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ANNUAL REPORT AND FINANCIAL STATEMENTS 2001
01 FINANCIAL HIGHLIGHTS
02 OPERATING AND FINANCIAL REVIEW
14 DIRECTORS’ REPORT
24 GROUP PROFIT AND LOSS ACCOUNT
26 GROUP CASH FLOW STATEMENT
27 BALANCE SHEETS
28 ACCOUNTING POLICIES
30 NOTES TO THE FINANCIAL STATEMENTS
53 REPORT OF THE INDEPENDENT AUDITORS
54 FIVE YEAR REVIEW
IBC GLOSSARY
FINANCIAL
TURNOVER * UP 6.8% TO £4,033m
OPERATING PROFIT ** UP 2.1% TO £792m
HOTEL ACQUISITIONS OVER £1bn
ADJUSTED EARNINGS PER SHARE DOWN 3.4% TO 60.1p
DIVIDEND PER SHARE UP 3.0% TO 34.3p
* continuing operations
** continuing operations before major exceptional items
01
SIX CONTINENTS (FORMERLY BASS) IS A LEADING INTERNATIONAL HOSPITALITY
GROUP, WITH OVER 3,200 HOTELS ACROSS NEARLY 100 COUNTRIES AND TERRITORIES,
OVER 2,000 RESTAURANTS, PUBS AND BARS IN THE UK AND GERMANY AND A 50%
SHARE IN THE BRITVIC SOFT DRINKS BUSINESS.
HIGHLIGHTS
3,074
3,775
4,033
57.1
62.2
60.1
32.3
33.3
34.3
622
776
792
636
756
731
324
328
76
99* 00 01 99* 00 01 99* 00 01 99* 00 01 99 00 01 99* 00 01
TURNOVER (£m)* OPERATING PROFIT (£m)* PROFIT BEFORE TAX (£m)* ADJUSTED EARNINGS* DIVIDEND PER SHARE (p) OPERATING CASH FLOW
continuing operations (before major (and major PER SHARE (p) continuing operations (£m)
exceptional items) exceptional items)
continuing operations
*Figures for 1999 have been adjusted to eliminate one week’s results for those divisions for which 1999 represented 53 weeks’
trading, and to incorporate the additional depreciation that would have been charged had FRS15 applied in 1999.
02
OPERATING AND FINANCIAL REVIEW
This operating and financial review (OFR) provides a commentary on the performance of the Six Continents
Group (formerly known as the Bass Group) for the financial year ended 30 September 2001, and compares
it with the financial year ended 30 September 2000. It reviews the performance and activities of each of
the Group’s principal businesses, and explains other aspects of the Group’s activities including taxation,
treasury management and accounting policies.
The glossary on the inside back cover defines a number of terms used either in the OFR or in the
financial statements.
The OFR should be read in conjunction with the director’s report on pages 14 to 23 and the financial
statements on pages 24 to 52.
GROUP SUMMARY
Operating profit from continuing operations (before major exceptional
items) up by 2.1%
During the financial year under review, the Group has continued to reshape
its business following the sale of the brewing operations in the previous year.
2001 2000 In February 2001, Six Continents Retail (SCR) sold for £625m, 988 smaller
GROUP £m £m Change
outlets that were not suited for conversion to its brands. In April,
Turnover:
Six Continents Hotels (SCH) acquired the Posthouse hotel chain (Posthouse),
Ongoing operations 3,889 3,775 +3.0%
comprising 79 hotels in the United Kingdom and the Republic of Ireland.
Acquisitions 144 –
In August, SCH completed the acquisition of the former Regent Hotel in
Continuing operations 4,033 3,775 +6.8%
Hong Kong for $346m.
Discontinued operations – 1,383
Total 4,033 5,158 -21.8% The terrorist activities in the United States on 11 September 2001, and
Operating profit before major subsequent global uncertainty, had a significant impact on international and
exceptional items: domestic US travel, which in turn impacted the results of the Group. The effect
Ongoing operations 755 776 -2.7% of these events is estimated to have reduced the profits of SCH during the
Acquisitions 37 – period 11 September 2001 to 30 September 2001 by some $25m. In SCR, the
Continuing operations 792 776 +2.1% outlets in central London were the only ones to have been impacted by the
Discontinued operations – 129 events of 11 September.
Total 792 905 -12.5%
Turnover for continuing operations increased by 6.8% to £4,033m.
Exceptional items:
SCH reported turnover growth up 19.9% to £1,896m; however, this included a
Major (41) 1,231
six month contribution of £144m from Posthouse. In SCR, turnover from the
Minor (2) 3
ongoing estate was up 4.3% to £1,396m.
Profit before tax
(and major exceptional items) 731 756 -3.3% Total operating profit amounted to £749m, however this included a major
Profit before tax 690 1,987 -65.3% exceptional item of £43m relating to reorganisation, restructuring and strategic
Adjusted earnings per share 60.1p 62.2p -3.4% appraisal costs in SCH. Excluding this major exceptional item, operating profit
Net capital expenditure from continuing operations of £792m was up £16m against £776m in 2000.
continuing operations (868) (597)
SCH operating profit before major exceptional items increased by £51m to
Operating cash flow
continuing operations 76 328 £427m, including a six months contribution from Posthouse of £37m; excluding
Normal cash flow (397) (102) Posthouse, the operating profit growth would have been 3.7%. SCR continued to
Major (acquisitions)/disposals (129) 1,834 actively reposition its estate towards larger branded outlets. Operating profit in
Net cash flow (526) 1,732 the ongoing estate at £274m was up 1.1% against £271m in 2000. Britvic Soft
Drinks had an exceptional year with operating profit growth of nearly 24%.
SIX CONTINENTS 2001
03
Profit before tax was £690m compared with £1,987m in 2000; excluding major FIGURE 1
exceptional items, adjusted profit before tax was £731m against £756m in the
previous year. The effective rate of tax at 26%, excluding the impact of the
major exceptional items in both years, was unchanged from the previous year.
Basic earnings per share were 53.2p; eliminating the impact of major
exceptional items, the adjusted earnings per share were 60.1p, a decline of
3.4% on the 62.2p achieved in 2000. A final dividend of 23.9p has been
recommended by the Board giving a total dividend for the year of 34.3p, up
3.0% on 2000.
2001 DIVISIONAL SHARE OF OPERATING PROFIT
Group operating cash flow from continuing operations of £76m compared with FROM CONTINUING OPERATIONS
AND BEFORE EXCEPTIONAL ITEMS
£328m in 2000. This reduction was primarily due to the significant level of net
54% Hotels
capital expenditure for the Group’s continuing operations, which increased to 39% Retail
7% Soft Drinks/Other
£868m from last year’s level of £597m. Payments of interest, dividends and
taxation absorbed £513m, compared with £585m in 2000, reflecting the fact
that the Group’s interest payments have decreased significantly as a result of
the average level of debt being lower following the disposal of the Group’s
brewing operations late last year. After taking account of the major acquisition
in SCH of £752m and the major disposal proceeds of £623m, net cash outflow
was £526m compared with an inflow of £1,732m in 2000.
GROUP RESULTS IN STERLING, 2001 2001 2001
US DOLLAR AND EURO £m $m* € m**
SIX CONTINENTS HOTELS
Turnover:
Operating profit (before major exceptional items) up by 13.6% Ongoing operations 3,889 5,590 6,307
Acquisitions 144 207 233
S T R AT E G Y Continuing operations 4,033 5,797 6,540
Six Continents Hotels (SCH) has continued to pursue its strategic goal of Operating profit before major
extending the world-wide distribution of its brands and building strong positions exceptional items:
for these in key international markets. During 2001 the acquisition Ongoing operations 755 1,085 1,224
and substantial rebranding to SCH brands of Posthouse in the UK and the Acquisitions 37 53 60
acquisition of the Hotel Inter-Continental Hong Kong were further Continuing operations 792 1,138 1,284
demonstrations of the drive to implement this strategy. These acquisitions Exceptional items:
also emphasise the strength and depth of the SCH business outside the Major (41) (59) (66)
United States. Minor (2) (3) (3)
Profit before tax
SCALE (and major exceptional items) 731 1,051 1,185
The total SCH system size grew in 2001, from 3,063 hotels (491,100 rooms) Profit before tax 690 992 1,119
at the start of the year to 3,267 hotels (514,700 rooms) at 30 September 2001 Adjusted earnings per share 60.1p $0.86 €0.97
(see figure 2), with over 70% of the growth in rooms outside the US. Net capital expenditure
This growth included the acquisition on 4 April 2001 of Posthouse; comprising continuing operations (868) (1,248) (1,408)
79 midscale hotels, of which 77 hotels were owned or held under long lease, Operating cash flow
continuing operations 76 109 123
and of which 78 were in the UK and one in the Republic of Ireland. This
Normal cash flow (397) (571) (644)
acquisition was in line with the Group’s strategic goal of building its midscale
Major (acquisitions)/disposals (129) (185) (209)
distribution in Western Europe, and enables the Holiday Inn brand to develop a
Net cash flow (526) (756) (853)
strong position in the UK market. By the year end, 46 Posthouse hotels had been
* translated at the weighted average exchange rate for the year ended 30 September 2001
converted to Holiday Inn and by the end of October 2001 a further 12 were of £1 = $1.44.
** translated at the average exchange rate for the year ended 30 September 2001
converted. Of the original 79 hotels, it is expected that less than ten will be
of £1 = €1.62.
disposed of as a result of being unsuitable for conversion to one of SCH’s brands.
SIX CONTINENTS 2001
04 OPERATING AND FINANCIAL REVIEW
2001 2000 A further important strategic move was the acquisition of the Regent Hotel in
HOTELS £m £m Change Hong Kong. This hotel transferred to SCH management from 1 June 2001 and
Turnover 1,896 1,581 +19.9% became fully owned from the end of August. The 514 room hotel, renamed the
Operating profit before major Hotel Inter-Continental Hong Kong, expanded SCH's presence in Hong Kong
exceptional items 427 376 +13.6% and consolidated its position as the leading branded hotel company in China,
Net capital expenditure (607) (326) giving the Inter-Continental brand higher visibility in the Asia Pacific region.
Operating cash flow (80) 114
In Asia Pacific, the rebranding of the hotels acquired in 2000 from Southern
Major acquisitions (752) (196)
Pacific Hotels Corporation (SPHC) continued with a further eight former Park
2001 2000 Royal and ten former Centra properties being converted to SCH brands. These
$m $m Change
included two properties formerly managed but now owned by SCH – the Inter-
Turnover 2,726 2,454 +11.1% Continental Wellington and Crowne Plaza Canberra. It is planned that a further
Operating profit before major 18 hotels will be converted during 2002, including one to Inter-Continental.
exceptional items:
Americas:
Excluding Posthouse, the overall system size grew by 125 hotels, or some
Owned and leased 78 95 -17.9%
11,300 rooms. In the Americas region, the expansion of Holiday Inn Express
Managed and upscale franchise 43 49 -12.2%
continued with another 110 properties (all franchised) added in the year.
Midscale franchise 224 209 +7.2%
The extended stay brand, Staybridge Suites, also continued its expansion with
Total Americas 345 353 -2.3%
17 additions in the year.
EMEA 290 257 +12.8% The pipeline of hotels waiting to enter the SCH system at the year end was
Asia Pacific 26 30 -13.3% 520 hotels with 69,100 rooms – this includes approved applications for 441
Other: franchises and 69 management contracts. Of the hotels in the pipeline, 392
FelCor and other 33 25 +32.0% are in the Americas and 109 in Europe, the Middle East and Africa (EMEA).
Central services (68) (73) +6.8% An encouraging 18,600 rooms or 27% of the rooms in the pipeline are in the
Goodwill amortisation (13) (8) -62.5% upscale Inter-Continental and Crowne Plaza brands.
Total Other (48) (56) +14.3%
The events of 11 September have led to uncertainty over the short and medium
Total 613 584 +5.0%
term for hotel development, particularly in the United States. However, the
strength of SCH’s brands and the healthy state of the Group’s balance sheet
places SCH in a strong position to capitalise on any system distribution
opportunities that might emerge in 2002.
R E S E RVAT I O N S YS T E M S A N D E - B U S I N E S S
FIGURE 2
A strength of SCH is the proportion of its business that is generated by its
Hotels Rooms
TOTAL SYSTEM SIZE Change Change
global reservation systems, including the Internet. During 2001, it is estimated
AT 30 SEPTEMBER 2001 over 2000 2001 over 2000 that SCH’s reservation systems delivered around 30% of Americas midscale
Analysed by brand: room nights sold. Internet bookings grew by nearly 80% over the previous year
Inter-Continental 137 +5 45,371 +834 to 2.5 million room nights in 2001.
Crowne Plaza 162 +17 47,326 +4,756 PERFORMANCE
Holiday Inn 1,587 +52 297,710 +9,570 SCH’s turnover increased by 11.1% from $2,454m in 2000 to $2,726m in 2001.
Posthouse* 33 +33 5,258 +5,258 Of the increase, $208m was due to the six months contribution from Posthouse.
Holiday Inn Express** 1,254 +124 100,993 +10,649 Operating profit increased by 5.0% to $613m; excluding Posthouse, the
Staybridge Suites 37 +17 4,234 +1,884 operating profit would have been approximately 4.1% down on last year.
Other brands 57 -44 13,804 -9,319 Operating profit was impacted by both the economic slowdown in the United
Total 3,267 +204 514,696 +23,632 States and the 11 September terrorist actions. It is estimated that the latter’s
Analysed by ownership type: effect on late September trading was to reduce 2001 profit by approximately
Owned and leased 191 +86 42,531 +14,615 $25m, or 4.3 percentage points of growth.
Franchised 2,758 +134 386,272 +14,243 The weighted average US dollar to sterling exchange rate during the year was
Management contract 318 -16 85,893 -5,226 $1.44 against $1.55 in 2000; this has benefited the Group when the whole
Total 3,267 +204 514,696 +23,632 SCH result is converted to sterling. Had US dollar and other major exchange
* 79 acquired (12,333 rooms); 46 hotels (7,075 rooms) converted to SCH brands by
30 September 2001.
rates been the same as in 2000, it is estimated that the SCH operating profit
** operates as Express by Holiday Inn in EMEA region. growth would have been 8.5%.
SIX CONTINENTS 2001
05
The segmental profits discussed below reflect a change in business segments FIGURE 3
since the last Annual Report. Central services previously allocated to regions, and AMERICAS Hotels Rooms
business segments within regions, are now disclosed separately. All comparatives SYSTEM SIZE Change Change
AT 30 SEPTEMBER 2001 over 2000 2001 over 2000
have been restated to reflect this change, which is intended to aid understanding
Analysed by brand:
and comparison of segmental results.
Inter-Continental 42 +2 13,611 +727
AMERICAS Crowne Plaza 95 +6 28,655 +1,786
The Americas system size grew by 109 hotels and 9,500 rooms to 2,523 hotels Holiday Inn 1,179 -14 225,882 -1,637
with 366,900 rooms at the end of the year. As discussed above, this growth Holiday Inn Express 1,154 +110 91,525 +9,215
was almost entirely due to growth in the Holiday Inn Express franchise system Staybridge Suites 37 +17 4,234 +1,884
(see figure 3). Other brands 16 -12 2,980 -2,445
Last year SCH acquired Bristol Hotels & Resorts Inc. (Bristol), a US based hotel Total 2,523 +109 366,887 +9,530
management company that leased or managed 112 hotels including 83 SCH Analysed by ownership type:
branded properties. Bristol has now been fully integrated into the Americas Owned and leased 40 +6 11,193 +774
business. This integration involved terminating a number of non-SCH branded Franchised 2,363 +115 321,848 +11,214
operating leases, and converting all the remaining operating leases to Management contract 120 -12 33,846 -2,458
management contracts. Total 2,523 +109 366,887 +9,530
The total Americas operating profit was $345m compared with $353m in 2000. Analysed by profit segment:
Following a strong first quarter (October to December 2000), the economic Owned and leased 40 +6 11,193 +774
slowdown in the United States saw SCH experiencing first, declining revenue per Midscale franchised 2,280 +106 298,770 +8,543
available room (revpar) growth and then, revpar declines, in common with the Company managed and
rest of the US hotel industry. The events of 11 September impacted the upscale franchised 203 -3 56,924 +213
remaining three weeks of SCH’s financial year, and the effects have continued Total 2,523 +109 366,887 +9,530
into the new financial year. Analysed by geography:
The Americas owned and leased (O&L) estate made an operating profit of United States 2,304 +92 326,887 +6,747
$78m, $17m lower than last year. The decline was the result of three factors. Rest of Americas 219 +17 40,000 +2,783
Firstly, the impact of the US economic slowdown, which particularly affected Total 2,523 +109 366,887 +9,530
New York, Chicago and San Francisco, hit the Inter-Continental properties in
these cities. Secondly, Inter-Continental had over 10% of its O&L rooms closed
with the ongoing refurbishment of four key properties; and finally, the events
of 11 September reduced profits in the last three weeks of the year.
Inter-Continental’s O&L revpar was down by 14% on 2000 to the end of FIGURE 4
August, and with September experiencing revpar over 50% down on 2000, 20
the year ended 18% down. Comparisons to 2000 however, are distorted by
10
the impact of the major refurbishments and room closures in the year. Gross may jun jul aug sep
operating margins held up well, reflecting SCH’s ability to manage hotels oct nov dec jan feb mar apr
through the economic slowdown. -10
Crowne Plaza O&L properties weathered 2001 slightly better; for the 11
-20
months to the end of August, revpar was down 2.0% on 2000. With September
-30
over 30% down on last year, full year revpar was down 4.5%. As with
Inter-Continental, gross operating margins were in line with 2000. NORTH AMERICA CROWNE PLAZA O&L MONTHLY REVPAR
percentage change over previous year 2000-2001
The midscale franchise business achieved an operating profit of $224m, well
ahead of 2000. This result demonstrates two things: firstly, the relative resilience
FIGURE 5
for the franchisor (i.e. SCH) of the franchise model in an economic slowdown;
10
and secondly, the relative strength of SCH’s key midscale brands, Holiday Inn
apr may jun jul aug sep
and Holiday Inn Express. The midscale franchise system grew in the year, driven oct nov dec jan feb mar
by Holiday Inn Express, which had a 7.4% increase in the number of rooms
-10
occupied. To the end of August, revpar was holding up well, Holiday Inn being
down only 0.8% and Holiday Inn Express up by 2.0%. With September revpar -20
being 20% and 10% down respectively, Holiday Inn revpar finished the year NORTH AMERICA HOLIDAY INN FRANCHISE MONTHLY REVPAR
2.5% down on 2000 and Holiday Inn Express up 0.8%. percentage change over previous year 2000-2001
SIX CONTINENTS 2001
06 OPERATING AND FINANCIAL REVIEW
FIGURE 6 As a result of the events of 11 September, certain levels of support were put
10
in place for franchisees in the US. This support included the waiving of certain
jul aug sep assessments on the hotels for a period of time and additional sales and
oct nov dec jan feb mar apr may jun marketing assistance.
-10
Americas managed and upscale franchise operating profit totalled $43m, which
NORTH AMERICA HOLIDAY INN EXPRESS included the fully integrated Bristol business. Crowne Plaza managed hotels
FRANCHISE MONTHLY REVPAR
percentage change over previous year 2000-2001 revpar was 12.3% down for the full year and Crowne Plaza franchised revpar
was 4.9% down for the full year, reflecting the same economic difficulties that
afflicted the O&L estate. The conversion of the Bristol hotels from operating
2001 2000 leases to management contracts, effective in the main from 1 July 2001, meant
EMEA $m $m Change
that SCH’s turnover was distorted by the inclusion of all the turnover of those
Operating profit 290 257 +12.8% hotels to that date, but only management fees received by SCH thereafter.
£m* £m** Change
E U RO P E , T H E M I D D L E E A S T A N D A F R I C A
Owned and leased 134 134 –
The acquisition of Posthouse was the key strategic event in the EMEA region,
Posthouse 37 –
adding 77 owned and leased and 2 managed hotels to the SCH system.
Managed and franchised 31 31 –
The overall EMEA system size grew to 585 hotels (see figure 7).
Operating profit 202 165 +22.4%
* translated at the weighted average exchange rate of £1 = $1.44.
The O&L business saw operating profit rise by £37m to £171m, including £37m
** translated at the weighted average exchange rate of £1 = $1.55. from Posthouse. Performance of the O&L estate across the region was mixed.
Inter-Continental O&L across EMEA achieved revpar growth of 1.2% to the end
of August, with regional performance varying – UK (4 properties) down 9.5%,
FIGURE 7
France (3 properties) up 9.6% and Germany (3 properties) up 8.6%. Crowne
Hotels Rooms
Plaza similarly was ahead in the 11 months to August, revpar being 1.6% ahead.
EMEA SYSTEM SIZE Change Change By August the US economic slowdown was already having a knock-on effect on
AT 30 SEPTEMBER 2001 over 2000 2001 over 2000
European capital city hotels, particularly in London, where the reduction in both
Analysed by brand:
US business and leisure travel was affecting occupancy levels and revpar.
Inter-Continental 73 -2 22,550 -887
The events of 11 September had a significant impact on those properties relying
Crowne Plaza 47 +4 12,308 +973
on international travel, in particular the upscale properties. Key properties in
Holiday Inn 323 +52 52,947 +9,044
London and Paris saw a large revpar decline through the end of September
Posthouse* 33 +33 5,258 +5,258
(see figure 8). For the full year Inter-Continental O&L revpar fell by 1.3% and
Express by Holiday Inn 97 +16 9,184 +1,573
Crowne Plaza revpar was level with 2000.
Other brands 12 -4 5,002 -1,017
Total 585 +99 107,249 +14,944
Posthouse performed in line with expectations, generating an operating profit
of £37m despite tough trading conditions, particularly in the South of England.
Analysed by ownership type:
Across EMEA, Holiday Inn saw O&L revpar up by 3.8%.
Owned and leased 132 +76 26,909 +12,235
Franchised 352 +17 54,654 +2,154 The EMEA managed and franchised businesses made an operating profit of
Management contract 101 +6 25,686 +555 £31m, the same as last year, despite a key property in Germany moving from
Total 585 +99 107,249 +14,944 management contract into ownership. Revpar performance across the estate
was mixed; to August, Inter-Continental managed revpar was up by 0.4%, while
Analysed by geography:
Crowne Plaza managed revpar was down by 0.7% and franchise fell by 1.9%.
United Kingdom 188 +92 27,993 +14,254 Holiday Inn franchise saw revpar growth of 4.2% for the full year, while Express
Rest of Europe 278 +1 50,622 -369 franchise also saw revpar growth of 4.2%.
Middle East and Africa 119 +6 28,634 +1,059
Overall, EMEA’s operating profit was £202m, 22% up on last year including the
Total 585 +99 107,249 +14,944
* 79 acquired (12,333 rooms); 46 hotels (7,075 rooms) converted to SCH brands by
benefit of six months Posthouse trading. Excluding this, operating profit was
30 September 2001. level with last year.
SIX CONTINENTS 2001
07
A S I A PAC I F I C FIGURE 8
The Asia Pacific region made an operating profit of $26m, $4m down on 2000. 10
Despite benefiting from a full 12 months of profits from the SPHC hotels apr may jul aug sep
acquired in January 2000, the economic conditions in the region, particularly oct nov dec jan feb mar jun
in Australia, had an adverse impact on the results. Whilst the Australian hotels -10
performed ahead of their competitive sets, their O&L revpar was 5.7% down
-20
on last year with occupancy 1.8 percentage points lower. The events of
11 September also had some impact on the region, particularly in Hong Kong, EMEA INTER-CONTINENTAL O&L MONTHLY REVPAR
percentage change over previous year 2000-2001
where the Hotel Inter-Continental Hong Kong was acquired at the end of August.
OT H E R FIGURE 9
Hotels Rooms
The Other segment includes Central service costs not allocated to the regions
ASIA PACIFIC SYSTEM SIZE Change Change
less other income items. In 2001, this income included $22m of dividends AT 30 SEPTEMBER 2001 over 2000 2001 over 2000
received from FelCor Lodging Trust Inc. (FelCor), up $1m on last year and $10m
Analysed by brand:
of income from lease terminations. Following the events of 11 September,
Inter-Continental 22 +5 9,210 +994
FelCor management announced that it plans to re-evaluate its common
Crowne Plaza 20 +7 6,363 +1,997
dividend policy at the end of December 2001, which may result in a significant
Holiday Inn 85 +14 18,881 +2,163
dividend reduction.
Holiday Inn Express 3 -2 284 -139
C A S H F L OW A N D I N V E S T M E N T Other brands 29 -28 5,822 -5,857
Excluding the major acquisition of Posthouse, net capital expenditure amounted Total 159 -4 40,560 -842
to £607m. This included £139m on the planned refurbishment programme at
Analysed by ownership type:
Inter-Continental properties (£63m in EMEA, £76m in the US) and the
Owned and leased 19 +4 4,429 +1,606
continued expansion of the Staybridge Suites brand in the US (£28m). In Asia
Franchised 43 +2 9,770 +875
Pacific, the acquisition of the Hotel Inter-Continental Hong Kong, as well as the
Management contract 97 -10 26,361 -3,323
addition of the Inter-Continental Wellington and Crowne Plaza Canberra, both
Total 159 -4 40,560 -842
previously Park Royal management contracts, contributed to the region’s capital
Analysed by geography:
spend. The ongoing refurbishment programme in the owned Inter-Continental
Australia, New Zealand,
estate will continue to require large capital expenditure in 2002, particularly on South Pacific 52 -4 10,218 -630
the hotels in Paris (Le Grand), Cannes, London (Mayfair), Chicago and Madrid. Greater China 35 +4 11,872 +904
Next year will also include expenditure on the continuing refurbishment and Rest of Asia Pacific 72 -4 18,470 -1,116
upgrade of the London Forum. This was rebranded from 1 October 2001 to the Total 159 -4 40,560 -842
Holiday Inn Kensington South, and with 910 rooms became the world’s largest
Holiday Inn. 2001 2000
RETAIL £m £m Change
SIX CONTINENTS RETAIL Turnover 1,557 1,674 -7.0%
Operating profit:
Ongoing operating profit up by 1.1% Pubs & Bars 187 186 +0.5%
Restaurants 87 85 +2.4%
S T R AT E G Y Ongoing estate 274 271 +1.1%
The strategy of Six Continents Retail (SCR) continues to be the delivery of Inns 24 75 -68.0%
superior and distinctive customer offers in high return sectors of the pub, bar Other 7 –
and restaurant markets. To this end, SCR continues to concentrate on expanding Total 305 346 -11.8%
its distribution of high quality retail brands targeted at specific consumer Net capital expenditure (288) (204)
occasions. While operations are primarily located in the UK, SCR now manages Operating cash flow 66 213
30 bars trading under the Alex brand in Germany and has recently opened the Major disposals/(acquisitions) 598 (204)
first All Bar One in mainland Europe in Cologne, Germany.
SIX CONTINENTS 2001
08 OPERATING AND FINANCIAL REVIEW
FIGURE 10 MARKET
RESTAURANTS – change The market has started to see an underlying improvement in the balance of
OUTLETS AT 30 SEPTEMBER 2001 2001 over 2000 supply and demand for the pub and restaurant sector in general. However, there
Vintage Inns 179 +28 were a number of one-off adverse external factors which impacted trading.
Harvester 150 +20 The year started with exceptionally wet weather and regional flooding, followed
All Bar One 54 – by the impact of the foot and mouth epidemic in the Spring. Against this
Toby 64 +25 background, increases in employment and property costs continued to put
Innkeeper’s Fayre 16 – pressure on SCR’s cost base. The trend towards polarisation of the market to
Express by Holiday Inn 18 +2 large branded outlets and smaller unbranded community pubs has continued
Browns 13 +2 apace, with leading pub retailers continuing to rationalise their estates.
Alex 30 +11 REPOSITIONING
Other – -71 SCR continued to actively move the mix of its estate towards larger branded
Total branded 524 +17 outlets, moving from 792 branded outlets at the end of 2000 to 967 at the end
Unbranded (incl. Development pipeline) 115 -13 of 2001 (see figure 12). In February 2001, SCR sold 988 smaller outlets that
Total 639 +4 were not suited for conversion to its brands for £625m. Investment in the
ongoing estate continued strongly with the opening of 36 new branded outlets
FIGURE 11 and the conversion of a further 139 unbranded outlets to branded formats.
Of the 550 ex-Allied Domecq outlets acquired in the previous year, at the year
PUBS & BARS – change
OUTLETS AT 30 SEPTEMBER 2001 2001 over 2000 end a total of 263 had been converted to SCR formats and a further 41
It’s A Scream 85 +14 refurbishments were in progress. These converted sites are recording sales uplifts
O’Neill’s 89 +19 in excess of 40% above the last full year under the previous owners.
Ember Inns 110 +58 SCR now operates a total of 2,053 managed outlets; 639 in the Restaurants
Edward’s 33 +7 division (see figure 10) and 1,414 in the Pubs & Bars division (see figure 11).
Arena 30 +7 The continuing shift in the shape of the business away from a beer dominated
Hollywood Bowl 21 – pub operator is illustrated through the change in sales mix, with food sales now
Goose 39 +25 accounting for 28% of total sales compared with 23% a year ago (see figure 13).
Flares 13 +13 As a result, the overall average weekly takings per outlet have increased from
Sizzling Pub Company 23 +23 £10,700 in 2000 to £13,900 today, a rise of 30% (see figure 14). Over 650
Other – -8 outlets now have average weekly takings in excess of £15,000, compared with
Total branded 443 +158 just over 540 outlets in the previous year. The number of outlets with average
Unbranded (incl. Development pipeline) 971 -113 weekly takings in excess of £20,000 has risen to over 350, compared with some
Total 1,414 +45 300 outlets last year.
PERFORMANCE
FIGURE 12
Total sales in the ongoing estate were up 4.3% to £1,396m, with food sales up
536
655
754
792
967
10.1% and drink sales up 3.1%. In core uninvested outlets, like-for-like sales
were down 0.8% over the previous year in total, but this represented year on
year growth in the second half of 0.1%. Branded uninvested like-for-like sales
were 0.4% ahead of last year, with particularly strong performances from
Ember Inns, Hollywood Bowl, Vintage Inns and All Bar One.
Total operating profit of £305m was 11.8% down on last year. In the ongoing
estate, operating profit grew by 1.1% to £274m, however this growth was held
back by the refurbishment programme. The incremental negative impact of
closure and pre-opening costs resulting from the accelerated investment
97 98 99 00 01 programme was £11m; excluding these costs, the underlying operating profit
growth was 4.9%. The investment in branded outlets continued to generate
BRANDED OUTLETS 1997-2001
Number of outlets at 30 September returns on average in excess of 15%.
SIX CONTINENTS 2001
09
C A S H F L OW A N D I N V E S T M E N T FIGURE 13 FIGURE 14
SCR generated an operating cash inflow of £66m after net capital expenditure
8,700
9,700
10,500
10,700
13,900
18.6
20.5
22.0
23.2
28.0
of £288m, compared with an operating cash inflow of £213m after net capital
expenditure of £204m in 2000. In 2001, £224m was spent on outlet
acquisitions, conversions and expansion and included £102m on conversion
of the ex-Allied Domecq pubs to SCR brands.
SOFT DRINKS
Operating profit up by 23.9%
S T R AT E G Y 97 98 99 00 01 97 98 99 00 01
The strategy of Britvic Soft Drinks (BSD) is to be the UK’s leading soft drinks
FOOD SALES AS A AVERAGE WEEKLY SALES PER
company. To achieve this goal, BSD continues to grow its market share by PERCENTAGE OF TOTAL SALES OUTLET (£) 1997-2001
(%) 1997-2001
supporting its existing strong portfolio of brands and by a programme of new
product development.
MARKET
Although the disappointing fourth quarter of 2000 continued into the first
quarter of the 2001 financial year, virtually all sectors saw growth in the
summer period. This year has seen the continuation of intense competition by
major retailers on pricing, which resulted in average retail prices in the take-
home channel being flat year on year.
PERFORMANCE
BSD had an exceptional year, operating profit of £57m being up 23.9% on the
previous year. Robinsons performed strongly, generating volume growth of over
17% on the previous year and increasing its share of the dilutables market by
3.2 percentage points. Fruit Shoot, launched in the Summer of 2000, captured
4.5% of the fruit drinks take-home market. However, BSD saw a reduction of
one percentage point in its market share of the take-home carbonates market,
due to intense promotional investment by competitors. BSD’s overall sales
2001 2000
volumes in the take-home market were 4.3% ahead of last year and total SOFT DRINKS £m £m Change
volumes 3.2% higher than in 2000. Turnover grew by 5.9% to £571m.
Turnover 571 539 +5.9%
C A S H F L OW A N D I N V E S T M E N T Operating profit 57 46 +23.9%
BSD has continued to invest in new product development and expansion of Net capital expenditure (28) (48)
its production capacity. Operating cash inflow was £99m after capital Operating cash flow 99 36
expenditure of £28m.
SIX CONTINENTS 2001
10 OPERATING AND FINANCIAL REVIEW
E XC E P T I O N A L I T E M S
The operating exceptional item of £43m relates to reorganisation, restructuring
and strategic appraisal costs in SCH. The non-operating exceptional item of £2m
includes a loss on the disposal of 988 smaller unbranded pubs, and a profit from
the finalisation of the pension scheme transfer, following the disposal of the
Group’s brewing operations last year. These operating and non-operating items
have been treated as major exceptional items and their effect, along with the
impact of the associated tax charge of £19m, have been excluded from the
calculation of adjusted earnings per share. Other exceptional items were minor
and amounted to a £2m charge in total.
INTEREST
The net interest charge decreased by £93m to £59m. This was mainly due to the
lower average level of debt following the receipt of £2.3bn from the disposal of
the Group’s brewing operations last year. The Group saw a further reduction in
the level of net debt following the sale of the 988 pubs in February 2001, but
borrowings later increased with the acquisition of Posthouse and the Hotel
Inter-Continental Hong Kong.
The Group deposited the brewing and pub proceeds in sterling investments and
also in currency swaps which were used to replace US dollar and other currency
borrowings from banks. As a result there was an £87m increase in net sterling
interest receivable. US dollar interest payable fell by some £7m overall. This was
the net result of lower overall interest rates more than offsetting the impact of
higher average borrowings, and a weaker average sterling/US dollar exchange
rate (2001 £1:$1.44; 2000 £1:$1.55).
TA X AT I O N
Excluding the impact of the major exceptional items, the tax charge represents
an effective rate of 26.0%, unchanged from the previous year.
Excluding the effect of major exceptional items and prior year items, the Group
tax rate was 26.0%, compared with 30.0%, the rate nominally applicable to the
UK. This difference arises primarily as a result of UK capital allowances
continuing to exceed depreciation and to the recognition of certain overseas tax
losses following an internal reorganisation.
EARNINGS AND DIVIDEND
Earnings totalled £459m in 2001 against £1,684m in 2000; the equivalent basic
earnings per share were 53.2p and 192.9p respectively. However, as in previous
years, earnings per share have been adjusted to eliminate the distorting effect
of the major exceptional items, with the result that, adjusted earnings per share
are 60.1p, compared with 62.2p in 2000.
The Board has proposed a final dividend of 23.9p per share, bringing the total
dividend for the year to 34.3p. This represents an increase of 3.0% on last
year and represents dividend cover of 1.8 times based on adjusted earnings.
SIX CONTINENTS 2001
11
C A S H F L OW 2001 2000 Change
Operating cash inflow from continuing operations of £76m was £252m lower CASH FLOW £m £m £m
than last year’s cash inflow of £328m, reflecting the significant increase in the Operating activities 984 1,103 -119
level of net capital expenditure, which increased by £271m to £868m. Net capital expenditure:
Net capital expenditure in SCH was significantly higher than in the previous Continuing operations (868) (597) -271
year and reflected the acquisition of the Hotel Inter-Continental Hong Kong for Total (868) (654) -214
$346m and expenditure on the ongoing refurbishment programme of the Inter- Operating cash flow:
Continental owned hotels. SCR net capital expenditure of £288m was £84m Continuing operations 76 328 -252
higher than in the previous year, due to expenditure on outlet acquisitions, and Total 116 483 -367
the continued refurbishment and conversion to SCR brands of the pubs formerly Interest, dividends and taxation (513) (585) +72
owned by Allied Domecq PLC. Normal cash flow (397) (102) -295
Payment of interest, dividends and taxation absorbed £513m, compared with Major acquisitions (752) (400) -352
£585m in 2000. The main reason for this improvement in cash flow was the Major disposals 623 2,234 -1,611
decrease in the Group’s interest payments, as a result of the average level of Net cash flow (526) 1,732 -2,258
debt being much lower following the disposal of the Group’s brewing operations
late last year. Including cash flows from discontinued operations, normal cash
outflow was £397m, being £295m more than last year. FIGURE 15
The cash outflow of £752m for major acquisitions reflected the amount paid for (Mean average index for the month – October 2000=100)
Posthouse. Major disposals cash inflow of £623m reflected the proceeds from 120
the sale of 988 smaller unbranded outlets and the receipt of deferred
consideration in respect of the pension scheme transfer, following the sale of 110
Bass Brewers in 2000. After taking account of £103m for the repurchase of Six
Continents PLC shares, the impact of exchange movements and debt acquired, 100
net debt at 30 September 2001 was £1,001m, compared with £345m at the
start of the year. 90
S H A R E P R I C E A N D M A R K E T C A P I TA L I S AT I O N 80
During 2001, the Six Continents share price outperformed both the Leisure,
Entertainments and Hotels sector and the FTSE 100. At the start of the year the 70
Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep
2000 2001
share price was 665p and reached a high of 802p on 22 May 2001, declining
later in the year as a consequence of the market reaction to the terrorist SIX CONTINENTS SHARE PRICE MOVEMENT
attacks in the USA. The share price closed the year at 620p. During the year the Six Continents
Group repurchased approximately 14.9 million of its own shares, at an average FTSE 100
Sector
price of 701p. The market capitalisation of the Group at 30 September 2001
was approximately £5.37bn.
T R E A S U RY M A N A G E M E N T
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 centre. Treasury activities include
the use of spot and forward foreign exchange instruments, currency options,
currency swaps, interest rate swaps and options, and forward rate agreements.
Movements in foreign exchange rates, particularly the US dollar and the euro,
can affect the Group’s reported profit, net assets, gearing and interest cover.
As far as is reasonably practical, borrowings are taken out in foreign currencies
SIX CONTINENTS 2001
12 OPERATING AND FINANCIAL REVIEW
FIGURE 16 (either directly or via currency swaps), which broadly match those in which the
INTEREST RISK PROFILE 2001 2000 Group’s major net assets are denominated. The interest on these borrowings
OF GROSS DEBT AT 30 SEPTEMBER % %
hedges foreign currency denominated income streams. During the year, the
At fixed rates 37 38 interest on US dollar borrowings hedged around 55% of the profit generated
At variable rates 63 62 in US dollars, while interest on euro borrowings hedged around 33% of profit
generated in euro and related currencies. During 2001, the US dollar was on
average 7% stronger than in 2000 by comparison with sterling, whilst the euro
FIGURE 17 was broadly unchanged. The net impact of the US dollar exchange rate
NET DEBT 2001 2000 movement was to increase the interest charge by £7m (though it was more
AT 30 SEPTEMBER £m £m
than compensated for by a £14m positive impact on operating profit).
Borrowings
Foreign exchange transaction exposure is managed by the forward purchase
Sterling 547 615
or sale of foreign currencies or the use of currency options. Most significant
US dollar 2,001 1,705
exposures of the Group are in currencies that are freely convertible.
Euro 693 662
Australian dollar 57 102 Interest rate exposure is managed within parameters that stipulate that fixed
Hong Kong dollar 212 – rate borrowings should normally account for no less than 25%, and no more
Other 35 41 than 75%, of net borrowings for each major currency. This is achieved through
Cash and current asset investments (2,544) (2,780) the use of fixed rate debt, interest rate swaps and options (such as caps) and
Total 1,001 345 forward rate agreements – figure 16 shows the year end position.
Note: all shown after the effect of currency swaps.
Based on the year end net debt position set out in figure 17, and given the
underlying maturity profile of investments, borrowings and hedging instruments
FIGURE 18 at that date, a one percentage point rise in US dollar interest rates or a similar
rise in euro interest rates, would increase the net interest charge by
FACILITIES 2001 2000
AT 30 SEPTEMBER £m £m approximately £6m and £4m respectively. A similar movement in sterling rates
Committed 1,884 1,913 would have the opposite effect, reducing the net interest charge by
Uncommitted 158 238 approximately £15m.
Total 2,042 2,151 Long-term borrowing requirements are met through sterling debentures and
bonds denominated in sterling, US dollar or euro. Short-term and medium-term
borrowing requirements are met from drawing under committed bank facilities
and a medium-term note facility. Figure 18 sets out the committed and
uncommitted bank facilities at the year end.
The Group’s current credit ratings from Standard & Poor’s and Moody’s for
long-term debt are A- and A3 respectively and for short-term debt are A2 and
P2 respectively. The Group continues to comply with all of its borrowing
covenants, none of which represents a restriction on funding or investment
policy in the foreseeable future.
Credit risk on treasury transactions is minimised 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 with individual counterparties. Most of the Group’s surplus funds are held in
the United Kingdom or the United States and there are no material funds where
repatriation is restricted as result of foreign exchange regulations.
SIX CONTINENTS 2001
13
RISK MANAGEMENT
With regard to insurance against risk, companies generally are facing increased
premiums for reduced cover as the insurance market continues to harden
following the effects of the attack on the World Trade Center in New York.
The Group continues to explore ways of sensibly insuring risk and for
2001/2002 has increased its level of self-insurance or deductible for most risks.
AC C O U N T I N G P O L I C I E S
The financial statements have been drawn up using accounting policies
unchanged from the previous year. During the year, the Accounting Standards
Board issued Financial Reporting Standard (FRS) 17 ‘Retirement Benefits’,
FRS 18 ‘Accounting Policies’ and FRS 19 ‘Deferred Tax’. Although FRS 17 will
not be mandatory for the Group until the year ended 30 September 2003, the
standard has an extended transitional period during which certain disclosures
are required in the notes to the financial statements. The first year transitional
disclosures are given in note 7 to the accounts. FRS 18 was effective in the
current year and its application had no impact on the Group. FRS 19, which will
be adopted by the Group in the year to 30 September 2002, requires deferred
tax to be accounted for on a full provision basis and this is expected to result in
an increase in the Group’s effective tax rate to around 31%.
SIX CONTINENTS 2001
14 DIRECTOR’S REPORT
The directors of Six Continents PLC submit their report for the Considerable emphasis is placed on communication with employees,
financial year ended 30 September 2001. particularly on matters relating to the Company’s business and its
AC T I V I T I E S O F T H E G RO U P
performance. This is achieved in a number of ways, including regular
The principal activities of the Group are in: team meetings, informal briefings and the distribution of in-house
publications, videos and discs. Feedback is obtained from employees
Hotels, with worldwide interests in franchising, management and through the use of surveys, the general results of which are utilised
ownership and leisure retailing, through ownership and management in developing management policies.
of restaurants, public houses, bars and bowling venues, mainly in the
United Kingdom. The Six Continents European Forum brings together senior managers
and employee representatives from EU countries to discuss pan-
The Group also produces and distributes soft drinks in the United European issues for Six Continents.
Kingdom.
I N V E S TO R S I N P E O P L E
BUSINESS REVIEW AND FUTURE DEVELOPMENTS
The Group continues to support Investors in People actively. The
The directors’ report should be read in conjunction with the United Kingdom divisions, the Corporate Headquarters and certain
Operating and Financial Review on pages 2 to 13 and the non-UK outlets have received accreditation.
Chairman’s Statement and the Chief Executive’s Review in the
H E A LT H A N D S A F E T Y
Annual Review and Summary Financial Statement, which together
include information about Group businesses, the financial The Group strives to provide and maintain a safe environment for
performance during the year and likely developments. all employees, customers and other visitors to its premises and to
comply with relevant health and safety legislation. In addition, all
M A J O R AC Q U I S I T I O N
Group companies will:
In April 2001 the Company acquired the 79 hotels comprising the
Posthouse business for £810 million. All but one of these hotels are • aim to protect the health of employees with suitable, specific,
in the United Kingdom and the majority of them will be converted work-based strategies,
to the Holiday Inn brand. • seek to minimise the risk of injury from company activity,
CHANGE OF NAME • ensure that through senior management participation, sufficient
A condition of the sale in August 2000 of its brewing business was resources and information are made available and suitable
that the Company would cease to use both the name Bass and the management systems are in place to address health and safety
red triangle as its corporate identity. At an Extraordinary General matters and
Meeting held on 20 July 2001 shareholders approved the change of • encourage the involvement of employees and aim for continual
the Company’s name to Six Continents PLC, which became effective improvement in health and safety matters through a formal
on 27 July 2001. structure with a reporting and review process.
DIVIDENDS
Compliance with Group policy is monitored and audited centrally
An interim dividend of 10.4p per ordinary share was paid on and a comprehensive annual health and safety report is produced
31 July 2001. The directors recommend a final dividend of 23.9p for the Board.
per ordinary share to be paid on 18 February 2002 to shareholders
T H E E N V I RO N M E N T
on the Register at close of business on 21 December 2001; this
makes a total dividend for the year of 34.3p per share, which will Six Continents recognises that it is part of a wider community of
absorb £293m. employees, shareholders, customers, suppliers and others, and
recognises that Group companies have a responsibility to act in a
E M P L OY E E S
way that respects the environment.
The Group employed an average of 79,890 people worldwide in 2001.
Environmental matters are reported fully in the Group
The Company is committed to providing equality of opportunity to Environmental Report, which is available on the Company’s website
all employees without discrimination and continues to be supportive and from the Company Secretary.
of the employment and advancement of disabled persons.
SIX CONTINENTS 2001
15
E M P L OY E E S H A R E S C H E M E S P O L I C Y O N PAY M E N T O F S U P P L I E R S
Six Continents encourages employee participation in the Group’s The Company agrees payment terms with each of its major suppliers
success through share ownership. and abides by those terms, subject to satisfactory performance by
The Six Continents Employee Profit Share Schemes allocated the supplier. Amounts owed to other suppliers are settled on or
991,145 ordinary shares in February 2001 out of profits before the end of the month following that in which the Company
appropriated to them by the Board. At 30 September 2001, receives a valid invoice.
3,781,645 ordinary shares were held by the Trustees on behalf of At 30 September 2001, the Company’s trade creditors outstanding
17,445 participants. represented approximately 9 days’ purchases (2000 13 days).
The Six Continents Employee Savings Share Scheme granted options E U RO P E A N E C O N O M I C A N D M O N E TA RY U N I O N ( E M U )
in June 2001 over 1,060,992 ordinary shares at 626p per share to a Group companies trade in or with every EU member state and Six
total of 2,726 employees. Under this scheme, 5,318 participants Continents has adopted a flexible policy on EMU, having regard to
hold options over 4,072,452 shares. the business interests of each Group company. It has completed
There are 473 participants in the Six Continents Executive Share preparations for the issue of Euro coins and notes in those countries
Option Schemes, holding options over 20,676,437 ordinary shares. where the Euro has been adopted. In the United Kingdom, the
Options under the Six Continents Executive Share Option Scheme Company has taken initial steps to prepare for the single currency,
(1995) were granted during the year to 242 participants over should it be adopted.
4,647,700 shares. Options under this scheme are exercisable only GOING CONCERN
if a performance condition is met and for options granted in 2001, The financial statements which appear on pages 24 to 52 have been
the condition is set out on page 18. prepared on a going concern basis as, after making appropriate
Awards were made under the Six Continents Long-Term Incentive enquiries, the directors have a reasonable expectation that the
Plan on 1 October 2001 totalling 70,752 ordinary shares after tax. Group has adequate resources to continue in operational existence
Further details of the plan and awards under it to directors follow for the foreseeable future.
on pages 18/19 and 22/23. D O N AT I O N S
S H A R E C A P I TA L
The Company continues to support community initiatives and
During the year, 1,676,739 ordinary shares were issued under charitable causes and in 2001 donated £0.9m (2000 £1.1m).
Employee Share Schemes and 14,945,000 shares were cancelled. In addition to these cash contributions, the Company’s employees
The ordinary share capital at 30 September 2001 consisted of are encouraged to give their time and skills to a variety of causes
866,084,152 ordinary shares of 28p each. Since the authority and the Company makes donations in kind, such as hotel
granted by shareholders on 15 February 2001, the Company accommodation. It is estimated that these contributions raised the
purchased 1,675,000 of its ordinary shares in the market at an total value of the Company’s donations to approximately £1.5m.
average price of 713p per share and cancelled those shares. The Company made no payments for political purposes.
Authority to purchase 128,455,000 shares remains unutilised. A N N UA L G E N E R A L M E E T I N G
S U B S TA N T I A L S H A R E H O L D I N G
The Notice convening the Annual General Meeting to be held at
As at 5 December 2001, the Company has been notified of the 12 noon on Thursday, 14 February 2002 is contained in a circular
following substantial interest (3% or more) in its ordinary share sent to shareholders with this Report.
capital: AU D I TO R S
Legal & General Plc 3.1%. Ernst & Young, who on 28 June 2001 became a limited liability
partnership known as Ernst & Young LLP, have expressed their
willingness to continue in office as auditors of the Company
and their reappointment will be put to members at the Annual
General Meeting.
SIX CONTINENTS 2001
16 CORPORATE GOVERNANCE
COMBINED CODE COMPLIANCE With regard to insurance against risk, companies generally are facing
The Board is committed to compliance with the principles of increased premiums for reduced cover as the insurance market
corporate governance as set out in the Combined Code in the Listing continues to harden following the effects of the attack on the World
Rules of the Financial Services Authority and, in the opinion of the Trade Center in New York. The Group continues to explore ways of
Board, the Company has complied throughout the year. sensibly insuring risk and for 2001/2002 has increased its level of
The Board is responsible for the Group’s system of internal control self-insurance or deductible for most risks.
and risk management and for reviewing its effectiveness. In order to B OA R D A N D C O M M I T T E E S T RU C T U R E
discharge that responsibility, the Board confirms that it has To support the principles of good corporate governance, the Board
established the procedures necessary to implement the Combined and Committee structure operates as set out below.
Code, including clear operating procedures, lines of responsibility T H E B OA R D
and delegated authority. The Board is responsible to the shareholders for the good standing
Business performance is managed closely and in particular, the of the Company, the management of its assets for optimum
Board, the Strategic Business and the Executive Committees have performance and the strategy for its future development. There are
established processes, as part of the normal good management of ten regular Board meetings a year and further meetings as needed.
the business, to monitor: The following were directors of the Company during the year:
• strategic plan achievement, through a comprehensive series of Roger Carr* Richard North
Group and divisional strategic reviews;
Tim Clarke Thomas R Oliver
• financial performance, within a comprehensive financial planning
and accounting framework; Robert C Larson* Sir Michael Perry*†
• capital investment performance, with detailed appraisal, Sir Peter Middleton*† Sir Ian Prosser
authorisation and post-investment reviews; and Sir Geoffrey Mulcahy* Bryan Sanderson*‡
• risk management, through an ongoing process, which accords with * non-executive
the Turnbull guidance and provides assurance through reports from † retired 31 July 2001
‡ appointed 1 August 2001
the Director of Risk Management that the significant risks faced by
the Group are being identified, evaluated and appropriately Directors’ biographical details are set out on page 22 of the Annual
managed, having regard to the balance of risk, cost and opportunity. Review and Summary Financial Statement 2001.
In addition, the Audit Committee receives: The directors retiring by rotation are Tim Clarke and Tom Oliver,
who, being eligible, offer themselves for reappointment. Tim Clarke
• reports from the Head of Group Assurance on the work carried out
has a service contract with the Company requiring one years’ notice
under the annual internal audit plan, including an annual report on
of termination, whilst Tom Oliver’s contract has 16 months to run to
the operation of the monitoring processes set out above to support
his normal retirement date. Bryan Sanderson, having been appointed
the Board’s annual statement on internal control; and
a director on 1 August 2001, will retire at the Annual General
• reports from the external auditors. Meeting and offer himself for re-election. He does not have a
The Board has conducted a review of the effectiveness of the system service contract.
of internal control during the year ended 30 September 2001. CHAIRMAN
The review was carried out through the monitoring process set out Sir Ian Prosser is Chairman of the Board with responsibility for the
above. The system of internal control is designed to manage, rather strategic direction of the Company.
than eliminate, the risk of failure to achieve business objectives and
G RO U P C H I E F E X E C U T I V E
it must be recognised that it can only provide reasonable and not
Tim Clarke is the Group Chief Executive, with responsibility for the
absolute assurance against material misstatement or loss. In that
executive management of the Group.
context, the review revealed nothing which, in the opinion of the
Board, indicated that the system was ineffective or unsatisfactory.
SIX CONTINENTS 2001
17
COMMITTEES General Purposes Committee
Strategic Business Committee The General Purposes Committee comprises any two executive
This Committee is chaired by the Chairman of the Company and directors or any one executive director together with a senior officer
consists of the executive directors and the Strategy Director and from an agreed and restricted list of senior executives. It is always
meets at least every three weeks. Its role is to consider and manage chaired by a director. It attends to business of a routine nature and
the important strategic and business issues facing the Group; it is to the administration of matters, the principles of which have been
authorised to approve capital and revenue investment within levels agreed previously by the Board or an appropriate committee.
agreed by the Board. N O N - E X E C U T I V E D I R E C TO R S
Six Continents has experienced independent non-executive directors
Hotels Executive Committee who represent a strong source of advice and judgement. There are
Retail Executive Committee four such directors, each of whom has significant commercial
These committees are responsible for the performance, respectively, experience and responsibilities outside Six Continents. All directors
of the hotels and retail businesses and meet at least bi-monthly; are briefed by use of comprehensive papers in advance of Board
they are authorised to approve capital and revenue investment meetings and by presentations at meetings. Their understanding
within levels agreed by the Board. They are chaired by the Group of the Group’s operations is enhanced by regular divisional
Chief Executive and membership consists of senior representatives presentations outside Board meetings and visits to the divisions.
from the parent company and the relevant operating division. At least one Board meeting a year is held at one of the divisions.
Audit Committee The non-executive directors attend separate strategy meetings with
The Audit Committee, chaired by the senior non-executive director, the Strategic Business Committee.
consists of all the non-executive directors and meets at least three Sir Michael Perry was the Company’s senior independent director
times a year. It assists the Board in observing its responsibility for until his retirement on 31 July 2001; since then Roger Carr has been
ensuring that the Group’s financial systems provide accurate and nominated to that role.
up-to-date information on its financial position and that the Group’s
R E - E L E C T I O N O F D I R E C TO R S
published financial statements represent a true and fair reflection of
this position. The Company ensures that directors submit themselves for
re-election at least every three years.
It also assists the Board in ensuring that appropriate accounting
INDEPENDENT ADVICE
policies, internal financial controls and compliance procedures are in
place. The auditors attend its meetings as does the Head of Group There is an agreed procedure by which members of the Board may
Assurance, who has direct access to the Chairman of the Committee. take independent professional advice in the furtherance of their
duties. All directors have access to the advice and services of the
Remuneration Committee Company Secretary.
The Remuneration Committee, chaired by the senior non-executive
S H A R E H O L D E R R E L AT I O N S
director, consists of all the non-executive directors and meets, on
average, five times a year. Its role is described on page 18. The Company has a programme of meetings with its major
institutional shareholders, which provides an opportunity to discuss,
Nomination Committee on the back of publicly available information, the progress of the
The Nomination Committee’s quorum comprises the Chairman, the business. The Annual General Meeting provides a useful interface
senior non-executive director and at least one other non-executive with private shareholders, many of whom are also customers.
director but, where possible, all non-executive directors are present. The availability to shareholders of information about the Company
It is chaired by the Chairman of the Company and is responsible is maintained through its internet website: www.sixcontinents.com
for nominating, for the approval of the Board, candidates for
appointment to the Board.
SIX CONTINENTS 2001
18 REMUNERATION
1 C O M P O S I T I O N A N D RO L E O F T H E R E M U N E R AT I O N C O M M I T T E E award in Six Continents shares, which may amount to up to
The Remuneration Committee consists of all the non-executive 1.5 times the sum invested by the participant. Such awards are
directors and is chaired by Roger Carr, the senior independent conditional on their continued employment with Six Continents
director. The head of the Group Human Resources function has for specified periods.
direct access to the Chairman of the Committee. The Committee Over time, the executive directors will be expected to hold all
advises the Board on overall remuneration policy. The Committee shares issued under the Company’s remuneration plans until the
also determines, on behalf of the Board, and with the benefit of value of their holding equates to twice their basic salary. This will
advice from external consultants and the head of the Group Human be a condition of future participation in the Special Deferred
Resources function, the remuneration packages of the executive Incentive Plan.
directors and other members of the Strategic Business Committee.
The remuneration of the non-executive directors is determined by Bonuses are not pensionable.
the Board on the recommendation of the Strategic Business Executive share options
Committee, after market research. The Company believes that share ownership by executive directors
and senior executives strengthens the link between the individual’s
2 P O L I C Y O N R E M U N E R AT I O N O F E X E C U T I V E D I R E C TO R S A N D personal interest and that of the shareholders. Grants of options are
SENIOR EXECUTIVES normally made annually and, except in exceptional circumstances,
2 . 1 TOTA L L E V E L O F R E M U N E R AT I O N
will not, in any year, exceed twice salary. If an individual’s grant does
The Committee aims to ensure that remuneration packages offered exceed twice salary, it will be reported in the next annual report.
are competitive and designed to attract, retain and motivate A performance condition has to be met before options granted since
executive directors and senior executives of the right calibre. 1994 can be exercised. The performance condition is set each year
In particular, the Committee has regard to the levels of by the Remuneration Committee, having regard to recommendations
remuneration in the Group and in the specific industries and of the Investment Protection Committees of the major investing
businesses with which Group companies compete and is also institutions. For options granted in 2001, the Company’s adjusted
sensitive to levels in the wider community. earnings per share must increase by six percentage points more than
the increase in the RPI in a three year period, before the options
2.2 THE MAIN COMPONENTS become exercisable. There will be limited retesting of the
The Company operates performance-related reward policies. performance condition (on two occasions only) with measurement
These are designed to provide the appropriate balance between from a fixed point.
fixed remuneration and variable ‘risk’ reward, which is linked to Executive share options are not pensionable.
the performance of both the Group and the individual.
Long-term incentives
The main components of remuneration are: A long-term incentive plan (the Plan) was introduced in 1994 to
Basic salary encourage continuing improvement in the Group’s performance over
The salary for each executive director is based on individual the longer term. Its participants are the executive directors and
performance and on information from independent professional those senior executives who are best placed to influence such
sources on the salary levels for similar jobs in groups of comparable performance.
companies. Salary levels in Group companies and in the wider To align the interests of the participants with those of the
employment market are also taken into account. shareholders, the Plan is based on share, rather than cash, benefits.
Annual performance bonus Any awards under the Plan are not pensionable.
Challenging performance goals are set and these must be achieved
before the maximum bonus becomes payable. These goals include Each year, subject to the approval of the Remuneration Committee,
both personal objectives and targets linked to the Group’s a performance cycle commences and a performance condition is set.
performance in increasing profit before tax and earnings per share. For cycles commencing, up to and including 1999, the Company’s
For executive directors in the United Kingdom, the maximum bonus total shareholder return (share value growth assuming reinvestment
opportunity is normally 50% of salary, with 10% linked to personal of gross dividends) is measured against those of ten comparator
objectives and 40% to earnings per share. For executive directors companies. For these cycles, if Six Continents leads the group over
with a US remuneration base, currently only Tom Oliver, the the four year period, participants will be entitled to shares
maximum bonus opportunity is 80% of salary, with 15% linked to equivalent in value to between 6.25% and 50% (depending on
personal objectives, 55% to profit before tax and 10% to earnings seniority) of their cumulative basic salaries over that period.
per share. A special deferred incentive plan has also been set up for The benefit is reduced progressively so that, if Six Continents
each of Tim Clarke, Richard North and Tom Oliver, under which their achieves fifth place in the group, the entitlement reduces to
cash bonuses, or part of them, may be deferred in return for an between 1.25% and 10%. Below fifth position there is no reward.
SIX CONTINENTS 2001
19
If a benefit does accrue under the Plan, 50% of the shares, net of i size – turnover, profits and the number of people employed;
tax, are released in year five, 30% in year six and 20% in year seven. ii diversity and complexity of businesses;
For Tom Oliver, the executive director formerly based in the US, iii geographical spread of businesses; and
there are Plan benefits comparable to US market levels, producing
a maximum potential benefit of 87.5% of cumulative basic salary. iv growth, expansion and change profile.
For the fourth performance cycle, which ended on 30 September Towers Perrin Inc. provides the Committee with access to detailed
2001, Six Continents finished in fifth position in the group of external research on the level of pay and benefits in the Company’s
comparator companies as certified by Ernst & Young LLP, the markets. Other independent consultants are used as required.
Company’s auditors. Accordingly, awards totalling 70,752 shares
2.4 POLICY ON EXTERNAL APPOINTMENTS
after tax were made on 1 October 2001. Of the participants, four
are directors of Six Continents PLC and the value of their awards is Six Continents recognises that its directors are likely to be invited to
included in item 5 on page 22. The effect of these awards on become non-executive directors of other large companies and that
directors’ shareholdings is shown in item 7 on page 23. such non-executive duties can broaden experience and knowledge,
which will benefit Six Continents. Executive directors are, therefore,
Shares awarded under the Plan are provided by the Company’s allowed to accept up to two non-executive appointments, as long
Employee Share Ownership Plan (the ESOP). as these are not likely to lead to conflicts of interest, retaining the
For cycles of the Plan beginning on or after 1 October 2000, which fees received.
are three years in length, the comparator group is 12 companies 2 . 5 P O L I C Y O N C O N T R AC T S O F S E RV I C E
as follows: In 1999, the Remuneration Committee carried out a review of the
Six Continents PLC Company’s policy on length of notice periods in directors’ service
Accor SA contracts and payments on termination of such contracts. It agreed
Enterprise Inns plc an objective to reduce notice periods for directors to 12 months as
Hilton Group plc soon as obligations permit. An existing two year notice period, which
Hilton Hotels Corp. applies to one executive director, will remain in place normally until
Host Marriott Corp. the job holder has a change of position. All new appointments are
Marriott International Inc. intended to have 12 month notice periods, but it is recognised that,
Millennium & Copthorne plc for some appointments, a longer period may initially be necessary
Scottish & Newcastle plc for competitive reasons, reducing to 12 months thereafter.
Starwood Hotels & Resorts Worldwide Inc. As Sir Ian Prosser and Tom Oliver are within 2 years of their normal
J. D. Wetherspoon plc retirement dates, their notice periods have reduced to 20 and 16
Whitbread plc months respectively at the date of this Report. Tim Clarke’s contract,
Awards will be made for median performance or better and total which previously contained a 24 months’ notice period, is now
shareholder return will continue to be the performance measure. subject to 12 months’ notice.
If Six Continents ends a plan cycle in first position, participants will With the move towards one year contracts, the Committee has
be entitled to shares equivalent in value to between 180% and 20%, decided that termination payments are not required to be specified
according to seniority, of basic salary at the start of the cycle. in directors’ contracts.
For Tom Oliver, the executive director formerly based in the US,
there are Plan benefits comparable to US market levels for UK 2.6 POLICY REGARDING PENSIONS
parented companies, producing a maximum potential benefit UK-based executive directors and senior employees participate on
of 315% of basic salary at the start of the cycle. the same basis in the Six Continents Executive Pension Plan and,
if appropriate, the Six Continents Executive Top-Up Scheme.
2 . 3 C O M PA N I E S U S E D F O R C O M PA R I S O N Tom Oliver, the executive director who transferred from the US to
In assessing levels of pay and benefits, Six Continents compares the the United Kingdom and senior US-based executives participate in
packages offered by three different groups of comparator companies. US retirement benefits plans. Executives in other countries, who do
These companies are chosen having regard to: not participate in these plans, will participate in local plans, or the
Six Continents International Retirement Income Plan.
SIX CONTINENTS 2001
20 REMUNERATION
Basic Total emoluments
salaries Performance excluding pensions
and fees payments Benefits 2001 2000
3 ANNUAL EMOLUMENTS £000 £000 £000 £000 £000
Executive directors
Tim Clarke 490 213 22 725 539
Richard North 450 406 33 889 643
Tom Oliver 527 533 207 1,267 1,036
Sir Ian Prosser 816 365 19 1,200 1,173
Iain Napier (resigned 4.9.00) – – 985 985 1,243
Non-executive directors
Roger Carr 38 – – 38 32
Robert C Larson 36 – – 36 32
Sir Peter Middleton (retired 31.7.01) 30 – – 30 32
Sir Geoffrey Mulcahy 36 – – 36 32
Sir Michael Perry (retired 31.7.01) 61 – – 61 64
Bryan Sanderson (appointed 1.8.01) 6 – – 6 –
Total 2001 2,490 1,517 1,266 5,273
Total 2000 2,529 2,006 291 4,826
The figures above represent emoluments earned as directors during the relevant financial year. Details of long-term reward are shown on page 22.
‘Performance payments’ include the annual cash bonus and the value of ordinary shares allocated under the Employee Profit Share Scheme. As previewed in last years’
Report, the payment to Mr Oliver includes an amount in relation to his relocation to London.
‘Benefits’ incorporate all tax assessable benefits arising from employment by the Company, which relate, in the main, to the provision of a company car and, for Tom Oliver,
additionally include certain UK living allowances. The benefit paid to Iain Napier, a former director, was disclosed in last year’s Annual Report. Under the terms of an
agreement reached with him prior to the sale of Bass Brewers, Mr. Napier was entitled to this amount, together with related pension and other benefits, if he ceased
employment in certain circumstances with the purchaser of Bass Brewers. The circumstances giving rise to the payment have occurred.
Messers Clarke, North and Oliver are entitled under the Special Deferred Incentive Plan to defer all or part of their annual cash bonus and
convert the value into the Company’s shares which will be released to those directors after at least twelve months, together with an award
in shares provided by the Company. Such awards are conditional on the Directors being employed by the Group at the release dates.
The table below shows the maximum share awards, assuming the Directors elect to defer their 2001 bonuses.
Ordinary
Year shares** Value Release
SPECIAL DEFERRED INCENTIVE PLAN earned 000 £000 date
Tim Clarke 2001* 50 308 18.12.02
Richard North 2001* 81 501 18.12.02
Tom Oliver: 2001* 17 105 10.3.03
2000 29 180 10.3.03
1999 14 87 10.3.03
1998 16 99 10.3.03
* Maximum matching award assuming Director elects to participate.
** Based on share price at 30 September 2001 – £6.20.
SIX CONTINENTS 2001
21
4 D I R E C TO R S ’ P E N S I O N S
The following information relates to the pension arrangements All Plan benefits are subject to Inland Revenue limits. Where such
provided for Sir Ian Prosser, Tim Clarke and Richard North, under the limitation is due to the earnings ‘cap’, SCETUS is used to increase
Six Continents Executive Pension Plan (the Plan) and in the cases of pension and death benefits to the level that would otherwise
Tim Clarke and Richard North, under the unfunded Six Continents have applied.
Executive Top-Up Scheme (SCETUS). Tom Oliver, the executive director formerly based in the US, has
The Plan is a funded, Inland Revenue approved, final salary, retirement benefits provided via the 401(k) Retirement Plan for
occupational pension scheme. Its main features applicable Employees of Six Continents Hotels and the Six Continents Hotels
to the executive directors are: Deferred Compensation Plan (DCP).
i a normal pension age of 60; The 401(k) Retirement Plan is a tax qualified plan providing benefits
ii pension accrual of 1/30th of final pensionable salary on a money purchase basis, with the member and the Company
for each year of pensionable service; both contributing.
iii life assurance cover of four times pensionable salary; The DCP is a non-tax qualified plan, providing benefits on a money
purchase basis with the member and the Company both
iv pensions payable in the event of ill health; and contributing.
v spouse’s and dependants’ pensions on death.
Increase in Accrued
Directors’ accrued pension at
Age at contributions pension 30 Sept 2001
30 Sept (note 1) (note 2) (note 3)
DIRECTORS’ PENSION BENEFITS 2001 £ £ pa £ pa
Tim Clarke 44 14,000 47,900 148,300
Richard North 51 14,000 21,400 106,200
Sir Ian Prosser 58 38,100 43,400 544,000
note 1 Contributions paid in the year by the directors under the terms of the plans.
note 2 The increase in accrued pension during the year excludes any increase for inflation.
note 3 Accrued pension is that which would be paid annually on retirement at 60, based on service to 30 September 2001.
note 4 Members of the Plan joining before 1989 have the option to pay Additional Voluntary Contributions, subject to Inland Revenue limits;
neither the contributions, nor the resulting benefits, are included in the above table.
note 5 Tom Oliver is no longer a member of a defined benefit pension arrangement. Over the year he contributed £4,700 to the 401(k) Retirement Plan
and £52,700 to the DCP. The Company contributed £4,100 to the 401(k) Retirement Plan and £111,700 to the DCP, on his behalf. The Company’s
contributions to Tom Oliver’s plans in 2000 totalled £29,900.
The following is additional information relating to directors’
pensions under the Plan and SCETUS:
A NORMAL PENSION AGE C E A R LY R E T I R E M E N T R I G H T S
The normal pension age is 60. Sir Ian Prosser’s pension arrangements After leaving the service of the Company, the member has the right
have already been funded and charged in the Company’s accounts to draw his accrued pension at any time after his 50th birthday,
in previous years so that the accrued pension can already be drawn subject to a discount for early payment.
as of right without reduction. The accrued pension is £544,000 D PENSION INCREASES
per annum. All pensions (in excess of Guaranteed Minimum Pensions) are
B D E P E N DA N T S ’ P E N S I O N S subject to contractual annual increases in line with the annual rise
On the death of a director before his normal retirement age, a in the RPI, subject to a maximum of 5% per annum. In addition,
widow’s pension equal to one-third of his own pension is payable; it is the Company’s present aim to pay additional increases based
a child’s pension of one-sixth of his pension is payable for each of on two-thirds of any rise in the RPI above 5% per annum.
a maximum of two eligible children. E OT H E R D I S C R E T I O N A RY B E N E F I T S
On the death of a director after payment of his pension Other than the discretionary pension increases mentioned in D,
commences, a widow’s pension of two-thirds of the director’s there are no discretionary practices which are taken into account
full pension entitlement is payable; in addition, a child’s pension in calculating transfer values on leaving service.
of one-sixth of his full pension entitlement is payable for each of
a maximum of two eligible children.
SIX CONTINENTS 2001
22 REMUNERATION
5 L O N G - T E R M R E WA R D
The 1997/2001 cycle of the Six Continents Long-Term Incentive Plan was completed on 30 September 2001. The value before tax of awards
made in Six Continents shares is set out below:
Gross award
before tax –
ordinary Value of award
Date shares 2001 2000
of award 000 £000 £000
Current executive directors
Tim Clarke 1.10.01 20 124 113
Richard North 1.10.01 21 131 130
Tom Oliver 1.10.01 26 162 137
Sir Ian Prosser 1.10.01 40 245 249
Former executive director
Iain Napier 2.10.00 – – 111
The executive directors are currently included in the Plan for the cycles 1998/2002, 1999/2003, 2000/2003 and 2001/2004, which may or
may not provide awards, depending on the Company’s performance.
Ordinary shares under option Price
Weighted
average
option
6 DIRECTORS’ OPTIONS 30.09.01 Granted Lapsed Exercised 1.10.00 price Option price
Tim Clarke 135,500* 723p
A 24,600 554p
B 102,400 855p
C 247,919 686p
Total 374,919 135,500 – – 239,419 723p
Richard North 124,400* 723p
1,100 886p
A 77,800 591p
B 95,600 756p
C 243,000 680p
Total 416,400 124,400 1,100 – 293,100 681p
Tom Oliver 145,400* 723p
B 141,300 848p
C 284,000 703p
Total 425,300 145,400 – – 279,900 751p
Sir Ian Prosser 225,700* 723p
928** 626p
527 654p
440 886p
A 30,000 545p
B 246,700 866p
C 445,375 678p
Total 722,075 226,628 440 527 496,414 737p
There was no option exercised by Tom Oliver, the highest paid director and the gain on exercise by the Board in aggregate was £448.
(2000 – £2,642).
Options are held under the Executive Share Option and Employee Savings Share Schemes. Option grants marked * above were made under
the Executive Share Option Scheme and are exercisable between 2004 and 2011. The grant marked ** was made under the Employee Savings
Share Scheme and is exercisable between 1 September 2004 and 28 February 2005.
Shares under option at 30 September 2001 are designated as:
A where the options are exercisable and the market price per share at 30 September 2001 was above the option price;
B where the options are exercisable but the market price at 30 September 2001 was below the option price; and
C where the options are not yet exercisable.
The market price on 30 September 2001 was 620p per share and the range during the year was 548.5p to 802p per share.
SIX CONTINENTS 2001
23
30 September 2001 1 October 2000*
Ordinary Ordinary
shares shares
7 DIRECTORS’ SHAREHOLDINGS of 28p of 28p
Executive directors
Tim Clarke 63,147 51,975
Richard North 66,759 54,104
Tom Oliver 52,283 40,000
Sir Ian Prosser 251,010 227,102
Non-executive directors
Roger Carr 1,785 1,785
Robert C Larson 11,571 11,571
Sir Geoffrey Mulcahy 1,785 1,785
Bryan Sanderson – –
* Or date of appointment, if later.
The above shareholdings are all beneficial interests and include shares held on behalf of executive directors by the Trustees of the Employee
Profit Share Scheme and of the Company’s ESOP. None of the directors has a beneficial interest in the shares of any subsidiary, nor in the
debenture stocks issued by the Company or any subsidiary.
At 30 September 2001, the executive directors, as potential beneficiaries under the Company’s ESOP, were each technically deemed to be
interested in 188,218 unallocated Six Continents PLC ordinary shares held by the Trustees of the ESOP.
In the period from 1 October 2001 to 30 November 2001, directors’ interests have increased by the following share awards made under the
Long-Term Incentive Plan on 1 October 2001.
Net award Transferred Balance held by
after tax – to director – ESOP Trust –
ordinary shares ordinary shares ordinary shares
Tim Clarke 12,089 6,045 6,044
Richard North 12,796 6,398 6,398
Tom Oliver 15,822 7,911 7,911
Sir Ian Prosser 24,013 12,007 12,006
Following the Long-Term Incentive Plan awards on 1 October 2001, the executive directors’ technical interest in unallocated
Six Continents PLC ordinary shares held by the Trustees of the ESOP has reduced to 117,466 shares.
On 1 October 2001, the manager of Sir Ian Prosser’s Personal Equity Plan acquired 31 Six Continents PLC ordinary shares for the Plan
at 636p per share.
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.
By order of the Board
Richard Winter
Company Secretary
5 December 2001
SIX CONTINENTS 2001
24 FINANCIAL STATEMENTS
2001 2000
GROUP PROFIT AND LOSS ACCOUNT
Before major Major Before major Major
exceptional exceptional exceptional exceptional
items items Total items items Total
FOR THE YEAR ENDED 30 SEPTEMBER 2001 note £m £m £m £m £m £m
Turnover 2 4,033 – 4,033 5,158 – 5,158
analysed as:
Ongoing operations 3,889 – 3,889 3,775 – 3,775
Acquisitions 144 – 144 – – –
Continuing operations 4,033 – 4,033 3,775 – 3,775
Discontinued operations – – – 1,383 – 1,383
Costs and overheads, less other income 3 (3,241) (43) (3,284) (4,264) – (4,264)
Group operating profit 792 (43) 749 894 – 894
Share of associates’ operating profit 4 – – – 11 – 11
Total operating profit 4 792 (43) 749 905 – 905
analysed as:
Ongoing operations 755 (25) 730 776 – 776
Acquisitions 37 (18) 19 – – –
Continuing operations 792 (43) 749 776 – 776
Discontinued operations – – – 129 – 129
Non-operating exceptional items 9 (2) 2 – 3 1,231 1,234
analysed as:
Continuing operations
(Loss)/profit on disposal of fixed assets (2) – (2) 2 – 2
Loss on disposal of operations – (36) (36) – – –
Discontinued operations
Profit on disposal of fixed assets – – – 1 – 1
Profit on disposal of operations – 38 38 – 1,231 1,231
Profit on ordinary activities before interest 4 790 (41) 749 908 1,231 2,139
Interest receivable 165 – 165 57 – 57
Interest payable and similar charges 10 (224) – (224) (209) – (209)
Profit on ordinary activities before taxation 731 (41) 690 756 1,231 1,987
Tax on profit on ordinary activities 11 (190) (19) (209) (197) (90) (287)
Profit on ordinary activities after taxation 541 (60) 481 559 1,141 1,700
Minority equity interests (22) – (22) (16) – (16)
Earnings available for shareholders 519 (60) 459 543 1,141 1,684
Dividends on equity shares 12 (293) – (293) (292) – (292)
Retained for reinvestment in the business 32 226 (60) 166 251 1,141 1,392
Earnings per ordinary share: 13
Basic – – 53.2p – – 192.9p
Diluted – – 52.8p – – 191.6p
Adjusted 60.1p – – 62.2p – –
No profit and loss account is presented for Six Continents PLC as permitted by Section 230 of the Companies Act 1985.
Notes on pages 28 to 52 form an integral part of these financial statements.
SIX CONTINENTS 2001
25
STATEMENT OF TOTAL RECOGNISED GROUP GAINS AND LOSSES
2001 2000
FOR THE YEAR ENDED 30 SEPTEMBER 2001 £m £m
Earnings available for shareholders 459 1,684
Revaluations – 18*
Exchange differences**
Goodwill eliminated (see note 33) 9 157
Other assets and liabilities (2) (127)
Other recognised gains 7 48
Total recognised gains 466 1,732
* Relates to revaluation in associated undertaking.
NOTE OF HISTORICAL COST GROUP PROFITS AND LOSSES
2001 2000
FOR THE YEAR ENDED 30 SEPTEMBER 2001 £m £m
Reported profit on ordinary activities before taxation 690 1,987
Realisation of revaluation gains of previous periods 324 11
Historical cost profit on ordinary activities before taxation 1,014 1,998
Historical cost profit retained after taxation, minority equity interests and dividends 490 1,403
RECONCILIATION OF MOVEMENT IN SHAREHOLDERS’ FUNDS
2001 2000
FOR THE YEAR ENDED 30 SEPTEMBER 2001 £m £m
Earnings available for shareholders 459 1,684
Dividends (293) (292)
166 1,392
Other recognised gains 7 48
Issue of ordinary shares 9 752
Repurchase of ordinary shares (103) –
Redemption of preference shares – (18)
Movement in goodwill
Disposals – 49
Exchange differences** (9) (157)
Net addition to shareholders’ funds 70 2,066
Opening shareholders’ funds 5,379 3,313
Closing shareholders’ funds 5,449 5,379
** Foreigncurrency denominated net assets, including goodwill purchased prior to 30 September 1998 and eliminated against Group reserves, and related foreign
currency borrowings, are translated at each balance sheet date giving rise to exchange differences which are taken to Group reserves as recognised gains and
losses during the period.
Notes on pages 28 to 52 form an integral part of these financial statements.
SIX CONTINENTS 2001
26 FINANCIAL STATEMENTS
GROUP CASH FLOW STATEMENT
2001 2001 2000 2000
FOR THE YEAR ENDED 30 SEPTEMBER 2001 note £m £m £m £m
Operating activities 14 984 1,103
Dividends received from associates – 11
Interest paid (229) (191)
Dividends paid to minority shareholders (5) (4)
Dividends paid to non-equity shareholders – (1)
Interest received 160 54
Returns on investments and servicing of finance (74) (142)
UK corporation tax paid (102) (101)
Overseas corporate tax paid (47) (57)
Taxation (149) (158)
Paid: Tangible fixed assets (939) (686)
Trade loans – (39)
Other fixed asset investments (37) (31)
Received: Tangible fixed assets 101 76
Trade loans – 62
Other fixed asset investments 7 3
Capital expenditure and financial investment (868) (615)
Acquisitions (1,014) (417)
Cash and overdrafts acquired 262 1
Disposals 624 2,290
Cash and overdrafts disposed (1) (56)
Acquisitions and disposals (129) 1,818
Equity dividends (290) (285)
Net cash flow 14 (526) 1,732
Management of liquid resources and financing 18 493 (1,818)
Movement in cash and overdrafts (33) (86)
Notes on pages 28 to 52 form an integral part of these financial statements.
SIX CONTINENTS 2001
27
BALANCE SHEETS
Group Company
2001 2000 2001 2000
30 SEPTEMBER 2001 note £m £m £m £m
Fixed assets
Intangible assets 20 174 189 – –
Tangible assets 21 7,558 6,683 10 10
Investments 22 266 249 8,093 7,672
7,998 7,121 8,103 7,682
Current assets
Stocks 23 90 97 – –
Debtors 24 577 600 491 469
Investments 366 862 110 757
Cash at bank and in hand 67 125 8 17
1,100 1,684 609 1,243
Creditors: amounts falling due within one year 25 (2,009) (1,604) (2,511) (3,359)
Net current (liabilities)/assets (909) 80 (1,902) (2,116)
Total assets less current liabilities 7,089 7,201 6,201 5,566
Creditors: amounts falling due after one year 26 (1,180) (1,376) (2,794) (2,105)
Provisions for liabilities and charges 27 (312) (314) – (3)
Minority equity interests (148) (132) – –
Net assets 19 5,449 5,379 3,407 3,458
Capital and reserves
Equity share capital 31 242 246 242 246
Share premium account 32 799 788 799 788
Revaluation reserve 32 1,025 1,345 1 1
Capital redemption reserve 32 853 849 853 849
Profit and loss account 32 2,530 2,151 1,512 1,574
Equity shareholders’ funds 5,449 5,379 3,407 3,458
Signed on behalf of the Board
Sir Ian Prosser
Richard North
5 December 2001
Notes on pages 28 to 52 form an integral part of these financial statements.
SIX CONTINENTS 2001
28 ACCOUNTING POLICIES
B A S I S O F AC C O U N T I N G F I X E D A S S E T S A N D D E P R E C I AT I O N
The financial statements are prepared under the historical cost I Goodwill
convention as modified by the revaluation of certain tangible Any excess of purchase consideration for an acquired business over
fixed assets. They have been drawn up to comply with applicable the fair value attributed to its separately identifiable assets and
accounting standards, including Financial Reporting Standard (FRS) liabilities represents goodwill. Goodwill is capitalised as an intangible
17 ‘Retirement Benefits’ and FRS 18 ‘Accounting Policies’ which asset. Goodwill arising on acquisitions prior to 30 September
apply for the first time this year. Neither of these accounting 1998 was eliminated against reserves. To the extent that goodwill
standards had any impact on the results for the year or on denominated in foreign currencies continues to have value, it
shareholders’ funds. The new disclosure requirements introduced is translated into sterling at each balance sheet date and any
by FRS 17 are included in note 7 to the accounts. movements are accounted for as set out under ‘foreign currencies’
above. On disposal of a business, any goodwill relating to the
B A S I S O F C O N S O L I DAT I O N business and previously eliminated against reserves, is taken into
The Group financial statements comprise the financial statements account in determining the profit or loss on disposal.
of the parent company and its subsidiary undertakings. The results II Intangible assets
of those businesses acquired or disposed of during the year are On acquisition of a business, no value is attributed to intangible
consolidated for the period during which they were under the assets which cannot be separately identified and reliably measured.
Group’s dominant influence. No value is attributed to internally generated intangible assets.
III Tangible assets
FOREIGN CURRENCIES
Transactions in foreign currencies are recorded at the exchange rates Freehold and leasehold land and buildings are stated at cost, or
ruling on the dates of the transactions, adjusted for the effects of valuation, less depreciation. All other fixed assets are stated at cost
any hedging arrangements. Assets and liabilities denominated in less depreciation.
foreign currencies are translated into sterling at the relevant rates When implementing FRS 15 in the year to 30 September 2000, the
of exchange ruling at the balance sheet date. Group did not adopt a policy of revaluing properties. The transitional
The results of overseas operations are translated into sterling at rules of FRS 15 were applied so that the carrying values of
weighted average rates of exchange for the period. Exchange properties include an element resulting from previous valuations.
differences arising from the retranslation of opening net assets IV Revaluation
(including any goodwill previously eliminated against reserves) Surpluses or deficits arising from previous professional valuations of
denominated in foreign currencies and foreign currency borrowings properties, realised on the disposal of an asset, are transferred from
and currency swap agreements used to hedge those assets are the revaluation reserve to the profit and loss account reserve.
taken directly to reserves. All other exchange differences are taken V Impairment
to the profit and loss account. Any impairment arising on an income generating unit, other than an
impairment which represents a consumption of economic benefits, is
T R E A S U RY I N S T RU M E N T S
eliminated against any revaluation reserve in respect of that income
Net interest arising on interest rate agreements is taken to the generating unit with any excess being charged to the profit and loss
profit and loss account. account.
Premiums payable on interest rate agreements are charged to the
profit and loss account over the term of the relevant agreements.
Currency swap agreements are retranslated at exchange rates ruling
at the balance sheet date with the net amount being included in
either current asset investments or borrowings. Interest payable or
receivable arising from currency swap agreements is taken to the
profit and loss account on a gross basis over the term of the
relevant agreements.
Gains or losses arising on forward exchange contracts are taken
to the profit and loss account in line with the transactions they
are hedging.
SIX CONTINENTS 2001
29
VI Depreciation and amortisation LEASES
Goodwill and other intangible assets are amortised over their Operating lease rentals are charged to the profit and loss account
estimated useful lives, generally 20 years. on a straight line basis over the term of the lease.
Freehold land is not depreciated. All other tangible fixed assets are
PENSIONS
depreciated to a residual value over their estimated useful lives,
namely: The regular cost of providing pensions to current employees is
charged to the profit and loss account over the average expected
Freehold buildings 50 years service life of those employees. Variations in regular pension cost
Leasehold buildings lesser of unexpired are amortised over the average expected service life of current
term of lease and employees.
50 years Accumulated differences between the amount charged to the profit
Fixtures, fittings and equipment 3–25 years and loss account and the payments made to the pension plans are
Plant and machinery 4–20 years treated as either prepayments or creditors in the balance sheet.
All depreciation and amortisation is charged on a straight line basis. RESEARCH AND DEVELOPMENT
VII Associated undertakings Expenditure on research and development is charged to the profit
Associated undertakings are those undertakings, not being subsidiary and loss account as incurred.
undertakings, over which the Group exercises a significant influence.
The Group equity accounts for associated undertakings which are S TO C K S
material. Stocks are stated at the lower of cost, including an appropriate
VIII Investments
element of production overhead cost, and net realisable value.
Fixed asset investments are stated at cost less any provision for
T U R N OV E R
diminution in value.
Turnover represents sales (excluding VAT and similar taxes) of goods
D E F E R R E D TA X AT I O N
and services, net of discounts, provided in the normal course of
Deferred taxation is provided in accordance with Statement of business.
Standard Accounting Practice (SSAP) 15, using the liability method
G L O S S A RY
on all timing differences which are expected to reverse in the
foreseeable future without replacement. Where this policy gives rise Additional information concerning terms used in these financial
to a balance which will be offset against future taxation liabilities, statements can be found in the glossary on the inside back cover.
the balance is carried as a debtor.
Deferred taxation is not provided in respect of liabilities which
would arise on the distribution of profits from overseas subsidiary
undertakings, except to the extent that the overseas subsidiary
undertaking has entered into a binding agreement to make such
distributions or has declared the distribution which remains unpaid
at the balance sheet date.
SIX CONTINENTS 2001
30 NOTES TO THE FINANCIAL STATEMENTS
1 E XC H A N G E R AT E S
The results of overseas operations have been translated into sterling at weighted average rates of exchange for the year. In the case of the US dollar,
the translation rate is £1 = $1.44 (2000 £1 = $1.55). In the case of the euro, the translation rate is £1 = €1.62 (2000 £1 = €1.62).
Foreign currency denominated assets and liabilities have been translated into sterling at the rates of exchange on 30 September 2001. In the case
of the US dollar, the translation rate is £1 = $1.47 (2000 £1 = $1.47). In the case of the euro, the translation rate is £1 = €1.61 (2000 £1 = €1.66).
2001 2000
Inter- Inter-
External divisional Total External divisional Total
2 T U R N OV E R * £m £m £m £m £m £m
Hotels: (see note 5)
Americas 1,045 – 1,045 864 – 864
EMEA 750** – 750 626 – 626
Asia Pacific 101 – 101 91 – 91
1,896 – 1,896 1,581 – 1,581
Retail:
Pubs & Bars 832 – 832 818 – 818
Restaurants 564 – 564 520 – 520
Inns 124 – 124 336 – 336
Other 37 – 37 – – –
1,557 – 1,557 1,674 – 1,674
Soft drinks 571 – 571 507 32 539
Other activities 9 7 16 13 11 24
Continuing operations 4,033 7 4,040 3,775 43 3,818
Discontinued operations *** – – – 1,383 237 1,620
4,033 7 4,040 5,158 280 5,438
By By
By origin destination By origin destination
£m £m £m £m
United Kingdom 2,446 2,440 3,686 3,614
Rest of Europe, the Middle East and Africa 441 446 497 526
United States of America 908 908 779 819
Rest of Americas 137 137 107 108
Asia Pacific 101 102 89 91
4,033 4,033 5,158 5,158
* Reflects 52 weeks (2000 52 weeks) trading, with the exception of Hotels which reflects 12 months (2000 12 months) trading.
** Includes £144m relating to acquisitions.
*** Represents Bass Brewers. 2001 2000
Ongoing Continuing Discontinued
operations Acquisitions Total operations operations* Total
3 C O S T S A N D OV E R H E A D S , L E S S OT H E R I N C O M E £m £m £m £m £m £m
Raw materials and consumables 768 20 788 759 222 981
Changes in stocks of finished goods and work in progress – – – (11) 1 (10)
Staff costs (see note 6) 1,055 43 1,098 1,024 126 1,150
Depreciation of tangible fixed assets 217 11 228 208 75 283
Amortisation of goodwill 10 – 10 6 – 6
Hire of plant and machinery 51 – 51 54 6 60
Property rentals 211 5 216 181 2 183
Income from fixed asset investments (18) – (18) (15) (7) (22)
Other external charges 865 46 911 794 839 1,633
3,159 125 3,284 3,000 1,264 4,264
Operating exceptional items are included in Staff costs (£2m) and Other external charges (£41m).
Auditors’ remuneration was £1.0m (2000 £1.7m) for audit services and £2.9m (2000 £1.3m) for other services.
* Represents Bass Brewers.
SIX CONTINENTS 2001
31
2001 2000
Total Total
operating Profit on operating Profit on
profit ordinary profit ordinary
before activities before activities
exceptional Exceptional before exceptional Exceptional before
items items interest items** items interest
4 P RO F I T * £m £m £m £m £m £m
Hotels: (see note 5)
Americas 240 (11) 229 228 (4) 224
EMEA 202*** (18) 184 165 – 165
Asia Pacific 18 – 18 19 – 19
Other (33) (14) (47) (36) – (36)
427 (43) 384 376 (4) 372
Retail:
Pubs & Bars 187 – 187 186 – 186
Restaurants 87 – 87 85 – 85
Inns 24 (36) (12) 75 – 75
Other 7 – 7 – – –
305 (36) 269 346 – 346
Soft drinks 57 1 58 46 1 47
Other activities 3 (3) – 8 5 13
Continuing operations 792 (81) 711 776 2 778
Discontinued operations **** – 38 38 129 1,232 1,361
792 (43) 749 905 1,234 2,139
United Kingdom 431 (15) 416 565 1,256 1,821
Rest of Europe, the Middle East
and Africa 116 (3) 113 109 – 109
United States of America 190 (25) 165 180 (4) 176
Rest of Americas 40 – 40 35 – 35
Asia Pacific 15 – 15 16 (18) (2)
792 (43) 749 905 1,234 2,139
Hotels operating profit figures for 2000 have been restated to reflect the inclusion in Other of Central services previously allocated to the regions. This change in
presentation has been made to aid understanding of business performance and aligns the 2000 results with those of 2001.
* Reflects 52 weeks (2000 52 weeks) trading, with the exception of Hotels which reflects 12 months (2000 12 months) trading.
** In 2000, included the Group’s share of operating profit of associates £11m (2001 nil). This comprised £1m in respect of Hotels and £10m in respect of discontinued
operations. The share of the associates’ operating profit arose wholly in the United Kingdom.
*** Includes £37m relating to acquisitions.
**** Represents Bass Brewers.
2001 2000
Operating Operating
Turnover profit* Turnover profit*
5 H OT E L S $m $m $m $m
Americas 1,502 345 1,342 353
EMEA 1,079 290 971 257
Asia Pacific 145 26 141 30
Other – (48) – (56)
2,726 613 2,454 584
Hotels operating profit figures for 2000 have been restated to reflect the inclusion in Other of Central services previously allocated to the regions. This change in
presentation has been made to aid understanding of business performance and aligns the 2000 results with those of 2001.
The sterling equivalents of the US dollar turnover and operating profit, translated at the weighted average rate of exchange for the year (see note 1),
are shown in notes 2 and 4 respectively.
* Total operating profit before exceptional items.
SIX CONTINENTS 2001
32 NOTES TO THE FINANCIAL STATEMENTS
2001 2000
6 S TA F F £m £m
Costs:
Wages and salaries 997 1,045
Social security costs 89 92
Pensions (see note 7) 12 13
1,098 1,150
Average number of employees, including part-time employees 2001 2000
Hotels 35,514 29,306
Retail 41,273 48,011
Soft drinks 2,859 2,780
Other activities 244 262
Continuing operations 79,890 80,359
Discontinued operations – 5,265
79,890 85,624
2001 2000
7 PENSIONS £m £m
Regular cost 29 42
Variations from regular cost (28) (41)
Notional interest on prepayment (2) (3)
Pension cost in respect of the two principal plans (1) (2)
Other plans 13 15
12 13
Retirement and death benefits are provided for eligible Group employees in the United Kingdom principally by the Six Continents Pension Plan (SCPP) which
covers approximately 6,989 (2000 8,298) employees and the Six Continents Executive Pension Plan (SCEPP) which covers approximately 396 (2000 400)
employees. Members of these plans are contracted out of the State Earnings Related Pension Scheme. The plans are both defined benefit schemes. The assets of
these plans are held in self-administered trust funds separate from the Group’s assets. The Group 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, these schemes.
The Group has no other significant post-retirement obligations.
The pension costs related to the two principal plans are assessed in accordance with the advice of independent qualified actuaries using the projected unit
method. They reflect the 31 March 1999 actuarial valuations. The significant assumptions in these valuations were that wages and salaries increase on average by
4% per annum, the long-term return on assets is 6% per annum, and pensions increase by 2.5% per annum. The average expected remaining service life of
current employees is 14 years.
At 31 March 1999, the market value of the combined assets of the two principal plans was £2,132m and the value of the assets was sufficient to cover 117%
of the benefits that had accrued to members after allowing for expected increases in earnings. Contributions to the two principal plans amounted to £17m
(2000 £20m).
The assets and liabilities of the two principal plans relating to the brewing operations sold in August 2000 have been transferred to an external scheme in
accordance with actuarial advice. The market value of the assets transferred is approximately £950m.
The profit on disposal of the brewing operations reported in the accounts for the year ended 30 September 2000 included a loss of £61m representing the
estimated net curtailment gain and settlement loss. On finalisation of the pension scheme transfer, the actual loss was £48m, giving rise to a £13m credit in
the current year which has been reported as a non-operating exceptional item (see note 9). The pension prepayment has been increased accordingly.
SIX CONTINENTS 2001
33
7 PENSIONS (CONTINUED)
The Group continues to account for pensions in accordance with SSAP 24, as above. The new accounting standard for Retirement Benefits, FRS 17, will not be
mandatory for the Group until the year ended 30 September 2003. FRS 17 does, however, have an extended transitional period during which certain disclosures
are required in the notes to the financial statements. The first year transitional disclosures are set out below.
The valuation used for FRS 17 disclosures is based on the most recent actuarial valuation at 31 March 1999 updated by independent qualified actuaries to
30 September 2001. Scheme assets are stated at market value at 30 September 2001 and the liabilities of the schemes have been assessed as at the same date
using the projected unit method. The principal assumptions used to calculate scheme liabilities under FRS 17 are that wages and salaries increase on average by
3.9% and pensions increase in line with inflation at 2.4%. Scheme liabilities have been discounted at a rate of 6.1%.
Agreed employer contribution rates for the period to the next full actuarial valuation of the pension plans are 8% for the SCPP and 22% for the SCEPP.
The combined assets of the two principal schemes and expected rate of return were:
Long-term rate of Value at
return expected 30 September
at 30 September 2001 2001
% £m
Equities 7.5 700
Bonds 5.1 304
Other 7.5 94
Total market value of assets 1,098
Present value of scheme liabilities (1,107)
Deficit in the scheme (9)
Related deferred tax asset 3
Net pension liability (6)
The Group’s net assets of £5,449m at 30 September 2001 include a pension prepayment under SSAP 24 of £50m.
2001 2000
8 D I R E C TO R S ’ E M O L U M E N T S £000 £000
Basic salaries, fees, performance payments and benefits 5,273 4,826
Long-term reward 662 740
Gains on exercise of share options – 3
More detailed information on the emoluments, pensions, option holdings and shareholdings for each director is shown in the directors’ report on pages 14 to 23.
2001 2000
Continuing Discontinued Continuing Discontinued
operations operations Total operations operations Total
9 E XC E P T I O N A L I T E M S £m £m £m £m £m £m
Operating exceptional item:
Hotels exceptional costs * (43)** – (43) – – –
Non-operating exceptional items:
(Loss)/profit on disposal of fixed assets (2) – (2) 2 1 3
(Loss)/profit on disposal of operations * (36)*** 38**** 2 – 1,231**** 1,231
(38) 38 – 2 1,232 1,234
(81) 38 (43) 2 1,232 1,234
* Major exceptional items for the purpose of calculating adjusted earnings per ordinary share (see note 13).
** Relates to exceptional reorganisation, restructuring and strategic appraisal costs in the Hotels division.
*** Relates to and resulting from the disposal of 988 smaller unbranded pubs by the Retail division.
**** Resulting from the disposal of Bass Brewers in 2000. The profit in the current year arises from deferred consideration and the finalisation of the pension scheme transfer
(see note 7).
SIX CONTINENTS 2001
34 NOTES TO THE FINANCIAL STATEMENTS
2001 2000
1 0 I N T E R E S T PAYA B L E A N D S I M I L A R C H A R G E S £m £m
Bank loans and overdrafts 26 77
Other 198 132
224 209
2001 2000
1 1 TA X O N P RO F I T O N O R D I N A RY AC T I V I T I E S £m £m
UK corporation tax 82 220
UK deferred tax 30 (21)
112 199
Overseas corporate tax 112 70
Overseas deferred tax (15) 14
Share of associates’ tax – 4
209 287
UK tax has been calculated on taxable profit at 30% (2000 30%). The charge has been increased by £67m (2000 £14m) for timing differences and reduced by
£1m (2000 £19m) in respect of adjustments relating to prior years. Tax chargeable in relation to the non-operating exceptional items (see note 9) amounts to
£29m (2000 £92m), £29m (2000 £90m) of which relates to major items. Tax in relation to the major operating exceptional item (see note 9) amounts to a
credit of £10m.
2001 2000
pence pence 2001 2000
12 DIVIDENDS per share per share £m £m
Dividends on ordinary shares
Interim 10.4 10.1 86 88
Proposed final 23.9 23.2 207 204
34.3 33.3 293 292
The proposed final dividend is payable on the shares in issue at 21 December 2001.
1 3 E A R N I N G S P E R O R D I N A RY S H A R E
Basic earnings per ordinary share are calculated by dividing the earnings available for shareholders of £459m (2000 £1,684m) by 863m (2000 873m), being the
weighted average number of ordinary shares, excluding investment in own shares, in issue during the year.
Diluted earnings per ordinary share are 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. The resulting weighted average number of ordinary shares is 869m (2000 879m).
Adjusted earnings per ordinary share are calculated as follows:
2001 2000
pence pence
per ordinary per ordinary
note share share
Basic earnings 53.2 192.9
Major exceptional items, less tax thereon 9, 11 6.9 (130.7)
Adjusted earnings 60.1 62.2
Adjusted earnings per ordinary share are disclosed in order to show performance undistorted by abnormal items.
SIX CONTINENTS 2001
35
2001 2000
1 4 N E T C A S H F L OW note £m £m
Total operating profit before major exceptional items 792 905
Depreciation and amortisation 238 289
Share of associates’ operating profit – (11)
Other non-cash items 1 8
Earnings before interest, taxation, depreciation and amortisation, and major exceptional items 1,031* 1,191
Decrease in stocks – 3
Decrease/(increase) in debtors 83 (177)
(Decrease)/increase in creditors (94) 93
Provisions expended 27 (13) (7)
Operating activities before expenditure relating to major exceptional items 1,007 1,103
Major operating exceptional expenditure (23) –
Operating activities 984 1,103
Net capital expenditure** 16 (868) (654)
Trade loans – 23
Dividends from associates – 11
Operating cash flow 17 116 483
Net interest paid (69) (137)
Dividends paid (295) (290)
Tax paid (149) (158)
Normal cash flow (397) (102)
Major acquisitions (752) (400)
Major disposals 623 2,234
Net cash flow (526) 1,732
* Includes £48m in respect of Posthouse.
** Represents cash flow in respect of capital expenditure and financial investment (excluding trade loans), and minor acquisitions and disposals
(see Group cash flow statement).
Liquid
Cash and overdrafts resources Financing
Other Other
Cash at Current borrowings borrowings
bank and asset due within due after
in hand Overdrafts Total investments one year one year Total
15 NET DEBT £m £m £m £m £m £m £m
At 30 September 2000 125 (49) 76 862 (70) (1,213) (345)
Net cash flow (see note 14) (538) 12 (526)* – – – (526)
Management of liquid resources and financing 493 – 493* (497) (276) 186 (94)
Other movements arising on acquisitions – – – – (38) – (38)
Exchange and other adjustments (13) – (13) 1 6 8 2
At 30 September 2001 67 (37) 30 366 (378) (1,019) (1,001)
At 30 September 1999 182 (20) 162 333 (389) (2,101) (1,995)
Net cash flow (see note 14) 1,761 (29) 1,732* – – – 1,732
Management of liquid resources and financing (1,818) – (1,818)* 501 332 978 (7)
Other movements arising on:
Acquisitions – – – 20 (34) – (14)
Disposals – – – – 53 – 53
Exchange and other adjustments – – – 8 (32) (90) (114)
At 30 September 2000 125 (49) 76 862 (70) (1,213) (345)
* Represents a movement in cash and overdrafts of £33m outflow (2000 £86m outflow) (see Group cash flow statement).
SIX CONTINENTS 2001
36 NOTES TO THE FINANCIAL STATEMENTS
2001 2000
1 6 N E T C A P I TA L E X P E N D I T U R E £m £m
Hotels 607 326
Retail 288 204
Soft drinks 28 48
Other activities (55) 19
Continuing operations 868 597
Discontinued operations* – 57
868 654
* Relates to Bass Brewers.
2001 2000
1 7 O P E R AT I N G C A S H F L OW £m £m
Hotels (80) 114
Retail 66 213
Soft drinks 99 36
Other activities (9) (35)
Continuing operations 76 328
Discontinued operations* 40 155
116 483
* Relates to Bass Brewers.
2001 2000
18 MANAGEMENT OF LIQUID RESOURCES AND FINANCING £m £m
New borrowings* 5,510 11,088
Net commercial paper repaid (21) (184)
Other borrowings repaid* (5,399) (12,214)
90 (1,310)
Ordinary shares issued 9 11
Ordinary shares repurchased (103) –
Preference shares redeemed – (18)
Financing (4) (1,317)
Movement in liquid resources** 497 (501)
493 (1,818)
* Includes amounts rolled over under bank loan facilities.
** Liquid resources primarily comprise short-term deposits of less than one year and short-term investments.
SIX CONTINENTS 2001
37
2001 2000
Net Net
Total operating Total operating
19 ASSETS £m £m £m £m
Hotels 4,640 3,949 3,307 2,637
Retail 3,506 3,328 3,954 3,728
Soft drinks 375 252 387 292
Other activities 577 23 1,157 31
9,098 7,552 8,805 6,688
Non-operating assets:
Current asset investments 366 862
Cash at bank and in hand 67 125
Corporate taxation 9 1
Non-operating liabilities:
Borrowings (1,434) (1,332)
Proposed dividend (207) (204)
Corporate taxation (548) (433)
Deferred taxation (208) (196)
Minority equity interests (148) (132)
9,098 5,449 8,805 5,379
United Kingdom 5,949 4,973 6,025 4,568
Rest of Europe, the Middle East and Africa 1,088 930 994 922
United States of America 1,462 1,100 1,478 940
Rest of Americas 99 77 75 60
Asia Pacific 500 472 233 198
9,098 7,552 8,805 6,688
Net non-operating liabilities (2,103) (1,309)
9,098 5,449 8,805 5,379
Goodwill
2 0 I N TA N G I B L E F I X E D A S S E T S £m
Cost:
At 30 September 2000 195
Exchange adjustments (6)
At 30 September 2001 189
Amortisation:
At 30 September 2000 6
Exchange adjustments (1)
Provided 10
At 30 September 2001 15
Net book value:
At 30 September 2001 174
At 30 September 2000 189
SIX CONTINENTS 2001
38 NOTES TO THE FINANCIAL STATEMENTS
Soft Other
Hotels Retail drinks activities Total
2 1 TA N G I B L E F I X E D A S S E T S £m £m £m £m £m
Cost or valuation:
At 30 September 2000 2,739 4,147 412 107 7,405
Exchange and other adjustments 7 – 1 (1) 7
Acquisitions 898 – – – 898
Additions 593 312 34 5 944
Disposals (33) (942) (39) (77) (1,091)
At 30 September 2001 4,204 3,517 408 34 8,163
Depreciation:
At 30 September 2000 189 336 170 27 722
Exchange and other adjustments 2 – – – 2
Provided 101 84 36 7 228
On disposals (21) (281) (31) (14) (347)
At 30 September 2001 271 139 175 20 605
Net book value:
At 30 September 2001 3,933 3,378 233 14 7,558
At 30 September 2000 2,550 3,811 242 80 6,683
Properties
Properties, comprising land, buildings and certain fixtures, fittings and equipment, are included above at cost or valuation, less depreciation as required.
The transitional rules of FRS 15 have been followed permitting the carrying values of properties as at 1 October 1999 to be retained.
The most recent valuation of properties was undertaken in 1999 and covered all properties then owned by the Group other than hotels acquired or constructed
in that year and leasehold properties having an unexpired term of 50 years or less. This valuation was undertaken by external Chartered Surveyors and
internationally recognised valuers (Jones Lang LaSalle Hotels in respect of hotels and Chesterton plc in respect of pubs and other properties) in accordance with
the Appraisal and Valuation Manual of the Royal Institution of Chartered Surveyors. The basis of valuation was predominantly existing use value and, in the case
of pubs and hotels, had regard to trading potential.
Historical cost
The comparable amounts under the historical cost convention for properties would be:
2001 2000
£m £m
Group
Cost 4,876 3,941
Depreciation (105) (96)
Net book value 4,771 3,845
Company
Net book value 7 8
SIX CONTINENTS 2001
39
Fixtures,
Land and fittings and Plant and Group Company
buildings equipment machinery total total
2 1 TA N G I B L E F I X E D A S S E T S ( C O N T I N U E D ) £m £m £m £m £m
Cost or valuation:
At 30 September 2000 5,227 2,046 132 7,405 29
Exchange and other adjustments 8 – (1) 7 –
Acquisitions 682 216 – 898 –
Additions 510 424 10 944 2
Disposals (591) (488) (12) (1,091) (2)
At 30 September 2001 5,836 2,198 129 8,163 29
Depreciation:
At 30 September 2000 42 605 75 722 19
Exchange and other adjustments (6) 8 – 2 –
Provided 21 196 11 228 1
On disposals (6) (329) (12) (347) (1)
At 30 September 2001 51 480 74 605 19
Net book value:
At 30 September 2001 5,785 1,718 55 7,558 10
At 30 September 2000 5,185 1,441 57 6,683 10
2001
Cost or Group Group Company Company
valuation Depreciation total 2000 2001 2000
Land and buildings £m £m £m £m £m £m
Freehold 4,666 (22) 4,644 4,624 6 6
Leasehold: unexpired term of more than 50 years 924 (5) 919 334 1 1
unexpired term of 50 years or less 246 (24) 222 227 1 1
5,836 (51) 5,785 5,185 8 8
Cost or valuation of properties comprises:
1999 valuation 3,361
1992 valuation 29
Cost 2,446
Total 5,836
SIX CONTINENTS 2001
40 NOTES TO THE FINANCIAL STATEMENTS
Group Company
Other Other
investments Shares in Loans to investments
and Group Group and
advances undertakings undertakings advances Total
22 FIXED ASSET INVESTMENTS £m £m £m £m £m
Cost:
At 30 September 2000 372 6,481 1,220 34 7,735
Exchange and other adjustments (2) – – – –
Additions 43 277 1,366 1 1,644
Disposals and repayments (17) – (1,220) (1) (1,221)
At 30 September 2001 396 6,758 1,366 34 8,158
Provision for diminution in value:
At 30 September 2000 123 63 – – 63
Provisions made 7 – – 2 2
At 30 September 2001 130 63 – 2 65
Net book value:
At 30 September 2001 266 6,695 1,366 32 8,093
At 30 September 2000 249 6,418 1,220 34 7,672
2001 2000
Cost less Cost less
amount Market amount Market
written off value written off value
Other investments and advances £m £m £m £m
Group
Listed investments* 155 119 151 181
Unlisted investments 111 98
266 249
Company
Listed investments* 32 26 34 27
All listed investments are listed on a recognised investment exchange.
* Includes £32m (2000 £32m) in respect of 3.8m (2000 3.8m) Six Continents PLC ordinary shares held by employee share trusts.
Group
2001 2000
2 3 S TO C K S £m £m
Raw materials 9 7
Work in progress 19 15
Finished stocks 48 56
Consumable stores 14 19
90 97
The replacement cost of stocks approximates to the value stated above.
SIX CONTINENTS 2001
41
Group Company
2001 2000 2001 2000
2 4 D E B TO R S £m £m £m £m
Trade debtors 281 288 1 1
Amounts owed by Group undertakings – – 331 347
Other debtors 134 174 13 34
Corporate taxation 9 1 65 43
Pension prepayment* 50 19 46 15
Other prepayments 103 118 35 29
577 600 491 469
Included in other debtors is nil (2000 £2m) falling due after more than one year.
* Falling due after more than one year.
Group Company
2001 2000 2001 2000
2 5 C R E D I TO R S : A M O U N T S FA L L I N G D U E W I T H I N O N E Y E A R £m £m £m £m
Borrowings (see note 29) 415 119 180 36
Trade creditors 198 195 1 3
Corporate taxation 548 433 – –
Other taxation and social security 88 62 2 1
Accrued charges 313 395 61 93
Proposed dividend 207 204 207 204
Amounts owed to Group undertakings – – 2,032 2,992
Other creditors 240 196 28 30
2,009 1,604 2,511 3,359
Group Company
2001 2000 2001 2000
2 6 C R E D I TO R S : A M O U N T S FA L L I N G D U E A F T E R O N E Y E A R £m £m £m £m
Borrowings (see note 29) 1,019 1,213 752 646
Amounts owed to Group undertakings – – 2,042 1,459
Other creditors and deferred income 161 163 – –
1,180 1,376 2,794 2,105
Deferred
Onerous taxation
Reorganisation* contracts** Other*** Total (see note 28) Total
2 7 P ROV I S I O N S F O R L I A B I L I T I E S A N D C H A R G E S £m £m £m £m £m £m
Group
At 30 September 2000 10 25 83 118 196 314
Exchange and other adjustments – 2 – 2 (44) (42)
Acquisitions – – – – 41 41
Profit and loss account – – (3) (3) 15 12
Expenditure (1) (5) (7) (13) – (13)
At 30 September 2001 9 22 73 104 208 312
Company
At 30 September 2000 3 3
Profit and loss account (4) (4)
Transfer to other debtors 1 1
At 30 September 2001 – –
* Relates to fundamental reorganisations charged as non-operating exceptional items in prior years and is expected to be largely utilised in the year
ended 30 September 2002.
** Primarily relates to onerous fixed lease contracts acquired with the Inter-Continental hotels business and having expiry dates to 2012.
*** Represents numerous liabilities with varying expected utilisation dates relating to the disposal of certain businesses.
SIX CONTINENTS 2001
42 NOTES TO THE FINANCIAL STATEMENTS
Group Company
2001 2000 2001 2000
2 8 D E F E R R E D TA X AT I O N £m £m £m £m
Provided
Tax effect of timing differences related to:
short-term items (5) (1) (1) 3
long-term items 258 207 – –
Tax effect of losses carried forward (45) (10) – –
208 196 (1) 3
Not provided
Tax effect of timing differences related to:
fixed assets 728 936 – –
other (48) (50) 13 4
680 886 13 4
Group 2001 Company 2001
Within After Group Within After Company
one year one year Total 2000 one year one year Total 2000
2 9 B O R ROW I N G S £m £m £m £m £m £m £m £m
Bank loans and overdrafts
Secured:
Bank loans* 76 60 136 187 61 – 61 61
Unsecured:
Bank loans 52 226 278 70 52 226 278 61
Overdrafts 37 – 37 49 67 – 67 35
Total bank loans and overdrafts 165 286 451 306 180 226 406 157
Other borrowings
Secured:
2016 debenture stock 10.375%** – 250 250 250 – 250 250 250
Other debenture stock and loans*** 11 1 12 34 – – – –
Unsecured:
2002 Guaranteed Notes
8.125% ($350m) 239 – 239 239 – – – –
2003 Guaranteed Notes
6.625% ($300m) – 204 204 204 – – – –
2007 Guaranteed Notes
5.75% (£250m) – 250 250 250 – 250 250 250
US dollar commercial paper – – – 21 – – – –
Other loan stock – 28 28 28 – 26 26 25
Total other borrowings 250 733 983 1,026 – 526 526 525
Total borrowings 415 1,019 1,434 1,332 180 752 932 682
* Secured by way of mortgage over individual hotel properties. The terms, rates of interest and currencies of these bank loans vary.
** Secured by a first floating charge on the assets of the Company and certain of its UK subsidiaries and by cross guarantees given by these subsidiaries.
*** Secured on the individual assets purchased by using such borrowings. The terms, rates of interest and currencies of these borrowings vary.
SIX CONTINENTS 2001
43
Group 2001
Bank loans and Other Group Company Company
overdrafts borrowings Total 2000 2001 2000
2 9 B O R ROW I N G S ( C O N T I N U E D ) £m £m £m £m £m £m
Analysis by year of repayment
Due within one year (see note 25) 165 250 415 119 180 36
Due: between one and two years 217 204 421 377 212 121
between two and five years 20 27 47 279 40 10
after five years 49 502 551 557 500 515
Due after more than one year (see note 26) 286 733 1,019 1,213 752 646
Total borrowings 451 983 1,434 1,332 932 682
Amounts repayable by instalments,
some of which fall due after five years 39 – 39 41 – –
2001 2000
£m £m
Facilities committed by banks
Utilised in respect of US dollar commercial paper – 21
Other utilised 414 257
Unutilised 1,470 1,635
1,884 1,913
Unutilised facilities expire:
within one year 225 133
after one year but before two years 809 63
after two years 436 1,439
1,470 1,635
3 0 F I N A N C I A L I N S T RU M E N T S
Details of the Group’s policies on the use of financial instruments are given in the Operating and Financial Review on pages 11 and 12 and in the accounting
policies on page 28. The following disclosures provide additional information regarding the effect of these instruments on the financial assets and liabilities of the
Group, other than short-term debtors and creditors.
Interest rate risk
In order to manage interest rate risk, the Group enters into interest rate swap, interest rate option and forward rate agreements. The interest rate profile of the
Group’s material financial assets and liabilities, after taking account of the interest rate swap agreements and currency swap agreements, was:
2001
Interest at fixed rate
Weighted
average
Currency Principal Weighted period for
swap At variable At fixed average which rate
Net debt agreements Total rate* rate rate is fixed
£m £m £m £m £m % (years)
Current asset investments and cash at bank and in hand:
Sterling 352 2,111 2,463 2,463 – – –
US dollar 18 – 18 18 – – –
Other 63 – 63 63 – – –
Borrowings:
Sterling (547) – (547) (344) (203) 11.1 15.0
US dollar (449) (1,552) (2,001) (1,196) (805) 6.4 2.7
Euro (168) (525) (693) (420) (273) 4.9 2.4
Hong Kong dollar (212) – (212) (212) – – –
Other (58) (34) (92) (61) (31) 7.1 1.1
(1,001) – (1,001) 311 (1,312) 6.9 5.0
* Primarily based on the relevant inter-bank rate.
SIX CONTINENTS 2001
44 NOTES TO THE FINANCIAL STATEMENTS
2000
Interest at fixed rate
Weighted
average
Currency Principal Weighted period for
swap At variable At fixed average which rate
Net debt agreements Total rate* rate rate is fixed
3 0 F I N A N C I A L I N S T RU M E N T S ( C O N T I N U E D ) £m £m £m £m £m % (years)
Current asset investments and cash at bank and in hand:
Sterling 842 1,793 2,635 2,635 – – –
US dollar 75 – 75 75 – – –
Other 70 – 70 70 – – –
Borrowings:
Sterling (615) – (615) (363) (252) 10.6 15.9
US dollar (473) (1,232) (1,705) (1,085) (620) 7.3 2.4
Euro (144) (518) (662) (396) (266) 5.2 3.7
Other (100) (43) (143) (108) (35) 7.1 2.0
(345) – (345) 828 (1,173) 7.5 5.6
* Primarily based on the relevant inter-bank rate.
At 30 September 2001, the Group had other investments and advances, excluding shares held by employee share trusts, totalling £234m (2000 £217m)
on which no interest is receivable and which do not have a maturity date. These interests are denominated primarily in US dollars.
The Group had other creditors and deferred income, denominated primarily in US dollars, due after one year of £161m at 30 September 2001 (2000 £163m)
on which no interest is payable.
At 30 September 2001, the Group had entered into the following interest rate option agreements:
2001 2000
Principal Cap rate Floor rate Maturity Principal Cap rate Floor rate Maturity
Sterling – interest receivable – – – – £500m – 6.24% 2001
Australian dollar – interest payable A$50m 6.92% – 2002 A$50m 6.92% – 2002
Currency risk
In order to manage currency risk, the Group enters into agreements for the forward purchase or sale of foreign currencies as well as currency options. Foreign
currency flows in respect of imports and exports are also netted where practical. As virtually all foreign exchange gains and losses are charged to the Statement
of Total Recognised Gains and Losses under the hedging provisions of SSAP 20, no disclosure of the remaining currency risks has been provided on the grounds
of materiality.
At 30 September 2001, the Group had contracted to exchange within one year the equivalent of £23m (2000 £61m) of various currencies. At 30 September
2000, the Group also had the option to exchange within one year the equivalent of a further £3m of various currencies.
SIX CONTINENTS 2001
45
3 0 F I N A N C I A L I N S T RU M E N T S ( C O N T I N U E D )
Liquidity risk
A liquidity analysis of the Group’s borrowings is provided in note 29, along with details of the Group’s material unutilised committed borrowing facilities.
The liquidity analysis of the Group’s other financial liabilities is set out below:
2001 2000
Other Other
creditors creditors
and deferred and deferred
income income
£m £m
Due: between one and two years 18 19
between two and five years 56 61
after five years 87 83
161 163
Fair values
The net book values and related fair values of the Group’s financial assets and liabilities are:
2001 2000
Net book Fair Net book Fair
value value value value
£m £m £m £m
Fixed asset investments* 234 206 217 254
Cash and overdrafts 30 30 76 76
Current asset investments 336 336 840 840
Currency swap agreements 30 30 22 22
Other borrowings (1,397) (1,496) (1,283) (1,367)
Net debt (1,001) (1,100) (345) (429)
Other financial liabilities (161) (161) (163) (163)
Interest rate swap agreements – (11) – (2)
Forward exchange contracts – – – 2
(928) (1,066) (291) (338)
The fair values of listed fixed asset investments and borrowings are based on market prices at the year end. Other assets and liabilities have been fair valued by
discounting expected future cash flows to present value.
* Excluding shares held by employee share trusts.
Hedges
The Group’s unrecognised gains and losses for the year on derivative financial instruments are:
Gains Losses Total
£m £m £m
Unrecognised at 30 September 1999 17 (19) (2)
Recognised in the year (12) – (12)
Arising in the year but not recognised 3 11 14
Unrecognised at 30 September 2000 8 (8) –
Recognised in the year (3) 3 –
Arising in the year but not recognised 5 (16) (11)
Unrecognised at 30 September 2001 10 (21) (11)
Expected to be recognised in the year ended 30 September 2002 4 (8) (4)
Expected to be recognised thereafter 6 (13) (7)
SIX CONTINENTS 2001
46 NOTES TO THE FINANCIAL STATEMENTS
Authorised Allotted and fully paid
3 1 S H A R E C A P I TA L millions £m millions £m
Ordinary shares of 28p each
At 30 September 2000 1,073 300 879 246
Issued under option schemes 2 –
Repurchased (15) (4)
At 30 September 2001 1,073 300 866 242
Non-cumulative redeemable preference shares of 95.5p each
At 30 September 2001 and 30 September 2000 889 849 – –
The aggregate consideration in respect of ordinary shares issued in respect of option schemes during the year was £9m (2000 £11m).
The total cost of the shares repurchased, including expenses, was £103m, which has been charged against distributable reserves.
millions
Options to subscribe for ordinary shares
At 30 September 2000 23.9
Granted 5.7
Exercised (1.7)
Forgone (3.2)
At 30 September 2001 24.7
Option exercise price per ordinary share (pence) 400.0 – 1,014.5
Final exercise date 1 March 2011
The authority given to the Company at the Annual General Meeting on 15 February 2001 to purchase its own shares is still valid at 30 September 2001.
A resolution to extend the authority will be put to shareholders at the Annual General Meeting on 14 February 2002.
Share Capital Profit
premium Revaluation redemption and loss
account reserve reserve account Total
3 2 R E S E RV E S – E Q U I T Y I N T E R E S T S £m £m £m £m £m
Group
At 30 September 2000 788 1,345 849 2,151 5,133
Premium on allotment of ordinary shares* 11 – – (2) 9
Repurchase of shares – – 4 (103) (99)
Retained earnings for the year – – – 166 166
Goodwill (see note 33) – – – (9) (9)
Revaluation surplus realised – (324) – 324 –
Exchange adjustments on:
assets – 4 – (14) (10)
borrowings – – – 8 8
goodwill eliminated (see note 33) – – – 9 9
At 30 September 2001 799 1,025 853 2,530 5,207
Company
At 30 September 2000 788 1 849 1,574 3,212
Premium on allotment of ordinary shares* 11 – – (2) 9
Repurchase of shares – – 4 (103) (99)
Retained earnings for the year – – – 43 43
At 30 September 2001 799 1 853 1,512 3,165
The Company profit and loss account reserve includes an amount of £1,422m which is not distributable.
* Includes transfer of £2m from the profit and loss account reserve in respect of shares issued to the qualifying employee share ownership trust in respect of the
Six Continents Employee Savings Share Scheme.
SIX CONTINENTS 2001
47
Group
Cost of
goodwill Exchange
eliminated adjustments Total
3 3 G O O DW I L L E L I M I N AT E D * £m £m £m
Eliminated to 30 September 2000 2,403 211 2,614
Exchange adjustments – 9 9
Eliminated to 30 September 2001 2,403 220 2,623
* Represents goodwill purchased prior to 30 September 1998 and eliminated against Group reserves.
Fair
Net book value Fair
value adjustments value
3 4 AC Q U I S I T I O N S – P O S T H O U S E £m £m £m
Goodwill 381 (381)a –
b
Tangible fixed assets 1,058 (160) 898
Current assets (excluding cash) 31 – 31
Cash 262 – 262
Creditors due within one year (41) (37)c (78)
Borrowings (38) – (38)
Deferred taxation – (41)d (41)
Net assets 1,653 (619) 1,034
Consideration:
Preference shares* (20)
Cash (1,014)
Goodwill –
* Preference shares were issued by a subsidiary undertaking.
The Posthouse hotel business was acquired on 4 April 2001. The consideration shown includes costs and working capital and net debt adjustments. The main fair
value adjustments are:
a Write off of goodwill arising on a prior transaction.
b Revaluation of hotels.
c Reassessment of creditors including corporate tax and other acquired liabilities.
d Reassessment of the deferred taxation effect of all timing differences including those relating to fair value adjustments.
For the period from 1 October 2000 to the date of acquisition and for its preceding financial year ended 30 September 2000, the Posthouse business generated
operating profit of £40m and £80m respectively.
SIX CONTINENTS 2001
48 NOTES TO THE FINANCIAL STATEMENTS
3 5 PA R E N T C O M PA N Y
Profit on ordinary activities after taxation dealt with in the financial statements of the Company amounts to £336m (2000 £16m loss).
36 FINANCIAL COMMITMENTS
The Group has annual commitments under operating leases at 30 September 2001 which expire as follows:
Properties Other
2001 2000 2001 2000
£m £m £m £m
Within one year 2 6 6 8
Between one and five years 12 28 7 14
After five years 78 143 – 1
92 177 13 23
Group
2001 2000
3 7 C O N T R AC T S F O R E X P E N D I T U R E O N F I X E D A S S E T S £m £m
Contracts placed for expenditure on fixed assets not provided for in the financial statements 106 74
38 CONTINGENCIES
Contingent liabilities not provided for in the financial statements relate to:
Group Company
2001 2000 2001 2000
£m £m £m £m
Guarantees:
Liabilities of subsidiaries – – 442 464
Other 96 80 – –
Other 26 24 – –
122 104 442 464
The Group has given warranties in respect of the disposal of certain of its former subsidiaries. It is the view of the directors that, other than to the extent that
liabilities have been provided for in these financial statements, such warranties are not expected to result in financial loss to the Group.
SIX CONTINENTS 2001
49
3 9 P R I N C I PA L O P E R AT I N G S U B S I D I A RY U N D E RTA K I N G S
Six Continents PLC is the beneficial owner of all (unless specified) of the equity share capital, either itself or through subsidiary undertakings,
of the following companies:
Corporate activities Retail
Asia Pacific Holdings Limited (note a) Six Continents Retail Limited (note a)
Bass North America Inc. (note d) Six Continents Retail Germany GmbH
(incorporated and operates in the United States) (incorporated and operates in Germany)
SC Luxembourg Investments SARL
Soft drinks
(incorporated and operates in Luxembourg)
Britannia Soft Drinks Limited (50% Six Continents Investments
Six Continents Hotels International Limited (note a) Limited, 25% Whitbread PLC, 25% Allied Domecq PLC) (note c)
Six Continents Holdings Limited (note a) Britvic Soft Drinks Limited (90% Britannia Soft Drinks
Limited, 10% PepsiCo Holdings Limited)
Six Continents Overseas Holdings Limited (note a)
Robinsons Soft Drinks Limited
Six Continents International Holdings BV
(100% Britannia Soft Drinks Limited)
(incorporated and operates in the Netherlands)
Six Continents Investments Limited (notes a and b) Other activities
Standard Commercial Property Developments Limited (note a)
Hotels
White Shield Insurance Company Limited
BHR Holdings BV
(incorporated and operates in Gibraltar) (note a)
(incorporated and operates in the Netherlands)
BHR Luxembourg SARL
(incorporated and operates in Luxembourg)
Posthouse Hotels Limited
Six Continents Hotels Operating Corporation
(incorporated and operates principally in the United States)
Six Continents Hotels (UK) Limited
note a Shares held directly by Six Continents PLC.
note b Six Continents PLC owns all the 5% and 7% Cumulative Preference shares of Six Continents Investments Limited.
note c The Group holds a majority of voting rights (50% plus one ordinary share) in, and exercises dominant influence over, Britannia Soft Drinks Limited, which is,
accordingly, treated as a subsidiary undertaking.
note d Bass North America Inc. subsequently changed its name to Sixco North America Inc. on 17 October 2001.
note e Unless stated otherwise, companies are incorporated in Great Britain, registered in England and Wales and operate principally within the United Kingdom.
note f The companies listed above include all those which principally affect the amount of profit and assets of the Group. A full list of subsidiary and associated
undertakings at 30 September 2001 will be annexed to the next annual return of Six Continents PLC to be filed with the Registrar of Companies.
SIX CONTINENTS 2001
50 NOTES TO THE FINANCIAL STATEMENTS
4 0 U S AC C O U N T I N G P R I N C I P L E S Staff costs
The financial statements set out on pages 24 to 49 are prepared in The Group charges against earnings the cost of shares acquired to settle
accordance with accounting principles generally accepted in the United awards under certain incentive schemes. The charge is based on an
Kingdom (UK GAAP) which differ from those generally accepted in the apportionment of the cost of shares over the period of the scheme.
United States (US GAAP). The significant differences, as they apply to Under US GAAP, the charge would be based on the intrinsic value of
the Group, are summarised below. the shares using the share price at the balance sheet date. A charge is
Notes 41 and 42 provide a reconciliation between earnings available also made under US GAAP for the difference between the option price
for shareholders under UK GAAP and net income under US GAAP and and the intrinsic value at the date of grant of options under the Group’s
between shareholders’ funds under UK GAAP and shareholders’ equity Employee Savings Share Scheme. An additional charge could arise under
under US GAAP respectively. US GAAP if the terms of existing awards are altered.
Pension costs Provisions
The Group provides for the cost of retirement benefits based upon Included in provisions for liabilities and charges are amounts which relate
consistent percentages of employees’ pensionable pay as recommended to the restructuring of certain of the Group’s operations. Under US GAAP,
by independent qualified actuaries. Under US GAAP, the projected benefit certain of these amounts would be charged to net income as incurred.
obligation (pension liability) in respect of the Group’s two principal
Deferred taxation
pension plans would be matched against the fair value of the plans’
The Group provides for deferred taxation using the liability method only
assets and would be adjusted to reflect any unrecognised obligations
where, in the opinion of the directors, it is probable that the tax liability
or assets in determining the pension cost or credit for the year.
will crystallise within the foreseeable future. Under US GAAP, deferred
Intangible fixed assets taxation would be computed on all differences between the tax bases
Goodwill and separately identifiable intangible fixed assets arising on the and book values of assets and liabilities which will result in taxable or
acquisition of subsidiaries and associates are capitalised and amortised tax deductible amounts arising in future years. Deferred taxation assets
over their estimated useful lives. Goodwill arising on acquisitions prior under US GAAP would be recognised only to the extent that it is more
to 30 September 1998 was eliminated against reserves. Under US GAAP, likely than not that they would be realised.
all intangible fixed assets would be capitalised and amortised to the
Fixed asset investments
income statement over their estimated useful lives, not exceeding 40
Included in other investments and advances are amounts in respect
years. The reconciling adjustments in note 41 in respect of amortisation
of Six Continents PLC ordinary shares held by employee share trusts.
and in note 42 in respect of intangible fixed assets relate almost entirely
Under US GAAP, these amounts would be treated as Treasury Stock
to Six Continents Hotels.
and deducted from shareholders’ equity.
Tangible fixed assets Fixed asset investments are stated at cost less any provision for
Prior to 1 October 1999, the Group’s properties were valued from time diminution in value. Under US GAAP, these investments would be
to time by professionally qualified external valuers. Book values were recorded at market value.
adjusted to accord with the valuations, except where a directors’
valuation was deemed more appropriate. Under US GAAP, revaluations Derivative instruments and hedging
would not have been permitted. The Group adopted FAS 133 ‘Accounting for derivative instruments and
hedging activities’ on 1 October 2000. Under US GAAP, all derivative
Depreciation is based on the book value of assets, including revaluation
instruments (including those embedded in other contracts) are
where appropriate. Prior to 1 October 1999, freehold pubs and hotels
recognised on the balance sheet at their fair values. Changes in fair value
were not depreciated under UK GAAP, as any charge would have been
are recognised in net income unless specific hedge criteria are met. If a
immaterial given that such properties were maintained, as a matter
derivative qualifies for hedge accounting as defined under US GAAP,
of policy, by a programme of repair and maintenance such that their
changes in fair value are recognised periodically in net income or in
residual values were at least equal to their book values. Following the
shareholders’ equity as a component of other comprehensive income
introduction of FRS 15, which was implemented by the Group with effect
depending on whether the derivative qualifies as a fair value or cash
from 1 October 1999, all properties are depreciated under UK GAAP.
flow hedge.
There is now no difference between UK GAAP and US GAAP with regard
to depreciation policies. Proposed dividends
The reconciling adjustment in note 42 in respect of tangible fixed assets Final ordinary dividends are provided for in the year in respect of which
relates primarily to Six Continents Retail. they are proposed by the Board for approval by the shareholders.
Under US GAAP, dividends would not be provided for until the year in
which they are declared.
SIX CONTINENTS 2001
51
41 NET INCOME UNDER US GAAP
The significant adjustments required to convert earnings available for shareholders in accordance with UK GAAP to net income in accordance with
US GAAP are:
Group
2001 2000* 2001** 2000**
£m £m $m $m
Earnings available for shareholders in accordance with UK GAAP 459 1,684 661 2,610
Adjustments:
Pension costs (22) 78 (32) 121
Amortisation of intangible fixed assets (104) (105) (150) (163)
Disposal of tangible and intangible fixed assets 376 51 541 79
Provisions (4) (3) (6) (5)
Staff costs (1) (1) (1) (2)
Change in fair value of derivatives*** 21 – 30 –
Deferred taxation: on above adjustments 18 (4) 26 (6)
methodology 8 (6) 12 (9)
292 10 420 15
Minority share of above adjustments – 3 – 5
292 13 420 20
Net income in accordance with US GAAP 751 1,697 1,081 2,630
Continuing operations 726 364 1,045 564
Discontinued operations: result for the period – 91 – 141
surplus on disposal 25 1,242 36 1,925
751 1,697 1,081 2,630
2001 2000* 2001** 2000**
Net income per American Depositary Share £ £ $ $
Basic****
Continuing operations 0.84 0.41 1.21 0.64
Discontinued operations 0.03 1.53 0.04 2.37
0.87 1.94 1.25 3.01
Diluted*****
Continuing operations 0.83 0.41 1.20 0.64
Discontinued operations 0.03 1.52 0.04 2.35
0.86 1.93 1.24 2.99
* Restated to reflect adjustments in respect of fixed asset investments and deferred tax thereon.
** Translated at the weighted average rate of exchange for the year of £1 = $1.44 (2000 £1 = $1.55).
*** Comprises changes in the fair value of derivatives that do not qualify for hedge accounting of £2m and net gains reclassified from other comprehensive income of £19m.
**** Calculated by dividing net income in accordance with US GAAP of £751m (2000 £1,697m), by 863m (2000 873m) shares, being the weighted average number of ordinary
shares in issue during the year. Each American Depositary Share represents one ordinary share.
***** Calculated by adjusting basic net income in accordance with US GAAP to reflect the notional exercise of the weighted average number of dilutive ordinary share options
outstanding during the year. The resulting weighted average number of ordinary shares is 869m (2000 879m).
SIX CONTINENTS 2001
52 NOTES TO THE FINANCIAL STATEMENTS
42 SHAREHOLDERS’ EQUITY UNDER US GAAP
The significant adjustments required to convert shareholders’ funds in accordance with UK GAAP to shareholders’ equity in accordance with
US GAAP are:
Group
2001 2000 2001* 2000*
£m £m $m $m
Shareholders’ funds in accordance with UK GAAP 5,449 5,379 8,010 7,907
Adjustments:
Intangible fixed assets:
Cost: goodwill 2,201 2,136 3,235 3,140
other 1,285 1,289 1,889 1,895
Accumulated amortisation (896) (796) (1,317) (1,170)
2,590 2,629 3,807 3,865
Tangible fixed assets:
Cost (967) (1,302) (1,421) (1,914)
Accumulated depreciation (211) (251) (310) (369)
(1,178) (1,553) (1,731) (2,283)
Fixed asset investments:
Other investments and advances (61) 5 (90) 7
Current assets:
Pension costs 89 112 131 165
Derivatives 13 – 19 –
Creditors: amounts falling due within one year:
Proposed dividends 207 204 304 300
Staff costs (1) – (1) –
Derivatives (4) – (6) –
Creditors: amounts falling due after one year:
Borrowings 6 – 9 –
Derivatives (20) – (29) –
Provisions for liabilities and charges:
Provisions 13 17 19 25
Deferred taxation: on above adjustments (326) (352) (479) (517)
methodology (461) (420) (678) (618)
867 642 1,275 944
Minority share of above adjustments (46) (46) (68) (68)
821 596 1,207 876
Shareholders’ equity in accordance with US GAAP 6,270 5,975 9,217 8,783
* Translated at the rate of exchange ruling at the balance sheet date £1 = $1.47 (2000 £1 = $1.47).
SIX CONTINENTS 2001
53
D I R E C TO R S ’ R E S P O N S I B I L I T I E S I N R E L AT I O N TO F I N A N C I A L S TAT E M E N T S
The following statement, which should be read in conjunction with the report has used appropriate accounting policies, applied in a consistent manner
of the independent auditors set out below, is made with a view to and supported by reasonable and prudent judgements and estimates, and
distinguishing for shareholders the respective responsibilities of the directors that all applicable accounting standards have been followed.
and of the auditors in relation to the financial statements.
The directors have responsibility for ensuring that the Company keeps
The directors are required by the Companies Act 1985 to prepare financial accounting records which disclose with reasonable accuracy the financial
statements for each financial year, which give a true and fair view of the state position of the Company and which enable them to ensure that the
of affairs of the Company and the Group as at the end of the financial year financial statements comply with the Companies Act 1985.
and of the profit or loss for the financial year.
The directors have general responsibility for taking such steps as are
Following discussions with the auditors, the directors consider that in reasonably open to them to safeguard the assets of the Company and
preparing the financial statements on pages 24 to 52 inclusive, the Company to prevent and detect fraud and other irregularities.
R E P O RT O F T H E I N D E P E N D E N T AU D I TO R S
AU D I TO R S ’ R E P O RT TO T H E S H A R E H O L D E R S We read the other information contained in the Annual Report and consider
OF SIX CONTINENTS PLC whether it is consistent with the audited financial statements. This other
We have audited the financial statements for the year ended information comprises the OFR, directors’ report (which includes corporate
30 September 2001 which comprise the Group profit and loss account, governance and remuneration), Chairman’s Statement and Chief Executive’s
Group balance sheet, Company balance sheet, Group cash flow statement, Review. We consider the implications for our report if we become aware of
Group statement of total recognised gains and losses and the related notes any apparent misstatements or material inconsistencies with the financial
1 to 42. These financial statements have been prepared on the basis of the statements. Our responsibilities do not extend to any other information.
accounting policies set out therein.
B A S I S O F AU D I T O P I N I O N
R E S P E C T I V E R E S P O N S I B I L I T I E S O F D I R E C TO R S A N D AU D I TO R S We conducted our audit in accordance with Auditing Standards issued by the
The directors are solely responsible for preparing the Annual Report. Auditing Practices Board. An audit includes examination, on a test basis, of
As described above, this includes responsibility for preparing the financial evidence relevant to the amounts and disclosures in the financial statements.
statements in accordance with applicable United Kingdom law and accounting It also includes an assessment of the significant estimates and judgements
standards. Our responsibilities, as independent auditors, are established in the made by the directors in the preparation of the financial statements, and of
United Kingdom by statute, the Auditing Practices Board, the Listing Rules of whether the accounting policies are appropriate to the Group’s circumstances,
the Financial Services Authority and by our profession’s ethical guidance. consistently applied and adequately disclosed.
We report to you our opinion as to whether the financial statements give We planned and performed our audit so as to obtain all the information and
a true and fair view and are properly prepared in accordance with the explanations which we considered necessary in order to provide us with
Companies Act 1985. We also report to you if, in our opinion, the directors’ sufficient evidence to give reasonable assurance that the financial statements
report is not consistent with the financial statements, if the Company has not are free from material misstatement, whether caused by fraud or other
kept proper accounting records, if we have not received all the information irregularity or error. In forming our opinion we also evaluated the overall
and explanations we require for our audit, or if the information specified by adequacy of the presentation of information in the financial statements.
law or the Listing Rules regarding directors’ remuneration and transactions
OPINION
with the Group is not disclosed.
In our opinion the financial statements give a true and fair view of the state
We review whether the corporate governance statement reflects the of affairs of the Company and of the Group as at 30 September 2001 and
Company’s compliance with the seven provisions of the Combined Code of the profit of the Group for the year then ended and have been properly
specified for our review by the Listing Rules, and we report if it does not. prepared in accordance with the Companies Act 1985.
We are not required to consider whether the Board’s statements on internal
control cover all risks and controls, or form an opinion on the effectiveness
of either the Group’s corporate governance procedures or its risk and control Ernst & Young LLP,
procedures. Registered Auditor, London. 5 December 2001
SIX CONTINENTS 2001
54 FIVE YEAR REVIEW
G RO U P P RO F I T A N D L O S S AC C O U N T F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2001 2000 1999* 1998 1997
£m £m £m £m £m
Hotels 1,896 1,581 1,162 853 620
Retail 1,557 1,674 1,428 1,368 1,292
Soft drinks 571 539 543 527 574
Other activities 16 24 27 27 24
Inter-divisional (7) (43) (50) (44) (45)
Continuing operations 4,033 3,775 3,110 2,731 2,465
Discontinued operations – 1,383 1,576 1,878 2,789
Turnover 4,033 5,158 4,686 4,609 5,254
Hotels 427 376 321 260 186
Retail 305 346 298 269 258
Soft drinks 57 46 44 38 53
Other activities 3 8 1 5 1
Continuing operations before exceptional items 792 776 664 572 498
Operating exceptional items: major (43) – – – –
Continuing operations 749 776 664 572 498
Discontinued operations – 129 160 186 303
Operating profit 749 905 824 758 801
Non-operating exceptional items:
major 2 1,231 (110) 183 (237)
other (2) 3 (2) (10) –
Profit before interest 749 2,139 712 931 564
Interest (59) (152) (140) (97) (87)
Profit before tax 690 1,987 572 834 477
Tax (209) (287) (177) (179) (212)
Profit after tax 481 1,700 395 655 265
Minority interests (22) (16) (8) (5) (15)
Earnings 459 1,684 387 650 250
Dividends (293) (292) (277) (240) (244)
Retained for reinvestment in the business 166 1,392 110 410 6
Statistics
Adjusted interest cover** 13.4x 6.0x 5.9x 7.7x 9.2x
Earnings per share:
basic 53.2p 192.9p 48.5p 78.3p 28.2p
adjusted pre-FRS 15** n/a n/a 62.3p 57.4p 55.5p
adjusted post-FRS 15*** 60.1p 62.2p 58.1p 54.2p n/a
Dividend per share 34.3p 33.3p 32.3p 30.0p 27.5p
Adjusted dividend cover** 1.8x 1.9x 1.8x 2.0x 2.0x
* 53 weeks for all divisions other than Hotels (12 months).
** Calculated after excluding the effect of major exceptional items and any relevant tax.
*** Adjusted earnings per share calculated assuming that the depreciation requirements of FRS 15 had applied during the year.
SIX CONTINENTS 2001
55
G RO U P C A S H F L OW S TAT E M E N T F O R T H E Y E A R E N D E D 3 0 S E P T E M B E R 2001 2000 1999* 1998 1997
£m £m £m £m £m
EBITDA** 1,031 1,191 1,050 976 1,036
Working capital movements (24) (88) (64) (38) 15
Major operating exceptional expenditure (23) – – – –
Operating activities 984 1,103 986 938 1,051
Net capital expenditure (see below) (868) (654) (501) (587) (599)
Trade loans – 23 32 27 29
Dividends from associates – 11 10 3 –
Operating cash flow (see below) 116 483 527 381 481
Interest (69) (137) (130) (105) (91)
Dividends (295) (290) (250) (250) (206)
Taxation (149) (158) (174) (152) (165)
Normal cash flow (397) (102) (27) (126) 19
Major acquisitions (752) (400) – (817) –
Major disposals 623 2,234 – 1,306 385
Net cash flow (526) 1,732 (27) 363 404
Net capital expenditure
Hotels 607 (326) (270) (155) (60)
Retail 288 (204) (140) (230) (293)
Soft drinks 28 (48) (34) (45) (31)
Other activities (55) (19) (8) (2) (1)
Continuing operations 868 (597) (452) (432) (385)
Discontinued operations – (57) (49) (155) (214)
868 (654) (501) (587) (599)
Operating cash flow
Hotels (80) 114 68 105 143
Retail 66 213 212 80 8
Soft drinks 99 36 41 30 76
Other activities (9) (35) 3 11 5
Continuing operations 76 328 324 226 232
Discontinued operations 40 155 203 155 249
116 483 527 381 481
* 53 weeks for all divisions other than Hotels (12 months).
** Earnings before interest, taxation, depreciation and amortisation, and major exceptional items.
SIX CONTINENTS 2001
56 FIVE YEAR REVIEW
G RO U P B A L A N C E S H E E T AT 3 0 S E P T E M B E R 2001 2000 1999 1998 1997
£m £m £m £m £m
Fixed assets 7,998 7,121 6,335 5,576 5,027
Stocks 90 97 189 204 210
Debtors 577 600 701 736 686
Investments 366 862 333 307 592
Cash at bank and in hand 67 125 182 149 143
Short-term creditors (2,009) (1,604) (1,803) (1,989) (1,470)
Net current (liabilities)/assets (909) 80 (398) (593) 161
Long-term creditors (1,180) (1,376) (2,231) (2,012) (1,180)
Provisions (312) (314) (266) (272) (123)
Minority interests (148) (132) (127) (122) (116)
Net assets 5,449 5,379 3,313 2,577 3,769
Shareholders’ funds 5,449 5,379 3,313 2,577 3,769
Comprising:
Hotels 3,949 2,637 2,118 1,687 554
Retail 3,328 3,728 2,653 2,221 2,170
Soft drinks 252 292 281 285 275
Other activities 23 31 125 95 60
Continuing operations 7,552 6,688 5,177 4,288 3,059
Discontinued operations – – 949 1,026 1,916
Net operating assets 7,552 6,688 6,126 5,314 4,975
Net debt (1,001) (345) (1,995) (1,950) (555)
Other* (1,102) (964) (818) (787) (651)
Shareholders’ funds 5,449 5,379 3,313 2,577 3,769
Statistics
Gearing** 18.4% 6.4% 60.2% 75.7% 14.7%
Return on net operating assets*** 10.5% 13.5% 13.5% 14.3% 16.1%
* Proposed dividend, corporate taxation, deferred taxation and minority interests.
** Net debt expressed as a percentage of shareholders’ funds.
*** Operating profit before major exceptional items expressed as a percentage of net operating assets.
SIX CONTINENTS 2001
GLOSSARY
ADJUSTED excluding the effect of major exceptional items MAJOR EXCEPTIONAL ITEMS exceptional items which, by virtue of their nature and
and any relevant tax. materiality, are excluded in arriving at ‘adjusted’ results
in order to give a more meaningful measure
AVERAGE ROOM RATE room revenue divided by the number of room nights of performance.
sold. Also known as average daily rate (ADR).
MANAGEMENT CONTRACT a contract to operate a hotel on behalf of the
BASIC EARNINGS PER SHARE earnings available for ordinary shareholders divided hotel owner.
by the weighted average number of ordinary shares
in issue during the year. MARKET CAPITALISATION the value attributed to a listed company by multiplying
its share price by the number of shares in issue.
BOND a long-dated note, being an obligation to repay.
MIDSCALE HOTEL a hotel in the three/four star hotel category, e.g.
COMMERCIAL PAPER a negotiable short-term unsecured promissory note, Holiday Inn or Holiday Inn Express.
issued by a corporate or other borrower normally for
a maximum of one year. NET CAPITAL EXPENDITURE cash expended on fixed assets, less cash received from
selling fixed assets, excluding major acquisitions and
COMMUNITY PUB an outlet serving the immediate locality. disposals.
COMPETITIVE SEGMENT the broad market segment against which a hotel NET CASH FLOW cash flow from all operations, including major and
brand competes. one-off payments and receipts.
COMPETITIVE SET the specific local hotels against which a particular NET DEBT borrowings less current asset investments and cash
hotel competes. at bank and in hand.
CONTINGENT LIABILITY a liability that is contingent upon the occurrence NET OPERATING ASSETS total assets less liabilities, excluding all assets and
of one or more uncertain future events. liabilities of a financing nature.
CONTINUING OPERATIONS operations not classified as discontinued and NORMAL CASH FLOW cash flow from all operations before major and one-off
including acquisitions made during the year. payments and receipts.
CORE OUTLETS the ongoing estate excluding the 550 pubs formerly OCCUPANCY RATE rooms occupied by hotel guests, expressed as a
owned by Allied Domecq PLC acquired by Six Continents percentage of rooms that are available.
Retail in financial year 2000.
ONGOING ESTATE the pub and restaurant estate remaining after disposal
CURRENCY SWAP an exchange of a deposit and a borrowing, each of the 988 smaller unbranded pubs.
denominated in a different currency, for an agreed
period of time. OPERATING CASH FLOW cash flow from operations but before payments for
tax and to providers of finance (through interest and
DEBENTURE a long-term loan, usually secured by property. dividends), and before major and one-off payments
DISCONTINUED OPERATIONS operations that have been sold or terminated and and receipts.
where the sale or termination has had a material effect OPERATING MARGIN operating profit expressed as a percentage
on the nature and focus of the Group’s operations. of turnover.
EXCEPTIONAL ITEMS material items deriving from the ordinary activities but OUTLET a pub, bar or restaurant.
which are disclosed separately because of their size or
incidence. PIPELINE signed/executed agreements, including franchises
and management contracts, for hotels which will
EXTENDED STAY HOTEL a hotel designed for guests staying for longer periods enter the Six Continents Hotels system at a future date.
of time than a few nights and tending to have a higher
proportion of suites than normal hotels, e.g. Staybridge REVENUE PER AVAILABLE room revenue divided by the number of room nights
Suites. ROOM (REVPAR) that are available (can be mathematically derived from
occupancy rate multiplied by average room rate).
FORWARD RATE AGREEMENT a contract to receive or pay the difference between an
agreed interest rate and the actual rate at an agreed ROOM REVENUE revenue generated from the sale of room nights.
future date, on a specified notional principal.
ROYALTY RATE the percentage of room revenue that a franchisee pays
FRANCHISEE operator who uses a brand under licence from the brand to the brand owner for use of the brand name.
owner (e.g. Six Continents Hotels).
SUBSIDIARY UNDERTAKING a company in which the Group holds a stake and over
FRANCHISOR brand owner (e.g. Six Continents Hotels) who licenses which it exercises dominant influence.
brands for use by other operators.
SYSTEM SIZE number of hotels (or rooms) owned, managed or
GEARING net debt expressed as a percentage of shareholders’ franchised by Six Continents Hotels.
funds.
UNDERLYING adjusted to remove items that distort comparability
GOODWILL the difference between the consideration given for a between both years.
business and the total of the values of the separable
assets and liabilities comprising that business. UNINVESTED LIKE-FOR-LIKE based on those outlets that have been operated in
comparable circumstances, and without significant
GROSS OPERATING MARGIN operating profit before fixed costs and overheads, investment, in both years.
expressed as a percentage of turnover.
UPSCALE HOTEL a four/five star full-service hotel characterised by
HEDGING the reduction of risk, normally in relation to foreign superior service, e.g. Inter-Continental, Crowne Plaza.
currency or interest rate movements, by making
offsetting commitments. UK GAAP accounting principles generally accepted in the
United Kingdom.
INCOME GENERATING UNIT a portfolio of similar assets that are subject to the same
economic and commercial influences. US GAAP accounting principles generally accepted in the
United States.
INTEREST COVER the number of times that interest payable and similar
charges, less interest receivable, is covered by profit WEIGHTED AVERAGE the average of the monthly exchange rates, weighted
before interest. EXCHANGE RATE by reference to monthly operating profit.
INTEREST RATE SWAP an agreement to exchange fixed for floating interest WORKING CAPITAL the sum of stocks, debtors, creditors and accruals
rate streams (or vice versa) on a notional principal. of a trading nature, excluding financing items such
as corporate taxation and proposed dividends.
INVESTED LIKE-FOR-LIKE based on those outlets that have been operated in
comparable circumstances, with or without significant
investment, in both years.
Both the Annual Review and Summary Financial Statement 2001 and the Annual Report and Financial Statements 2001 contain certain forward-looking statements as defined under US legislation (Section 21E of the
Securities Exchange Act of 1934). Such statements include, but are not limited to, statements made in the Chairman's Statement and the Chief Executive's Review. Factors affecting such forward-looking statements
include, but are not limited to, levels of consumer and business spending in major economies where Six Continents does business, changes in consumer tastes and preferences, levels of marketing and promotional
expenditure by Six Continents and its competitors, raw materials and employee costs, exchange and interest rates, tax rates, future business combinations, acquisitions or dispositions, the impact of the European
Economic and Monetary Union and the weather. Other factors that could affect the business and financial results are described in Item 3 Risk Factors in the Six Continents Form 20-F for the financial year ended
30 September 2000, or any subsequent year, filed with the US Securities and Exchange Commission. By their nature, forward-looking statements involve risk and uncertainty and the factors described in the context
of such forward-looking statements could cause actual results and developments to differ materially from those expressed in or implied by such forward-looking statements.
Designed and produced by Corporate Edge 020 7855 5830, printed in England by Royle Corporate Print. Cover photography by James Bell.
www.sixcontinents.com
SIX CONTINENTS PLC SIX CONTINENTS RETAIL
20 North Audley Street Cape Hill, PO Box 27
London W1K 6WN Birmingham B16 0PQ
T +44 (0) 20 7409 1919 T +44 (0) 121 558 1481
F +44 (0) 20 7409 8503 F +44 (0) 121 558 2515
SIX CONTINENTS HOTELS BRITVIC SOFT DRINKS
20 North Audley Street Britvic House, Broomfield Road
London W1K 6WN Chelmsford, Essex CM1 1TU
T +44 (0) 20 7409 1919 T +44 (0) 1245 261 871
F +44 (0) 20 7409 8503 F +44 (0) 1245 267 147
The front cover shows the stunning views across Victoria Harbour
from the newly acquired Hotel Inter-Continental Hong Kong
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