, 20062007 no options had been granted under the plan.
Former Six Continents Share Schemes
Former Six Continents Share Schemes
 
Under the terms of the Separationseparation of Six Continents PLC in 2003, holders of options under the Six Continents Executive Share Option Schemes were given the opportunity to exchange their Six Continents PLC options for equivalent value new options over IHG shares. As a result of this exchange, 23,195,482 shares were put under option at prices ranging from 308.48 pence to 593.29 pence. The exchanged options were immediately exercisable and are not subject to performance conditions. During 2006,2007, 1,358,791 (2006 3,678,239, (2005 4,138,482,) such options were exercised, leaving a total of 4,055,674 (2005 7,909,002; 2004 12,568,562)2,696,883 (2006 4,055,674) such options outstanding at prices ranging from 308.48 pence to 593.29 pence for 2005 and 2006.pence. The latest date that any options may be exercised is October 2012.
 Under IFRS the
The Company recognized a cost of £30 million (2006 £18 million, (20052005 £17 million, 2004 £12 million) in operating profit related to equity settledequity-settled share-based payment transactions during the year. Under US GAAP, the Company recognized a cost of £57 million (2005 £17 million, 2004 £12 million).

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The aggregate consideration in respect of ordinary shares issued under option schemes during the year was £16 million (2006 £20 million, (20052005 £10 million, 2004 £16 million).
 The Company has a policy of repurchasing shares on the open market to satisfy share option exercises. The aim of the policy is to maintain a shareholding of approximately three million shares. All share option exercises are issued from the employee share trust.
The following table sets forth awards and options granted during 2006.2007. No awards were granted under the Executive Share Option Plan, Sharesave Plan or US Employee Stock Purchase Plan during the year.
         
  Short Term Deferred Performance Restricted
  Incentive Plan Share Plan
     
Number of shares awarded in 2006  569,293   4,277,550 
 
         
  Short Term Deferred
 Long Term
  Incentive Plan Incentive Plan
 
Number of shares awarded in 2007  675,515   3,538,535 


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In 2007, 2006 2005 and 2004,2005, the Company used separate option pricing models and assumptions for each plan. The following tables set forth information about how the fair value of each option is calculated:
         
  Short Term Deferred Performance Restricted
2006 Incentive Plan(iii) Share Plan
     
Valuation model Binomial Monte Carlo
    Simulation and
    Binomial
Weighted average share price  831.0p   946.0p 
Expected dividend yield      2.32% 
Risk-free interest rate      4.9% 
Volatility(i)
      20% 
Term (years)(ii)
  2.0   3.0 
             
  Short Term Deferred Performance Restricted Executive Share
2005 Incentive Plan(iii) Share Plan Option Plan
       
Valuation model Binomial Monte Carlo Binomial
    Simulation and  
    Binomial  
Weighted average share price  652.8p   702.0p   627.0p 
Exercise price          620.0p 
Expected dividend yield  2.73%   3.18%   3.62% 
Risk-free interest rate      4.10%   4.69% 
Volatility(i)
      23%   28% 
Term (years)(ii)
  2.0   3.0   6.5 
             
  Short Term Deferred Performance Restricted Executive Share
2004 Incentive Plan(iii) Share Plan Option Plan
       
Valuation model Binomial Monte Carlo Binomial
    Simulation and  
    Binomial  
Weighted average share price  498.0p   550.0p   494.0p 
Exercise price          494.0p 
Expected dividend yield  3.74%   3.49%   3.81% 
Risk-free interest rate          4.73% 
Volatility(i)
          31.33% 
Term (years)(ii)
  2.8   3.0   6.5 
 
         
  Short Term Deferred
  Long Term
 
2007
 Incentive Plan  Incentive Plan 
Valuation model Binomial  Monte Carlo
 
     Simulation and
 
     Binomial 
 
Weighted average share price (pence)  1252.0   1262.0 
Expected dividend yield  2.13%  2.13%
Risk-free interest rate      5.40%
Volatility(i)
      19%
Term (years)  3.0   3.0 
         
  Short Term Deferred
  Long Term
 
2006
 Incentive Plan  Incentive Plan 
Valuation model Binomial  Monte Carlo
 
     Simulation and
 
     Binomial 
 
Weighted average share price (pence)  831.0   946.0 
Expected dividend yield      2.32%
Risk-free interest rate      4.90%
Volatility(i)
      20%
Term (years)  2.0   3.0 
             
  Short Term Deferred
  Long Term
  Executive Share
 
2005
 Incentive Plan  Incentive Plan  Option Plan 
Valuation model Binomial  Monte Carlo
  Binomial 
     Simulation and
    
     Binomial    
 
Weighted average share price (pence)  652.8   702.0   627.0 
Exercise price (pence)          620.0 
Expected dividend yield  2.73%  3.18%  3.62%
Risk-free interest rate      4.10%  4.69%
Volatility(i)
      23%  28%
Term (years)  2.0   3.0   6.5 
(i)The expected volatility was determined by calculating the historical volatility of the Company’s share price corresponding to the expected life of the option or share award.
(ii)The expected term of the options is taken to be the mid point between vesting and lapse, as historical exercise patterns have shown this to be appropriate.


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(iii)Awards made under the STDIP are structured as ’nil cost share awards’ and expected volatility and risk free rate do not impact the fair value calculation of these awards. The employees are entitled to receive dividend equivalents over the vesting period and, therefore, the expected dividend yield assumption is not required.
 
Movements in the awards and options outstanding under the schemes for the years ended December 31, 2006, December 31, 2005 and December 31, 2004 are as follows:
         
  Short Term Deferred Performance Restricted
  Incentive Plan Share Plan
     
  Number of shares Number of shares
  (thousands)
Outstanding at January 1, 2004  107   5,445 
Granted  231   2,665 
Vested  (47)  — 
Lapsed or canceled  (50)  (375)
       
Outstanding at December 31, 2004  241   7,735 
Granted  625   5,174 
Vested  (32)  (1,278)
Lapsed or canceled  (5)  (997)
       
Outstanding at December 31, 2005  829   10,634 
Granted  569   4,277 
Vested  (328)  (1,395)
Lapsed or canceled  (69)  (2,191)
       
Outstanding at December 31, 2006
  1,001   11,325 
       
Fair value of awards granted during the period
        
At December 31, 2006  894.5p  287.0p
At December 31, 2005  649.1p  117.0p
At December 31, 2004  448.3p  125.1p
       
Weighted average remaining contract life (years)
        
At December 31, 2006  1.0   1.3 
At December 31, 2005  1.1   1.2 
At December 31, 2004  1.7   1.0 
 
         
  Short Term Deferred
  Long Term
 
  Incentive Plan  Incentive Plan 
  Number of shares  Number of shares 
  (thousands) 
 
Outstanding at January 1, 2005  241   7,735 
Granted  625   5,174 
Vested  (32)  (1,278)
Lapsed or canceled  (5)  (997)
         
Outstanding at December 31, 2005  829   10,634 
Granted  607   4,277 
Vested  (328)  (1,395)
Share capital consolidation  (50)  — 
Lapsed or canceled  (57)  (2,191)
         
Outstanding at December 31, 2006  1,001   11,325 
Granted  675   3,539 
Vested  (418)  (1,694)
Share capital consolidation  (68)  — 
Lapsed or canceled  (86)  (1,707)
         
Outstanding at December 31, 2007
  1,104   11,463 
         
Fair value of awards granted during the year (pence)
        
At December 31, 2007  1190.6   453.8 
At December 31, 2006  894.5   287.0 
At December 31, 2005  649.1   117.0 
Weighted average remaining contract life (years)
        
At December 31, 2007  1.5   1.1 
At December 31, 2006  1.0   1.3 
At December 31, 2005  1.1   1.2 
The above awards do not vest until the performance conditions have been met.


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F-63

                                 
  Sharesave Plan Executive Share Option Plan
     
    Weighted Aggregate   Weighted Aggregate
  Number of Range of average intrinsic Number of Range of average intrinsic
  shares option prices option price value shares option prices option price value
                 
  thousands pence pence £ million thousands pence pence £ million
Options outstanding at
January 1, 2004		  1,373   420.5   420.5       27,220   295.3-593.3   424.9     
Granted  —   —   —       6,951   494.2   494.2     
Exercised  —   —   —       (7,430)  295.3-593.3   408.2     
Lapsed or canceled  (111)  420.5   420.5       —   —   —     
                         
Options outstanding at December 31, 2004  1,262   420.5   420.5   0.3   26,741   308.5-593.3   447.6   5.3 
Granted  —   —   —       2,105   619.8   619.8     
Exercised  (118)  420.5   420.5       (4,138)  308.5-593.3   429.1     
Lapsed or canceled  (280)  420.5   420.5       (2,089)  345.6-619.8   465.3     
                         
Options outstanding at December 31, 2005  864   420.5   420.5   0.4   22,619   308.5-619.8   465.4   8.5 
Exercised  (389)  420.5   420.5       (8,365)  308.5-619.8   438.7     
Lapsed or canceled  (310)  420.5   420.5       (175)  345.6-619.8   404.6     
                         
Options outstanding at December 31, 2006
  165   420.5   420.5   0.1   14,079   308.5-619.8   482.2   11.0 
                         
Options exercisable
                                
At December 31, 2006  —   —   —   —   6,002   308.5-619.8   430.2   5.0 
At December 31, 2005  —   —   —   —   8,710   308.5-619.8   434.3   3.5 
At December 31, 2004  —   —   —   —   12,569   308.5-593.3   426.4   1.7 
Fair value of options granted
during the period
                                
At December 31, 2005  —               164.0p            
At December 31, 2004  —               136.0p            
Weighted average remaining contract life (years)
                         
  Sharesave Plan  Executive Share Option Plan 
        Weighted
        Weighted
 
  Number of
  Range of
  average
  Number of
  Range of
  average
 
  shares  option prices  option price  shares  option prices  option price 
  (thousands)  (pence)  (pence)  (thousands)  (pence)  (pence) 
 
Options outstanding at January 1, 2005  1,262   420.5   420.5   26,741   308.5-593.3   447.6 
Granted  —   —   —   2,105   619.8   619.8 
Exercised  (118)  420.5   420.5   (4,138)  308.5-593.3   429.1 
Lapsed or canceled  (280)  420.5   420.5   (2,089)  345.6-619.8   465.3 
                         
Options outstanding at December 31, 2005  864   420.5   420.5   22,619   308.5-619.8   465.4 
Exercised  (389)  420.5   420.5   (8,365)  308.5-619.8   438.7 
Lapsed or canceled  (310)  420.5   420.5   (175)  345.6-619.8   404.6 
                         
Options outstanding at December 31, 2006  165   420.5   420.5   14,079   308.5-619.8   482.2 
Exercised  (101)  420.5   420.5   (5,568)  308.5-619.8   471.9 
Lapsed or canceled  (7)  420.5   420.5   (317)  438.0-619.8   526.8 
                         
Options outstanding at December 31, 2007
  57   420.5   420.5   8,194   308.5-619.8   487.4 
                         
Options exercisable
                        
At December 31, 2007  —   —   —   6,583   308.5-619.8   455.0 
At December 31, 2006  —   —   —   6,002   308.5-619.8   430.2 
At December 31, 2005  —   —   —   8,710   308.5-619.8   434.3 
                 
  Sharesave Plan Executive Share Option Plan
     
  Outstanding Exercisable Outstanding Exercisable
         
At December 31, 2006  0.8   —   6.4   5.1 
At December 31, 2005  1.9   —   6.9   5.2 
At December 31, 2004  2.8   —   7.3   4.6 
 
Included within the options outstanding of the Executive Share Option Plan are options over 2,696,883 (2006 4,055,674, (2005 7,909,002; 2004 12,568,562)2005 7,909,002) shares that have not been recognized in accordance with IFRS 2 as the options were granted on or before November 7, 2002. These options, relating to former Six Continents shares schemes, have not been subsequently modified and therefore do not need to be accounted for in accordance with IFRS 2.
 
The weighted average share price at the date of exercise for share options vested during the year was 969.41259.0 pence. The closing share price on December 29, 200631, 2007 was 1,262.0884.0 pence and the range during the year was 806.7873.5 pence to 1,265.01413.0 pence per share.

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Summarized information about options outstanding at December 31, 20062007 under the share option schemes is as follows:
                      
  Options outstanding Options exercisable
     
    Weighted    
    average Weighted   Weighted
  Number remaining average Number average
  outstanding contract life option price exercisable option price
           
  thousands years pence thousands pence
Range of exercise prices (pence)
                    
Sharesave Plan                    
420.5  165   0.8   420.5   —   — 
                
 Executive Share Option Plan                    
308.5 to 353.8  735   3.5   343.3   734   343.3 
353.9 to 498.0  11,396   6.5   468.1   5,033   436.2 
498.1 to 619.8  1,948   7.5   616.8   235   595.0 
                
   14,079   6.4   482.2   6,002   430.2 
                
          
  For the year ended
  December 31,
   
  2006 2005
     
  (£ million)
Intrinsic value of options exercised in the year
        
 Short term deferred incentive plan  5.6   0.2 
 Performance restricted share plan  7.2   4.8 
 Sharesave plan  1.9   0.3 
 Executive share option plan  17.8   8.0 
       
   32.5   13.3 
       
Fair value of shares vested during the year
        
 Short term deferred incentive plan  1.7   0.2 
 Performance restricted share plan  6.2   — 
 Sharesave plan  —   — 
 Executive share option plan  9.3   — 
       
   17.2   0.2 
       
 As of December 31, 2006, there was £29.8 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 2 years.
                     
  Options outstanding       
     Weighted
     Options exercisable 
     average
  Weighted
     Weighted
 
  Number
  remaining
  average
  Number
  average
 
  outstanding  contract life  option price  exercisable  option price 
  (thousands)  (years)  (pence)  (thousands)  (pence) 
 
Range of exercise prices (pence)
                    
Sharesave Plan
                    
420.5  57   1.0   420.5   —   — 
                     
Executive Share Option Plan
                    
308.5 to 349.1  565   2.3   347.7   565   347.7 
349.2 to 498.0  5,905   5.3   462.6   5,905   462.6 
498.1 to 619.8  1,724   6.8   618.1   113   593.7 
                     
   8,194   5.4   487.4   6,583   455.0 
                     
      Cash received from option exercises under all share-based payment arrangements for the years ended December 31, 2006, 2005 and 2004, was £18.9 million, £11.7 million, and £15.2 million respectively. The actual tax benefit realized for the tax deductions from option exercise of the share-based payment arrangements totaled £12.6 million, £20.7 million and £50.0 million respectively, for the years ended December 31, 2006, 2005 and 2004.

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F-65

Note 24 — Provisions
              
  Hotels Onerous  
  reorganization(a) contracts(b) Total
       
  (£ million)
At January 1, 2005            
 Current  4   1   5 
 Non-current  4   2   6 
          
   8   3   11 
Income statement  —   (1)  (1)
Expenditure  (4)  —   (4)
          
At December 31, 2005 — all current  4   2   6 
Income statement  (2)  —   (2)
Expenditure  (2)  (2)  (4)
          
At December 31, 2006
  —   —   — 
          
Note 25 —Deferred tax payable
 
                             
                 Other
    
  Property,
  Deferred
           short-term
    
  plant and
  gains on
     Employee
  Intangible
  temporary
    
  equipment  loan notes  Losses  benefits  assets  differences*  Total 
           (£ million)          
 
At January 1, 2005  492   122   (113)  (39)  (30)  (50)  382 
Disposals  (150)  —   —   34   —   3   (113)
Income statement  (87)  —   (11)  (5)  32   56   (15)
Statement of recognized income and expense  —   —   —   (5)  —   (2)  (7)
Exchange and other adjustments  1   —   1   (1)  (3)  (1)  (3)
                             
At December 31, 2005  256   122   (123)  (16)  (1)  6   244 
Disposals  (126)  —   2   —   —   7   (117)
Income statement  (2)  (26)  31   (1)  16   (32)  (14)
Statement of recognized income and expense  —   —   —   1   —   (27)  (26)
Acquisition of subsidiary (Note 31)  —   —   —   —   1   —   1 
Exchange and other adjustments  (9)  (4)  1   2   1   2   (7)
                             
At December 31, 2006  119   92   (89)  (14)  17   (44)  81 
Income statement  1   (4)  (2)  3   3   (30)  (29)
Statement of recognized income and expense  —   —   —   3   —   27   30 
Exchange and other adjustments  3   (1)  (3)  —   1   3   3 
                             
At December 31, 2007
  123   87   (94)  (8)  21   (44)  85 
                             
(a)* Relates to the Hotels reorganization charged to the non-operating special item in 2003.
(b)Primarily relates to onerous fixed lease contracts acquired with the InterContinental hotels business.
Note 25 — Deferred tax payable
                             
            Other  
  Property, Deferred       short-term  
  plant and gains on   Employee Intangible temporary  
  equipment loan notes Losses benefits assets differences* Total
               
  (£ million)
At January 1, 2004  519   123   (37)  (42)  (37)  (49)  477 
Disposals  (5)  —   —   —   —   —   (5)
Income statement  (17)  —   (77)  17   5   (5)  (77)
Statement of recognized income and expense  —   —   —   (14)  —   —   (14)
Exchange and other adjustments  (5)  (1)  1   —   2   4   1 
                      
At December 31, 2004  492   122   (113)  (39)  (30)  (50)  382 
Disposals  (150)  —   —   34   —   3   (113)
Income statement  (87)  —   (11)  (5)  32   56   (15)
Statement of recognized income and expense  —   —   —   (5)  —   (2)  (7)
Exchange and other adjustments  1   —   1   (1)  (3)  (1)  (3)
                      
At December 31, 2005  256   122   (123)  (16)  (1)  6   244 
Disposals  (126)  —   2   —   —   7   (117)
Income statement  (2)  (26)  31   (1)  16   (32)  (14)
Statement of recognized income and expense  —   —   —   1   —   (27)  (26)
Acquisition of subsidiary (note 31)  —   —   —   —   1   —   1 
Exchange and other adjustments  (9)  (4)  1   2   1   2   (7)
                      
At December 31, 2006
  119   92   (89)  (14)  17   (44)  81 
                      
* Othershort-term temporary differences relate primarily to provisions and accruals andshare-based payments.

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  At December 31,
   
  2006 2005 2004
       
  (£ million)
Analyzed as:            
 Deferred tax payable  79   210   234 
 Liabilities classified as held for sale  2   34   148 
          
At December 31
  81   244   382 
          
 
             
  At December 31, 
  2007  2006  2005 
  (£ million) 
 
Analyzed as:            
Deferred tax payable  82   79   210 
Liabilities classified as held for sale  3   2   34 
             
At December 31
  85   81   244 
             
The deferred tax asset of £94 million (2006 £89 million, (20052005 £123 million; 2004 £113 million) recognized in respect of losses includes £60 million (2006 £64 million, (2005 £89 million; 20042005 £89 million) of capital losses available to be utilized against the realization of capital gains which are recognized as a deferred tax liability and £34 million (2006 £25 million, (20052005 £34 million; 2004 £24 million) in respect of revenue tax losses. Revenue losses include £1£3 million (2005 £nil; 2004(2006 £1m, 2005 £nil) in respect of losses which arose during a period of hotel refurbishment and which are expected to be utilized against future operating profit.
 
Tax losses with a value of £191 million (2006 £192 million, (20052005 £282 million; 2004 £305 million), including capital losses with a value of £109 million (2006 £87 million, (20052005 £93 million; 2004 £98 million), have not been recognized as the realization of a benefit fromtheir use of these losses is uncertain or not currently anticipated. These losses may be carried forward indefinitely with the exception of £1 million (2005 £nil; 2004(2006 £nil, 2005 £nil) which expires after five years, £nil (2006 £1 million, 2005 £nil) which expires after seven years and £nil (2006 £1 million, (2005 £nil; 20042005 £nil) which expires after 15 years.


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Deferred tax assets of £4 million (2006 £6 million, (20052005 £19 million; 2004 £4 million) in respect of share-based payments, £7 million (2005(2006 £7 million; 2004 £10million, 2005 £7 million) in respect of employee benefits and £13 million (2006 £17 million, (20052005 £11 million; 2004 £nil)million) in respect of other items have not been recognized as the timing of their realization and consequent use is uncertain or not currently anticipated and, in part, is dependent upon the outcome of European Union (“EU”) case law. Other items include £nil (2006 £7 million, (2005 £nil; 20042005 £nil) which expire after nine years.
 
At December 31, 20062007 the Company has not provided deferred tax in relation to temporary differences associated with undistributed earnings of subsidiaries. Quantifying the temporary differences is not practical. However, based on current enacted law and on the basis that the Company is in a position to control the timing and manner of realization of these temporary differences, no material additional tax liabilitiesconsequences are expected to arise.
Note 26 — Minority equity interest
             
  Year ended December 31,
   
  2006 2005 2004
       
  (£ million)
At January, 1  20   117   139 
Total recognized income and expense in the year  —   15   17 
Dividends paid to minority interests  (1)  (177)  (26)
Disposal of hotels (Note 11)  (13)  —   (11)
Disposal of Soft Drinks business (Note 11)  —   66   — 
Acquisition of subsidiary (Note 31)  3   —   — 
Exchange and other adjustments  (1)  (1)  (2)
          
At December, 31  8   20   117 
          
Note 26 —Minority equity interest
Note 27 — Operating leases
             
  Year ended December 31, 
  2007  2006  2005 
  (£ million) 
 
At January, 1  8   20   117 
Total recognized income and expense in the year  —   —   15 
Dividends paid to minority interests  —   (1)  (177)
Disposal of hotels (Note 11)  (6)  (13)  — 
Disposal of Soft Drinks business (Note 11)  —   —   66 
Acquisition of subsidiary (Note 31)  —   3   — 
Exchange and other adjustments  1   (1)  (1)
             
At December, 31  3   8   20 
             
 
Note 27 —Operating leases
During the year ended December 31, 2006,2007, £32 million (2006 £39 million, (20052005 £62 million; 2004 £67 million) was recognized as an expense in the income statement in respect of operating leases.

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Total commitments undernon-cancelable operating leases are as follows:
             
  At December 31, At December 31, At December 31,
  2006 2005 2004
       
  (£ million)
Due within one year  27   36   55 
One to two years  21   31   51 
Two to three years  19   25   47 
Three to four years  14   19   38 
Four to five years  9   14   31 
More than five years  100   149   884 
          
   190   274   1,106 
          
 
         
  At December 31, 
  2007  2006 
  (£ million) 
 
Due within one year  28   27 
One to two years  19   21 
Two to three years  16   19 
Three to four years  14   14 
Four to five years  11   9 
More than five years  108   100 
         
   196   190 
         
The average remaining term of these leases, which generally contain renewal options, is approximately 1817 years. No material restrictions or guarantees exist in the Company’s lease obligations.


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Note 28 — Capital commitments
             
  At December 31, At December 31, At December 31,
  2006 2005 2004
       
  (£ million)
Contracts placed for expenditure on property, plant and equipment not provided for in the financial statements  24   76   53 
          
Note 28 —Capital and other commitments
Note 29 — Contingencies
         
  At December 31,
  2007 2006
  (£ million)
 
Contracts placed for expenditure on property, plant and equipment not provided for in the financial statements  10   24 
         
 Contingent liabilities not provided for in
On October 24, 2007, the financial statements relate to:Company announced a worldwide relaunch of its Holiday Inn brand family. In support of this relaunch, IHG will make anon-recurring revenue investment of up to £30 million which it is anticipated will be charged to the income statement as on exceptional item during 2008.
             
  At December 31, At December 31, At December 31,
  2006 2005 2004
       
  (£ million)
Guarantees  11   20   9 
          
 
Note 29 —Contingencies
         
  At December 31,
  2007 2006
  (£ million)
 
Contingent liabilities not provided for in the financial statements relating to guarantees  5   11 
         
In limited cases, the Company may provide performance guarantees to third-party owners to secure management contracts. The maximum exposure under such guarantees is £142£121 million (2005 £134 million; 2004 £115(2006 £142 million). It is the view of the Directors that, other than to the extent that liabilities have been provided for in these financial statements, such guarantees are not expected to result in financial loss to the Company.
 
As of December 31, 2006,2007, the Company had outstanding letters of credit of £31 million (2005 £18(2006 £31 million) mainly relating to self-insurance programs.
 
The Company may guarantee loans made to facilitate third-party ownership of hotels in which the Company has an equity interest and also a management contract. As of December 31, 2006,2007, the Company was a guarantor of loans which could amount to a maximum of £13£14 million (2005 £15(2006 £13 million).
 
The Company has given warranties in respect of the disposal of certain of its former subsidiaries and hotels. It is the view of the Directors that, other than to the extent that liabilities have been provided for in these financial statements, such warranties are not expected to result in financial loss to the Company.

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Note 30 — Related party disclosures
Note 30 —Related party disclosures
Key management personnel comprises the Board and Executive Committee.
             
  Year ended December 31,
   
  2006 2005 2004
       
  (£ million)
Total compensation of key management personnel
            
Short-term employment benefits  9.5   6.5   5.5 
Post-employment benefits  0.5   0.2   0.2 
Termination benefits  —   0.8   0.8 
Equity compensation benefits  7.9   6.9   4.1 
          
   17.9   14.4   10.6 
          
 
             
  Year ended December 31, 
  2007  2006  2005 
  (£ million) 
 
Total compensation of key management personnel
            
Short-term employment benefits  9.4   9.5   6.5 
Post-employment benefits  0.5   0.5   0.2 
Termination benefits  —   —   0.8 
Equity compensation benefits  9.1   7.9   6.9 
             
   19.0   17.9   14.4 
             
There were no transactions with key management personnel during the years ended December 31, 2007, 2006 2005 or 2004.2005.


F-70

Note 31 —Acquisition of subsidiary
Note 31 — Acquisition of subsidiary
On December 1, 2006, the Company acquired a 75% interest in ANA Hotels & Resorts Co., Ltd (subsequently renamed IHG ANA Hotels Group Japan LLC), a hotel management company based in Japan.
         
  Carrying  
  values Fair
  pre-acquisition value
     
  (£ million)
Intangible assets  1   8 
Current assets (excluding cash and cash equivalents)  4   4 
Cash and cash equivalents  4   4 
Trade and other payables  (3)  (3)
Current tax payable  (1)  (1)
Deferred tax payable  —   (1)
       
   5   11 
       
Minority interest      (3)
       
Net assets acquired      8 
Goodwill on acquisition      2 
       
Consideration, satisfied in cash (including costs of £2 million)      10 
Cash and cash equivalents acquired      (4)
       
Net cash outflow      6 
       
 
         
  Carrying
    
  values
  Fair
 
  pre-acquisition  value 
  (£ million) 
 
Intangible assets  1   8 
Current assets (excluding cash and cash equivalents)  4   4 
Cash and cash equivalents  4   4 
Trade and other payables  (3)  (3)
Current tax payable  (1)  (1)
Deferred tax payable  —   (1)
         
   5   11 
         
Minority interest      (3)
         
Net assets acquired      8 
Goodwill on acquisition      2 
         
Consideration, satisfied in cash (including costs of £2 million)      10 
Cash and cash equivalents acquired      (4)
         
Net cash outflow      6 
         
Management contracts acquired have beenwere recognized as intangible assets at their fair value. The residual excess over the net assets acquired iswas recognized as goodwill.
      The operating profit of the joint venture from the date of acquisition to the balance sheet date was not material to the Company’s results. If the acquisition had occurred on January 1, 2006, Company revenue would have been £16 million higher and operating profit would have been £2 million higher.


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F-69

Note 32 —Differences between International Financial Reporting Standards and United States Generally Accepted Accounting Principles
      From January 1, 2005, as required by the European Union’s IAS Regulation, the Company has prepared its Annual Report and Form 20-F in accordance with IFRS as adopted by the European Union (“EU”), which differ in certain respects from US generally accepted accounting principles (“US GAAP”). These differences relate principally to the following items, and the effect of each of the adjustments to profit for the financial year and net equity that would be required to reconcile to US GAAP is set out below.
      IFRS as adopted by the EU differs in certain respects from IFRS as issued by the International Accounting Standards Board (“IASB”). However, the consolidated financial statements for the periods presented would be no different had the Company applied IFRS as issued by the IASB. References to IFRS hereafter should be construed as references to IFRS as adopted by the EU.
      This US GAAP information provides a reconciliation between profit available for IHG equityholders under IFRS and net income under US GAAP and between IHG shareholders’ equity under IFRS and IHG shareholders’ equity under US GAAP, respectively.
      Under US GAAP, the Company has adopted two new accounting standards during the year: FAS No. 158 “Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans, an Amendment of FASB Statements No. 87, 88, 106 and 132R” and FAS No. 123(R)“Share-Based Payment”. The impact of adopting these standards is described below.
Classification of borrowings
      Under US GAAP, the amounts shown as repayable after one year for unsecured bank loans drawn under or supported by bank facilities with maturities of up to five years and amounting to £206 million (2005 £374 million) would be classified as current liabilities since the drawings on the facilities are repayable within one year.
Pensions and other postretirement benefits
      Under IFRS, the amount charged to the income statement comprises the current service cost, the interest cost of the plan liabilities and the expected return on assets for the period. Any amounts arising from changes in actuarial assumptions and differences between expected and actual return on plan assets are recognized in the Group statement of recognized income and expense. Under US GAAP, a corridor approach to the recognition of actuarial gains and losses is applied, such that only actuarial gains and losses in excess of 10% of the greater of plan assets or obligations is recognized in the income statement and spread over the maximum period of the employees’ remaining service period.
      Under IFRS, any surplus or deficit in the fair value of plan assets over the present value of the benefit obligation is recorded as an asset or liability in the Company’s balance sheet. Under US GAAP, the Company has adopted FAS No. 158 “Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans, an Amendment of FASB Statements No. 87, 88, 106, and 132R” (“FAS 158”) effective December 31, 2006. FAS 158 requires the recognition of the over-funded and under-funded status of a defined benefit postretirement plan as an asset or liability in the balance sheet and the recognition of changes in that funded status in the year in which the changes occur through other comprehensive income. The funded status of a benefit plan is measured as the difference between the fair value of the plan assets and the projected benefit obligation. FAS 158 also requires an employer to measure its defined benefit plan assets and obligations as of the date of the employers’ fiscal year end. Further information on the impact of adopting FAS 158 is given on page F-83. Following the adoption of FAS 158, there is now no difference between the amounts recognized in the balance sheet under IFRS and US GAAP.
      Prior to the adoption of FAS 158, the accumulated benefit obligations of the benefit plans exceeded the fair value of the plans’ assets. Under these circumstances, US GAAP required the recognition of the difference as a balance sheet liability and the elimination of any amounts previously recognized as a prepaid pension cost. An equal amount, but not exceeding the amount of unrecognized past service cost, was

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recognized as an intangible asset with the offsetting balance reported in other comprehensive income as a minimum pension liability adjustment.
Intangible assets
      Under IFRS, goodwill arising on acquisitions prior to October 1, 1998 was eliminated against equity. From October 1, 1998 to December 31, 2003 acquired goodwill was capitalized and amortized over a period not exceeding 20 years. Since January 1, 2004 goodwill has continued to be capitalized but is no longer amortized; instead it is subject to annual impairment testing.
      Under US GAAP, goodwill arising on acquisitions prior to July 1, 2001 was capitalized and amortized over its estimated useful life, not exceeding 40 years. From October 1, 2002 goodwill and indefinite life intangible assets are not amortized but are reviewed annually for impairment.
      Under IFRS, development costs and software are included in intangible assets. Under US GAAP, these assets are included in property, plant and equipment.
      Under IFRS, purchase consideration which is contingent on future events is included in the cost of acquisition when receipt is probable and an amount can be reliably measured. Under US GAAP, contingent consideration is recognized when the related contingencies are resolved.
      Under IFRS, when assets are sold and a purchaser enters into a management or franchise contract with the Company, the Company capitalizes an intangible asset as part of the gain or loss on disposal at an estimate of the fair value of the contract entered into. This value is amortized over the life of the contract. Under US GAAP, an intangible asset is not recognized as there remains continuing involvement in the hotel operations.
Property, plant and equipment
      Under IFRS, the deemed cost at transition from UK GAAP on January 1, 2004 included prior year revaluations. Under US GAAP, property, plant and equipment are carried at historic cost less accumulated depreciation and impairment losses.
      Under IFRS, depreciation is based on the book value of assets, including revaluation where appropriate. Prior to October 1, 1999, freehold hotels were not depreciated, as any charge would have been immaterial given that such properties were maintained, as a matter of policy, by a program of repair and maintenance such that their residual values were at least equal to their book values. From October 1, 1999, all properties were depreciated. There is now no difference between IFRS and US GAAP with regard to depreciation policies.
      Under IFRS, impairment is measured by comparing the carrying value of property, plant and equipment with the higher of fair value less cost to sell and value in use. Value in use is assessed based on estimated future cash flows discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and risks specific to the asset. Under US GAAP, impairments of long-lived assets are assessed on the basis of undiscounted cash flows. If an impairment charge is required it is measured on the basis of discounted cash flows.
      Under IFRS the Company recognizes a profit on disposal of property, plant and equipment provided substantially all the risks and rewards of ownership have transferred. For the purposes of US GAAP, the Company accounts for sales of real estate in accordance with FAS 66 “Accounting for Sales of Real Estate”. If there is significant continuing involvement with the property, any gain on sale is deferred and is recognized over the life of the long-term management contract retained on the property.
      Prior to the IFRS transition date, cumulative foreign currency exchange gains and losses relating to the disposal of foreign operations were recorded within equity. Since January 1, 2004, foreign currency gains and losses are included in determining the profit or loss on disposal of foreign operations. At that date, the Company opted to set the currency translation reserve to nil. Under US GAAP, such gains and losses are also

F-71

included in determining the profit or loss on disposal but are tracked from the date of acquisition of the foreign operation.
Staff costs
      The Company provides certain compensation arrangements in the US through a Rabbi Trust. Under IFRS, the net deficit is recorded as a provision and the net change in the underlying value of the assets and liabilities is recorded as a charge (or credit) to the income statement. Under US GAAP, the marketable securities held by the Rabbi Trust are accounted for in accordance with FAS 115 “Accounting for certain investments in Debt and Equity Securities”. The trust is shown gross in the balance sheet. The marketable securities held by the trust are recorded at market value and unrealized gains and losses are reported in other comprehensive income except for other than temporary movements which are recognized in the income statement.
     Share-based Compensation
      Under IFRS, the Company’s employee share-based awards are all equity settled and the Company does not recognize a liability within the balance sheet for such arrangements. The IFRS income statement charge is based upon the grant date fair value of the share awards.
      Under US GAAP, prior to January 1, 2006, the Company applied FAS No. 123 “Accounting for Stock-Based Compensation” (“FAS 123”) when accounting for its share-based awards. As applied to the Company there was no difference in the treatment of employee share arrangements between IFRS 2 and FAS 123.
      The Company has adopted FAS 123(R) “Share-Based Payment” (“FAS 123(R)”) effective January 1, 2006. FAS 123(R) revises FAS 123 in a number of respects. Upon adoption of FAS 123(R), for awards which are classified as liability awards (see below), the Company is required to reclassify the FAS 123 historical compensation cost from equity to a balance sheet liability and to recognize the difference between this and the fair value of the liability through the income statement. The resultant cumulative effect of change in accounting principle has reduced net income for 2006 by £19 million (net of a £9 million tax benefit).
      As is common practice in the UK, certain of the Company’s employee share option plans contain inflation indexed earnings growth performance conditions. FAS 123(R) requires such plans to be accounted for under the liability method; under IFRS 2, they are accounted for as equity settled share awards. Under the liability method, in addition to recognizing a balance sheet liability, the income statement charge is based on the remeasurement of the fair value of each award at each reporting date until vesting whereas under IFRS the charge is calculated by reference to the grant date fair value.
      For awards which are classified as equity awards, the cost is recognized from the grant date under FAS 123(R) and from the date of the commencement of the period over which any performance conditions are fulfilled under IFRS 2. Under both FAS 123(R) and IFRS 2 the cost is recognized until the date on which the relevant employees become fully entitled to the award.
      The adoption of FAS 123(R) in 2006 has resulted in the recognition of incremental share-based compensation costs in 2006 of £39 million, a reduction in net income of £26 million (net of tax benefits of £13 million) and a reduction of both basic and diluted earnings per share from continuing operations of 6.7 pence and 6.5 pence respectively.
      Under IFRS, the National Insurance liability payable on gains made by employees on the exercise of share options is accrued during the performance period of the share scheme, calculated using the market price of the Company’s Shares at the balance sheet date. Under US GAAP, an accrual is only be recorded when the shares options are exercised and a liability exists.
Deferred tax
      Under IFRS, the Company provides for deferred tax in respect of temporary differences between the tax base and carrying value of assets and liabilities including accelerated capital allowances, unrelieved tax losses,

F-72

unremitted profits from overseas where the Company does not control remittance, gains rolled over into the replacement assets, gains on previously revalued properties and other short-term temporary differences. Under US GAAP, deferred tax is computed on temporary differences between the tax bases and book values of assets and liabilities which will result in taxable or tax deductible amounts arising in future years. Deferred tax assets under IFRS are recognized to the extent that it is regarded as probable that the deductible temporary differences can be realized. Under US GAAP deferred tax assets are recognized in full and a valuation allowance is made to the extent that it is not more likely than not that they will be realized.
      Under IFRS, a deductible temporary difference arises in respect of estimated future tax deductions on share-based payments based upon the share price at the balance sheet date. Any excess of the asset recognized over the cumulative compensation expense recorded in the income statement multiplied by the statutory tax rate is recorded directly in equity. Under US GAAP, a deferred tax asset in respect of future deductible amounts is calculated only to the extent of the cumulative compensation expense recorded to date in the income statement in accordance with FAS 123(R). Where actual tax deductions received upon exercise exceed the amount of any deferred tax asset the excess is recorded in equity. Where actual tax deductions are less than the deferred tax asset, the write-down of the asset is recorded against equity to the extent of previous tax benefits recorded in this account with any remainder recorded in the income statement. The pool of tax benefits as at January 1, 2006 has been calculated using the ‘short-cut’ method option available under FSP FAS 123(R)-3.
Derivative financial instruments and hedging
      The Company enters into derivative instruments to limit its exposure to interest rate and foreign exchange risk. In 2004 under IFRS transitional provisions, these instruments were measured at cost and accounted for as hedges, whereby gains and losses were deferred until the underlying transaction occurred. Under US GAAP, all derivative instruments (including those embedded in other contracts) are recognized on the balance sheet at their fair values. Changes in fair value are recognized in net income unless specific hedge criteria are met. The Company adopted both IAS 32 “Financial Instruments: Disclosure and Presentation” and IAS 39 “Financial Instruments: Recognition and Measurement” from January 1, 2005. There is now no difference between IFRS and US GAAP with regard to derivatives entered into after January 1, 2005.
Guarantees
      The Company gives guarantees in connection with obtaining long-term management contracts. Under IFRS, a contingent liability is not recognized. For the purposes of US GAAP, under Financial Accounting Standards Board Interpretation (“FIN”) 45 “Guarantors Accounting and Disclosure Requirements for Guarantees, Including Direct Guarantees of Indebtedness of Others in the Year”, at the inception of guarantees issued after December 31, 2002, the Company records the fair value of such guarantees as an asset and liability, which are amortized over the life of the contract.
Assets and liabilities held for sale
      Under IFRS, assets and liabilities are classified as held for sale when the criteria under IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations” are met. Under US GAAP, similar criteria are applied to held for sale assets. However, FAS 66 “Accounting for Sales of Real Estate” excludes any assets from being included as held for sale where there will be a continuing involvement in the asset.
Discontinued operations
      Under IFRS, the results of operations arising from assets classified as held for sale are classified as discontinued operations when the results relate to a separate line of business, or geographical area of operations; or where there is a co-ordinated plan to dispose of a separate line of business or geographical area of operations. Under US GAAP, operations are classified as discontinued when they are classified as held for sale and when the Company no longer believes it will have a significant continuing involvement.

F-73

Net income in accordance with US GAAP
      The significant adjustments required to convert profit available for IHG equity holders in accordance with IFRS to net income in accordance with US GAAP are:
               
  Year ended Year ended Year ended
  December 31, December 31, December 31,
  2006 2005 2004
       
  (£ million)
Profit available for IHG equity holders in accordance with IFRS
  405   496   383 
Adjustments:            
 Amortization of intangible assets  1   (1)  (3)
 Impairment of property, plant and equipment  3   (17)  30 
 Disposal of property, plant and equipment  35   (107)  5 
 Depreciation of property, plant and equipment  (20)  (31)  (20)
 Deferred revenue  14   15   5 
 Gain on held for sale equity investment  27   —   (28)
 Pension costs  (6)  (20)  (9)
 Staff costs  (30)  (1)  2 
 
Change in fair value of derivatives(i)
  (2)  6   52 
 Provisions  (2)  (3)  (5)
 Impairment of investment in associates  (2)  —   — 
 Current and deferred tax:            
  on above adjustments  13   16   4 
  methodology  69   (2)  (79)
          
   100   (145)  (46)
 Minority share of above adjustments  —   4   3 
          
   100   (141)  (43)
          
Net income in accordance with US GAAP before cumulative effect of change in accounting principle  505   355   340 
Cumulative effect of change in accounting principle, net of tax  (19)  —   — 
          
Net income in accordance with US GAAP
  486   355   340 
          
See page F-75 for footnotes.

F-74

      The condensed consolidated income statement presented below reflects the adjustments to attributable profit for the year.
              
  Year ended Year ended Year ended
  December 31, December 31, December 31,
  2006 2005 2004
       
  (£ million, except per ADS amounts)
Net sales  1,362   1,521   1,606 
Operating and administrative expenses  (1,124)  (1,323)  (1,374)
Financial income and financial expenses  (11)  (24)  (33)
          
Income before income tax expense and minority interest  227   174   199 
Income tax credit/(expense)  111   (56)  79 
Gain/(loss) on disposal of assets, net of tax(iv)
  167   (14)  3 
Minority interest  —   —   (24)
          
Income from continuing operations before cumulative effect of change in accounting principle  505   104   257 
Cumulative effect of change in accounting principle, net of tax(v)
  (19)  —   — 
Discontinued operations:            
Result for period, net of tax(vi)
  —   41   62 
Surplus on disposal, net of tax(vii)
  —   210   21 
          
Net income  486   355   340 
          
Per ordinary share and American Depositary Share
            
Basic(ii)
            
 Continuing operations  129.8p  20.0p  36.2p
 Cumulative effect of change in accounting principle  (4.9)p  —   — 
 Discontinued operations  —   48.2p  11.7p
          
Net income  124.9p  68.2p  47.9p
          
Diluted(iii)
            
 Continuing operations  127.2p  19.5p  35.7p
 Cumulative effect of change in accounting principle  (4.8)p  —   — 
 Discontinued operations  —   47.1p  11.5p
          
Net income  122.4p  66.6p  47.2p
          
(i)Comprises net gains in the fair value of derivatives that do not qualify for hedge accounting of £nil (2005 £6 million, 2004 £50 million) and net losses reclassified from other comprehensive income of £2 million (2005 £nil, 2004 £2 million gain).
(ii)Calculated by dividing net income in accordance with US GAAP by 389 million (2005 521 million, 2004 710 million) shares, being the weighted average number of ordinary shares in issue during the period. Each American Depositary Share represents one ordinary share.
(iii)Calculated by adjusting basic net income in accordance with US GAAP to reflect both the future compensation on share-based payments and the notional exercise of the weighted average number of dilutive ordinary share options outstanding during the period. The resulting weighted average number of ordinary shares is 397 million (2005 533 million, 2004 720 million).
(iv)Tax credit for the year ended December 31, 2006 of £6 million (2005 £3 million charge, 2004 £2 million credit).
(v)Arises on the adoption of FAS 123(R) “Share-Based Payment”. Charge of £28 million, net of £9 million tax credit.
(vi)Tax charge for the year ended December 31, 2006 of £nil (2005 £17 million, 2004 £29 million). Financial expenses for the year ended December 31, 2006 of £nil (2005 £9 million, 2004 £1 million).
(vii)Tax charge for the year ended December 31, 2006 of £nil (2005 £28 million charge, 2004 £3 million credit).

F-75

Comprehensive Income
      Comprehensive Income under US GAAP is as follows:
             
  Year ended Year ended Year ended
  December 31, December 31, December 31,
  2006 2005 2004
       
  (£ million)
Net income in accordance with US GAAP  486   355   340 
Other comprehensive income:            
Transfer to Britvic of minimum pension liability on December 14, 2005, net of tax of £21 million  —   49   — 
Minimum pension liability, net of tax charge of £1 million (2005 £20 million credit,
2004 £1 million charge)		  6   (48)  8 
Change in valuation of marketable securities, net of tax credit of £7 million (2005 £6 million charge,
2004 £3 million charge)		  (32)  9   29 
Change in fair value of derivatives, net of tax credit of £nil (2005 £2 million credit, 2004 £nil)  3   (4)  (2)
Currency translation differences  (157)  (132)  83 
          
   (180)  (126)  118 
          
Comprehensive income in accordance with US GAAP  306   229   458 
          
      Movements in Accumulated Other Comprehensive Income amounts (net of related tax) are as follows:
                         
  Defined benefit        
  pension plans        
    Change in Derivative    
  Minimum   valuation of financial Currency  
  pension FAS 158 marketable instruments translation  
  liability adoption securities gains/(losses) differences Total
             
  (£ million)
At January 1, 2004  (72)  —   2   4   10   (56)
Movement in the year  8   —   29   (2)  83   118 
                   
At December 31, 2004  (64)  —   31   2   93   62 
Movement in the year  1   —   9   (4)  (149)  (143)
                   
At December 31, 2005  (63)  —   40   (2)  (56)  (81)
Movement in the year  6   —   (32)  3   (164)  (187)
Adjustment to initially apply FAS 158, net of tax  57   (79)  —   —   5   (17)
                   
At December 31, 2006  —   (79)  8   1   (215)  (285)
                   
      Of the £164 million (2005 £149 million) currency translation movement in the year ended December 31, 2006, £7 million (2005 £17 million) has been recorded in net income in accordance with US GAAP.

F-76

Shareholders’ equity in accordance with US GAAP
      The significant adjustments required to convert IHG shareholders’ equity in accordance with IFRS to IHG shareholders’ equity in accordance with US GAAP are:
            
  At At
  December 31, December 31,
  2006 2005
     
  (£ million)
IHG shareholders’ equity in accordance with IFRS
  678   1,084 
       
Adjustments:        
 Intangible assets:        
  Cost: goodwill  703   761 
       other intangible assets  502   655 
  Accumulated amortization  (244)  (260)
       
   961   1,156 
 Intangible asset — minimum pension liability  —   1 
       
   961   1,157 
 Property, plant and equipment:        
  Cost  354   327 
  Assets classified as held for sale  —   21 
  Accumulated depreciation  (23)  (19)
       
   331   329 
 Investment in associates  9   — 
 Other financial assets  (28)  (14)
 Non-current assets classified as held for sale  (7)  (21)
 Current assets:        
  Other receivables  44   31 
 Current liabilities:        
  Deferred income on property transactions  (13)  (15)
  Other payables  16   8 
 Non-current liabilities:        
  Deferred income on property transactions  (260)  (309)
  Other payables  (98)  (41)
  Provisions  —   4 
  Accrued pension liability  —   15 
  Deferred tax payable:        
   on above adjustments  (133)  (204)
   methodology  (4)  (10)
 Liabilities held for sale  —   1 
       
   818   931 
 Minority share of above adjustments  2   — 
       
   820   931 
       
IHG shareholders’ equity in accordance with US GAAP
  1,498   2,015 
       

F-77

Additional information required by US GAAP in respect of earnings per share
      The following table sets forth the computation of basic and diluted earnings per share from continuing operations under US GAAP:
               
  Year ended Year ended Year ended
  December 31, December 31, December 31,
  2006 2005 2004
       
  (£ million, except per ADS amounts)
Numerator:            
 For basic and diluted earnings per ordinary share and ADS            
  Before cumulative effect of change in accounting principle  505   104   257 
  Cumulative effect of change in accounting principle, net of tax  (19)  —   — 
          
  After cumulative effect of change in accounting principle  486   104   257 
          
Denominator:            
 Denominator for basic earnings per ordinary share and ADS  389   521   710 
 Effect of dilutive securities:            
 Employee options and restricted stock awards  8   12   10 
          
 Denominator for diluted earnings per ordinary share and ADS  397   533   720 
          
 Basic earnings per ordinary share and ADS from continuing operations:            
  Before cumulative effect of change in accounting principle  129.8p   20.0p   36.2p 
          
  Cumulative effect of change in accounting principle  (4.9)p  —   — 
          
  After cumulative effect of change in accounting principle  124.9p   20.0p   36.2p 
          
 Diluted earnings per ordinary share and ADS from continuing operations:            
  Before cumulative effect of change in accounting principle  127.2p   19.5p   35.7p 
          
  Cumulative effect of change in accounting principle  (4.8)p  —   — 
          
  After cumulative effect in change in accounting principle  122.4p   19.5p   35.7p 
          
Consolidated statement of cash flows
      The consolidated statement of cash flows prepared under IFRS presents substantially the same information as that required under US GAAP but may differ with regard to classification of items within the statements.
      Under IFRS, interest or dividends paid or received are classified as part of operating cash flows unless they are linked directly to specific items and they are then classified as part of either investing or financing

F-78

cash flows to coincide with the specific item. Under US GAAP, all interest or dividends paid or received must be classified as operating activities. Under IFRS, income tax should be classified as operating cash flow unless the tax paid can be specifically identified with financing or investing activities. Under US GAAP, income tax must be classified as an operating cash flow.
      The categories of cash flow activity under US GAAP can be summarized as follows:
              
  Year ended Year ended Year ended
  December 31, December 31, December 31,
  2006 2005 2004
       
  (£ million)
Cash inflow from operating activities  230   302   444 
Cash inflow/(outflow) on investing activities  620   1,863   (151)
Cash outflow from financing activities  (1,002)  (1,906)  (631)
          
(Decrease)/increase in cash and cash equivalents  (152)  259   (338)
Effect of foreign exchange rate changes  7   (7)  (1)
Cash and cash equivalents            
 At start of the fiscal year  324   72   411 
          
 At end of the fiscal year  179   324   72 
          
Additional information required by US GAAP in respect of the Group’s principal pension plans
      The pension cost for these plans computed in accordance with the requirements of US GAAP comprises:
                                     
  UK pension benefits US pension benefits US postretirement benefits
       
  Year ended Year ended Year ended Year ended Year ended Year ended Year ended Year ended Year ended
  December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31,
  2006 2005 2004 2006 2005 2004 2006 2005 2004
                   
  (£ million)
Service cost  5   20   17   —   —   —   —   —   — 
Interest cost  13   30   26   5   5   5   1   1   1 
Expected return on plan assets  (14)  (33)  (25)  (4)  (4)  (4)  —   —   — 
Net amortization and deferral  4   5   7   2   —   —   —   —   — 
Recognized net actuarial gain  —   —   —   —   2   2   —   —   — 
                            
Net periodic pension cost  8   22   25   3   3   3   1   1   1 
                            
      The major assumptions used in computing the pension expense were:
                                     
  UK pension benefits US pension benefits US postretirement benefits
       
  Year ended Year ended Year ended Year ended Year ended Year ended Year ended Year ended Year ended
  December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31,
  2006 2005 2004 2006 2005 2004 2006 2005 2004
                   
Expected long-term rate of return on plan assets  6.10%   5.80%   6.90%   8.00%   8.00%   8.00%   —   —   — 
Discount rate  5.00%   4.70%   5.30%   5.80%   5.50%   5.75%   5.80%   5.50%   5.75% 
Expected long-term rate of earnings increases  4.60%   4.30%   4.30%   3.50%   3.50%   3.50%   4.00%   4.00%   4.00% 
      The assumed discount rates were determined by reference to published long-term bond indices at a maturity appropriate to the anticipated timing of expected benefit payments.
      The plans’ expected return on assets is based on the Company’s expectations of long-term average rates of return to be achieved by the underlying investment portfolios. In establishing this assumption, management

F-79

considers historical and expected returns for the asset classes in which the plans are invested, as well as current economic and capital market conditions.
      The assumed health care cost trends rates for medical and dental plans at December 31, 2006, 2005 and 2004 are as follows:
             
  2006 2005 2004
       
Health care cost trend rate assumed for next year  10.0%  9.0%  9.5%
Rate that the cost trend rate gradually declines to  5.0%  4.5%  4.5%
Year that rate reaches the assumed ultimate rate  2017   2015   2014 
      A one-percentage point increase/(decrease) in assumed health care costs trend rate would increase/ (decrease) the accumulated post employment benefit obligations as of December 31, 2006, 2005 and 2004, by £1 million, and would increase/(decrease) the total of the service and interest cost components of net post-employment health care cost for the period then ended by approximately £nil million.
      The following table sets forth movements in the projected benefit obligation and fair value of plan assets.
                          
  UK pensions benefits US pensions benefits US postretirement benefits
       
  Year ended Year ended Year ended Year ended Year ended Year ended
  December 31, December 31, December 31, December 31, December 31, December 31,
Change in benefit obligation 2006 2005 2006 2005 2006 2005
             
  (£ million)
Benefit obligation at beginning of year  275   600   102   89   12   11 
 Service cost  5   20   —   —   —   — 
 Members contributions  1   2   —   —   —   — 
 Interest expense  13   30   5   5   1   1 
 Benefits paid  (7)  (11)  (6)  (6)  (1)  (1)
 Curtailments  —   (7)  —   —   —   — 
 Actuarial loss arising in the year  12   67   —   3   (1)  — 
 Separation of
Britvic		  —   (426)  —   —   —   — 
 Exchange and other  (1)  —   (12)  11   (1)  1 
                   
Benefit obligation at end of year  298   275   89   102   10   12 
                   
Accumulated benefit obligation (all vested)  284   264   88   100   —   — 
                   
                          
  UK pensions benefits US pensions benefits US postretirement benefits
       
  Year ended Year ended Year ended Year ended Year ended Year ended
  December 31, December 31, December 31, December 31, December 31, December 31,
Changes in plan assets 2006 2005 2006 2005 2006 2005
             
  (£ million)
Fair value of plan assets at beginning of year  251   472   61   55   —   — 
 Contributions payable  4   46   2   2   1   1 
 Members contributions  1   2   —   —   —   — 
 Benefits paid  (7)  (11)  (6)  (6)  (1)  (1)
 Actual return on assets  21   77   6   3   —   — 
 Separation of Britvic  —   (335)  —   —   —   — 
 Exchange  (1)  —   (7)  7   —   — 
                   
Fair value of plan assets at end of year  269   251   56   61   —   — 
                   

F-80

                         
  UK pensions benefits US pensions benefits US postretirement benefits
       
  Year ended Year ended Year ended Year ended Year ended Year ended
  December 31, December 31, December 31, December 31, December 31, December 31,
Net amounts recognized 2006 2005 2006 2005 2006 2005
             
  (£ million)
Fair value of plan assets  269   251   56   61   —   — 
Projected benefit obligation  (298)  (275)  (89)  (102)  (10)  (12)
                   
Funded status  (29)  (24)  (33)  (41)  (10)  (12)
                   
Unrecognized prior service cost      1       —       — 
Unrecognized net actuarial loss      76       27       3 
                   
Net amount recognized      53       (14)      (9)
                   
Amounts recognized in the balance sheet consist of:                        
Accrued pension cost  (29)  (13)  (33)  (39)  (10)  (9)
                   
Intangible asset      1       —       — 
Other Comprehensive Income (before tax)      65       25       — 
                   
Net amount recognized      53       (14)      (9)
                   
Amounts recognized in Accumulated Other Comprehensive Income consist of:                        
Net actuarial loss  (77)      (20)      (2)    
Deferred tax  20       —       —     
                   
   (57)      (20)      (2)    
                   
      The amount in Accumulated Other Comprehensive Income that is expected to be recognized as a component of the net periodic benefit cost for fiscal 2007 is £6 million, before tax, comprising £4 million in respect of the UK pension plans and £2 million in respect of the US pension plans.
      The following table summarizes the impact of the initial adoption of FAS 158 as at December 31, 2006.
             
  December 31, 2006
   
  Before   After
  FAS 158 FAS 158 FAS 158
  adjustments adjustments adjustments
       
  (£ million)
Deferred tax liability  (217)  1   (218)
Accrued pension liability  (54)  (18)  (72)
Accumulated Other Comprehensive Income, net of tax  (62)  (17)  (79)
Total shareholders’ equity  1,515   (17)  1,498 
      The following pension benefit payments are expected to be paid:
             
  UK US US
  pensions pensions postretirement
  benefits benefits benefits
       
  (£ million)
2007  4.0   5.5   0.5 
2008  4.1   5.6   0.5 
2009  4.2   5.7   0.5 
2010  4.3   5.8   0.6 
2011  4.4   5.9   0.6 
2012-2016  23.5   31.6   3.3 

F-81

Additional information required by US GAAP in respect of accounting for the impairment of property, plant and equipment and assets held for sale.
      A summary of the impairment charges that have been recognized under US GAAP is as follows:
             
  Year ended Year ended Year ended
  December 31, December 31, December 31,
  2006 2005 2004
       
  (£ million)
Assets to be disposed of  —   —   — 
Assets to be held and used  —   24   18 
          
Total  —   24   18 
          
Disclosed as:            
Impairment charges recognized under IFRS:            
(Credit)/charge for the year under IFRS  (3)  7   48 
Adjustment to impairment recognized under
US GAAP		  3   17   (30)
          
   —   24   18 
          
Charged against:            
Intangible assets — goodwill  —   —   — 
Property, plant and equipment  —   24   18 
          
   —   24   18 
          
      Under IFRS, in the year ended December 31, 2006, assets held for sale have been written down by £3 million to reflect a reduction in the carrying amount of a specific property to fair value less costs to sell as determined by an independent property valuation. Under US GAAP, the impairment was reversed as the book value of the property is lower under US GAAP.
      Under US GAAP, the additional impairment charge of £17 million recognized in 2005 relates to a specific property that historically was not subject to an impairment charge under US GAAP. In 2004, with the exception of the impairment charge of £18 million in respect of short leasehold properties, the IFRS impairment charge was reversed.
      Under US GAAP, the impairment test is first performed using undiscounted cash flows to assess whether an asset has been impaired. If it is determined that an impairment exists the charge is measured by comparing the value calculated using discounted cash flows and carrying value.
      The adjustment to the impairment recognized under IFRS is therefore the difference between the charge under IFRS and US GAAP and is shown in the reconciliation to US GAAP accounting principles.
Additional information required by US GAAP in respect of accounting for deferred gains
      For US GAAP, the Company accounts for sales of real estate in accordance with FAS 66 “Accounting for Sales of Real Estate”. If there is significant continuing involvement with the property, any gain on sale is deferred and is recognized over the life of the continuing involvement, normally a long-term management contract retained on the property. The deferral of gains on such sales totaled £nil in 2006, £5 million in 2005 and £nil in 2004.

F-82

Additional information required by US GAAP in respect of accounting for intangible assets subject to amortization
      Intangible assets subject to amortization consist of:
                         
  December 31, 2006 December 31, 2005
     
    Accumulated Net book   Accumulated Net book
  Cost amortization value Cost amortization value
             
  (£ million)
Management & franchise contracts  88   (38)  50   96   (42)  54 
                   
      The estimated aggregate amortization expense for each of the next five years is £7 million. The weighted average remaining life of intangible assets subject to amortization is 7 years.
Additional information required by US GAAP in respect of accounting for intangible assets not subject to amortization
          
  December 31, December 31,
  2006 2005
     
  (£ million)
Goodwill by reporting unit:        
 Americas managed  111   130 
 Americas franchised  600   645 
 EMEA managed  36   38 
 Asia Pacific  65   66 
       
Goodwill  812   879 
Trademarks  362   462 
       
Total  1,174   1,341 
       
Additional information required by US GAAP in respect of taxation
Analysis of tax (credit)/charge on continuing operations in accordance with US GAAP
             
  Year ended Year ended Year ended
  December 31, December 31, December 31,
  2006 2005 2004
       
  (£ million)
Current taxes  (25)  59   (60)
Deferred taxes  (101)  —   7 
          
Total  (126)  59   (53)
          

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Reconciliation of UK statutory tax rate to US GAAP tax charge on income from continuing operations
             
  Year ended Year ended Year ended
  December 31, December 31, December 31,
  2006 2005 2004
       
  (%)
UK corporate tax standard rate  30.0   30.0   30.0 
Permanent differences  2.2   11.1   3.8 
Net effect of different rates of tax in overseas business  3.7   10.2   6.7 
Adjustment to tax charge in respect of prior periods  (0.7)  (16.6)  (20.4)
Benefit of tax losses not previously recognized  (3.1)  (0.2)  (1.0)
Adjustments to valuation allowance  (22.0)  0.4   (1.7)
Other  (0.5)  (1.4)  (0.2)
Impact of disposals, provision releases and one-off items  (44.9)  3.0   (35.5)
          
Effective tax rate on continuing operations  (35.3)  36.5   (18.3)
          
      The tax rate in 2005 compared with 2004 has been impacted primarily by an increased proportion of non UK profits within continuing operations and increases in the valuation allowance against deferred tax assets. The tax rate in 2006 was impacted primarily by releases of provisions, gains on disposal and reduction in valuation allowances.
      The Company operates, manages and franchises hotels in a significant number of countries and consequently a wide range of matters of interpretation of tax law arise in the normal course of business. Although reliance is placed on generally available interpretations in these countries, there is no certainty that the relevant tax authorities will agree with the Company’s interpretation or that the Company’s interpretation will be upheld. Consequently it is possible that certain matters will be resolved adversely resulting in additional liabilities and cash tax settlements. The Company provides against all quantifiable tax exposures based upon best estimates and management’s judgment and total tax provisions of £231 million were held at December 31, 2006 (2005 £328 million). The wide range of potential tax issues which may arise and the related provisions include, in particular, the application of transfer pricing regulations and the allocation of costs and revenues between countries £14 million (2005 £17 million), the deduction of intra-group charges £9 million (2005 £10 million), the scope of controlled foreign company regulations £109 million (2005 £160 million), and the scope and basis of application of tax laws of particular jurisdictions (including whether taxable permanent establishments exist) £32 million (2005 £37 million).

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Deferred tax in accordance with US GAAP
Deferred tax
liability
(£ million)
At January 1, 2004721
Disposals(5)
Exchange and other adjustments(15)
Income statement—
Adjustment to other intangible assets(i)
(110)
At December 31, 2004591
Disposals(132)
Exchange and other adjustments27
Income statement(29)
At December 31, 2005457
Disposals(92)
Exchange and other adjustments(46)
Income statement(101)
At December 31, 2006218
(i)In 2004, the adjustment to other intangible assets relates to the recognition of pre-acquisition losses in respect of which a valuation allowance had previously been made.
     The analysis of the deferred tax liability required by US GAAP is as follows:
          
  December 31, December 31,
  2006 2005
     
  (£ million)
Deferred tax liabilities:        
 Excess of book value over taxation value of property, plant and equipment  138   242 
 Taxation effect of deferred gains  92   122 
 Intangible assets  127   163 
 Investments in associates, joint ventures and partnerships  29   41 
 Other temporary differences  105   96 
       
   491   664 
       
Deferred tax assets:        
 Taxation effect of losses carried forward  (167)  (123)
 Taxation effect of employee benefits  (14)  (14)
 Taxation effect of share based payments  (25)  (1)
 Other temporary differences  (67)  (69)
       
   (273)  (207)
       
   218   457 
       
Of which:        
 Current  (58)  (40)
 Non-current  276   497 
       
   218   457 
       

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      The taxation effect of losses carried forward is stated net of a valuation allowance of £114 million (2005 £282 million, 2004 £305 million). The tax effect of employee benefits and other temporary differences are stated net of valuation allowances of £7 million (2005 £3 million, 2004 £nil) and £22 million (2005 £nil, 2004 £nil), respectively.
      On release, £7 million (2005 £18 million, 2004 £16 million) of the valuation allowances would be recognized in goodwill. A reduction of £91 million (2005 increase of £1 million, 2004 reduction of £88 million) has been made to the opening valuation allowances in respect of a change in judgment regarding the realizability of deferred tax assets. These losses may be carried forward indefinitely with the exception of £1 million (2005 £nil, 2004 £nil) which expires after seven years and £1 million (2005 £nil, 2004 £nil) which expires after 15 years.
      No deferred tax is provided in respect of the unremitted earnings of overseas subsidiaries and joint ventures which the Company controls where the differences are permanent in nature. It is not practicable to determine the amounts unprovided. For those entities where unremitted earnings are not permanently reinvested, no material additional tax is expected to arise upon remittance.
Additional information required under US GAAP in respect of restructuring provisions
                 
  Employee Facilities Other IHG
  costs costs costs total
         
  (£ million)
Balance at January 1, 2004  7   7   4   18 
Expenditure  (7)  (3)  (4)  (14)
             
Balance at December 31, 2004  —   4   —   4 
Expenditure  —   (1)  —   (1)
             
Balance at December 31, 2005  —   3   —   3 
Expenditure  —   (3)  —   (3)
             
Balance at December 31, 2006  —   —   —   — 
             
Variable Interest Entities
      FIN��46, “Consolidation of Variable Interest Entities” (“the Interpretation”), was effective for all enterprises with variable interest in variable interest entities created after January 31, 2003. FIN 46(R), which was revised in December 2003, was effective for all entities to which the provisions of FIN 46 were not applied as of December 24, 2003. The provisions of FIN 46(R) were applied to all entities subject to the Interpretation as of December 31, 2004. Under FIN 46(R), if an entity is determined to be a variable interest entity (“VIE”), it must be consolidated by the enterprise that absorbs the majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, the “primary beneficiary”.
      The Group’s evaluation of the provisions of FIN 46 as it relates to its various forms of arrangements focuses primarily on a review of the key terms of its equity investment agreements, management contracts and franchise agreements against the criteria in FIN 46 to determine if any of these arrangements qualify as VIEs. In general, a VIE represents a structure used for business purposes that either does not have equity investors with voting rights or that has equity investors that do not provide sufficient financial resources for the entity to support its activities. However, other contractual arrangements could qualify an entity as a VIE and designate which party to the contract is the primary beneficiary.
      The Group’s evaluation of its equity investments, management contracts and franchise agreements has identified one management contract, due to the terms of performance guarantees, and one equity investment, in which it has variable interests. For those entities in which the Group holds a variable interest, it is determined that it is not the primary beneficiary and as such is not required to consolidate the VIEs. The performance guarantee associated with the management contracts with HPT does not expose the Group to the majority of expected cash flow variability and therefore those hotels have not been consolidated. As of

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December 31, 2006, the maximum exposure to loss on these contracts, consisting of future management fees and the potential obligation to fund the performance guarantee, totaled an aggregate amount of approximately £64 million over the life of the contracts. The Group also has one significant equity interest in an entity that is a VIE. In November 2003, the Group purchased a one-third share of an equity venture that owns the InterContinental Warsaw which is managed by the Group. The equity investment in the VIE totaled £12 million at December 31, 2006 and £13 million at December 31, 2005.
New Accounting Standards
      In December 2004, the FASB issued FAS No. 123(revised 2004), “Share-Based Payment” (“FAS 123(R)”), which is a revision of FAS No. 123, (“FAS 123”) “Accounting for Stock-Based Compensation”. The Group adopted FAS 123(R) using the modified prospective transition method at January 1, 2006. See Note 23, “Share-based payments” of Notes to the Consolidated Financial Statements for additional information.
      In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (“FIN 48”) which prescribes criteria for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Upon adoption of FIN 48, from January 1, 2007, benefits resulting from uncertain tax positions that meet a “more likely than not” threshold at the effective date may be recognized, based on measurement as the largest benefit which has a greater than fifty per cent. likelihood of being sustained upon examination by the tax authorities. The cumulative effect of applying FIN 48, if any, is to be reported as an adjustment to the opening balance of retained earnings in the year of adoption. The Group is evaluating the impact that FIN 48 will have on its financial statements.
      In September 2006, the FASB issued FAS 157, “Fair Value Measurements” (“FAS 157”). FAS 157 defines fair value, provides a framework for measuring fair value, and expands the disclosures required for fair value measurements. FAS 157 applies to other accounting pronouncements that require fair value measurements; it does not require any new fair value measurements. FAS 157 is effective for financial statements for fiscal years beginning after November 15, 2007. We do not expect this statement will have a material impact on our results of operations or financial position.
      In September 2006, the FASB issued FAS 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” (“FAS 158”). FAS 158 requires an employer to recognize theover-funded orunder-funded status of defined benefit postretirement plan as an asset or liability, respectively, in its balance sheet and to recognize changes in that funded status as unrealized gain or loss through accumulated Other Comprehensive Income when the changes occur. FAS 158 also requires an employer to measure its defined benefit plan assets and obligations as of the date of the employer’s fiscal year end. FAS 158 is effective for our fiscal year ending December 31, 2006. See pages F-90 to F-91 for additional information.
      In February 2007, the FASB issued FAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“FAS 159”). FAS 159 expands opportunities to use fair value measurement in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value. FAS 159 is effective for fiscal years beginning after November 15, 2007. The Group does not currently plan to expand the use of fair values.

F-87

INTERCONTINENTAL HOTELS GROUP PLC
SCHEDULE II
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
                     
    Additions      
  Balance at charged to     Balance at
  beginning costs and Exchange   end of
  of period expenses differences Deductions period
           
Year ended December 31, 2006
                    
Provisions for bad and doubtful debts  47   16   (5)  (15)  43 
Year ended December 31, 2005
                    
Provisions for bad and doubtful debts  43   14   4   (14)  47 
Year ended December 31, 2004
                    
Provisions for bad and doubtful debts  45   20   (3)  (19)  43 
                     
     Additions
          
  Balance at
  charged to
        Balance at
 
  beginning
  costs and
  Exchange
     end of
 
  of period  expenses  differences  Deductions  period 
 
Year ended December 31, 2007
Provisions for bad and doubtful debts		  43   12   (1)  (6)  48 
Year ended December 31, 2006
Provisions for bad and doubtful debts		  47   16   (5)  (15)  43 
Year ended December 31, 2005
Provisions for bad and doubtful debts		  43   14   4   (14)  47 
Year ended December 31, 2004
Provisions for bad and doubtful debts		  45   20   (3)  (19)  43 


S-1

S-1

SIGNATURES
 
The registrant hereby certifies that it meets all of the requirements for filing onForm 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
INTERCONTINENTAL HOTELS GROUP PLC
(Registrant)
INTERCONTINENTAL HOTELS GROUP PLC
(Registrant)
 By: /s/  Richard Solomons
Name:     Richard Solomons
 Title: 
Name: Richard Solomons
Title:   Finance Director
Date: March 30, 200728, 2008