IHG

Business Context and Reporting Period

This Form 20-F is the annual report for Six Continents PLC (the "Company") for the fiscal year ended September 30, 2002. The Company operates three core business segments: Six Continents Hotels (SCH), Soft Drinks (Britvic Group), and Six Continents Retail (SCR). The report is prepared under UK GAAP, with reconciliations to US GAAP provided in the notes.

Material Corporate Action: On October 1, 2002, the Board announced a proposed "Separation Transaction" to split the Company into two separately listed entities: InterContinental Hotels Group PLC (holding Hotels and Soft Drinks) and Mitchells & Butlers PLC (holding Retail and Property Development). The transaction includes a proposed return of capital of approximately £700 million (81p per share) to shareholders, subject to regulatory and shareholder approval, expected to complete in April 2003.

Key Financial Metrics (Fiscal Year 2002)

Note: Earnings increased primarily due to a £114 million exceptional tax credit and a £57 million non-operating gain from the prior disposal of Bass Brewers, masking a decline in underlying operating performance.

Material Changes vs. Prior Period

• Hotels Segment (SCH): Turnover fell 19.2% to £1,532 million and operating profit dropped 38.6% to £262 million. The decline was driven by the September 11, 2001 terrorist attacks, a global economic slowdown, and a £77 million impairment charge on tangible fixed assets. RevPAR declines were significant in the Americas and EMEA regions.
• Retail Segment (SCR): Turnover increased 5.7% to £1,475 million, and operating profit rose 5.1% to £288 million. Growth was driven by food sales and the conversion of former Allied Domecq sites, despite higher regulatory costs and difficult trading in London.
• Soft Drinks Segment: Turnover increased 5.4% to £602 million, with operating profit growing over 10% to £63 million, driven by volume growth in Robinsons and Pepsi brands.
• Exceptional Items: The year included a net charge of £24 million before tax, comprising a £77 million impairment charge (offset by a £36 million reversal of revaluation gains) and £4 million in separation evaluation costs. These were offset by a £57 million non-operating gain related to the Bass Brewers disposal.

Guidance, Outlook, and Risks

• Outlook: Management expects the hotel cycle to improve but notes continued uncertainty due to global economic conditions and the threat of conflict in the Middle East. SCH plans to reduce annual overheads by at least $50 million by 2004 and optimize capital deployment through asset reviews.
• Dividends: A final dividend of 24.6p was declared for 2002 (total 35.3p). Post-separation, InterContinental PLC intends to recommend a total dividend of 13.5p for 2003, while Mitchells & Butlers PLC targets 8.5p for 2003.
• Risks:
  • Travel & Terrorism: Ongoing impact of 9/11 and subsequent events on global travel demand.
  • Regulatory: Potential increases in UK minimum wage, changes to licensing laws, and smoking regulations affecting the Retail segment.
  • Separation Execution: Risks associated with the complexity of the demerger and the ability to secure regulatory approval.
  • Pension Funding: Defined benefit schemes showed a deficit on an ongoing basis (83% funded) as of December 2002, requiring additional contributions.

Investor Verification Checklist

• Separation Approval: Verify the status of shareholder and regulatory approvals for the proposed demerger and the £700 million return of capital.
• Hotel Asset Valuation: Review the £113 million impairment charge on the hotel estate and the assumptions used for the "value in use" calculations.
• Pension Obligations: Assess the funding status of the defined benefit pension schemes and the impact of the £60 million additional contribution announced post-year-end.
• Debt Refinancing: Confirm the successful tender offer for the repurchase of medium-term notes and the redemption of the 10 3/8% Debenture Stock announced in early 2003.
• US GAAP Reconciliation: Note that under US GAAP, the Retail business is classified as a discontinued operation, significantly altering the presentation of continuing vs. discontinued earnings compared to UK GAAP.