Edgar Filing: INTERCONTINENTAL HOTELS GROUP PLC /NEW/

20-F

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 20-F


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

or

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the fiscal year ended December 31, 2005
or

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

Commission file number: 1-10409

InterContinental Hotels Group PLC

(Exact name of registrant as specified in its charter)

England and Wales

(Jurisdiction of incorporation or organization)

67 Alma Road,

Windsor, Berkshire SL4 3HD

(Address of principal executive offices)

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


Title of each class		Name of each exchange on which registered

American Depositary Shares		New York Stock Exchange
Ordinary Shares of 10 pence each		New York Stock Exchange*


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

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

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

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

Ordinary Shares of 10 pence each 432,936,345

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act: Yes þ No o

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934: Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days: Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):


	Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o

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

Item 17 o Item 18 þ

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):

Yes o No þ

TABLE OF CONTENTS


		Page

Introduction			4
Cautionary Note Regarding Forward-Looking Statements			5

PART I
Item 1.	Identity of Directors, Senior Management and Advisors		7
Item 2.	Offer Statistics and Expected Timetable		7
Item 3.	Key Information		7
	Selected Consolidated Financial Information		7
	Risk Factors		13
Item 4.	Information on the Company		16
	Summary		16
	Segmental Information		20
	Hotels		24
	Soft Drinks		44
	Trademarks		45
	Organizational Structure		45
	Property, Plants and Equipment		45
	Environment		46
Item 5.	Operating and Financial Review and Prospects		46
	Introduction		46
	Critical Accounting Policies Under IFRS and US GAAP		47
	Operating Results		49
	Liquidity and Capital Resources		57
Item 6.	Directors, Senior Management and Employees		60
	Directors and Senior Management		60
	Compensation		63
	Board Practices		64
	Employees		67
	Share Ownership		68
Item 7.	Major Shareholders and Related Party Transactions		69
	Major Shareholders		69
	Related Party Transactions		69
Item 8.	Financial Information		69
	Consolidated Statements and Other Financial Information		69
	Significant Changes		70
Item 9.	The Offer and Listing		70
	Plan of Distribution		71
	Selling Shareholders		71
	Dilution		71
	Expenses of the Issue		71


		Page

Item 10.	Additional Information		71
	Memorandum and Articles of Association		71
	Material Contracts		74
	Exchange Controls		76
	Taxation		76
	Documents on Display		80
Item 11.	Quantitative and Qualitative Disclosures About Market Risk		80
Item 12.	Description of Securities Other Than Equity Securities		82

PART II
Item 13.	Defaults, Dividend Arrearages and Delinquencies		82
Item 14.	Material Modifications to the Rights of Security Holders and Use of Proceeds		82
Item 15.	Controls and Procedures		82
Item 16.	[Reserved]		82
Item 16A.	Audit Committee Financial Expert		82
Item 16B.	Code of Ethics		82
Item 16C.	Principal Accountant Fees and Services		83
Item 16D.	Exemptions from the Listing Standards for Audit Committees		83
Item 16E.	Purchases of Equity Securities by the Issuer and Affiliated Purchasers		83

PART III
Item 17.	Financial Statements		84
Item 18.	Financial Statements		85
Item 19.	Exhibits		85
EX-4.B.V: NEW ZEALAND SHARE SALE DEED
EX-4.B.VI: AUSTRALIA SHARE AND UNIT SALE DEED
EX-4.B.VII: BRITVIC UNDERWRITING AGREEMENT
EX-4.B.VIII: SALE AND PURCHASE AGREEMENT
EX-4.C.II: RICHARD HARTMAN'S LETTER OF APPOINTMENT
EX-4.C.IV: STEVAN PORTER'S LETTER OF APPOINTMENT
EX-4.C.VI: RICHARD SOLOMONS' LETTER OF APPOINTMENT
EX-4.C.VIII: ANDREW COSSLETT'S LETTER OF APPOINTMENT
EX-8: LIST OF SUBSIDIARIES
EX-12.A: CERTIFICATION
EX-12.B: CERTIFICATION
EX-13.A: CERTIFICATION

INTRODUCTION

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


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

	•	“Britvic” refers to Britannia Soft Drinks Limited for the period up to November 18, 2005, and thereafter, Britannia SD Holdings Limited (renamed Britvic plc on November 21, 2005) which became the holding company of the Britvic Group on November 18, 2005;

	•	“Britvic Group” refers to Britvic and its subsidiaries from time to time;

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

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

	•	“Hotels” or “IHG Hotels” refers to the hotels business of the Group;

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

	•	“IHL” refers to InterContinental Hotels Limited, previously InterContinental Hotels Group PLC, former parent company of the Group and re-registered as a private limited company on June 27, 2005;

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

	•	“ordinary share” or “share” refers, before April 14, 2003, to the ordinary shares of 28 pence each in Six Continents Limited; following that date and until December 10, 2004 to the ordinary shares of £1 each in IHL; following that date and until June 27, 2005 to the ordinary shares of 112 pence each in IHL and following June 27, 2005 to the ordinary shares of 10 pence each in IHG.

	•	“Six Continents” refers to Six Continents Limited; previously Six Continents PLC and re-registered as a private limited company on June 6, 2005;

	•	“Soft Drinks” and “Britvic business” refer to the soft drinks business of InterContinental Hotels Group PLC, which the Company had through its controlling interest in Britvic and which the Company disposed of by way of an initial public offering effective December 14, 2005; and

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

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

The Company publishes its Consolidated Financial Statements expressed in UK pounds sterling. In this document, references to “US dollars”, “US$”, “$” or “¢” are to United States (“US”) currency, references to “euro” or “€” are to the euro, the currency of the European Economic and Monetary Union, references to “pounds sterling”, “sterling”, “£”, “pence” or “p” are to UK currency and references to “A$” are to Australian (“A”) currency. Solely for convenience, this Annual Report on Form 20-F contains translations of certain pound sterling amounts into US dollars at specified rates. These translations should not be construed as representations that the pound sterling amounts actually represent such US dollar amounts or could be converted into US dollars at the rates indicated. Unless otherwise indicated, the translations of pounds sterling into US dollars have been made at the rate of £1.00 = $1.73, the noon buying rate in The City of New York for cable transfers in pounds sterling as certified for customs purposes by the Federal Reserve Bank of New York (the “Noon Buying Rate”) on December 31, 2005. On March 28, 2006 the Noon Buying Rate was £1.00 = $1.75. For information regarding rates of exchange between pounds sterling and US dollars from fiscal 2001 to the present, see “Item 3. Key Information — Exchange Rates”.

The Company’s fiscal year ends on December 31. The December 31 fiscal year end is in line with the calendar accounting year ends of the majority of comparable US and European hotel companies. IHG will continue to report on a December 31 fiscal year end basis, as the Group believes this facilitates more meaningful comparisons with other key participants in the industry. References in this document to a particular year are to the fiscal year unless otherwise indicated. For example, references to the year ended December 31, 2005 are shown as 2005 and references to the year ended December 31, 2004 are shown as 2004, unless otherwise specified, references to the fiscal period ended December 31, 2003, are shown as 2003 and references to other fiscal years are shown in a similar manner.

The Company’s Consolidated Financial Statements are prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union (“EU”) which differ from the accounting principles generally accepted in the United States (“US GAAP”). The significant differences applicable to the Group are explained in Note 32 of Notes to the Financial Statements.

IHG believes that the reporting of profit and earnings measures before other operating income and expenses provides additional meaningful information on underlying returns and trends to shareholders. The Group’s key performance indicators used in budgets, monthly reporting, forecasts, long-term planning and incentive plans for internal financial reporting focus primarily on profit and earnings measures before other operating income and expenses. Throughout this document earnings per share is also calculated excluding the effect of all other operating income and expenses, special interest, special tax and gain on disposal of assets and is referred to as adjusted earnings per share.

The Company furnishes JP Morgan Chase Bank, N.A., as Depositary, with annual reports containing Consolidated Financial Statements and an independent auditor’s opinion thereon. These Financial Statements are prepared on the basis of IFRS. The annual reports contain reconciliations to US GAAP of net income and shareholders’ equity. The Company also furnishes the Depositary with semi-annual reports prepared in conformity with IFRS, which contain unaudited interim consolidated financial information. Upon receipt thereof, the Depositary mails all such reports to registered holders of American Depositary Receipts (“ADRs”) evidencing American Depositary Shares (“ADSs”). The Company also furnishes to the Depositary all notices of shareholders’ meetings and other reports and communications that are made generally available to shareholders of the Company. The Depositary makes such notices, reports and communications available for inspection by registered holders of ADRs and mails to all registered holders of ADRs notices of shareholders’ meetings received by the Depositary. The Company is not required to report quarterly financial information. During 2005, the Company reported interim financial information at June 30, 2005 in accordance with the Listing Rules of the UK Listing Authority. In addition, it provided a trading update at March 31, 2005 and at September 30, 2005 and intends to continue to provide quarterly financial information during fiscal 2006, although it has not made any decision with respect to reporting quarterly financial information after 2006.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Form 20-F contains certain forward-looking statements as defined in Section 21E of the Securities Exchange Act of 1934 with respect to the financial condition, results of operations and business of the Group and certain of the plans and objectives of the board of directors of InterContinental Hotels Group PLC with respect thereto. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use such words as “anticipate”, “target”, “expect”, “estimate”, “intend”, “plan”, “goal”, “believe” or other words of similar meanings. Such statements in the Form 20-F include, but are not limited to, statements under the following headings: (i) “Item 4. Information on the Company”; (ii) “Item 5. Operating and Financial Review and Prospects”; (iii) “Item 8. Financial Information”; and (iv) “Item 11. Quantitative and Qualitative Disclosures About Market Risk”. Specific risks faced by the Company are described under “Item 3. Key Information — Risk Factors” commencing on page 13. By their nature, forward-looking statements involve risk and uncertainty, and the factors described in the context of such forward-looking statements in this Form 20-F could cause actual results and developments to differ materially from those expressed in or implied by such forward-

looking statements. These factors include, among others, the risks involved with the Group’s reliance on brands and protection of intellectual property rights and the reliance on consumer perception of its brands, the risks relating to identifying, securing and retaining management and franchise agreements, the effect of political and economic developments, the ability to recruit and retain key personnel, the risks involved with the Group’s reliance on technologies and systems and with developing and employing new technologies and systems, the Group’s ability to maintain adequate insurance, the future balance between supply and demand for the Group’s hotels, events that adversely impact domestic or international travel, including terrorist incidents and epidemics such as Severe Acute Respiratory Syndrome (“SARS”) or avian flu, the risk of failures in the Group’s proprietary reservation system and increased competition in reservation infrastructure, the lack of selected development opportunities, the risks of litigation, the risks associated with its ability to borrow and satisfy debt covenants, compliance with data privacy regulations and risks associated with funding the defined benefits under its pension schemes.

PART I


ITEM 1.	*IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS*

Not applicable.


ITEM 2.	*OFFER STATISTICS AND EXPECTED TIMETABLE*

Not applicable.


ITEM 3.	*KEY INFORMATION*

SELECTED CONSOLIDATED FINANCIAL INFORMATION

Summary

The selected consolidated financial data set forth below for the years ended December 31, 2005 and 2004 has been prepared for the first time in line with International Financial Reporting Standards (“IFRS”) and is derived from the Consolidated Financial Statements of the Group, which have been audited by its independent registered public accounting firm, Ernst & Young LLP, restated where appropriate to accord with the Group’s current accounting policies and presentation. There is no available comparative data for the years ended prior to December 31, 2004 as consolidated financial data were prepared in accordance with accounting principles generally accepted in the United Kingdom (“UK GAAP”). The selected consolidated financial data set forth below should be read in conjunction with, and is qualified in its entirety by reference to, the Consolidated Financial Statements and Notes thereto included elsewhere in this Annual Report.


	*Consolidated Profit and Loss Account Data*


		Years ended December 31,

		2005⁽¹⁾⁽²⁾			2005⁽¹⁾			2004⁽¹⁾

		$			£			£
		(in millions, except per share and ADS amounts)
Amounts in accordance with IFRS
Revenue:
	Continuing operations		1,555			852			731
	Discontinued operations		1,931			1,058			1,473

			3,486			1,910			2,204

Total operating profit before other operating income and expenses:
	Continuing operations		347			190			134
	Discontinued operations		272			149			212

			619			339			346

Other operating income and expenses:
	Continuing operations		(40	)		(22	)		(49	)

			(40	)		(22	)		(49	)

Total operating profit:
	Continuing operations		307			168			85
	Discontinued operations		272			149			212

			579			317			297

Financial income			55			30			70
Financial expenses			(115	)		(63	)		(103	)

Profit before tax			519			284			264
Tax			(146	)		(80	)		127

Profit after tax			373			204			391
Gain on disposal of assets, net of tax			568			311			19

Profit available for shareholders			941			515			410

Attributable to:
	Equity holders of the parent		906			496			383
	Minority equity interest		35			19			27

Profit for the year			941			515			410

Earnings per ordinary share:
	Basic		173.9	¢		95.2	p		53.9	p
	Diluted		170.0	¢		93.1	p		53.3	p
	Adjusted⁽⁴⁾		69.9	¢		38.2	p		33.9	p

Footnotes on page 10.


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

			2005⁽¹⁾⁽²⁾			2005⁽¹⁾			2004⁽¹⁾			2002			2003			2003⁽¹⁾			2002⁽¹⁾			2001⁽¹⁾

			$			£			£			£			£			£			£			£
			(in millions, except per share and ADS amounts)
Amounts in accordance with US GAAP
Income/(loss) before cumulative effect on prior years of change in accounting principle:
	Continuing operations			189			104			257			14			(63	)		(49	)		102			130
	Discontinued operations:
		Income from discontinued operations		75			41			62			46			92			138			226			521
		Surplus on disposal		384			210			21			—			—			—			171			25

	Total discontinued operations			459			251			83			46			92			138			397			546
Cumulative effect on prior years of adoption of FAS 142				—			—			—			(712	)		—			(712	)		—			—

	Net income/(loss)			648			355			340			(652	)		29			(623	)		499			676

Per ordinary share and American Depositary Share⁽⁵⁾
Basic
Income/(loss) before cumulative effect on prior years of change in accounting principle:
	Continuing operations			36.4	¢		20.0	p		36.2	p		1.9	p		(8.6	)p		(6.7	)p		14.0	p		17.8	p
	Discontinued operations			88.0	¢		48.2	p		11.7	p		6.3	p		12.6	p		18.9	p		54.3	p		74.6	p
Cumulative effect on prior years of adoption of FAS 142				—			—			—			(97.1	)p		—			(97.1	)p		—			—

Net income/(loss)				124.4	¢		68.2	p		47.9	p		(88.9	)p		4.0	p		(84.9	)p		68.3	p		92.4	p

Diluted
Income/(loss) before cumulative effect on prior years of change in accounting principle:
	Continuing operations			35.6	¢		19.5	p		35.7	p		1.9	p		(8.6	)p		(6.7	)p		13.9	p		17.7	p
	Discontinued operations			86.0	¢		47.1	p		11.5	p		6.3	p		12.6	p		18.9	p		54.1	p		74.2	p
Cumulative effect on prior years of adoption of FAS 142				—			—			—			(97.1	)p		—			(97.1	)p		—			—

Net income/(loss)				121.6	¢		66.6	p		47.2	p		(88.9	)p		4.0	p		(84.9	)p		68.0	p		91.9	p

Footnotes on page 10.


	*Consolidated Balance Sheet Data*


	December 31,

	2005⁽³⁾		2005		2004

	$		£		£
	(in millions)
Amounts in accordance with IFRS
Goodwill and intangible assets		411		238		206
Property, plant and equipment		2,340		1,356		1,926
Investments and other financial assets		267		155		122
Current assets		1,220		707		598
Non-current assets classified as held for sale		481		279		1,826
Total assets		4,719		2,735		4,678

Current liabilities⁽⁶⁾		1,370		794		926
Long-term debt⁽⁶⁾		707		410		1,156
Share capital		85		49		723
IHG shareholders’ equity		1,870		1,084		1,821


	December 31,

	2005⁽³⁾		2005		2004		2003		2002		2001

	$		£		£		£		£		£
	(in millions)
Amounts in accordance with US GAAP
Goodwill and intangible assets		2,407		1,395		1,384		1,587		2,702		2,902
Property, plant and equipment		2,905		1,684		3,454		3,916		6,552		6,343
Investments and other financial assets		243		141		115		174		189		205
Current assets		1,284		744		699		978		983		1,209
Non-current assets classified as held for sale		445		258		300		—		—		—
Total assets		7,284		4,222		5,952		6,655		10,426		10,659

Current liabilities⁽⁶⁾		2,112		1,224		2,021		1,496		2,109		2,033
Long-term debt⁽⁶⁾		62		36		52		523		622		779
Share capital		74		43		697		739		243		242
IHG shareholders’ equity		3,477		2,015		2,796		3,380		6,221		6,381


(1)	The results for 2002 and 2001 include 52 weeks (Hotels 12 months). Fiscal 2003 reflects 15 months trading for Hotels, Soft Drinks 64 weeks ended December 20, 2003 and Mitchells and Butlers plc which reflects 28 weeks ended April 12, 2003. For the year 2004, Hotels include 12 months and Soft Drinks 53 weeks ended December 25, 2004. For the year 2005, Hotels include 12 months and Soft Drinks 50 weeks and three days ended December 14, 2005.

(2)	US dollar amounts have been translated at the weighted average rate for the year of £1.00 = $1.83 solely for convenience.

(3)	US dollar amounts have been translated at the Noon Buying Rate on December 31, 2005 of £1.00 = $1.73 solely for convenience.

(4)	Adjusted earnings per share are disclosed in order to show performance undistorted by other operating income and expenses, abnormal interest and tax and gain on disposal of assets.

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

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

Dividends

InterContinental Hotels Group PLC paid an interim dividend of 4.6 pence per share on October 17, 2005. The IHG board has proposed a final dividend of 10.7 pence per share, payable on June 5, 2006, if approved by

shareholders at the Annual General Meeting to be held on June 1, 2006, bringing the total IHG dividend for the year ended December 31, 2005 to 15.3 pence per share.

On March 2, 2006, IHG announced its intention to pay a £500 million special dividend to shareholders during the second quarter of 2006.

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

Ordinary dividend


	Pence per ordinary share						$ per ADS

	Interim		Final		Total		Interim		Final			Total

Year ended September 30,
2001⁽¹⁾		12.27		28.20		40.47		0.177		0.406			0.583
2002⁽¹⁾		12.58		29.14		41.72		0.205		0.474			0.679
Period ended December 31, 2003
Six Continents⁽¹⁾		7.65		—		7.65		0.119		—			0.119
IHG		4.05		9.45		13.50		0.068		0.174			0.242
Year ended December 31,
2004		4.30		10.00		14.30		0.077		0.191			0.268
2005		4.60		10.70		15.30		0.081		0.187	⁽²⁾		0.268


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

(2)	The 2005 final dividend payable to ADS holders will be paid in USD and was set using the closing USD/GBP spot rate of February 28, 2006.

Special Dividend


	Pence per
	ordinary share		$ per ADS

December 2004		72.00		1.39


	*Exchange Rates*

The following tables show, for the periods and dates indicated, certain information regarding the exchange rate for pounds sterling, based on the Noon Buying Rate for pounds sterling expressed in US dollars per £1.00. The exchange rate on March 17, 2006 was £1.00 = $1.76.


	Month’s		Month’s
	highest		lowest
Month	exchange rate		exchange rate

September 2005		1.84		1.76
October 2005		1.79		1.75
November 2005		1.78		1.71
December 2005		1.77		1.72
January 2006		1.79		1.74
February 2006		1.78		1.73
March 2006 (through March 17, 2006)		1.76		1.73


	Period		Average
	end		rate⁽¹⁾		High		Low

Year ended September 30,
2001		1.47		1.44		1.50		1.37
2002		1.56		1.48		1.58		1.41
Period ended December 31,
2003		1.78		1.63		1.78		1.54
Year ended December 31,
2004		1.93		1.84		1.95		1.75
2005		1.73		1.82		1.93		1.71


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

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

RISK FACTORS

This section describes some of the risks that could materially affect the Group’s business. The factors below should be considered in connection with any financial and forward-looking information in this Form 20-F and the cautionary note regarding forward-looking statements contained on pages 5 and 6.

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


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

An event that materially damages the reputation of one or more of the Group’s brands and/or failure to sustain the appeal of the Group’s brands to its customers could have an adverse impact on the value of that brand and subsequent revenues from that brand or business.

In addition, the value of the Group’s brands is influenced by a number of other factors including consumer preference and perception, commoditisation (whereby the price/quality becomes relatively more important than brand identifications), failure by the Group or its franchisees to ensure compliance with the significant regulations applicable to hotel operations (including fire and life safety requirements), or other factors affecting consumers’ willingness to purchase goods and services, including any factor which adversely affects the reputation of those brands.

In particular, the extent to which the Group is able to enforce adherence to its operating and quality standards, or the significant regulations applicable to hotel operations, pursuant to its management and franchise contracts may further impact brand reputation or customer perception and therefore the value of the hotel brands.

Given the importance of brand recognition to the Group’s business, the Group has invested considerable effort in protecting its intellectual property, including by registration of trademarks and domain names. If the Group is unable to protect its intellectual property, any infringement or misappropriation could materially harm its future financial results and ability to develop its business.


	*The Group is exposed to a variety of risks related to identifying, securing and retaining management and franchise agreements*

The Group’s growth strategy depends on its success in identifying, securing and retaining management and franchise agreements. Competition with other hotel companies may generally reduce the number of suitable management, franchise and investment opportunities offered to the Group, and increase the bargaining power of property owners seeking to engage a manager or become a franchisee. The terms of new management or franchise agreements may not be as favourable as current arrangements and the Group may not be able to renew existing arrangements on the same terms.

There can also be no assurance that the Group will be able to identify, retain or add franchisees to the Group system or to secure management contracts. For example, the availability of suitable sites, planning and other local regulations or the availability of finance may all restrict the supply of suitable hotel development opportunities under franchise or management agreements. There are also risks that significant franchisees or groups of franchisees may have interests that conflict, or are not aligned, with those of the Group. In connection with entering into management or franchise agreements, the Group may be required to make investments in or guarantee the obligations of third parties or guarantee minimum income to third parties. Changes in legislation or regulatory changes may be implemented that have the effect of favouring franchisees relative to brand owners.


	*The Group is exposed to the risks of political and economic developments*

These include the risks of global and regional adverse political, economic and financial market developments, including recession, inflation and currency fluctuations that could lower revenues and reduce income. A recession would adversely affect room rates and/or occupancy levels and other income-generating activities resulting in deterioration of results of operations and potentially affecting the value of properties in affected economies.

Further political or economic factors or regulatory action could effectively prevent the Group from receiving profits from, or selling its investments in, certain countries, or otherwise adversely affect operations. For example, changes to tax rates or legislation in the jurisdictions in which the Group operates could decrease the proportion of profits the Group is entitled to retain, or the Group’s interpretation of various tax laws and regulations may prove to be incorrect, resulting in higher than expected tax charges. In addition, fluctuations in currency exchange rates between sterling, the currency in which the Group reports its financial statements, and the US dollar and other currencies in which the Group’s international operations or investments do business, could adversely affect the Group’s reported earnings and the value of its business. Fluctuations of this type have been experienced over recent years with the significant strengthening of the pound against the dollar. As the Group’s profits have become increasingly weighted towards North America, such fluctuations may have greater impact on the Group’s reported results.


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

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


	*The Group is exposed to certain risks in relation to technology and systems*

To varying degrees, the Group is reliant upon certain technologies and systems (including Information Technology systems) for the running of its business, particularly those which are highly integrated with business processes, and disruption to those technologies or systems could adversely affect the efficiency of the business, notwithstanding business continuity or disaster recovery processes. The Group may have to make substantial additional investments in new technologies or systems to remain competitive. Failing to keep pace with developments in technologies or systems may put the Group at a competitive disadvantage. The technologies or systems that the Group chooses may not be commercially successful or the technology or system strategy employed may not be sufficiently aligned to the needs of the business or responsive to changes in business strategy. As a result, the Group could lose customers, fail to attract new customers or incur substantial costs or face other losses. Additionally, failure to develop an appropriate e-commerce strategy and select the right partners could erode the Group’s market share.


	*The Group may face difficulties insuring its business*

Historically, the Group has maintained insurance at levels determined by it to be appropriate in light of the cost of cover and the risk profiles of the business in which it operates. However, forces beyond the Group’s control including market forces, may limit the scope of coverage the Group can obtain as well as the Group’s ability to obtain coverage at reasonable rates. Other forces beyond the Group’s control, such as terrorist attacks or natural disasters may be uninsurable or simply too expensive to insure against. Inadequate or insufficient insurance could expose the Group to large claims or could result in the loss of capital invested in properties as well as the anticipated future revenue from properties, and could leave the Group responsible for guarantees, debt or other financial obligations related to the property.


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

The future operating results of the Group could be adversely affected by industry over-capacity (by number of rooms) and weak demand or other differences between planning assumptions and actual operating conditions. Reductions in room rates and occupancy levels would adversely impact the results of operations of the Group.


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

The room rates and occupancy levels of the Group could be adversely impacted by events that reduce domestic or international travel, such as actual or threatened acts of terrorism or war, epidemics (such as SARS and avian flu), travel-related accidents, travel-related industrial action, increased transportation and fuel costs and natural disasters resulting in reduced worldwide travel or other local factors impacting individual hotels. A decrease in the demand for hotel rooms as a result of such events may have an adverse impact on the Group’s operations and financial results. In addition, inadequate preparedness, contingency planning or recovery capability in relation to a major incident or crisis may prevent operational continuity and consequently impact the value of the brand or the reputation of the Group.


	*The Group is reliant upon its proprietary reservation system and is exposed to the risk of failures in the system and increased competition in reservation infrastructure*

The value of the brands of the Group is partly derived from the ability to drive reservations through its proprietary HolidexPlus reservation system, an electronic booking and delivery channel directly linked to travel agents, hotels and internet networks. Inadequate disaster recovery arrangements, or inadequate continued investment in this technology, leading to loss of key communications linkages, particularly in relation to HolidexPlus, internet reservation channels and other key parts of the IT infrastructure for a prolonged period, or permanently, may result in significant business interruption and subsequent impact on revenues.

The Group is also exposed to the risk of competition from third-party intermediaries who provide reservation infrastructure. In particular, any significant increase in the use of these reservation channels in preference to proprietary channels may impact the Group’s ability to control the supply, presentation and price of its room inventory.


	*The Group may experience a lack of selected development opportunities*

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


	*The Group is exposed to the risk of litigation*

The Group could be at risk of litigation from its guests, customers, joint venture partners, suppliers, employees, regulatory authorities, franchisees and/or the owners of hotels managed by it for breach of its contractual or other duties. Claims filed in the US may include requests for punitive damages as well as compensatory damages. Exposure to litigation or fines imposed by regulatory authorities may affect the reputation of the Group even though the monetary consequences are not significant.


	*The Group is exposed to a variety of risks associated with its ability to borrow and satisfy debt covenants*

The Group is reliant on having access to borrowing facilities to meet its expected capital requirements and to maintain an efficient balance sheet. The majority of the Group’s borrowing facilities are only available if the financial covenants in the facilities are complied with. If the Group is not in compliance with the covenants, the lenders may demand the repayment of the funds advanced. If the Group’s financial performance does not meet market expectations it may not be able to refinance its existing facilities on terms

it considers favourable. The availability of funds for future financing is in part dependent on conditions and liquidity in the capital markets.


	*The Group is required to comply with data privacy regulations*

Existing and emerging data privacy regulations limit the extent to which the Group can use customer information for marketing or promotional purposes. Compliance with these regulations in each jurisdiction in which the Group operates may require changes in marketing strategies and associated processes which could increase operating costs or reduce the success with which products and services can be marketed to existing or future customers. In addition, non-compliance with privacy regulations may result in fines, damage to reputation or restrictions on the use or transfer of information.


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

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

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

The trustees of the UK defined benefits plans can demand increases to the contribution rates relating to the funding of those pension plans, which would oblige the relevant members of the Group to contribute extra amounts to such pension funds. The trustees must consult the plans’ actuary and principal employer before exercising this power. In practice, contribution rates are agreed between the Group and the trustees on actuarial advice, and are set for three-year terms. The last such review was as at March 31, 2004. As at March 17, 2006, being the latest practicable date prior to publication of this document, the Directors are not aware of any circumstances that would cause the trustees to deem it necessary to unilaterally increase the contribution rates.


ITEM 4.	*INFORMATION ON THE COMPANY*

SUMMARY


	*Group Overview*

The Group is a worldwide owner, operator and franchisor of hotels and resorts. Through its various subsidiaries it owned, managed, leased or franchised over 3,600 hotels and 537,000 guest rooms in nearly 100 countries and territories around the world, as at December 31, 2005. The Group’s brands include InterContinental Hotels & Resorts, Crowne Plaza Hotels & Resorts, Holiday Inn Hotels & Resorts, Holiday Inn Express, Staybridge Suites, Candlewood Suites and Hotel Indigo. The Group also manages the hotel loyalty program, Priority Club Rewards.

With the disposal of the Group’s interests in Britvic, a manufacturer and distributor of soft drinks in the United Kingdom, by way of an initial public offering (“IPO”) in December 2005, the Group is now focused solely on hotel franchising, management and ownership.

operates third-parties’ hotels, and franchise and other fees paid under franchise agreements and (ii) until December 14, 2005, the manufacture and distribution of soft drinks.

On March 17, 2006, InterContinental Hotels Group PLC had a market capitalization of approximately £3.9 billion, and was included in the list of FTSE 100 companies, a list of the 100 largest companies by market capitalization on the London Stock Exchange. Following a capital restructuring in June 2005, InterContinental Hotels Group PLC became the holding company for the Group. Six Continents Limited (formerly Six Continents PLC), which was formed in 1967, is the principal subsidiary company.

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

InterContinental Hotels Group PLC

67 Alma Road

Windsor

Berkshire SL4 3HD

Tel: +44 (0) 1753 410 100

Internet address: www.ihgplc.com

InterContinental Hotels Group PLC was incorporated in Great Britain on May 21, 2004 and registered in, and operates under, the laws of England and Wales. Operations undertaken in countries other than England and Wales are under the laws of those countries in which they reside.


	*Group History and Recent Developments*

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

On April 15, 2003, following shareholder and regulatory approval, Six Continents PLC (as it then was) separated into two new listed groups, InterContinental Hotels Group PLC (as it then was) comprising the Hotels and Soft Drinks businesses and Mitchells & Butlers plc comprising the Retail and Standard Commercial Property Developments businesses (the “Separation”).


	*Acquisitions and Dispositions*

Since the Separation in April 2003, the Group has sold or announced the sale of 168 hotels for aggregate proceeds of approximately £2.5 billion (see Figure 1). Of these 168 hotels, 150 have remained in the IHG system under Group brands through either franchise or management agreements. As of March 17, 2006 the Group had on the market a further seven InterContinental hotels all in Continental Europe. The following are the more significant portfolio transactions:

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

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

On December 17, 2004, the Group announced the sale of 13 hotels, in the United States, Puerto Rico and Canada, to HPT. The total consideration payable by HPT for the sale amounted to $425 million, before transaction costs, equivalent to net book value, of which $395 million was received upon the main completion of the sale on February 16, 2005, with the remaining $30 million received upon the completion of the sale of the InterContinental Hotel in Austin, Texas on June 1, 2005. The Group continues to manage the hotels

(other than the InterContinental in Puerto Rico) under a 25 year management contract with HPT. The Group has two consecutive options to extend the contracts for 15 years each, giving a total potential contract length of up to 55 years. The InterContinental San Juan in Puerto Rico has been leased back to the Group under a 25 year lease with two consecutive options to extend the lease for 15 years each, giving a total potential lease length of up to 55 years.

On February 28, 2005, the Group announced the acquisition by Strategic Hotels Capital, Inc. (“SHC”) of 85% interests in two hotels in the United States. IHG received approximately $287 million in cash before transaction costs, based upon a total value for both hotels of $303.5 million, $12 million in excess of net book value. This transaction completed on April 1, 2005. IHG continues to manage these hotels under a 20 year management contract with three options to extend for a further 10 years each.

On March 10, 2005, the Group announced the sale of 73 hotels in the United Kingdom to LRG Acquisition Limited (“LRG”), a consortium comprising Lehman Brothers Real Estate Partners, GIC Real Estate and Realstar Asset Management. The transaction completed on May 24, 2005, with IHG receiving an initial £960 million in cash, before transaction costs, with a further £40 million to be received subject to meeting performance targets over the following three years. IHG entered into a management agreement on completion of this transaction with LRG for 63 of the hotels and currently operates a further five hotels under a temporary management agreement. One of the 63 hotels managed by IHG was removed from the IHG system on March 14, 2006.

On September 1, 2005 the Group announced the sale of nine hotels in Australia and New Zealand to Eureka Funds Management Ltd (“Eureka”) for A$390 million in cash, before transaction costs, and the sale of the Holiday Inn, Suva, to a subsidiary of Fiji National Provident Fund (“FNPF”) for A$15 million in cash. Both transactions completed by October 31, 2005. IHG entered into management agreements on completion of these transactions with Eureka and FNPF for these hotels.

On September 8, 2005 the Group announced the sale of InterContinental Hotel Paris for € 315 million. The transaction completed on November 1, 2005 at which time the hotel was removed from the IHG system.

In a number of smaller transactions during 2005, the Group completed the sale of a further 13 hotels for proceeds of approximately £159 million.

On January 25, 2006, the Group announced the sale to HPT of two hotels in the Americas. On March 13, 2006, the Group announced the sale to Westbridge Hospitality Fund LP, (“Westbridge”), of 24 hotels in the Europe, Middle East and Africa (“EMEA”) region. Westbridge is a joint venture between CADIM, a Montreal-based pension fund manager, and Westmont Hospitality, one of IHG’s largest franchisees. The portfolio has been sold for €352 million marginally above net asset value. IHG’s share of the proceeds is €345.2 million, before transaction costs, in cash and debt assumption, and the balance of € 6.8 million relates to third-party minority interests. IHG will franchise the hotels to the joint venture under 15 year franchise contracts.

The Group has a further seven hotels in the EMEA region on the market. The book value of these hotels is approximately £300 million and they constitute the final tranche of hotels that IHG had previously announced it would sell.

The asset disposal program which commenced in 2003 has significantly reduced the capital intensity of the Group whilst largely retaining the hotels in the IHG system through management and franchise agreements.

Capital expenditure in 2005 totaled £183 million compared with £257 million in 2004. Capital expenditure for Hotels totaled £136 million, lower than 2004 as the Group continued its asset disposal program. Capital expenditure in 2005 for Hotels included the InterContinental London and Holiday Inn Munich refurbishments and a rolling rooms refurbishment program at the InterContinental Hong Kong.

At December 31, 2005 capital committed, being contracts placed for expenditure on property, plant and equipment not provided for in the financial statements, totaled £76 million.

Following the completion of the expected hotel disposals in 2006, the Group will own 22 hotels.

FIGURE 1


Asset disposal program detail	Number of hotels		Proceeds		Net book value

			(£ billion)
Disposed to date		168		2.5		2.5
On the market		7		—		0.3
Remaining hotels		22		—		0.9


	*Return of Funds*

Since the Separation in April 2003, the Group has announced the return of £2.75 billion of funds to shareholders by way of special dividends, share repurchase programs and capital returns (see Figure 2).

In 2005, 30.6 million shares were repurchased at an average price of 672 pence per share (total £206 million) as part of the second £250 million share repurchase program. On September 8, 2005, IHG announced a further £250 million share repurchase program to commence on completion of the second program. The precise timing of share purchases will be dependent upon, amongst other things, market conditions. By March 17, 2006, a total of 33.95 million shares had been repurchased under the second repurchase program at an average price per share of 686 pence per share (approximately £233 million). Purchases are made under the existing authority from shareholders which will be renewed at the Company’s Annual General Meeting. Any shares repurchased under these programs will be canceled.

Information relating to the purchases of equity securities can be found in Item 16E.

IHG returned a further £996 million to shareholders in July 2005 following its capital restructuring which enabled it to release the proceeds received in connection with the hotels disposals. Under the capital restructuring, shareholders received 11 new ordinary shares and £24.75 cash in exchange for every 15 existing ordinary shares held on June 24, 2005.

On March 2, 2006, IHG announced that it intends to pay a £500 million special dividend to shareholders during the second quarter of 2006.

FIGURE 2


Return of funds program	Timing		Total return		Returned to date⁽ⁱ⁾		Still to be returned

					(£ million)
£501 million special dividend		Paid December 2004		501		501		Nil
First £250 million share buyback		Completed in 2004		250		250		Nil
Second £250 million share buyback		Ongoing		250		233		17
£996 million capital return		Paid 8 July 2005		996		996		Nil
Third £250 million share buyback		Yet to commence		250		—		250
£500 million special dividend		Second quarter 2006		500		—		500

Total				2,747		1,980		767

(i) As at March 17, 2006.


	*Hotels*

Hotels owns a number of hotel brands including InterContinental Hotels & Resorts, Crowne Plaza Hotels & Resorts, Holiday Inn Hotels & Resorts, Holiday Inn Express (or Express by Holiday Inn outside of the Americas) (“Express”), Staybridge Suites, Candlewood Suites and Hotel Indigo, which at December 31,

2005 comprised over 3,600 franchised, managed, owned or leased hotels and 537,000 guest rooms in nearly 100 countries and territories.


	*Soft Drinks*

In December 2005 IHG disposed of its interests in Britvic, one of the two leading manufacturers of soft drinks by value and volume in Great Britain, by way of IPO. IHG received aggregate proceeds of approximately £371 million (including two additional dividends, one of £47 million received in November 2005 and another of £89 million received in May 2005, but before any commissions or expenses). The Group results include the results of Soft Drinks for the period up until the IPO of Britvic on December 14, 2005.

SEGMENTAL INFORMATION


	*Geographic Segmentation*

The following table shows revenue and operating profit before other operating income and expenses in pounds sterling and percentage by geographical area, for the following periods: year ended December 31, 2005 and year ended December 31, 2004.


		Year ended			Year ended
		December 31,			December 31,
		2005			2004

		(£ million)
Revenue⁽¹⁾⁽⁴⁾
	Americas		400			319
	Europe, the Middle East and Africa		326			301
	Asia Pacific		84			71
	Central		42			40

Continuing operations			852			731

	Americas		45			176
	Europe, the Middle East and Africa		956			1,234
	Asia Pacific		57			63

Discontinued operations⁽³⁾			1,058			1,473

Total			1,910			2,204

Operating profit before other operating income and expenses⁽¹⁾⁽²⁾
	Americas		187			150
	Europe, the Middle East and Africa		47			24
	Asia Pacific		21			17
	Central		(65	)		(57	)

Continuing operations			190			134

	Americas		11			23
	Europe, the Middle East and Africa		127			182
	Asia Pacific		11			7

Discontinued operations⁽³⁾			149			212

Total			339			346

Footnotes on page 21.


		Year ended			Year ended
		December 31,			December 31,
		2005			2004

		(%)
Revenue
	Americas		20.9			14.5
	Europe, the Middle East and Africa		17.1			13.7
	Asia Pacific		4.4			3.2
	Central		2.2			1.8

Continuing operations			44.6			33.2

	Americas		2.4			8.0
	Europe, the Middle East and Africa		50.0			56.0
	Asia Pacific		3.0			2.8

Discontinued operations			55.4			66.8

Total			100.0			100.0

Operating profit before other operating income and expenses
	Americas		55.2			43.4
	Europe, the Middle East and Africa		13.9			6.9
	Asia Pacific		6.2			4.9
	Central		(19.2	)		(16.5	)

Continuing operations			56.1			38.7

	Americas		3.2			6.6
	Europe, the Middle East and Africa		37.5			52.7
	Asia Pacific		3.2			2.0

Discontinued operations			43.9			61.3

Total			100.0			100.0


(1)	The results of overseas operations have been translated into sterling at weighted average rates of exchange for the period. In the case of the US dollar, the translation rate is 2005: £1 = $1.83; (2004: £1 = $1.82). In the case of the euro, the translation rate is 2005: £1 = €1.46; (2004: £1 = € 1.47).

(2)	Operating profit before other operating income and expenses does not include other operating income and expenses for all periods presented. Other operating income and expenses (charge unless otherwise noted) by region are the Americas (2005: £5 million; 2004: £15 million credit); Europe, the Middle East and Africa (2005: £12 million; 2004: £57 million); and Asia Pacific (2005: £5 million; 2004: £7 million).

(3)	Europe, the Middle East and Africa includes discontinued operations for Hotels (2005: £57 million; 2004: £105 million) and Soft Drinks (2005: £70 million; 2004: £77 million). The Americas and Asia Pacific discontinued operations all relate to Hotels. Hotels discontinued operations are all owned and leased.

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


	*Activity Segmentation*

The following table shows revenue and operating profit before other operating income and expenses in pounds sterling by activity and the percentage contribution of each activity for the following periods: year ended December 31, 2005 and year ended December 31, 2004.


			Year ended			Year ended
			December 31,			December 31,
			2005			2004

			(£ million)
Revenue⁽¹⁾
	Hotels
		Americas		400			319
		Europe, the Middle East and Africa		326			301
		Asia Pacific		84			71
		Central⁽⁴⁾		42			40

Continuing operations				852			731

	Hotels⁽³⁾
		Americas		45			176
		Europe, the Middle East and Africa		285			528
		Asia Pacific		57			63
	Soft Drinks			671			706

Discontinued operations				1,058			1,473

Total				1,910			2,204

Operating profit before other operating income and expenses⁽¹⁾⁽²⁾
	Hotels
		Americas		187			150
		Europe, the Middle East and Africa		47			24
		Asia Pacific		21			17
		Central⁽⁴⁾		(65	)		(57	)

Continuing operations				190			134

	Hotels⁽³⁾
		Americas		11			23
		Europe, the Middle East and Africa		57			105
		Asia Pacific		11			7
	Soft Drinks			70			77

Discontinued operations				149			212

Total				339			346

Footnotes on page 23.


			Year ended			Year ended
			December 31,			December 31,
			2005			2004

			(%)
Revenue
	Hotels
		Americas		20.9			14.5
		Europe, the Middle East and Africa		17.1			13.7
		Asia Pacific		4.4			3.2
		Central		2.2			1.8

Continuing operations				44.6			33.2

	Hotels
		Americas		2.4			8.0
		Europe, the Middle East and Africa		14.9			24.0
		Asia Pacific		3.0			2.8
	Soft Drinks			35.1			32.0

Discontinued operations				55.4			66.8

Total				100.0			100.0

Operating profit before other operating income and expenses
	Hotels
		Americas		55.2			43.4
		Europe, the Middle East and Africa		13.9			6.9
		Asia Pacific		6.2			4.9
		Central		(19.2	)		(16.5	)

Continuing operations				56.1			38.7

	Hotels
		Americas		3.2			6.6
		Europe, the Middle East and Africa		16.8			30.3
		Asia Pacific		3.2			2.0
	Soft Drinks			26.7			22.4

	Discontinued operations			43.9			61.3

Total				100.0			100.0


(1)	The results of overseas operations have been translated into sterling at weighted average rates of exchange for the period. In the case of the US dollar, the translation rate is 2005: £1 = $1.83 (2004: £1 = $1.82). In the case of the euro, the translation rate is 2005: £1 = €1.46 (2004: £1 = € 1.47).

(2)	Operating profit before other operating income and expenses does not include other operating income and expenses for all periods presented. Other operating income and expenses items (charge unless otherwise noted) by business segment are the Americas (2005: £7 million; 2004: £15 million credit); Europe, the Middle East and Africa (2005: £10 million; 2004: £57 million); and Asia Pacific (2005: £5 million; 2004: £7 million).

(3)	Hotels discontinued operations are all owned and leased.

(4)	Central relates to global functions. Revenue relates to Holidex fee income.

HOTELS


	*Overview*

InterContinental Hotels Group is an international hotel business which owns a portfolio of well-recognized and respected hotel brands, including InterContinental Hotels & Resorts, Crowne Plaza Hotels & Resorts, Holiday Inn Hotels & Resorts, Holiday Inn Express (Express by Holiday Inn outside the Americas), Staybridge Suites, Candlewood Suites and Hotel Indigo, with 3,606 franchised, managed, owned and leased hotels and 537,533 guest rooms across nearly 100 countries and territories as at December 31, 2005. Approximately 97% of the Group’s rooms are operated under managed and franchised models.

The Group operates in a global market, providing hotel rooms to guests. Total room capacity in hotels and similar establishments worldwide is estimated at 18.4 million rooms. This has been growing at approximately 3% per annum over the last five years. The hotel market is geographically concentrated with 12 countries accounting for two-thirds of worldwide hotel room supply. The Group has a leadership position (top three by room numbers) in six of these 12 countries — United States, United Kingdom, Mexico, Canada, Greater China and Australia — more than any other major hotel company.

The hotel market is, however, a fragmented market with the four largest companies controlling only 11% of the global hotel room supply and the ten largest controlling less than 20%. The Group is the largest of these companies (by room numbers), with a 3% market share. The major competitors in this market include other major global hotel companies, smaller hotel companies and independent hotels.

Within the global market, a relatively low proportion of hotel rooms are branded (see Figure 3), but there has been an increasing trend towards branded rooms and market research company, Mintel, estimates that the proportion of branded rooms in Europe has grown from 15% in 2000 to 25% in 2004. Larger branded companies are therefore gaining market share at the expense of smaller companies and independent hotels. The Group is well positioned to benefit from this trend. Hotel owners are increasingly recognising the benefits of belonging to a branded portfolio, particularly an extended brand family like the Group’s which can offer various brands to suit different opportunities owners may have. Furthermore, hotel ownership is increasingly being separated from hotel branding and this requires hotel owners to use third-parties like the Group to operate or brand their hotels.

FIGURE 3


Percentage of branded hotel rooms by region	2004

North America		65	%
Europe		25	%
South America		20	%
Middle East		25	%
East Asia		25	%

Source: Mintel

US market data shows a steady increase in demand in the hotel market, broadly in line with Gross Domestic Product, and shows growth of approximately 1 – 1.5% per annum in real terms since 1967, driven by a number of underlying trends:


	•	demographics — as the population ages, increased leisure time drives more travel and hotel visits;

	•	disposable income rising as the global population becomes older and wealthier;

	•	travel volumes increasing as low cost airlines grow rapidly;

	•	globalization of trade and tourism;


	•	the increasing affluence and freedom to travel of the Chinese middle class; and

	•	brand preference amongst consumers is increasing.

Suppressing this demand are potential negative trends including increased terrorism, health and environmental considerations and economic factors such as rising oil prices. Currently, however, there are no indications that demand is being significantly affected by these factors.

Supply growth in the industry is cyclical, averaging between zero and 5% per annum historically. The Group’s profit is to a large extent protected from supply pressure due to its model of third-party ownership of hotels under Group management and franchise contracts, although periods of extreme or prolonged pressure may adversely affect the Group.


	*Operations*

The Group currently operates through three distinct business models which offer different growth, return, risk and reward opportunities. The models are summarized as follows:

franchised, where Group companies neither own nor manage the hotel, but license the use of a Group brand and provide access to reservation systems, loyalty schemes and know-how. The Group derives revenues from a brand royalty or licensing fee, based on a percentage of room revenue. At the end of 2005, 75% of the Group’s rooms were franchised, with 87% of rooms in the Americas operating under this model.

managed, where in addition to licensing the use of a Group brand, a Group company manages the hotel for third-party owners. The Group derives revenues from base and incentive management fees and provides the system infrastructure necessary for the hotel to operate. Management contract fees are linked to total hotel revenue and may have an additional incentive fee linked to profitability and/or cash flow. The terms of these agreements vary, but are often long term (for example, 10 years or more). The Group company’s responsibilities under the management agreement typically include hiring, training and supervising the managers and employees that operate the hotels under the relevant brand standards. The Group company prepares annual budgets for the hotels that it manages, and the property owners are responsible for funding periodic maintenance and repair on a basis to be agreed with the Group company. In order to gain access to central reservation systems, global and regional brand marketing and brand standards and procedures the owners are typically required to make a further contribution. In certain cases, property owners may require performance targets, with consequences for management fees and sometimes the contract itself (including on occasion, the right of termination) if those targets are not met. At the end of 2005, 22% of the Group’s rooms were operated under management contracts.

owned and leased, where a Group company both owns (or leases) and operates the hotel and, in the case of ownership, takes all the benefits and risks associated with ownership. The Group has been selling a significant proportion of its owned and leased portfolio and in future expects to own only hotels where it is considered strategically important to do so. Rooms owned or leased by the Group at the end of 2005 represented 3% of the Group’s rooms.

In addition, the Group also makes equity investments in hotel ownership entities, where its equity investment is less than 100% and it participates in a share of the benefits and risks of ownership. A management contract is generally entered into as well as the equity investment.

The following table shows the number of hotels and rooms owned, managed or franchised by IHG at December 31, 2005, December 31, 2004 and December 31, 2003.


					Management
					contracts and joint
	Owned or leased				ventures				Franchised				Total

	No. of		No. of		No. of		No. of		No. of		No. of		No. of		No. of
	hotels		rooms		hotels		rooms		hotels		rooms		hotels		rooms

2005		55		15,485		504		121,249		3,047		400,799		3,606		537,533
2004		166		38,420		403		98,953		2,971		396,829		3,540		534,202
2003		171		39,459		423		103,440		2,926		393,419		3,520		536,318

The Group sets quality and service standards for all of its hotel brands (including those operated under management contract or franchise arrangements) and operates a customer satisfaction and hotel quality measurement system to ensure those standards are met or exceeded. The quality measurement system includes an assessment of both physical property and customer service standards.


	*Strategy*

The Group’s strategy is to become the preferred hotel company for guests and owners, by building the strongest operating system in the industry, focused on the biggest markets and segments where scale really counts.

The Group has four stated strategic priorities:


	•	brand performance — to operate a portfolio of brands attractive to both owners and guests, that have clear market positions in relation to competitors;

	•	excellent hotel returns — to generate higher owner returns through revenue delivery and improved operating efficiency;

	•	market scale and knowledge — to accelerate profitable growth in the largest markets where the Group currently has scale; and

	•	aligned organization — to create a more efficient organization with strong core capabilities.

Executing the four strategic priorities is designed to achieve:


	•	organic growth, from June 2005, of 50,000 to 60,000 net rooms by the end of 2008 taking total room numbers from approximately 538,000 to approximately 588,000 to 598,000;

	•	out-performance of Total Shareholder Return (“TSR”) against a competitor set; and

	•	improved Return on Capital Employed (“ROCE”).

Growth is expected to come predominantly from managing and franchising rather than owning hotels. The managed and franchised model is attractive because it enables the Group to achieve its goals with limited capital. With a relatively fixed cost base, such growth yields high incremental margins for the Group, and is primarily how the Group has grown to date. For this reason, the Group has executed a disposal program of its owned hotels, releasing capital and enabling returns of funds to shareholders (see “Item 3. Key Information — Risk Factors”).

The main characteristic of the managed and franchised business model on which the Group has focused is that it is highly cash generative, with high ROCE. Over 3,500 hotels operating under Group brands are managed or franchised.

The Group aims to deliver its growth targets through one of the strongest operating systems in the industry which includes:


	•	a strong brand portfolio across the major markets, including two iconic brands: InterContinental and Holiday Inn;


	•	market coverage — a presence in nearly 100 countries and territories;

	•	hotel distribution — 3,606 hotels, 537,533 rooms, 126 million guest stays per annum;

	•	IHG global reservation channels delivering over $4.8 billion of rooms sales value to owners of Group managed hotels, franchisees and to the Group itself (“global system rooms sales”) in 2005, including $1.7 billion global system rooms sales from the internet. IHG reservation systems take over 22 million calls per annum;

	•	A loyalty program, Priority Club Rewards, contributing $3.8 billion of global system rooms sales; and

	•	A strong web presence — holiday-inn.com is the industry’s most visited site, with 75 million total site visits per annum.

With a clear target for rooms’ growth and many brands with significant market premiums offering excellent returns for owners, the Group is well placed to execute its strategy and achieve its goals.


	*Segmental Results*

The following table shows revenue and operating profit before other operating income and expenses in pounds sterling of the IHG continuing Hotels business by activity and the percentage contribution of each activity for the following periods: year ended December 31, 2005 and year ended December 31, 2004.


			Year ended			Year ended
			December 31,			December 31,
			2005			2004

			(£ million)
Continuing revenue⁽¹⁾⁽²⁾
	Americas
		Owned and leased		123			94
		Managed		64			30
		Franchised		213			195

				400			319
	EMEA
		Owned and leased		236			231
		Managed		55			43
		Franchised		35			27

				326			301
	Asia
		Owned and leased		56			47
		Managed		25			21
		Franchised		3			3

				84			71
	Central⁽³⁾			42			40

Total				852			731

Continuing operating profit before other operating income and expenses⁽¹⁾⁽²⁾
	Americas
		Owned and leased		15			4
		Managed		20			6
		Franchised		186			167
		Regional overheads		(34	)		(27	)

				187			150
	EMEA
		Owned and leased		11			2
		Managed		31			24
		Franchised		26			21
		Regional overheads		(21	)		(23	)

				47			24
	Asia Pacific
		Owned and leased		10			9
		Managed		16			14
		Franchised		3			2
		Regional overheads		(8	)		(8	)

				21			17
	Central⁽³⁾			(65	)		(57	)

Total				190			134

Footnotes on page 29.


			Year ended			Year ended
			December 31,			December 31,
			2005			2004

			(%)
Continuing revenue
	Americas
		Owned and leased		14.4			12.8
		Managed		7.5			4.1
		Franchised		25.0			26.7

				46.9			43.6
	EMEA
		Owned and leased		27.7			31.6
		Managed		6.5			5.9
		Franchised		4.1			3.7

				38.3			41.2
	Asia Pacific
		Owned and leased		6.6			6.4
		Managed		2.9			2.9
		Franchised		0.4			0.4

				9.9			9.7
	Central⁽³⁾			4.9			5.5

Total				100.0			100.0

Continuing operating profit before other operating income and expenses
	Americas
		Owned and leased		7.9			3.0
		Managed		10.5			4.5
		Franchised		97.9			124.6
		Regional overheads		(17.9	)		(20.1	)

				98.4			112.0
	EMEA
		Owned and leased		5.8			1.5
		Managed		16.3			17.9
		Franchised		13.7			15.7
		Regional overheads		(11.1	)		(17.2	)

				24.7			17.9
	Asia Pacific
		Owned and leased		5.3			6.7
		Managed		8.4			10.4
		Franchised		1.6			1.5
		Regional overheads		(4.2	)		(6.0	)

				11.1			12.6
	Central⁽³⁾			(34.2	)		(42.5	)

Total				100.0			100.0


(1)	The results of overseas operations have been translated into sterling at weighted average rates of exchange for the period. In the case of the US dollar, the translation rates are 2005: £1 = $1.83; (2004: £1 = $1.82).

(2)	Amounts are reported by origin.

(3)	Central relates to global functions. Revenue relates to Holidex fee income.

The following table shows revenue and operating profit in US dollars of the IHG continuing Hotels business by activity and the percentage contribution of each activity for the following periods: year ended December 31, 2005 and year ended December 31, 2004.


			Year ended			Year ended
			December 31,			December 31,
			2005			2004

			($ million)
Continuing revenue⁽¹⁾
	Americas
		Owned and leased		224			171
		Managed		118			55
		Franchised		389			357

				731			583
	EMEA
		Owned and leased		431			421
		Managed		100			78
		Franchised		64			49

				595			548
	Asia Pacific
		Owned and leased		102			86
		Managed		45			38
		Franchised		6			5

				153			129
	Central⁽²⁾			76			73

Total				1,555			1,333

Continuing operating profit before other operating income and expenses⁽¹⁾
	Americas
		Owned and leased		28			7
		Managed		36			12
		Franchised		340			304
		Regional overheads		(62	)		(50	)

				342			273
	EMEA
		Owned and leased		20			4
		Managed		57			44
		Franchised		47			38
		Regional overheads		(38	)		(42	)

				86			44
	Asia Pacific
		Owned and leased		19			17
		Managed		29			25
		Franchised		5			3
		Regional overheads		(15	)		(15	)

				38			30
	Central⁽²⁾			(119	)		(104	)

Total				347			243

Footnotes on page 31.


			Year ended			Year ended
			December 31,			December 31,
			2005			2004

			(%)
Continuing revenue
	Americas
		Owned and leased		14.4			12.8
		Managed		7.6			4.1
		Franchised		25.0			26.8

				47.0			43.7
	EMEA
		Owned and leased		27.7			31.6
		Managed		6.4			5.8
		Franchised		4.1			3.7

				38.2			41.1
	Asia Pacific
		Owned and leased		6.6			6.4
		Managed		2.9			2.9
		Franchised		0.4			0.4

				9.9			9.7
	Central⁽²⁾			4.9			5.5

Total				100.0			100.0

Continuing operating profit before other operating income and expenses
	Americas
		Owned and leased		8.1			2.9
		Managed		10.4			4.9
		Franchised		98.0			125.1
		Regional overheads		(17.9	)		(20.5	)

				98.6			112.4
	EMEA
		Owned and leased		5.8			1.7
		Managed		16.4			18.1
		Franchised		13.5			15.6
		Regional overheads		(11.0	)		(17.3	)

				24.7			18.1
	Asia
		Owned and leased		5.5			7.0
		Managed		8.4			10.3
		Franchised		1.4			1.2
		Regional overheads		(4.3	)		(6.2	)

				11.0			12.3
	Central⁽²⁾			(34.3	)		(42.8	)

Total				100.0			100.0


(1)	Amounts are reported by origin.

(2)	Central relates to global functions. Revenue relates to Holidex fee income.


	*Global System*

The Group supports revenue delivery into its hotels through its global reservation system and global loyalty program (Priority Club Rewards) which is paid for by assessments from each hotel in the Group. The elements of the global system include:

Priority Club Rewards: The Group operates the Priority Club Rewards loyalty program. Members enjoy a variety of privileges and rewards as they stay at the Group’s hotels around the world. IHG has alliances with over 40 airlines, which enable members to collect frequent flyer miles, and with external partners such as car hire companies and credit card companies, which provide exposure and access to IHG’s system. Global system rooms sales generated from Priority Club Rewards members was $3.8 billion and represented approximately 32% of IHG global system rooms sales.

Central Reservation System Technology: The Group operates the HolidexPlus reservation system. The HolidexPlus system receives reservation requests entered on terminals located at most of its reservation centers, as well as from global distribution systems operated by a number of major corporations and travel agents. Where local hotel systems allow, the HolidexPlus system immediately confirms reservations or indicates alternative accommodation available within IHG’s network. Confirmations are transmitted electronically to the hotel for which the reservation is made.

Reservation Call Centers: The Group operates 13 reservation centers around the world which enable it to sell in local languages in many countries and offer a high quality service to customers.

Internet: The Group introduced electronic hotel reservations in 1995. The Internet continues to be an important communications, branding and distribution channel for the Group’s sales. During fiscal 2005, the internet channel continued to show strong growth, with global system rooms sales booked through the internet increasing by 23% to $1.7 billion. Approximately 14% of IHG global system rooms sales is sold via the internet through various branded websites, such as www.intercontinental.com and www.holiday-inn.com, as well as certified third parties (up from 13% in 2004). IHG made further progress in 2005 in establishing standards for working with third-party intermediaries — on-line travel distributors — who sell or re-sell IHG hotel rooms via their internet sites. Under the standards, certified distributors are required to respect IHG’s trademarks, ensure reservations are guaranteed through an automated and common confirmation process, and clearly present fees to customers. By the end of 2005, IHG had certified most major third-party distributors including Travelocity, Travelocity Business, Priceline, Orbitz, Lastminute.com, Zuji, Hotel.de and HRS. About 86% of IHG global system rooms sales booked on the web is now booked directly through the Group’s own brand sites. Arabic and Hebrew language websites have been added to the Group’s seven local language websites already available.

The Group estimates that, during 2005, global system rooms sales booked through these reservation systems (which include company reservation centers, global distribution systems and internet reservations) rose by approximately 19% to $4.8 billion, and the proportion of IHG global system rooms sales booked through IHG’s reservation channels increased from 38% to 41%.


	*Sales and Marketing*

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

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


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

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


•	making the direct channels the best available; and

•	improving pricing structure.


	*Global Brands*


	Brands Overview

The Group’s portfolio includes six established and diverse brands and one new brand (Hotel Indigo). These brands cover several market segments and in the case of InterContinental, Crowne Plaza, Holiday Inn and Express, operate internationally. Staybridge Suites operates in the Americas and was launched in the United Kingdom in 2005. Candlewood Suites operates exclusively in the United States.


	December 31, 2005

Brands	Room numbers		Hotels

InterContinental		46,262		137
Crowne Plaza		65,404		235
Holiday Inn		267,816		1,435
Express		133,554		1,590
Staybridge Suites		9,915		87
Candlewood Suites		12,683		112
Hotel Indigo		497		3
Other⁽¹⁾		1,402		7
Total		537,533		3,606


(1)	Other comprises seven non-IHG branded hotels under IHG management.


	InterContinental


	Americas		Americas		EMEA		EMEA
	total		O & L		total		O & L		Asia Pacific

Average room rate $⁽¹⁾		141.55		224.83		167.10		234.37		154.07
Room numbers⁽²⁾		15,328		1,847		21,473		3,843		9,461


(1)	For the year ended December 31, 2005; quoted at constant US$ exchange rate. Owned and leased average room rate is for comparable InterContinental hotels.

(2)	As at December 31, 2005.

InterContinental is IHG’s global premium hotel brand. The brand aims to meet the tastes of discerning business and leisure travellers. InterContinental hotels are generally located in prime locations in major cities and key resorts around the world. There were 137 InterContinental hotels in 60 countries and territories which represented 8.6% of all of IHG’s hotel rooms as at December 31, 2005.

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

During 2005, seven new InterContinental hotels were added to the portfolio. After dispositions there was a net gain of five in the total number of InterContinental hotels.


	Crowne Plaza


	Americas		Americas		EMEA		EMEA
	total		O & L		total		O & L		Asia Pacific

Average room rate $⁽¹⁾		103.16		73.41		132.08		124.20		89.22
Room numbers⁽²⁾		37,074		293		16,031		2,063		12,299


(1)	For the year ended December 31, 2005; quoted at constant US$ exchange rate. Owned and leased average room rate is for comparable Crowne Plaza hotels.

(2)	As at December 31, 2005.

Crowne Plaza is IHG’s global upscale hotel brand which had grown to 235 hotels worldwide by December 31, 2005. Defined as “the Place to Meet”, the brand is targeted at the business guest, with a particular focus on executive meetings and business events. Mostly located in principal cities, the upscale Crowne Plaza hotels provide the high level of comfort, amenities, services, facilities and meeting space expected by business and leisure travellers of a full service hotel. Crowne Plaza represented 12% of IHG hotel rooms as at December 31, 2005.

Approximately 60% of the upscale Crowne Plaza hotels and resorts are franchised hotels. As at December 31, 2005, 57% of Crowne Plaza brand properties were in the Americas. The key competitors in this segment include Sheraton, Marriott, Hilton, Double-Tree, Wyndham and Radisson.

During 2005, 24 Crowne Plaza hotels were added to the portfolio while four were removed, resulting in a net increase of 20 hotels.


	Holiday Inn


	Americas		Americas		EMEA		EMEA
	total		O & L		total		O & L		Asia Pacific

Average room rate $⁽¹⁾		85.18		89.72		105.76		127.87		71.78
Room numbers⁽²⁾		195,004		1,882		50,944		3,031		21,868


(1)	For the year ended December 31, 2005; quoted at constant US$ exchange rate. Owned and leased average room rate is for comparable Holiday Inn hotels.

(2)	As at December 31, 2005.

Holiday Inn is one of the world’s most recognized hotel brands, with a global reputation for full service, comfort and value. Holiday Inn International was acquired in 1988, with the remaining North American business of Holiday Inn being acquired in 1990. The Holiday Inn brand is targeted at the mid-market guest and is the Group’s largest global hotel brand based on room numbers. The Holiday Inn brand continues to expand and evolve globally to provide convenient and productive facilities for business travellers as well as memorable holiday experiences for families.

There were 1,435 Holiday Inn hotels located in more than 70 countries and territories which represented 50% of all IHG’s hotel rooms as at December 31, 2005. The brand is predominantly franchised. As at December 31, 2005, 73% of the Holiday Inn branded hotels were located in the Americas.

During 2005, the Group sold 82 hotels in several transactions, retaining 78 under the Holiday Inn brand.


	Express


	Americas		EMEA		EMEA
	total		total		O & L		Asia Pacific

Average room rate $⁽¹⁾		80.65		96.86		77.37		47.70
Room numbers⁽²⁾		115,810		16,971		1,604		773


(1)	For the year ended December 31, 2005; quoted at constant US$ exchange rate. Owned and leased average room rate is for comparable Express hotels.

(2)	As at December 31, 2005.

Express is a rapidly growing, fresh and uncomplicated brand, offering limited-service comfort, convenience and good value. IHG recognized the need for a brand in this category in the early 1990s and subsequently developed Express to extend the reach of the Holiday Inn brand and enter the midscale limited service market. The brand aims to provide the room quality of midscale hotels where guests enjoy smart bedrooms, contemporary bathrooms and complimentary breakfast.

There were 1,590 Express hotels worldwide, which represented 25% of IHG’s hotel rooms as at December 31, 2005. Express is one of the largest brands in the US midscale limited service sector based on room numbers, and approximately 87% of the Express branded rooms are located in the Americas. Express hotels are almost entirely franchised. Express also has a solid and growing brand presence in the UK market where it faces competition from a variety of local market brands and independent hotels.

During 2005, 135 new Holiday Inn Express hotels were added to the portfolio, while 57 hotels were removed from the portfolio, resulting in a net gain of 78 hotels. A further 421 franchise agreements were signed, adding to the system pipeline.


	Staybridge Suites


	Americas
	total

Average room rate $⁽¹⁾		92.80
Room numbers⁽²⁾		9,915


(1)	For the year ended December 31, 2005; quoted at constant US$ exchange rate.

(2)	As at December 31, 2005.

Staybridge Suites is IHG’s organically developed long-stay upscale brand that offers guests a home away from home. The rooms offer more space than the typical hotel room, offering studios and one and two bedroom suites, complete with kitchens and living rooms, work stations and high-speed internet access, along with breakfast. As at December 31, 2005, there were 87 Staybridge Suites hotels, all of which are presently located in the Americas, representing 1.8% of all IHG’s hotel rooms. The first Staybridge Suites hotel was opened in 1998, with the seventy-fifth Staybridge Suites hotel following in June 2004, demonstrating the fastest roll out of 75 properties in the extended-stay segment, and making Staybridge Suites one of the fastest growing brands in its segment. Staybridge Suites operations are divided approximately equally between franchised and managed models. The primary competitors include Residence Inn, Homewood, Summerfield and Hawthorne.

During 2005, nine hotels were added to the portfolio with one removal.

On April 6, 2005 the Group announced the launch of Staybridge Suites in the United Kingdom. The first two hotels are expected to open in late 2006.


	Candlewood Suites


	Americas
	total

Average room rate $⁽¹⁾		62.03
Room numbers⁽²⁾		12,683


(1)	For the year ended December 31, 2005; quoted at constant US$ exchange rate.

(2)	As at December 31, 2005.

The Candlewood Suites brand was acquired on December 31, 2003. Candlewood Suites is an extended- stay brand which complements Staybridge Suites’ positioning. Candlewood Suites is an established brand of carefully designed and purpose-built hotels created for stays of a week or longer with studio and one-bedroom suites featuring well-equipped kitchens, spacious work areas and an array of convenient amenities. As at December 31, 2005 there were 112 Candlewood Suites hotels. The major owner of Candlewood Suites properties is HPT and the Group manages all 76 of HPT’s Candlewood properties under a 20 year agreement. At the end of 2005, Candlewood Suites represented 2.4% of all of the Group’s rooms.


	Hotel Indigo

In April 2004, the Group launched its seventh brand, Hotel Indigo, which is a new, innovative brand, designed for the style-conscious traveller who seeks the ambience of a boutique hotel with the benefits and consistencies of a global hotel operation. Inspired by lifestyle retailing, it features inviting service, inspiring artwork, casual gourmet restaurants, airy guest rooms and 24-hour business amenities. The first Hotel Indigo opened in Atlanta, Georgia in the United States in October 2004. A further two were added to the system in Chicago and as at December 31, 2005 there were three Hotel Indigo hotels, with 497 rooms. The Group plans to open a further seven Hotel Indigo properties by the end of 2006.


	*Geographical Analysis*

Although it has worldwide hotel operations, the Group is most dependent on the Americas for operating profit, reflecting the structure of the branded global hotel market. In terms of its overall hotel level operating profit before central overheads and other operating income and expenses, the Americas represented 49%, EMEA represented 43% and the Asia Pacific region represented 8% in the year ended December 2005.

The geographical analysis, split by number of rooms and operating profit, is set out in the table below.


	Americas		EMEA		Asia Pacific

	(% of total)
Room numbers⁽¹⁾		71.9		19.6		8.5
Hotel level operating profit (before central overheads and other operating income and expenses)⁽²⁾		49%		43%		8%


(1)	As at December 31, 2005.

(2)	For the year ended December 31, 2005.

The following table shows information concerning the geographical locations and ownership of IHG’s hotels as at December 31, 2005.


						Management
						contract and joint
		Owned or leased				ventures				Franchised				Total

		Hotels		Rooms		Hotels		Rooms		Hotels		Rooms		Hotels		Rooms

United States
	InterContinental		3		1,490		9		3,938		1		263		13		5,691
	Crowne Plaza		—		—		17		6,482		90		24,829		107		31,311
	Holiday Inn		3		758		46		14,228		843		157,191		892		172,177
	Express		—		—		1		252		1,355		108,084		1,356		108,336
	Staybridge		2		229		35		4,287		46		4,896		83		9,412
	Candlewood		—		—		76		9,218		36		3,465		112		12,683
	Hotel Indigo		—		—		2		305		1		192		3		497
	Other		—		—		2		295		—		—		2		295

Total			8		2,477		188		39,005		2,372		298,920		2,568		340,402

Rest of Americas
	InterContinental		1		357		12		3,779		19		5,501		32		9,637
	Crowne Plaza		1		293		2		357		23		5,113		26		5,763
	Holiday Inn		2		1,124		4		1,844		129		19,859		135		22,827
	Express		—		—		—		—		69		7,474		69		7,474
	Staybridge		—		—		2		335		2		168		4		503
	Candlewood		—		—		—		—		—		—		—		—
	Hotel Indigo		—		—		—		—		—		—		—		—
	Other		—		—		—		—		—		—		—		—

Total			4		1,774		20		6,315		242		38,115		266		46,204

Total Americas
	InterContinental		4		1,847		21		7,717		20		5,764		45		15,328
	Crowne Plaza		1		293		19		6,839		113		29,942		133		37,074
	Holiday Inn		5		1,882		50		16,072		972		177,050		1,027		195,004
	Express		—		—		1		252		1,424		115,558		1,425		115,810
	Staybridge		2		229		37		4,622		48		5,064		87		9,915
	Candlewood		—		—		76		9,218		36		3,465		112		12,683
	Hotel Indigo		—		—		2		305		1		192		3		497
	Other		—		—		2		295		—		—		2		295

Total			12		4,251		208		45,320		2,614		337,035		2,834		386,606


						Management
						contract and joint
		Owned or leased				ventures				Franchised				Total

		Hotels		Rooms		Hotels		Rooms		Hotels		Rooms		Hotels		Rooms

United Kingdom
	InterContinental		1		451		—		—		—		—		1		451
	Crowne Plaza		—		—		6		1,530		7		1,656		13		3,186
	Holiday Inn		—		—		69		11,757		41		5,625		110		17,382
	Express		—		—		1		120		102		10,586		103		10,706
	Staybridge		—		—		—		—		—		—		—		—
	Candlewood		—		—		—		—		—		—		—		—
	Other		—		—		—		—		—		—		—		—

Total			1		451		76		13,407		150		17,867		227		31,725

Europe
	InterContinental		8		3,007		13		4,542		3		1,097		24		8,646
	Crowne Plaza		8		2,063		7		1,886		20		4,402		35		8,351
	Holiday Inn		12		3,031		7		1,281		159		23,023		178		27,335
	Express		11		1,604		9		1,007		36		3,338		56		5,949
	Staybridge		—		—		—		—		—		—		—		—
	Candlewood		—		—		—		—		—		—		—		—
	Other		—		—		—		—		—		—		—		—

Total			39		9,705		36		8,716		218		31,860		293		50,281

The Middle East and Africa
	InterContinental		1		385		35		10,939		4		1,052		40		12,376
	Crowne Plaza		—		—		11		3,079		5		1,415		16		4,494
	Holiday Inn		—		—		18		3,556		14		2,671		32		6,227
	Express		—		—		—		—		2		316		2		316
	Staybridge		—		—		—		—		—		—		—		—
	Candlewood		—		—		—		—		—		—		—		—
	Other		—		—		—		—		—		—		—		—

Total			1		385		64		17,574		25		5,454		90		23,413

Total EMEA
	InterContinental		10		3,843		48		15,481		7		2,149		65		21,473
	Crowne Plaza		8		2,063		24		6,495		32		7,473		64		16,031
	Holiday Inn		12		3,031		94		16,594		214		31,319		320		50,944
	Express		11		1,604		10		1,127		140		14,240		161		16,971
	Staybridge		—		—		—		—		—		—		—		—
	Candlewood		—		—		—		—		—		—		—		—
	Other		—		—		—		—		—		—		—		—

Total			41		10,541		176		39,697		393		55,181		610		105,419


						Management
						contract and joint
		Owned or leased				ventures				Franchised				Total

		Hotels		Rooms		Hotels		Rooms		Hotels		Rooms		Hotels		Rooms

Far East and Australasia (Asia Pacific)
	InterContinental		1		495		18		6,606		8		2,360		27		9,461
	Crowne Plaza		—		—		32		10,468		6		1,831		38		12,299
	Holiday Inn		1		198		62		17,415		25		4,255		88		21,868
	Express		—		—		3		636		1		137		4		773
	Staybridge		—		—		—		—		—		—		—		—
	Candlewood		—		—		—		—		—		—		—		—
	Other		—		—		5		1,107		—		—		5		1,107

Total			2		693		120		36,232		40		8,583		162		45,508

Total
	InterContinental		15		6,185		87		29,804		35		10,273		137		46,262
	Crowne Plaza		9		2,356		75		23,802		151		39,246		235		65,404
	Holiday Inn		18		5,111		206		50,081		1,211		212,624		1,435		267,816
	Express		11		1,604		14		2,015		1,565		129,935		1,590		133,554
	Staybridge		2		229		37		4,622		48		5,064		87		9,915
	Candlewood		—		—		76		9,218		36		3,465		112		12,683
	Hotel Indigo		—		—		2		305		1		192		3		497
	Other		—		—		7		1,402		—		—		7		1,402

Total			55		15,485		504		121,249		3,047		400,799		3,606		537,533


	Americas

In the Americas, the largest proportion of rooms is operated under the franchise business model primarily in the midscale segment (Holiday Inn and Express). Similarly, in the upscale segment, Crowne Plaza is predominantly franchised, whereas the InterContinental brand currently has a bias toward ownership and management. With 2,834 hotels, the Americas represented the bulk of hotels and approximately 49% of Hotels’ operating profit before central costs and other operating income and expenses during the year ended December 31, 2005. The key profit producing region is the United States, although IHG is also represented in each of Latin America, Canada, Mexico and the Caribbean.


	EMEA

Comprising 610 hotels at the end of 2005, EMEA represented approximately 43% of Hotels’ operating profit before central costs and other operating income and expenses during the year ended December 31, 2005. The key profit producing regions are the United Kingdom and the main continental European gateway cities.


	Asia Pacific

Asia Pacific represented 8.5% of Hotels’ rooms and 8% of Hotels’ operating profit before central costs and other operating income and expenses during the year ended December 31, 2005. IHG has a strong and growing presence in Asia Pacific, comprising 162 hotels in total. Currently Greater China is expected to generate significant growth in the hotel and tourism industry over the next decade. The Group believes that the region represents a good source of growth due to the current low penetration of brands offering the opportunity for IHG’s brands to build strong positions in key markets. As at December 31, 2005 the Group had 51 hotels in Greater China and a further 38 in development.


	*Room Count and System Pipeline*

The IHG global system (that is, the number of hotels/rooms owned, leased, managed or franchised by the Group) grew significantly during 2005 ending the fiscal year at 3,606 hotels and 537,533 rooms, 66 hotels and 3,331 rooms higher than at December 31, 2004 (see Figure 4). During 2005, 254 hotels with 34,880 rooms were added to the system, while 188 hotels with 31,549 rooms were removed from the system. Of the hotels removed from the system, 139 (21,764 rooms) were in the Americas and 46 (7,896 rooms) were in EMEA. The EMEA removals included 6,338 rooms from the termination of franchise agreements in South Africa. Excluding the South African franchise removals and eight hotels (2,135 rooms) removed from the system due to hurricane damage, net system size increased by 101 hotels (11,804 rooms).

One of the key elements of the asset disposal program is the retention of management contracts for the hotels sold. Of those sold between Separation and December 31, 2005, management contracts or franchise agreements were retained for 126 hotels. Overall, the number of owned and leased rooms fell by 22,935 while the number of managed and franchised rooms in the system grew by 22,296 rooms and 3,970 rooms respectively.

At the end of 2005, the number of rooms in the pipeline (that is, contracts signed but hotels/ rooms yet to enter the system) was 108,512 — 31% up on December 31, 2004 and the highest ever for the Group (see Figure 5). This positions the Group well to achieve its stated goal of organic growth of 50,000 to 60,000 net rooms in the period June 2005 to December 2008. Whilst there is no guarantee that all of the pipeline will enter the system in that period, a number of initiatives are in place to both secure new deals and to reduce the time between a hotel signing with IHG and opening.

The growth in pipeline was fuelled by record signings during 2005; 69,970 rooms were signed which was over 60% up on the average for the last five years. This partly reflects the increased investment in development resource particularly in the Americas and Asia Pacific.

Since the year end, IHG has announced that it has signed contracts with a single owner to manage six hotels (over 4,500 rooms) in China’s Sichuan province, and it has announced further signings with a second owner to manage four hotels with over 1,400 rooms, also in China.

There are no assurances that all of the hotels in the pipeline will open or enter the system. The construction, conversion and development of hotels is dependent upon a number of factors, including meeting brand standards, obtaining the necessary permits relating to construction and operation, the cost of constructing, converting and equipping such hotels and the ability to obtain suitable financing at acceptable interest rates. The supply of capital for hotel development in the United States and major economies may not continue at previous levels and consequently the system pipeline could decrease.

FIGURE 4


		Hotels					Rooms

				Change					Change
Global hotel and room count at December 31, 2005		2005		over 2004			2005		over 2004

Analyzed by brand:
	InterContinental		137		5			46,262		1,746
	Crowne Plaza		235		20			65,404		3,777
	Holiday Inn		1,435		(49	)		267,816		(10,971	)
	Holiday Inn Express		1,590		78			133,554		7,519
	Staybridge Suites		87		8			9,915		726
	Candlewood Suites		112		3			12,683		276
	Hotel Indigo		3		2			497		357
	Other brands		7		(1	)		1,402		(99	)

Total			3,606		66			537,533		3,331

Analyzed by ownership type:
	Owned and leased		55		(111	)		15,485		(22,935	)
	Managed		504		101			121,249		22,296
	Franchised		3,047		76			400,799		3,970

Total			3,606		66			537,533		3,331

FIGURE 5


		Hotels				Rooms

				Change				Change
Global pipeline at December 31, 2005		2005		over 2004		2005		over 2004

Analyzed by brand:
	InterContinental		27		6		9,353		2,513
	Crowne Plaza		54		17		13,514		4,201
	Holiday Inn		204		48		31,035		5,630
	Holiday Inn Express		429		71		38,066		6,351
	Staybridge Suites		79		27		8,195		2,843
	Candlewood Suites		83		37		7,467		3,583
	Hotel Indigo		8		5		882		494

Total			884		211		108,512		25,615

Analyzed by ownership type:
	Owned and leased		2		—		574		(96	)
	Managed		98		14		27,805		5,387
	Franchised		784		197		80,133		20,324

Total			884		211		108,512		25,615


	*Seasonality*

Although the performance of individual hotels and geographic markets might be highly seasonal due to a variety of factors such as the tourist trade and local economic conditions, the geographical spread of IHG’s hotels in almost 100 countries and territories and the relative stability of the income stream from management and franchising activities diminish the effect of seasonality on the results of the Group.


	*Competition*

The Group’s hotels compete with a wide range of facilities offering various types of lodging options and related services to the public. The competition includes several large and moderate sized hotel chains offering upper, mid and lower priced accommodation and also includes independent hotels in each of these market segments, particularly outside of North America where the lodging industry is much more fragmented. Major hotel chains which compete with the Group include Marriott International, Inc., Starwood Hotels & Resorts Worldwide, Inc., Choice Hotels International, Inc., Best Western International, Inc., Hilton Hotels Corporation, Cendant Corporation, Four Seasons Hotels Inc. and Accor S.A.


	*Key Relationships*

The Group has a number of significant relationships with hotel owning groups, where IHG manages hotels on behalf of the owners and earns fees based on the performance of the hotels.

On January 25, 2006 IHG announced a restructured management agreement with Felcor Lodging Trust Inc., (“FelCor”), covering all of the hotels (15,790 rooms) owned by FelCor and managed by IHG. Seventeen hotels (6,301 rooms) will be retained by FelCor and managed by IHG, under revised contract terms (the contract duration has been extended to 2025 and the incentive fees on all the hotels have been rebased). HPT has purchased seven of the hotels (2,072 rooms) from FelCor for $160 million, which IHG will continue to manage under a separate management agreement. There is no increase in the guarantees to HPT (described in “Item 10. Additional Information — Material Contracts”) as a result of this transaction. Nine further hotels (2,463 rooms) can be sold by FelCor, retaining a Group brand. FelCor has the right to sell or convert a further 15 hotels (4,954 rooms); with or without an IHG brand.

Since the year end, the Group has sold its entire shareholding in FelCor for $191 million in cash.


	*Performance Indicators*

The Group considers Revenue per Available Room (“RevPAR”) to be a meaningful indicator of performance because it measures the period-over-period change in room revenues for comparable properties. RevPAR is calculated by dividing room revenue by total room nights available for a given period. RevPAR may not be comparable to similarly titled measures, such as revenues.


			Owned & leased						Managed
			comparable						comparable						Franchised

						Change vs						Change vs						Change vs
			2005			2004			2005			2004			2005			2004

Americas
	InterContinental
		Occupancy		76.3	%		4.2	% pts.		66.9	%		6.4	% pts.		60.1	%		2.2	% pts.
		Average daily rate	$	224.83			11.2	%	$	145.42			5.1	%	$	111.82			10.1	%
		RevPAR	$	171.54			17.7	%	$	95.32			16.2	%	$	67.17			14.3	%
	Crowne Plaza
		Occupancy		66.1	%		3.8	% pts.		72.2	%		2.3	% pts.		61.9	%		(0.3	)% pts.
		Average daily rate	$	73.41			1.5	%	$	117.36			9.4	%	$	98.62			8.9	%
		RevPAR	$	48.52			7.6	%	$	84.78			12.9	%	$	61.02			8.4	%
	Holiday Inn
		Occupancy		70.6	%		2.9	% pts.		68.4	%		3.1	% pts.		61.8	%		1.5	% pts.
		Average daily rate	$	89.72			9.3	%	$	83.39			6.0	%	$	85.47			6.5	%
		RevPAR	$	63.33			14.0	%	$	57.01			11.0	%	$	52.80			9.2	%


		Owned & leased						Managed
		comparable						comparable						Franchised

					Change vs						Change vs						Change vs
		2005			2004			2005			2004			2005			2004

Express
	Occupancy		—			—			75.1	%		5.4	% pts.		66.7	%		2.2	% pts.
	Average daily rate		—			—		$	119.12			8.4	%	$	80.57			6.7	%
	RevPAR		—			—		$	89.51			16.8	%	$	53.71			10.3	%
Staybridge Suites
	Occupancy		75.1	%		4.4	% pts.		75.5	%		1.3	% pts.		73.7	%		2.9	% pts.
	Average daily rate	$	78.77			1.8	%	$	94.22			7.3	%	$	91.29			5.2	%
	RevPAR	$	59.12			8.1	%	$	71.16			9.1	%	$	67.28			9.5	%
Candlewood Suites
	Occupancy		—			—			75.0	%		3.6	% pts.		69.8	%		1.2	% pts.
	Average daily rate		—			—		$	61.03			9.2	%	$	64.99			3.3	%
	RevPAR		—			—		$	45.76			14.8	%	$	45.33			5.2	%

Owned and leased, and managed statistics are for comparable hotels, and include only those hotels in the IHG system as of December 31, 2005 and owned and leased, or managed by the Group since January 1, 2004.

The comparison with 2004 is at constant US$ exchange rates.


			Owned & leased						Managed
			comparable						comparable						Franchised

						Change vs						Change vs						Change vs
			2005			2004			2005			2004			2005			2004

EMEA
	InterContinental
		Occupancy		69.5	%		5.1	% pts.		62.7	%		1.7	% pts.		68.5	%		10.3	% pts.
		Average daily rate	$	234.37			5.0	%	$	141.75			6.6	%	$	158.71			6.4	%
		RevPAR	$	162.99			13.3	%	$	88.83			9.5	%	$	108.78			25.2	%
	Crown Plaza
		Occupancy		67.5	%		3.2	% pts.		73.2	%		0.6	% pts.		63.7	%		2.3	% pts.
		Average daily rate	$	124.20			(0.1	)%	$	134.68			13.3	%	$	131.74			5.7	%
		RevPAR	$	83.80			4.9	%	$	98.63			14.3	%	$	83.94			9.6	%
	Holiday Inn
		Occupancy		62.5	%		(2.6	)% pts.		71.1	%		1.4	% pts.		64.8	%		0.5	% pts.
		Average daily rate	$	127.87			(1.3	)%	$	107.41			4.6	%	$	102.95			4.1	%
		RevPAR	$	79.94			(5.3	)%	$	76.34			6.7	%	$	66.68			4.9	%
	Express
		Occupancy		65.5	%		4.1	% pts.		60.8	%		10.1	% pts.		69.4	%		1.3	% pts.
		Average daily rate	$	77.37			(2.7	)%	$	80.67			(3.0	)%	$	99.80			3.8	%
		RevPAR	$	50.64			3.8	%	$	49.06			16.4	%	$	69.27			5.9	%

The comparison with 2004 is at constant US$ exchange rates.


			Owned & leased						Managed
			comparable						comparable						Franchised

						Change vs						Change vs						Change vs
			2005			2004			2005			2004			2005			2004

Asia Pacific
	InterContinental
		Occupancy		65.9	%		(4.3	)% pts.		71.0	%		(0.7	)% pts.		68.0	%		6.6	% pts.
		Average daily rate	$	283.79			18.9	%	$	146.66			5.8	%	$	142.36			10.4	%
		RevPAR	$	186.92			11.7	%	$	104.13			4.7	%	$	96.84			22.4	%
	Crowne Plaza
		Occupancy		—			—			77.1	%		1.8	% pts.		74.6	%		0.8	% pts.
		Average daily rate		—			—		$	91.48			8.3	%	$	99.60			0.5	%
		RevPAR		—			—		$	70.55			10.9	%	$	74.33			1.5	%
	Holiday Inn
		Occupancy		76.9	%		16.8	% pts.		75.2	%		(1.6	)% pts.		71.3	%		1.6	% pts.
		Average daily rate	$	97.79			5.5	%	$	74.14			12.7	%	$	67.35			6.0	%
		RevPAR	$	75.17			34.9	%	$	55.78			10.3	%	$	48.03			8.5	%
	Express
		Occupancy		—			—			64.9	%		7.4	% pts.		67.3	%		1.6	% pts.
		Average daily rate		—			—		$	71.20			(5.1	)%	$	59.75			(2.3	)%
		RevPAR		—			—		$	46.24			7.2	%	$	40.21			0	%
	Other
		Occupancy		—			—			65.8	%		(5.8	)% pts.		—			—
		Average daily rate		—			—		$	77.60			(1.6	)%		—			—
		RevPAR		—			—		$	51.08			(9.6	)%		—			—

The comparison with 2004 is at constant US$ exchange rates.


	*Regulation*

Both in the United Kingdom and internationally, the Group’s hotel operations are subject to regulation, including health and safety, zoning and similar land use laws as well as regulations that influence or determine wages, prices, interest rates, construction procedures and costs.

SOFT DRINKS

The Group disposed of its interest in Britvic by way of an IPO in December 2005. The Group received aggregate proceeds of approximately £371 million (including two additional dividends, one of £47 million received in November 2005, and another of £89 million, received in May 2005, before any commissions or expenses).

The Group results include the results of Soft Drinks for the period up until the IPO of Britvic on December 14, 2005.

Britvic generated operating profits before other operating income and expenses of £70 million on revenues of £671 million in the period up to December 14, 2005. In the year ended December 31, 2004, Britvic generated operating profits before other operating income and expenses of £77 million on revenues of £706 million.

TRADEMARKS

Group companies own a substantial number of service brands and product brands and the Group believes that its significant trademarks are protected in all material respects in the markets in which it currently operates.

ORGANIZATIONAL STRUCTURE


	*Principal operating subsidiary undertakings*

InterContinental Hotels Group PLC (or, where appropriate IHL) was the beneficial owner of all (unless specified) of the equity share capital, either itself or through subsidiary undertakings, of the following companies during the year. Unless stated otherwise, companies are incorporated in Great Britain, registered in England and Wales and operate principally within the United Kingdom.

Six Continents Limited (formerly Six Continents PLC)

InterContinental Hotels Group Services Company

InterContinental Hotels Group (Management Services) Limited

InterContinental Hotels Group Operating Corporation (incorporated and operates principally in the United States)

Soft Drinks

Britannia Soft Drinks Limited (47.5% Six Continents Investments Limited, 23.75% Whitbread PLC, 23.75% Allied Domecq PLC, 5% PepsiCo Holdings Limited) (note a)

Britvic Soft Drinks Limited (100% Britannia Soft Drinks Limited)

Robinsons Soft Drinks Limited (100% Britannia Soft Drinks Limited)


note a	The Group exercised dominant influence and controlled Britannia Soft Drinks Limited up to 14 December 2005 when the Group disposed of all its interests. Accordingly, the Group’s investment was treated as a subsidiary undertaking until the date of disposal.

note b	The companies listed above include all those which principally affect the amount of profit and assets of the Group.

PROPERTY, PLANTS AND EQUIPMENT

Group companies own and lease properties throughout the world. The table below analyzes the net book value of land and buildings (excluding assets classified as held for sale) at December 31, 2005. Approximately 52% of the properties by value were directly owned, with 46% held under leases having a term of 50 years or longer. These numbers have significantly changed in 2005 reflecting hotel sales and the disposal of the Group’s interest in Britvic.

Europe,

Net book value of land and buildings as

the Middle East

at December 31, 2005

and Africa

Americas

Asia Pacific

Total

(£ million)

Hotels

609

241

204

1,054

Group properties comprise hotels. Approximately 56% of the Group’s property values relate to the top five owned and leased hotels (in terms of value) of a total of 29 hotels.

In the year ended December 31, 2005 property, plant and equipment have been written down by £7 million (2004; £48 million) following an impairment review of certain hotel assets based on current market trading conditions. The fair value has been measured by reference to recent transactions for hotel assets in these markets.

ENVIRONMENT

IHG is committed to all its operating companies having a responsibility to act in a way that respects the environment in which they operate. The Group’s strong presence in the United States and European Union markets mean that it is affected by and is familiar with highly developed environmental laws and controls. IHG regularly considers environmental matters and seeks to embed good practice into its business strategies and operations. IHG was awarded membership of the FTSE4Good Index Series in 2005.

As an owner, manager and franchisor of hotels in about 100 countries, IHG has a wide range of environmental responsibilities and a unique opportunity to lead the worldwide hospitality industry in developing policies and practices.

As the Group pursues its strategic growth, it aims to minimise the effect on the environment and to make sure that the Group:


	•	is sensitive to environmental issues and considers all the potential effects of its projects and developments;

	•	introduces, promotes, implements and enforces sound environmental policies;

	•	establishes management responsibility and accountability for environmentally friendly practices; and

	•	benchmarks performance against best industry practice.

As part of this, in 2006 the Group will improve data collection and reporting to increase energy efficiency. The Group’s hotels already take steps to conserve resources, including energy and water, and to manage waste and recycling effectively. The objective is to benchmark these achievements more effectively so that clear targets for improvement can be set where necessary.

As a founding member of the International Hotels Environment Initiative (“IHEI”), IHG has worked closely with others in the industry to produce the Sustainable Hotel Siting, Design & Construction Guidelines, launched by The Prince of Wales’ International Business Leaders Forum.

The Group also operates “Conserving For Tomorrow”, an environmental program developed exclusively for IHG and used in more than 50 per cent of the Group’s properties. Guests are asked to use their linens and towels more than once to save on water, detergent, energy, labor, and replacement linen. Conserving For Tomorrow has an 80-90 per cent approval rating from hotel guests and for each average-sized, 100-room hotel it saves 6,000 gallons of water and 40 gallons of detergent each month.

Group companies incur expenditure on technical advice, services and equipment in addressing the environmental laws and regulations enacted in the countries in which they operate. In 2005, such expenditure was not material in the context of their financial results.

It is not possible to forecast the overall Group expenditure required to comply with environmental laws and regulations; this reflects the difficulty in assessing the risk of environmental accidents and the changing nature of laws and regulations. IHG expects, however, that it should be in a position to control such expenditure so that, although it may be considerable, it will be unlikely to have a material adverse effect on the Group’s financial position or results of operations.


ITEM 5.	*OPERATING AND FINANCIAL REVIEW AND PROSPECTS*

INTRODUCTION


	*Business and Overview*

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

With the disposal of the Group’s interests in Britvic, a manufacturer and distributor of soft drinks in the United Kingdom, by way of an initial public offering in December 2005, the Group is now focused solely on hotel franchising, management and ownership.

The Group’s revenue and earnings are derived from (i) hotel operations, which include operation of the Group’s owned hotels, management and other fees paid under management contracts, where the Group operates third-parties’ hotels, and franchise and other fees paid under franchise agreements and (ii) until December 14, 2005, the manufacture and distribution of soft drinks.

Operational Performance

The Hotels business reported growth in all regions at the revenue and operating profit lines for continuing operations. The regional increases were driven by RevPAR growth of approximately 9% across the 3,600 hotels and was mostly driven by increases in rate.

The performance of the Hotels business is evaluated primarily on a regional basis. The regional operations are split by similar product or services: franchise agreement, management contract, and owned and leased operations. All three income types are affected by occupancy and room rates achieved by hotels, our ability to manage costs and the change in the number of available rooms through acquisition, development and disposition. Results are also impacted by economic conditions and capacity. The Group’s segmental results are shown before other operating income and expenses, interest expense, interest income and income taxes.

The Group believes the period-over-period movement in RevPAR to be a meaningful indicator for the performance of the Hotels business.

CRITICAL ACCOUNTING POLICIES UNDER IFRS AND US GAAP

The preparation of the Company’s consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and costs and expense during the reporting periods. On an ongoing basis, management evaluates its estimates and judgments, including those relating to revenue recognition, bad debts, inventories, investments, property, plant and equipment, goodwill and intangible assets, income taxes, financing operations, frequent guest program liability, self-insurance claims payable, restructuring costs, retirement benefits and contingencies and litigation.

Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates under different assumptions and conditions.

The Group’s critical accounting policies are set out below.


	*Property, Plant and Equipment and Intangible Assets*


(i)	Goodwill and other Intangible Assets

Definite lived intangible assets are capitalized and amortized over their anticipated life.

Under IFRS, goodwill arising on acquisitions prior to October 1, 1998 was eliminated against equity. From October 1, 1998 to December 31, 2003, acquired goodwill was capitalized and amortized over a period not exceeding 20 years. Since January 1, 2004, goodwill continued to be capitalized but amortization ceased as at that date.

Under US GAAP, goodwill arising on acquisitions prior to July 1, 2001 was capitalized and amortized over its estimated useful life, not exceeding 40 years. From October 1, 2002, goodwill and indefinite life intangible assets are not amortized but are reviewed annually for impairment.

Under IFRS, the Company uses a discounted cash flow model to test indefinite life intangibles for impairment on an annual basis. The discounted cash flow model requires assumptions about the timing and amount of net cash inflows, economic projections, cost of capital and terminal values. Each of these can significantly affect the value of indefinite life intangibles.

Under US GAAP, the Company tests identified intangible assets with defined useful lives by comparing the carrying value to the sum of undiscounted cash flows expected to be generated by the asset.


(ii)	Impairment

Under IFRS and US GAAP the carrying value of both tangible and finite lived intangible assets are assessed for indicators of impairment. The Company evaluates the carrying value of its long-lived assets based on its plans, at the time, for such assets and such qualitative factors as future development in the surrounding area, status of expected local competition and projected capital expenditure plans. Changes to the Company’s plans, including decisions to dispose of or change the intended use of an asset, can have a material impact on the carrying value of the asset.

Under IFRS, property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Assets that do not generate independent cash flows are combined into cash-generating units. If carrying values exceed the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amount. Recoverable amount is the greater of fair value less cost to sell and value in use. Value in use is assessed based on estimated future cash flows discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. The outcome of such an assessment is subjective, and the result sensitive to the assumed future cashflows to be generated by the assets and discount rates applied in calculating the value in use, both of which will be dependent on the type of asset and its location. Any impairment arising is charged to the income statement. Under US GAAP, the assessment of an asset’s carrying value is by reference in the first instance to undiscounted cashflows. To the extent that undiscounted cashflows do not support carrying value, the fair value of assets must be calculated and the difference to the current carrying value charged to the income statement.

During 2005, under IFRS the Company recorded an impairment of its property, plant and equipment of £7 million, all of which relates to Hotels and represents 0.5% of the total carrying value of property, plant and equipment. For the purposes of US GAAP, the Company recorded an impairment of its property, plant and equipment of £24 million.


	*Sale of Real Estate*

Under IFRS, the Company recognises the sales proceeds and related profit or loss on disposal on completion of the sales process. The Group considers the following questions in determining whether revenue and profit should be recorded:


	•	does the Company have a continuing managerial involvement of the degree associated with asset ownership;

	•	has the Company transferred the significant risks and rewards associated with asset ownership;

	•	can the Company reliably measure the proceeds; and

	•	will the Company actually receive the proceeds.

deferred and is recognized over the life of the long-term management contract retained on the property. The deferral of gains on such sales totaled £5 million in 2005 and £nil million in 2004.


	*Income Taxes*

The Company provides for deferred tax in accordance with IAS 12 “Income Taxes” in respect of all temporary differences between the tax base and carrying value of assets and liabilities. Those temporary differences recognized include accelerated capital allowances, unrelieved tax losses, unremitted profits from overseas where the Company does not control remittance, gains rolled over into replacement assets, gains on previously revalued properties and other short-term temporary differences. Under US GAAP, deferred tax is computed, in accordance with FAS No. 109 “Accounting for Income Taxes”, on all temporary differences between the tax bases and book values of assets and liabilities which will result in taxable or tax deductible amounts arising in future years. Deferred tax assets under IFRS are recognized to the extent that it is regarded as probable that the deductible temporary differences can be utilized. Under US GAAP, deferred tax assets are recognized in full and a valuation allowance is made to the extent that it is not more likely than not that they will be realized. Under US GAAP, the Company estimates deferred tax assets and liabilities based on current tax laws and rates, and in certain cases, business plans. Changes in these estimates may affect the amount of deferred tax liabilities or the valuation of deferred tax assets.

Under both IFRS and US GAAP, accruals for tax contingencies require judgments on the expected outcome of tax exposures, whereas the actual results may vary resulting in releases of contingencies or cash tax settlements.


	*Loyalty program*

Priority Club Rewards enables members to earn points, funded through hotel assessments, during each stay at an InterContinental Hotels Group hotel and redeem the points at a later date for free accommodation or other benefits. The future redemption liability is included in trade and other payables and provisions and other payables in the consolidated balance sheets in the Consolidated Financial Statements and is estimated using actuarial methods based on statistical formulas that project timing of future point redemption based on historical levels to give eventual redemption rates and points values.


	*Legal Contingencies*

The Company is subject to various legal proceedings and claims, the outcomes of which are subject to significant uncertainty. Under both IFRS and US GAAP accruals are recorded for loss contingencies when a loss is probable and the amount can be reasonably estimated.

OPERATING RESULTS


	*Accounting Principles*

The following discussion and analysis is based on the Consolidated Financial Statements of the Group, which are prepared in accordance with IFRS. The principal differences between IFRS and US GAAP as they relate to the Group are discussed in Note 32 of Notes to the Financial Statements.

The Group was required to produce its first set of audited financial statements in line with IFRS for the year ending December 31, 2005.

The Group has taken the following exemptions available under IFRS 1 “First-time Adoption of International Financial Reporting Standards”:


	(a)	Not to restate the comparative information disclosed in the 2005 financial statements in accordance with IAS 32 “Financial Instruments: Disclosure and Presentation” and IAS 39 “Financial Instruments: Recognition and Measurement”.

	(b)	Not to restate business combinations before January 1, 2004.


	(c)	To recognize all actuarial gains and losses on pensions and other post-employment benefits directly in equity at January 1, 2004.

	(d)	To retain UK GAAP carrying values of property, plant and equipment, including revaluations, as deemed cost at transition.

	(e)	Not to recognize separately cumulative foreign exchange movements up to January 1, 2004.

	(f)	To apply IFRS 2 “Share-based Payments” to grants of equity instruments after November 7, 2002 that had not vested at January 1, 2005.

The disclosures required by IFRS 1 are given in Note 30 of Notes to the Financial Statements.

For the year ended December 31, 2005 the results include special items totaling a net credit of £297 million (2004 £142 million — see “year ended December 31, 2005 compared to year ended December 31, 2004 — Special Items”. For comparability of the periods presented, some performance indicators in this Operating and Financial Review and Prospects discussion have been calculated after eliminating these special items. Such indicators are prefixed with “adjusted”. A reconciliation to the amounts under IFRS including such special items is included in Note 9 of Notes to the Financial Statements.


	*Year ended December 2005 compared with year ended December 2004*


	Group


		Year ended			Year ended
		December 31,			December 31,
		2005			2004

		(£ million)
GROUP RESULTS
Revenue:
Continuing operations
	Hotels		852			731
Discontinued operations
	Hotels		387			767
	Soft Drinks		671			706

Total revenue			1,910			2,204

Operating profit before other operating income and expenses:
Continuing operations
	Hotels		190			134
Discontinued operations
	Hotels		79			135
	Soft Drinks		70			77

Total operating profit before other operating income and expenses			339			346
Other operating income and expenses:
Continuing operations
	Impairment of property, plant and equipment		(7	)		(48	)
	Restructuring costs		(13	)		(11	)
	Property damage		(9	)		—
	Employee benefits curtailment gain		7			—
	Reversal of previously recorded provisions		—			20
	Provision for investment in associates		—			(16	)
	Provision for investment in other financial assets		—			(2	)
	Write back of provision for investment in other financial assets		—			8

Operating profit			317			297

IHG revenue from continuing operations for the year ended December 31, 2005 was £852 million (2004 £731 million). Operating profit before other operating income and expenses from continuing operations for the year ended December 31, 2005 was £190 million (2004 £134 million).

Gain on disposals for the year ended December 31, 2005 after tax totaled a net profit of £311 million (2004 £19 million). Details of the gain on disposals are outlined under the heading “Gain on Disposal of Assets” on page 52.

Net movement in cash and cash equivalents for the year ended December 31, 2005 was an inflow of £259 million (2004 outflow of £338 million) mainly driven by the receipt of £2,046 million from disposals. This was offset by a £996 million payment to shareholders as a result of the capital reorganisation on June 27, 2005. Cash inflow from operations for the year ended December 31, 2005 was £423 million, compared with £515 million for 2004.

Basic earnings per share for the year ended December 31, 2005 was 95.2 pence (2004 53.9 pence). Adjusted earnings per share from continuing operations, after eliminating the effect of special items, was 24.9 pence for the year ended December 31, 2005 (2004 17.3 pence). Dividends for the year ended December 31, 2005 were 14.6 pence per share. A reconciliation of actual to adjusted earnings per share is set out in Note 9 of Notes to the Financial Statements.

Special Items

Special items totaled a net credit of £297 million in 2005 compared with a net credit of £142 million in 2004. The special items included:


	•	£13 million charge (2004 £11 million charge) relating to the delivery of the further restructuring of the Hotels business;

	•	£9 million charge (2004 £nil million) of property damage relating from fire and natural disasters;

	•	£7 million charge (2004 £48 million charge) for impairment of property, plant and equipment;

	•	£7 million credit (2004 £nil million)for employee benefits curtailment as a result of the UK hotels disposal;

	•	£nil million (2004 £20 million credit) relating to the reversal of previously recorded provisions;

	•	£nil million (2004 £16 million charge) relating to an impairment in the value of associate investments;

	•	£nil million (2004 £2 million charge) relating to impairment in the value in investments in other financial assets;

	•	£nil million (2004 £8 million credit) relating to write back in provisions in investments in other financial assets;

	•	£nil million (2004 £11 million expense) relating to one time net financial expenses;

	•	£8 million credit (2004 £183 million credit) representing the release of provisions relating to tax matters which have been settled or in respect of which the relevant statutory limitation period has expired, principally relating to acquisitions (including provisions relating to pre-acquisition periods) and disposals, intra-group financing and, in 2004, the recognition of a deferred tax asset of £83 million in respect of capital losses; and

	•	£311 million gain (2004 £19 million gain) net of tax on disposal of assets.

Special items are disclosed separately because of their size and incidence and are excluded from the calculation of adjusted earnings per share to give a more meaningful comparison of the Company’s performance.

Net Financing Costs

Net financing costs totaled £33 million in 2005 the same as in 2004. In 2005, £9 million related to Soft Drinks and is classified as discontinued operations. The prior year net financing expense included a net £11 million charge that is treated as a special item and is excluded from the calculation of adjusted earnings per share.

Taxation

The effective rate of tax on profit before tax, excluding the impact of special items, was 28.6%. By also excluding the impact of prior year items, which are included wholly within continuing operations, the equivalent effective tax rate would be 37.8%. This rate is higher than the UK statutory rate of 30% due mainly to overseas profits being taxed at rates higher than the UK statutory rate. The equivalent effective rates for 2004, restated under IFRS, were 17.3% and 38.6% respectively.

Taxation special items totaled an £8 million credit (2004 £183 million credit). In 2005, this represented the release of provisions which were special by reason of their size or incidence, relating to tax matters which were settled during the year, or in respect of which the statutory limitation period had expired. In 2004, taxation special items, in addition to such provision releases, included £83 million for the recognition of a deferred tax asset in respect of capital losses.

Net tax paid in 2005 was £91 million (2004 £35 million) including £11 million in respect of disposals.

Gain on Disposal of Assets

The gain on disposal of assets, net of related tax, totaled £311 million in 2005 and mainly comprised a net gain on disposal of Soft Drinks of £284 million and a net gain on hotel asset disposals of £27 million.

Earnings

Basic earnings per share for 2005 were 95.2 pence, compared with 53.9 pence in 2004. Adjusted earnings per share, removing the non-comparable special items, were 38.2 pence, against 33.9 pence in 2004. Adjusted earnings per share for continuing operations were 24.9 pence, 44% up on last year.

Dividends

The Board has proposed a final dividend per share of 10.7 pence; with the interim dividend of 4.6 pence the normal dividend for 2005 totaled 15.3 pence.

Capital Expenditure and Cash Flow

The net movement in cash and cash equivalents for the year ended December 31, 2005 was an inflow of £259 million. This included a net cash inflow from operations of £423 million, and a net cash inflow from investing activities of £1,863 million.

Proceeds from the disposal of operations and other financial assets totaled £2,046 million and included proceeds from the sale of Soft Drinks of £220 million and from the sale of hotels of £1,826 million.

Capital expenditure for Hotels totaled £136 million compared with £187 million in 2004, as the Group continued its asset disposal program. Capital expenditure in 2005 for Hotels included refurbishment of the InterContinental London and Holiday Inn Munich City Centre and a rolling rooms refurbishment program at the InterContinental Hong Kong.


	*Highlights for the year ended December 31, 2005*

The following is a discussion of the year ended December 31, 2005 compared with the year ended December 2004.


	*Continuing Hotels Results*


		Year ended			Year ended
		December 31,			December 31,
		2005			2004			Change

		(£ million)						%
Revenue:
	Americas		400			319			25.4
	EMEA		326			301			8.3
	Asia Pacific		84			71			18.3
	Central		42			40			5.0

			852			731			16.6

Operating profit before other operating income and expenses:
	Americas		187			150			24.7
	EMEA		47			24			95.8
	Asia Pacific		21			17			23.5
	Central		(65	)		(57	)		14.0

			190			134			41.8

Revenue. Continuing Hotels revenue increased £121 million (16.6%) from £731 million for the year ended December 31, 2004, to £852 million for the year ended December 31, 2005.

Operating profit. Continuing Hotels operating profit before other operating income and expenses for the year ended December 31, 2005 was £190 million, up 41.8% (year ended December 31, 2004 £134 million).


	*Americas*


	Continuing Americas Results


		Year ended		Year ended
		December 31,		December 31,
		2005		2004		Change

		($ million)				%
Revenue:
	Owned and leased		224		171		31.0
	Managed		118		55		114.5
	Franchised		389		357		9.0

			731		583		25.4


		Year ended			Year ended
		December 31,			December 31,
		2005			2004			Change

		($ million)						%
Operating profit before other operating income and expenses:
	Owned and leased		28			7			300.0
	Managed		36			12			200.0
	Franchised		340			304			11.8

			404			323			25.1
Regional overheads			(62	)		(50	)		24.0

Total $ million			342			273			25.3

Sterling equivalent £ million⁽ⁱ⁾			187			150			24.7


(i)	The results have been translated into pounds sterling at weighted average rates of exchange for the year. The translation rates are fiscal 2005: £1 = $1.83 (2004: £1 = $1.82).

Total Americas continuing operating profit was $342 million, a 25.3% increase on continuing operating profit for the year ended December 31, 2004 of $273 million.

Franchised revenue increased by 9.0% to $389 million as a result of strong trading and increased room count and signings. RevPARs across the brands showed strong growth, with Holiday Inn RevPAR 9.2% up on 2004, Holiday Inn Express 10.3% up and Crowne Plaza 8.4% up. The franchised estate increased by 3,878 rooms in the year with the most significant increase being in the Holiday Inn Express brand. Franchised revenue also benefited from the number of signings in 2005 with a record 47,245 room signings (50% up on 2004) leading to higher sales revenues than in 2004. Franchised operating profit rose by $36 million to $340 million.

Continuing owned and leased revenue increased by over 30% driven by strong trading in the comparable estate (those hotels fully trading as owned and leased in both financial years). Comparable RevPARs were 17.7% up for InterContinental and 14.0% up for Holiday Inn with average daily rate growth fuelling the increased RevPAR. The InterContinental Buckhead, Atlanta, also contributed its first full year of trading after opening in November 2004. These revenue increases, together with improved operating efficiency in the hotels, led to continuing owned and leased operating profit increasing significantly over 2004, from $7 million to $28 million.

Managed revenue increased from $55 million in 2004 to $118 million as a result of strong trading in the comparable estate boosted by the 13 hotels sold to HPT and the two hotels acquired by SHC. Managed revenue also includes $70 million (2004 $27 million) from properties (including the InterContinental San Juan sold in the year) that are structured, for legal reasons, as operating leases but with the same economic characteristics as a management contract. Overall, managed RevPARs grew by 16.2% for InterContinental, 12.9% for Crowne Plaza, 11.0% for Holiday Inn, 9.1% for Staybridge Suites and 14.8% for Candlewood Suites. Managed operating profit increased from $12 million to $36 million including $9 million (2004 $3 million) from the managed properties held as operating leases, including a contribution from the 15 hotels moving from ownership to management.

Americas regional overheads increased to $62 million from $50 million in 2004, reflecting investment in additional development resources and information technology.

Americas hotel and room count grew by a net 51 hotels (279 rooms) to 2,834 hotels (386,606 rooms). 190 hotels (22,043 rooms) entered the system and 139 hotels (21,764 rooms) left the system. Of the removals, 83 hotels (16,188 rooms) were Holiday Inn and 53 hotels (4,561 rooms) were Holiday Inn Express. Of the removals nearly 60% were enforced by IHG as a result of quality or financial concerns.

The Americas pipeline grew to record levels, 742 hotels (76,865 rooms), with 447 hotels (49,765 rooms) signing contracts during the year to enter the system. Of these signings, 19,355 rooms were Holiday Inn Express.


	*Europe, Middle East and Africa*


	Continuing EMEA Results


		Year ended			Year ended
		December 31,			December 31,
		2005			2004			Change

		(£ million)						%
Revenue:
	Owned and leased		236			231			2.2
	Managed		55			43			27.9
	Franchised		35			27			29.6

			326			301			8.3

Operating profit before other operating income and expenses:
	Owned and leased		11			2			450.0
	Managed		31			24			29.2
	Franchised		26			21			23.8

			68			47			44.7
Regional overheads			(21	)		(23	)		(8.7	)

Total £ million			47			24			95.8

Dollar equivalent $ million⁽ⁱ⁾			86			44			95.5


(i)	The results have been translated into US dollars at weighted average rates of exchange for the year. The translation rates are fiscal 2005: $1 = £0.55 (2004: $1 = £0.55).

The EMEA operating model changed in 2005 as a result of the disposal of 73 hotels in the UK to LRG and a number of smaller transactions. As a result, the number of owned and leased hotels reduced by 85 whilst the number of managed hotels increased by 77, including 73 in connection with the LRG transaction.

Revenue from continuing operations increased by 8.3% to £326 million and continuing operating profit before other operating income and expenses increased by 95.8% to £47 million.

Owned and leased revenue from continuing operations increased by 2.2% from £231 million in 2004 to £236 million. Performance across the region was mixed with variable trading conditions in parts of Continental Europe. The refurbishment of the InterContinental London impacted the overall result with the hotel being disrupted for most of the year and closed in the final quarter of the year. Owned and leased operating profit from continuing operations increased by £9 million to £11 million.

Managed revenue increased by £12 million to £55 million. The 2004 result benefited from the receipt in 2004 of approximately £4 million liquidated damages from the early termination of the InterContinental Barcelona management contract. The 2005 result was affected by a loss of earnings following the bombings in Beirut, but underlying trading was strong, particularly in the Middle East where managed RevPAR increased by 11.9%. Management fees are also included from LRG for the hotels sold in May 2005 (including incentive fees); Holiday Inn UK RevPAR overall was up to 4.6%.

Franchised revenue for EMEA increased by £8 million to £35 million. Holiday Inn franchised RevPAR increased by 4.9% and Holiday Inn Express RevPAR increased by 5.9%. Franchised operating profit increased

by £5 million to £26 million and included £7 million liquidated damages for the termination of franchise agreements in South Africa.

EMEA hotel and room count at December 31, 2005 was broadly level with December 31, 2004 at 610 hotels (105,419 rooms) despite the termination of the master franchise agreement in South Africa (6,338 rooms). Two significant deals added hotels to the system during the year, five Holiday Inn hotels (602 rooms) in the UK from a franchise agreement with Stardon, a joint venture company formed between Starwood Capital Europe and Chardon Hotels, and 13 hotels (2,233 rooms) in the UK from a franchise agreement with Queens Moat Houses Limited.

The EMEA pipeline at December 31, 2005 was 86 hotels (14,278 rooms).


	*Asia Pacific*


	Continuing Asia Pacific Results


		Year ended			Year ended
		December 31,			December 31,
		2005			2004			Change

		($ million)						%
Revenue:
	Owned and leased		102			86			18.6
	Managed		45			38			18.4
	Franchised		6			5			20.0

			153			129			18.6

Operating profit before other operating income and expenses:
	Owned and leased		19			17			11.8
	Managed		29			25			16.0
	Franchised		5			3			66.7

			53			45			17.8
Regional overheads			(15	)		(15	)		—

Total $ million			38			30			26.7

Sterling equivalent £ million⁽ⁱ⁾			21			16			31.2


(i)	The results have been translated into pounds sterling at weighted average rates of exchange for the year. The translation rates are fiscal 2004: £1 = $1.83 (2004: £1 = $1.82).

Asia Pacific revenue from continuing operations increased by 18.6% to $153 million and operating profit before other operating income and expenses increased by 26.7% to $38 million.

Continuing owned and leased operating profit grew from $17 million in 2004 to $19 million mainly reflecting strong trading in the InterContinental Hong Kong which achieved RevPAR growth of 11.7% over 2004, driven by average daily rate growth.

Asia Pacific managed operating profit grew strongly from $25 million to $29 million, reflecting both the impact of improved RevPAR and an increase in room count over 2004. Greater China managed RevPAR increased by 13.6% and Australia, New Zealand and South Pacific managed RevPAR increased by 6.1%.

Asia Pacific franchised operating profit increased by $2 million to $5 million.

Regional overheads were level at $15 million despite increased resources for the planned expansion in Greater China. During 2005, a further nine hotels (2,839 rooms) opened in Greater China and 20 hotels (7,308 rooms) signed contracts and entered the pipeline.

Overall, the number of hotels in Asia Pacific increased by 13 hotels (3,383 rooms). During the year, ten owned and leased hotels (2,315 rooms) in Australia, New Zealand and Fiji were sold but retained with management contracts.

Asia Pacific pipeline grew by 14 managed hotels (4,564 rooms) primarily in the InterContinental and Crowne Plaza brands. In addition, on February 15, 2006, IHG announced that it had signed contracts with a single owner to manage six hotels (over 4,500 rooms) in China’s Sichuan province, and on February 24, 2006 announced that it had signed contracts with an owner to manage four hotels, with over 1,400 rooms, also in China.


	*Central*


	Central


	Year ended			Year ended
	December 31,			December 31,
	2005			2004			Change

	(£ million)						%
Revenue		42			40			5.0
Gross central costs		(107	)		(97	)		10.3

Net central costs £ million		(65	)		(57	)		14.0

Dollar equivalent $ million⁽ⁱ⁾		(118	)		(102	)		15.7


(i)	The results have been translated into US dollars at weighted average rates of exchange for the year. The translation rates are fiscal 2005: $1 = £0.55 (2004: $1 = £0.55).

Net central costs increased by £8 million reflecting increased governance costs, further investment to support development and the accounting treatment of share scheme costs. Under IFRS, the charges for share option schemes established after November 2002 are accounted for in the income statement. As share scheme awards are generally made annually and the accounting cost is spread over three years, 2005 is the first year that a full annual cost is taken into account.


	*Discontinued Operations*

For the year ended December 31, 2005 operating profit from hotels classified as discontinued was £79 million (2004 £135 million) and was £70 million (2004 £77 million) for the Soft Drinks business.

The net gain on disposal of assets for hotels was £25 million (2004 £19 million) and for Soft Drinks was £286 million (2004 £nil million).

LIQUIDITY AND CAPITAL RESOURCES


	*Sources of Liquidity*

In 2004 the Group refinanced its syndicated bank facility which gave the Group greater financial flexibility at a lower cost. The current size of the facility is £1.1 billion. As a result of the cost effective funding obtained from the bank market the Group repurchased its € 600 million 4.75% 2010 Notes in December 2004 and January 2005.

At December 31, 2005 gross debt (including currency swaps liabilities of £367 million) amounted to £779 million comprising £488 million of euro denominated borrowings, £220 million of US dollar denominated borrowings and £71 million of Hong Kong dollar denominated borrowings.

At December 31, 2005 committed bank facilities amounted to £1,163 million of which £751 million were unutilized. Uncommitted facilities totaled £14 million. In the Group’s opinion, the working capital is sufficient for the Group’s present requirements.

The Group also held short term deposits and investments at December 31, 2005 amounting to £686 million (including currency swap assets of £362 million). Credit risk on treasury transactions is minimised by operating a policy on investment of surplus funds that generally restricts counterparties to those with an A credit rating or better or those providing adequate security. Limits are also set on the amounts invested with individual counterparties. Most of the Group’s surplus funds are held in the United Kingdom or United States and there are no material funds where repatriation is restricted as a result of foreign exchange regulations.

The Group is in compliance with its financial covenants in its loan documentation none of which represent a material restriction on funding or investment policy in the foreseeable future.

Details of exchange and interest rate risk and financial instruments are disclosed in “Item 11. Quantitative and Qualitative Disclosures about Market Risk”.


	*Cash From Operating Activities*

Cash flow from operating activities is the principal source of cash used to fund the ongoing operating expenses, interest payments, maintenance capital expenditure and dividend payments of the Group. The Group believes that the requirements of its existing business and future investment can be met from cash generated internally, disposition of assets and businesses and external finance expected to be available to it.


	*Cash Used for Investing Activities*

IHG’s second £250 million on-market share repurchase program was announced in September 2004 and commenced in December 2004. In 2005, 30.6 million shares were repurchased at an average price of 672 pence per share making the total purchased under the second program £211 million. On September 8, 2005 IHG announced a further £250 million share repurchase program to commence on completion of the second program. The precise timing of share purchases will be dependent upon, amongst other things, market conditions. Purchases are under the existing authority from shareholders which will be renewed at the Annual General Meeting 2006. Any shares repurchased under this program will be canceled.

On July 8, 2005, IHG returned a further £996 million capital to shareholders following the capital reorganization of the Group completed in June 2005. Under the reorganization, shareholders received 11 new ordinary shares and £24.75 cash in exchange for every 15 existing ordinary shares held on June 24, 2005.

On March 2, 2006, IHG announced that a £500 million special dividend will be paid to shareholders in the second quarter of 2006.

Since April 2003, IHG has announced the return of £2.75 billion of funds to shareholders by way of special dividends, share repurchase programs and capital returned.

As of December 31, 2005, the Group had committed contractual capital expenditure of £76 million. Contracts for expenditure on fixed assets are not authorized by the directors on an annual basis, as divisional capital expenditure is controlled by cash flow budgets. Authorization of major projects occurs shortly before contracts are placed.

The Group intends to invest approximately £180 million in capital expenditure in 2006. This level of capital expenditure is reviewed regularly during the year and may be increased or decreased in the light of prevailing economic and market conditions and other financial considerations.


	*Contractual Obligations*

The Company had the following contractual obligations outstanding as of December 31, 2005:


	Total amounts		Less than						After
	committed		1 year		1-3 years		3-5 years		5 years

	(£ million)
Long-term debt		412		2		33		377		—
Operating lease obligations		274		36		56		33		149
Other long-term obligations⁽ⁱ⁾		82		6		12		8		56
Capital contracts placed		76		76		—		—		—

		844		120		101		418		205


(i)	Other long-term obligations includes credit balances on currency swaps, interest rate swaps, forward contracts and pension obligations.

The Company may provide performance guarantees to third-party owners to secure management contracts. The maximum exposure under such guarantees is £134 million. It is the view of the directors that, other than to the extent that liabilities have been provided for in the Consolidated Financial Statements, such guarantees are not expected to result in financial loss to the Group.

As of December 31, 2005, the Group had outstanding letters of credit of £18 million mainly relating to self-insurance programs.

The Group may guarantee loans made to facilitate third-party ownership of hotels in which the Group has an equity interest and also a management contract. As of December 31, 2005, the Group was a guarantor of loans which could amount to a maximum of £15 million.

The Group has given warranties in respect of the disposal of certain of its former subsidiaries. The Company believes that, other than to the extent that liabilities have been provided for in the Consolidated Financial Statements, such warranties are not expected to result in financial loss to the Group.


	*Pension Plan Commitments*

IHG operates two main schemes; the InterContinental Hotels UK Pension Plan, and the US based InterContinental Hotels Pension Plan.

The InterContinental Hotels UK Pension Plan was established with effect from April 1, 2003. On an IAS 19 “Employee Benefits” basis, at December 31, 2005 the Plan had a deficit of £24 million. The defined benefits section of this Plan is generally closed to new members. In 2006, the Group expects to make projected regular contributions to the UK principal plan of £4 million.

The US based InterContinental Hotels Pension Plan is closed to new members and pensionable service no longer accrues for current employee members. On an IAS 19 basis, at December 31, 2005 the Plan had a deficit of $71 million.

The InterContinental Hotels Group will be exposed to the funding risks in relation to the defined benefit sections of the InterContinental Hotels UK Pension Plan and the US based InterContinental Hotels Pension Plan, as explained in “Item 3. Key Information — Risk Factors”.

Details of exchange and interest rate risk and financial instruments are disclosed in “Item 11. Quantitative and Qualitative Disclosures about Market Risk”.


ITEM 6.	*DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES*

DIRECTORS AND SENIOR MANAGEMENT

Overall strategic direction of the Group is provided by the board of directors, comprising executive and non-executive directors, and by members of the executive committee.

The directors and officers of InterContinental Hotels Group PLC as at March 17, 2006 are:


		Initially		Date of next
		appointed to		reappointment
Name	Title	the board		by shareholders*

Andrew Cosslett	Director and Chief Executive		2005		2007
Richard Hartman	Director and Managing Director, EMEA		2003		2007
David Kappler⁽¹⁾	Director and Senior Independent Director		2004		2007
Ralph Kugler⁽¹⁾	Director		2003		2007
Jennifer Laing⁽¹⁾	Director		2005		2006
Robert C. Larson⁽¹⁾	Director		2003		2006
Jonathan Linen⁽¹⁾	Director		2005		2006
Stevan Porter	Director and President, The Americas		2003		2006
Sir David Prosser⁽¹⁾	Director		2003		2007
Richard Solomons	Director and Finance Director		2003		2007
Sir Howard Stringer⁽¹⁾	Director		2003		2007
David Webster	Chairman		2003		2007


(1)	Independent non-executive director.

Robert C. Larson, being over the age of 70, is required to retire and stand for re-election at each Annual General Meeting, if he wishes to continue to serve as a director. Sir David Prosser, Sir Howard Stringer and David Webster will be required, under the Company’s articles of association, to stand for re-election at the 2007 Annual General Meeting. Any further reappointments at the 2007 meeting would be on a voluntary basis.


	*Officers*


Name	Title	Initially appointed

Tom Conophy	Executive Vice President and Chief Information Officer		2006
Peter Gowers	Executive Vice President and Chief Marketing Officer		2003
A. Patrick Imbardelli	President, Asia Pacific		2003
Tracy Robbins	Executive Vice President, Human Resources		2005
Richard Winter	Executive Vice President, Corporate Services, Group Company Secretary and General Counsel		2003


	*Former Directors and Officers*

Jim Larson served as an officer and Executive Vice President, Human Resources from April 2003 until December 2005.


	*Directors and Officers*

Tom Conophy

Has over 25 years’ experience in the IT industry, including management and development of new technology solutions within the travel and hospitality business. He joined the Group in February 2006 from

Starwood Hotels & Resorts International where he held the position of Executive Vice President and Chief Technology Officer. Responsible for IT systems and information management throughout the Group. Aged 45.

Andrew Cosslett

Appointed Chief Executive in February 2005. He joined the Group from Cadbury Schweppes plc where he was most recently President, Europe, Middle East & Africa. During his career at Cadbury Schweppes he held a variety of senior regional management and marketing roles in the UK and Asia Pacific. He also has over 11 years’ experience in brand marketing with Unilever. He is non-executive Chairman of Duchy Originals Foods Limited. Aged 50.

Peter Gowers

Has previous international experience in management consultancy based in London and Singapore. He joined the Group in 1999 and was appointed Executive Vice President, Global Brand Services in January 2003. Appointed Chief Marketing Officer in 2005, now has responsibility for worldwide brand management, reservations, e-commerce, global sales, relationship marketing and loyalty programs. Aged 33.

Richard Hartman

Has over 39 years’ experience in the hotel industry including 30 years with Sheraton. He joined the Group in 1999 as Managing Director, Asia Pacific. Subsequently, as Managing Director, Europe, Middle East & Africa, he was appointed an executive director in April 2003. Responsible for the business of all the Hotel brands and properties in the EMEA region. Aged 60.

A. Patrick Imbardelli

Has over 24 years’ experience in the hotel industry including 12 years with Southern Pacific Hotels Corporation. He joined the Group in 2000 and was appointed Managing Director, Asia Pacific in January 2003. Responsible for the business of all the Hotel brands and properties in The Asia Pacific Region. Aged 45.

David Kappler

Appointed a director and Senior Independent Director in June 2004. He is non-executive Chairman of Premier Foods plc and a non-executive director of Shire plc and HMV Group plc. A qualified accountant and formerly Chief Financial Officer of Cadbury Schweppes plc until April 2004, he also served as a non-executive director of Camelot Group plc. Chairman of the Audit Committee. Aged 58.

Ralph Kugler

Appointed a director in April 2003, he is President, Unilever Home and Personal Care, and joined the Boards of Unilever plc and Unilever NV in May 2005. He has held a variety of senior positions globally for Unilever and has experience of regional management in Asia, Latin America and Europe (including as President of Unilever Latin America and, more recently, President of Unilever Europe, Home and Personal Care) with over 25 years’ experience of general management and brand marketing. Aged 50.

Jennifer Laing

Appointed a director in August 2005, she is Associate Dean, External Relations at the London Business School. A fellow of the Marketing Society and of the Institute of Practitioners in Advertising, she has over 30 years’ experience in advertising including 16 years with Saatchi & Saatchi, to whom she sold her own agency. She also serves as a non-executive Director of Hudson Highland Group Inc., a US human resources company. Aged 58.

Robert C Larson

Appointed a director in April 2003, he is a Managing Director of Lazard Alternative Investments LLC and Chairman of Lazard Frères Real Estate Investors, LLC. He is also Chairman of Larson Realty Group and non-executive Chairman of United Dominion Realty Trust Inc. He served as a non-executive director of Six Continents PLC (formerly Bass PLC) from 1996 until April 2003. Aged 71.

Jonathan Linen

Appointed a director in December 2005, he recently retired as Vice Chairman of the American Express Company, having held a range of senior positions including in New Product Development, Marketing and Sales and Travel Services throughout his career of over 35 years with American Express. A Management Development graduate of Harvard Business School, he also serves on the Board and Executive Committees of a number of US Companies and Councils. Aged 62.

Stevan Porter

Previously spent 13 years with Hilton Corporation in a variety of senior management positions. He joined the Group in 2001 as Chief Operating Officer, The Americas. Subsequently, as President, The Americas, he was appointed an executive director in April 2003. Responsible for the business of all the Hotel brands and properties in The Americas region. Additionally, he has the role of Global Leader, Franchise Strategy, with responsibility for the development and deployment of best practice in franchising globally. Aged 51.

Sir David Prosser

Qualified actuary with over 40 years’ experience in financial services. Appointed a director in April 2003, he was, until December 31, 2005, Group Chief Executive of Legal & General Group Plc. He is a director of the Royal Automobile Club Limited and of Epsom Downs Racecourse Limited. Chairman of the Remuneration Committee. Aged 61.

Tracy Robbins

Has over 20 years’ experience in line and HR roles in service industries. She joined the Group in December 2005 from Compass Group PLC, a world leading food service company, where she was Group Human Resources Leadership & Development Director. Previously Group HR Director for Forte Hotels Group. Responsible for global talent management and leadership development, reward strategy and implementation. Aged 42.

Richard Solomons

Qualified as a chartered accountant in 1985, followed by seven years in investment banking, based in London and New York. He joined the Group in 1992 and held a variety of senior finance and operational roles. Appointed Finance Director of the Hotels business in October 2002 in anticipation of the Separation of Six Continents PLC in April 2003. Responsible for Group and regional finance, asset management, strategy, investor relations, tax and treasury. Aged 44.

Sir Howard Stringer

Has over 35 years’ experience in the media and entertainment industries. He was appointed a director in April 2003. He was appointed Group Chairman and Chief Executive Officer of Sony Corporation in 2005, continuing his distinguished career with Sony since 1997. He served as a non-executive director of Six Continents PLC from 2002 until April 2003. Aged 64.

David Webster

Appointed Deputy Chairman and Senior Independent Director of InterContinental Hotels Group on the Separation of Six Continents PLC in April 2003. Appointed non-executive Chairman on January 1, 2004. He

is also non-executive Chairman of Makinson Cowell Limited, a capital markets advisory firm. He was formerly Chairman of Safeway plc and a non-executive director of Reed Elsevier PLC. Chairman of the Nomination Committee. Aged 61.

Richard Winter

Lawyer, qualified in 1973 and has over 20 years’ commercial law experience in private practice. He joined the Group in 1994 as Director of Group Legal and was appointed Company Secretary in 2000. Now responsible for corporate governance, risk management, internal audit, data privacy, company secretariat, group legal matters and corporate social responsibility. Aged 57.

COMPENSATION

In fiscal 2005, the aggregate compensation (including pension contributions, bonus and awards under the long term incentive plans) of the directors and officers of the Company was £14.4 million. The aggregate amount set aside or accrued by the Company in fiscal 2005 to provide pension retirement or similar benefits for those individuals was £287,187. An amount of £6.9 million was charged in fiscal 2005 in respect of bonuses payable to them under performance related cash bonus schemes and long term incentive plans.

Note 3 of Notes to the Financial Statements sets out the individual compensation of the directors. The following are details of the Company’s principal share schemes, in which the directors of the Company participated during the period.


	Share Plans

Under the terms of the Separation of Six Continents PLC in 2003, holders of options under the Six Continents Executive Share Option Schemes were given the opportunity to exchange their Six Continents options for equivalent value new options over IHG PLC shares. During fiscal 2005, 4,138,482 such options were exercised, leaving a total of 7,909,002 such options outstanding at prices ranging from 308.48p to 593.29p.


	Executive Share Option Plan

The Remuneration Committee, consisting solely of independent non-executive directors, may select employees within the Group, including executive directors, of the Company, to receive a grant of options to acquire ordinary shares in the Company. Under the terms of the Plan the option price may not be less than the market value of an ordinary share, or the nominal value if higher. The market value is either the quoted price on the business day preceding the date of grant, or the average of the middle market quoted prices on the three consecutive dealing days immediately preceding the date of grant. The international schedule to the share plan extends it to executives outside the United Kingdom. Grants of options under the Executive Share Option Plan have normally been made annually and except in exceptional circumstances, have not, in any year, exceeded three times annual salary for executive directors. A performance condition must be met before options can be exercised. The performance condition is set by the Remuneration Committee.

In April 2005, options were granted to 58 employees over 2,104,570 IHG shares at 619.83p per share. For options granted in 2005, the Company’s adjusted earnings per share over the three-year performance period ending December 31, 2007 must increase by at least nine percentage points over the increase in the UK Retail Prices Index for the same period for any of the award to vest. Options granted in 2005 are exercisable between 2008 and 2015, subject to the achievement of the performance condition.

Following a full review of incentive arrangements, the Remuneration Committee has concluded that share options are not the most effective incentive for the foreseeable future and therefore no further grants of options will be made. However, the Committee believes that share ownership by executive directors and senior executives strengthens the link between the individual’s personal interest and that of the shareholders.

As of March 17, 2006, options over 22,459,267 IHG PLC shares were outstanding under the Executive Share Option Plan.


	Short Term Deferred Incentive Plan

The IHG Short Term Deferred Incentive Plan (the “STDIP”) enables eligible employees, including executive directors, to receive all or part of their bonus in the form of IHG PLC shares on a deferred basis. Matching shares may also be awarded up to 0.5 times the deferred amount. The bonus and matching shares are deferred and will normally be released at the end of each of the three years following deferral. Participation in the STDIP is at the discretion of the IHG PLC directors. The number of shares is calculated by dividing a specific percentage of the participant’s salary by the average share price for a period of days prior to the date on which the shares are granted. As of March 17, 2006, there were 1,157,708 IHG PLC shares over which conditional rights had been awarded to participants under the Plan.


	Performance Restricted Share Plan

The Performance Restricted Share Plan allows executive directors and eligible employees to receive share awards, subject to the satisfaction of a performance condition, set by the Remuneration Committee, which is normally measured over a three-year period. Awards are normally made annually and, except in exceptional circumstances, will not exceed three times annual salary for executive directors. In determining the level of awards within this maximum limit, the Committee takes into account the level of Executive Share Options already granted to the same person. The grant of awards is restricted so that in each year the aggregate of (i) 20% of the market value of the executive share options and (ii) 33% of the market value of performance restricted shares, will not exceed 130% of annual salary, taking the market value in each case as at the date of grant. As of March 17, 2006 there were 7,373,799 IHG PLC shares over which conditional rights had been awarded to employees under the Plan. The Plan provides for the grant of “nil cost options” to participants as an alternative to share awards. As of March 17, 2006, no such nil cost options had been granted.


	Sharesave Plan

The Sharesave Plan is a savings plan whereby employees contract to save a fixed amount each month with a Savings Institution for 3 or 5 years. At the end of the savings term, employees are given the option to purchase shares at a price set before savings began. The Sharesave Plan is available to all UK employees (including executive directors) employed by participating Group companies provided they have been employed for at least one year. The Plan provides for the grant of options to subscribe for ordinary shares at the higher of nominal value and not less than 80% of the middle market quotations of the ordinary shares immediately before invitations go out. As of March 17, 2006, options over 725,292 IHG PLC shares were outstanding under the Sharesave Plan at a subscription price of 420.5p, exercisable up to the year 2009.


	*Options and Ordinary Shares held by Directors*

Details of the directors’ interests in the Company’s shares are set out on page 68 and in Note 3 of the Notes to the Financial Statements.

BOARD PRACTICES


	*Contracts of Service*

The Remuneration Committee’s policy is for Executive Directors to have rolling contracts with a notice period of 12 months.

Richard Hartman, Stevan Porter and Richard Solomons have service agreements with a notice period of 12 months. Andrew Cosslett entered into a service agreement with an initial notice period of 24 months, reducing month by month to 12 months of service. As at the date of this report, Andrew Cosslett’s notice period is 12 months. All new appointments are intended to have 12-month notice periods. However, on occasion, to complete an external recruitment successfully, a longer initial period reducing to 12 months may be useful.

David Webster ceased to act in his temporary capacity as interim Chief Executive following the appointment of Andrew Cosslett as Chief Executive on February 3, 2005. David Webster’s appointment as non-executive Chairman, effective from January 1, 2004, is subject to six months’ notice.

Non-executive directors, Ralph Kugler, Robert C. Larson, Sir David Prosser and Sir Howard Stringer signed letters of appointment effective from the listing of IHG PLC in April 2003. These were renewed, effective from completion of the capital reorganisation of the Group and the listing of new IHG PLC shares on June 27, 2005. David Kappler signed a letter of appointment effective from his date of original appointment to the Board on June 21, 2004. This was also renewed, effective from June 27, 2005. Jennifer Laing and Jonathan Linen signed letters of appointment effective from their appointment dates, respectively August 25, 2005 and December 1, 2005.

All non-executive directors’ appointments, with the exception of the Chairman, are subject to three months’ notice.


	*Directors’ Contracts*


	Contract		Unexpired term/
Directors	effective date		notice period

Andrew Cosslett		2.3.05		12 months
Richard Hartman		4.15.03		12 months
Stevan Porter		4.15.03		12 months
Richard Solomons		4.15.03		12 months

Each of the executive directors signed a letter of appointment, effective from completion of the capital reorganization of the Group and the listing of new IHG PLC shares on June 27, 2005. The terms of each appointment were as set out in each executive director’s original service agreement.

See Note 3 of the Notes to the Financial Statements for details of directors’ service contracts.


	*Payments on Termination*

No provisions for compensation for termination following change of control, or for liquidated damages of any kind, are included in the current directors’ contracts. In the event of any early termination of an executive director’s contract the policy is to seek to minimize any liability.

Upon retirement, and under certain other specified circumstances on termination of his employment, a director will become eligible to receive benefit from his participation in a Company pension plan. See Note 3 of Notes to the Financial Statements for details of directors’ pension entitlements at December 31, 2005.

Committees

Each Committee of the Board has written terms of reference which have been approved by the Board.

Executive Committee

The Executive Committee is chaired by the Chief Executive. It consists of the executive directors and senior executives from the Group and the regions and usually meets monthly. Its role is to consider and manage a range of important strategic and business issues facing the Group. It is responsible for monitoring the performance of the regional Hotels businesses and, until its flotation as an independent company in December 2005, the Britvic business. It is authorised to approve capital and revenue investment within levels agreed by the Board. It reviews and recommends to the Board the most significant investment proposals.

Audit Committee

The Audit Committee is chaired by David Kappler who has significant recent and relevant financial experience and is the Committee’s financial expert. During 2005, the other Audit Committee members were

Sir David Prosser, Ralph Kugler and, from August 25, 2005, Jennifer Laing. All Audit Committee members are independent. The Audit Committee is scheduled to meet at least four times a year. All Audit Committee members attended every meeting.

The Audit Committee’s principal responsibilities are as follows:


	•	review the Group’s public statements on internal control and corporate governance compliance prior to their consideration by the Board;

	•	review the Group’s processes for detecting and addressing fraud, misconduct and control weaknesses and to consider the response to any such occurrence, including overseeing the process enabling the anonymous submission of concerns;

	•	review reports from management, internal audit and external audit concerning the effectiveness of internal control, financial reporting and risk management processes;

	•	review with management and the external auditor any financial statements required under UK or US legislation before submission to the Board;

	•	establish, review and maintain the role and effectiveness of the Internal Audit function, including overseeing the appointment of the Head of Internal Audit;

	•	assuming responsibility for the appointment, compensation, dismissal and the oversight of the external auditor, including review of the external audit, its cost and effectiveness;

	•	pre-approve non-audit work to be carried out by the external auditor and the fees to be paid for that work along with the monitoring of the external auditor’s independence; and

	•	adopt and oversee a specific Code of Ethics for the senior financial officers, which is consistent with the Group’s overall Guidelines for Proper Business Conduct.

The Audit Committee discharges its responsibilities through a series of meetings throughout the year at which detailed reports are presented for review. The Audit Committee commissions reports, either from external advisers, the Head of Internal Audit, or Group management, after consideration of the major risks to the Group or in response to developing issues. The external auditor attends meetings of the Audit Committee as does the Head of Internal Audit, both of whom have the opportunity to meet privately with the Audit Committee, in the absence of Group management, at the conclusion of each meeting. All proposals for the provision of non-audit services by the external auditor are pre-approved by the Audit Committee or its delegated member, the overriding consideration being to ensure that the provision of non-audit services does not impact the external auditor’s independence and objectivity.

Remuneration Committee

The Remuneration Committee, chaired by Sir David Prosser, also comprises the following non-executive directors: David Kappler, Robert C Larson, Jonathan Linen and Sir Howard Stringer. It meets at least three times a year. The Committee advises the Board on overall remuneration policy. The Remuneration Committee also determines, on behalf of the Board, and with the benefit of advice from external consultants and members of the Human Resources department, the remuneration packages of the executive directors and other members of the Executive Committee. No member of the Committee has any personal financial interest, other than as a shareholder, in the matters to be decided by the Committee.

Nomination Committee

The Nomination Committee’s quorum comprises any three non-executive directors although, where possible, all non-executive directors are present. It is chaired by the Chairman of the Company. The Nomination Committee is responsible for nominating, for the approval of the Board, candidates for appointment to the Board, and also for succession planning. The Nomination Committee generally engages external consultants to advise on candidates for Board appointments, and did so in connection with the appointments of Jennifer Laing and Jonathan Linen. Candidate profiles and objective selection criteria were prepared in advance of these engagements. The Committee also assists the Board in identifying and developing the role of the Senior Independent Director.

Disclosure Committee

The Disclosure Committee, chaired by the Group’s Financial Controller and comprising of the Company Secretary and other senior executives, reports to the Chief Executive, the Finance Director, and to the Audit Committee. Its duties include ensuring that information required to be disclosed in reports pursuant to UK and US accounting, statutory or listing requirements, fairly represent the Group’s position in all material respects.

General Purposes Committee

The General Purposes Committee comprises any two executive directors or any one executive director together with a senior officer from an agreed and restricted list of senior executives. It is always chaired by a director. It attends to business of a routine nature and to the administration of matters on an ad hoc basis, the principles of which have been agreed previously by the Board or an appropriate Committee.

A description of the significant ways in which the Company’s actual corporate governance practices differ from the New York Stock Exchange corporate governance requirements followed by U.S. companies can be found on the Company’s website at www.ihgplc.com.

EMPLOYEES

The Group employed an average of 21,986 people worldwide in the year ended December 31, 2005. Of these, approximately 95% were employed on a full-time basis and 5% were employed on a part-time basis.

The table below analyzes the distribution of the average number of employees for the last three fiscal periods by division and by geographic region.


			Rest of Europe,
			the Middle East
	United Kingdom		and Africa		United States		Asia Pacific		Total

2005:
Hotels		4,610		6,145		6,329		1,911		18,995
Soft Drinks⁽ⁱ⁾		2,991		—		—		—		2,991

InterContinental Hotels Group		7,601		6,145		6,329		1,911		21,986

2004:
Hotels		9,676		6,601		8,241		2,317		26,835
Soft Drinks⁽ⁱ⁾		2,824		—		—		—		2,824

InterContinental Hotels Group		12,500		6,601		8,241		2,317		29,659

2003:
Hotels		11,174		5,585		5,704		4,648		27,111
Soft Drinks		2,698		—		—		—		2,698

InterContinental Hotels Group		13,872		5,585		5,704		4,648		29,809
Discontinued operations		15,014		—		—		—		15,014

		28,886		5,585		5,704		4,648		44,823


(i)	With effect from December 14, 2005, the Group no longer employed any individuals in the Soft Drinks Sector.

Under EU law, many employees of Group companies are now covered by the Working Time Regulations which came into force in the United Kingdom on October 1, 1998. These regulations implemented the European Working Time Directive and parts of the Young Workers Directive, and lay down rights and protections for employees in areas such as maximum working hours, minimum rest time, minimum days off and paid leave.

In the United Kingdom there is in place a national minimum wage under the National Minimum Wage Act. At December 31, 2005, the minimum wage for individuals between 18 and under the age of 22 was £4.25 per hour and £5.05 per hour for individuals age 22 and above. This particularly impacts businesses in the

hospitality and retailing sectors. Compliance with the National Minimum Wage Act is being monitored by the Low Pay Commission, an independent statutory body established by the UK Government.

Less than 5% of the Group’s UK employees are covered by collective bargaining agreements with trade unions.

Continual attention is paid to the external market in order to ensure that terms of employment are appropriate. The Group believes the Group companies will be able to conduct their relationships with trade unions and employees in a satisfactory manner.

SHARE OWNERSHIP

The interests of the directors and officers of the Company at March 17, 2006 were as follows:


	Ordinary shares
	of 10 pence

Directors
Andrew Cosslett		94,741
Richard Hartman		183,682
David Kappler		1,908
Ralph Kugler		654
Jennifer Laing		—
Robert C. Larson		7,857	⁽¹⁾
Jonathan Linen		10,000	⁽¹⁾
Stevan Porter		175,834
Sir David Prosser		3,273
Richard Solomons		164,005
Sir Howard Stringer		5,548
David Webster		31,823

Officers
Tom Conophy		85,846
Peter Gowers		70,660
A. Patrick Imbardelli		137,783
Tracy Robbins		15,470
Richard Winter		83,378


(1)	Held in the form of American Depositary Receipts

The above shareholdings are all beneficial interests and include shares held for the benefit of directors and officers by trustees of the Company’s Executive Share Ownership Trust. The percentage of ordinary share capital owned by each of the directors is negligible.

On March 17, 2006, the executive directors’ technical interest in unallocated IHG PLC ordinary shares held by the Trustees of the Employee Share Ownership Trust was 2,280,531 shares.

The directors’ interests in options to subscribe for shares in InterContinental Hotels Group PLC as at December 31, 2005 are set out in Note 3 of Notes to the Financial Statements.

The directors do not have different voting rights from other shareholders of the Company.


ITEM 7.	*MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS*

MAJOR SHAREHOLDERS

As far as is known to management, IHG PLC is not directly or indirectly owned or controlled by another corporation or by any government. Under the provisions of Section 198 of the Companies Act, the Company has been advised of the following interests in its shares, being greater than 3% of its issued share capital as at March 17, 2006:

March 2006

April 2005

April 2004

Number of

Percent

Number of

Percent

Number of

Percent

Identity of person or group

shares/ADSs

of class

shares/ADSs

of class

shares/ADSs

of class

Lloyds TSB Group Plc

19,534,651

4.51%

26,773,575

4.44%

⁽¹⁾

Legal & General Group Plc

13,753,588

3.17%

24,233,225

4.02%

29,924,045

4.10%

Barclays PLC

⁽¹⁾

20,246,584

3.36%

⁽¹⁾

AXA SA

⁽¹⁾

18,121,201

3.00%

⁽¹⁾

Dodge & Cox Funds

⁽¹⁾

25,106,594

3.40%


(1)	No notification of an above 3% shareholding received.

The Company’s major shareholders do not have different voting rights from other shareholders of the Company. The Company does not know of any arrangements the operation of which may result in a change in its control.

As of March 17, 2006, 20,478,463 ADSs equivalent to 20,478,463 ordinary shares, or approximately 4.5% of the total ordinary shares in issue, were outstanding and were held by 1,181 holders. Since certain ordinary shares are registered in the names of nominees, the number of shareholders of record may not be representative of the number of beneficial owners.

As of March 17, 2006, there were a total of 75,331 record holders of ordinary shares, of whom 206 had registered addresses in the United States and held a total of 144,752 ordinary shares (0.03% of the total issued).

RELATED PARTY TRANSACTIONS

The Company has not entered into any related party transactions or loans for the period beginning January 1, 2005 up to March 17, 2006.


ITEM 8.	*FINANCIAL INFORMATION*

CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION


	*Financial Statements*

See “Item 18. Financial Statements”.


	*Legal Proceedings*

Group companies have extensive operations in the United Kingdom, as well as internationally, and are involved in a number of legal and arbitration proceedings incidental to those operations. It is the Company’s view that such proceedings, either individually or in the aggregate, have not in the recent past and are not likely to have a significant effect on the Group’s financial position or profitability.


	*Dividends*

See “Item 3. Key Information — Dividends”.

SIGNIFICANT CHANGES

None.


ITEM 9.	*THE OFFER AND LISTING*

The principal trading market for the Company’s ordinary shares is the London Stock Exchange on which Six Continents shares were traded since its incorporation in 1967 until Separation in 2003 and on which InterContinental Hotels Group shares have been traded since Separation. The ordinary shares are also listed on the New York Stock Exchange trading in the form of ADSs evidenced by ADRs. Each ADS represents one ordinary share. InterContinental Hotels Group has a sponsored ADR facility with JPMorgan Chase Bank, N.A. as Depositary.

The following tables show, for the fiscal periods indicated, the reported high and low middle market quotations (which represent an average of closing bid and ask prices) for the ordinary shares on the London Stock Exchange, as derived from the Daily Official List of the UK Listing Authority, and the highest and lowest sales prices of the ADSs as reported on the New York Stock Exchange composite tape.


	£ per
	ordinary share				$ per ADS

Year ended September 30	High		Low		High		Low

2001		8.02		5.49		12.00		7.75
2002		7.83		5.41		11.73		7.49


	£ per
	ordinary share				$ per ADS

15 months ended December 31	High		Low		High		Low

2003 — October 1 to April 11 Six Continents		6.35		4.61		10.08		7.49
2003 — April 15 to December 31 IHG		5.55		3.38		9.82		5.26
Year ended December 31


2004		6.91		4.79		13.09		8.70
2005		8.42		6.12		14.53		11.49


	£ per
	ordinary share				$ per ADS

Year ended December 31	High		Low		High		Low

2004
First quarter		5.75		4.79		10.80		8.90
Second quarter		5.82		4.87		10.78		8.70
Third quarter		6.49		5.37		11.82		9.88
Fourth quarter		6.91		6.45		13.09		11.80
2005
First quarter		6.97		6.17		13.06		11.65
Second quarter		7.06		6.12		12.99		11.49
Third quarter		7.57		7.01		13.81		12.44
Fourth quarter		8.42		6.88		14.53		12.04
2006
First quarter (through March 17, 2006)		9.01		8.07		15.83		14.40


	£ per
	ordinary share				$ per ADS

Month ended	High		Low		High		Low

September 2005		7.50		7.06		13.76		12.53
October 2005		7.25		6.88		12.79		12.04
November 2005		8.00		7.20		13.76		12.67
December 2005		8.42		7.90		14.53		13.77
January 2006		8.66		8.07		15.39		14.40
February 2006		8.88		8.51		15.57		14.79
March 2006 (through to March 17, 2006)		9.01		8.31		15.83		14.40

Fluctuations in the exchange rates between pounds sterling and the US dollar will affect the dollar equivalent of the pounds sterling price of the ordinary shares on the London Stock Exchange and, as a result, are likely to affect the market price of ADSs.

PLAN OF DISTRIBUTION

Not applicable.

SELLING SHAREHOLDERS

Not applicable.

DILUTION

Not applicable.

EXPENSES OF THE ISSUE

Not applicable.


ITEM 10.	*ADDITIONAL INFORMATION*

MEMORANDUM AND ARTICLES OF ASSOCIATION

The following summarizes material rights of holders of the Company’s ordinary shares under the material provisions of the Company’s memorandum and articles of association and English law. This summary is qualified in its entirety by reference to the Companies Act and the Company’s memorandum and articles of association. The Company’s memorandum and articles of association were filed as an exhibit to the Company’s Registration Statement on Form S-8 (File No. 1-10409) filed with the SEC on June 27, 2005.

The Company’s shares may be held in certificated or uncertificated form. No holder of the Company’s shares will be required to make additional contributions of capital in respect of the Company’s shares in the future.

In the following description, a “shareholder” is the person registered in the Company’s register of members as the holder of the relevant share.

Principal Objects

The Company is incorporated under the name InterContinental Hotels Group PLC and is registered in England and Wales with registered number 5134420. The Company’s memorandum of association provides that its objects include to acquire certain predecessor companies and carry on business as an investment holding company, licensed victuallers, to deal in commodities, to acquire and operate breweries, hotels and restaurants, as well as to carry on any other business which the Company may judge capable of enhancing the value of the Company’s property or rights. The memorandum grants to the Company a range of corporate capabilities to effect these objects.

Directors

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

The directors are empowered to exercise all the powers of the Company to borrow money, subject to the limitation that the aggregate amount of all moneys borrowed by the Company and its subsidiaries shall not exceed an amount equal to three times the Company’s share capital and aggregate reserves, unless sanctioned by an ordinary resolution of the Company.

Directors are not required to hold any shares of the Company by way of qualification.

Rights Attaching to Shares

Under English law, dividends are payable on the Company’s ordinary shares only out of profits available for distribution, as determined in accordance with accounting principles generally accepted in the United Kingdom and by the Companies Act. Holders of the Company’s ordinary shares are entitled to receive such dividends as may be declared by the shareholders in general meeting, rateably according to the amounts paid up on such shares, provided that the dividend cannot exceed the amount recommended by the directors.

The Company’s board of directors may pay shareholders such interim dividends as appear to them to be justified by the Company’s financial position. If authorized by an ordinary resolution of the shareholders, the board of directors may also direct payment of a dividend in whole or in part by the distribution of specific assets (and in particular of paid up shares or debentures of any other company).

Any dividend unclaimed after six years from the date the dividend was declared, or became due for payment, will be forfeited and will revert to the Company.

Voting Rights

Voting at any general meeting of shareholders is by a show of hands unless a poll, which is a written vote, is duly demanded. On a show of hands, every shareholder who is present in person or by proxy at a general meeting has one vote regardless of the number of shares held. On a poll, every shareholder who is present in person or by proxy has one vote for every 10 pence in nominal amount of the shares held by that shareholder. A poll may be demanded by any of the following:


	•	the chairman of the meeting;

	•	at least five shareholders entitled to vote at the meeting;

	•	any shareholder or shareholders representing in the aggregate not less than one-tenth of the total voting rights of all shareholders entitled to vote at the meeting; or

	•	any shareholder or shareholders holding shares conferring a right to vote at the meeting on which there have been paid-up sums in the aggregate equal to not less than one-tenth of the total sum paid up on all the shares conferring that right.

A proxy form will be treated as giving the proxy the authority to demand a poll, or to join others in demanding one.

The necessary quorum for a general meeting is three persons carrying a right to vote upon the business to be transacted, whether present in person or by proxy.

Matters are transacted at general meetings of the Company by the proposing and passing of resolutions, of which there are three kinds:


	•	an ordinary resolution, which includes resolutions for the election of directors, the approval of financial statements, the cumulative annual payment of dividends, the appointment of auditors, the increase of authorized share capital or the grant of authority to allot shares;

	•	a special resolution, which includes resolutions amending the Company’s memorandum and articles of association, disapplying statutory pre-emption rights or changing the Company’s name; and

	•	an extraordinary resolution, which includes resolutions modifying the rights of any class of the Company’s shares at a meeting of the holders of such class or relating to certain matters concerning the Company’s winding up.

An ordinary resolution requires the affirmative vote of a majority of the votes of those persons voting at a meeting at which there is a quorum.

Special and extraordinary resolutions require the affirmative vote of not less than three-fourths of the persons voting at a meeting at which there is a quorum.

In the case of an equality of votes, whether on a show of hands or on a poll, the chairman of the meeting is entitled to cast the deciding vote in addition to any other vote he may have.

Annual General Meetings must be convened upon advance written notice of 21 days. Other meetings must be convened upon advance written notice of 21 days for the passing of a special resolution and 14 days for any other resolution, depending on the nature of the business to be transacted. The days of delivery or receipt of the notice are not included. The notice must specify the nature of the business to be transacted. The board of directors may if they choose make arrangements for shareholders who are unable to attend the place of the meeting to participate at other places.

Each Director shall retire every three years in Annual General Meeting and unless otherwise decided by the Directors, shall be eligible for re-election. Any director attaining 70 years of age shall retire at the next Annual General Meeting. Such a director may be re-elected but shall retire every year (and be eligible for re-election) at the next, and all subsequent, Annual General Meetings.

Variation of Rights

If, at any time, the Company’s share capital is divided into different classes of shares, the rights attached to any class may be varied, subject to the provisions of the Companies Act, with the consent in writing of holders of three-fourths in value of the shares of that class or upon the adoption of an extraordinary resolution passed at a separate meeting of the holders of the shares of that class. At every such separate meeting, all of the provisions of the articles of association relating to proceedings at a general meeting apply, except that the quorum is to be the number of persons (which must be two or more) who hold or represent by proxy not less than one-third in nominal value of the issued shares of the class.

Rights in a Winding-up

Except as the Company’s shareholders have agreed or may otherwise agree, upon the Company’s winding up, the balance of assets available for distribution:


	•	after the payment of all creditors including certain preferential creditors, whether statutorily preferred creditors or normal creditors; and

	•	subject to any special rights attaching to any class of shares;

is to be distributed among the holders of ordinary shares according to the amounts paid-up on the shares held by them. This distribution is generally to be made in cash. A liquidator may, however, upon the adoption of an

extraordinary resolution of the shareholders, divide among the shareholders the whole or any part of the Company’s assets in kind.

Limitations on Voting and Shareholding

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

MATERIAL CONTRACTS

The following contracts have been entered into otherwise than in the course of ordinary business by members of the Group either (i) in the two years immediately preceding the date of this document in the case of contracts which are or may be material or (ii) which contain provisions under which any Group member has any obligation or entitlement which is material to the Group as at the date of this document. To the extent that these agreements include representations, warranties and indemnities, such provisions are considered standard in an agreement of that nature, save to the extent identified below.


	*IHG Facility Agreement*

On November 9, 2004, InterContinental Hotels Limited signed a five year £1,600 million bank facility agreement (the “IHG Facility Agreement”) with The Bank of Tokyo-Mitsubishi, Ltd., Barclays Capital, Citigroup Global Markets Limited, HSBC Bank plc, J.P. Morgan plc, Lloyds TSB Bank plc, The Royal Bank of Scotland plc, SG Corporate & Investment Banking (the corporate and investment banking division of Société Generale) and WestLB AG, London Branch, all acting as mandated lead arrangers and underwriters and HSBC Bank plc as agent bank.

The facility was split into a £1.1 billion five year revolving credit facility and a £500 million 364 day revolving credit facility. The latter was canceled in November 2005.

The interest margin payable on borrowings under the IHG Facility Agreement is linked to IHG’s consolidated net debt to consolidated EBITDA ratio; initially the margin was set at LIBOR + 0.375% p.a. The margin can vary between LIBOR + 0.325% and LIBOR + 0.60% depending on the level of the ratio.

As part of this refinancing the Group repurchased its euro and sterling denominated bonds. The Group’s new parent company InterContinental Hotels Group PLC, acceded to the IHG Facility Agreement in July 2005, following the capital restructuring described in Item 4.


	*Disposal to Hospitality Properties Trust*

On December 17, 2004, BHR Texas L.P., InterContinental Hotels Group Resources, Inc., Crowne Plaza LAX, LLC, Crowne Plaza Hilton Head Holding Company, Holiday Pacific Partners Limited Partnership, 220 Bloor Street Hotel Inc. and Staybridge Markham, Inc. (together, the “Vendors”) entered into a Purchase and Sale Agreement (as amended and restated on February 9, 2005) with HPT IHG — 2 Properties Trust (“HPT IHG-2”), pursuant to which HPT IHG-2 purchased from the Vendors 12 hotels situated in the United States and Canada. On the same date, Six Continents International Holdings B.V. (“SIH”), entered into a Stock Purchase Agreement (as amended and restated on February 9, 2005) with HPT IHG-2, pursuant to which HPT IHG-2 purchased from SIH all of the shares in Crowne Plaza (Puerto Rico) Inc., which is the owner of a hotel in Puerto Rico. The total consideration payable by HPT IHG-2 for the sales amounted to US$425 million, before transaction costs, equivalent to net book value (of which US$395 million was received upon the main completion of the sale on February 16, 2005, with the remaining US$30 million received upon the completion of the sale of the InterContinental Hotel in Austin, on June 1, 2005). The Group continues to manage the hotels.

Under the Purchase and Sale Agreement and Stock Purchase Agreement, the Vendors have given certain customary warranties and indemnities to HPT IHG-2.

In connection with the disposals referred to above, IHG has agreed to guarantee certain amounts payable to HPT IHG and HPT IHG-2 in relation to the managed hotels sold by the Group to HPT IHG and HPT IHG-2. The guarantee is for a maximum amount of US$125 million and requires amounts to be paid by IHG to HPT IHG and/or HPT IHG-2 (and/or their designated affiliate) irrespective of the revenue generated by the relevant hotels. The guarantee may be terminated if certain financial tests are met.


	*UK Hotels Disposal*

A Share Purchase Agreement (the “SPA”) was entered into on March 10, 2005 between Six Continents, IHC London (Holdings) Limited (“IHC Holdings”) and LRG Acquisition and LRG Holdings Limited (“LRG”). Pursuant to the SPA, Six Continents and IHC Holdings (the “Sellers”) agreed to sell all of the issued ordinary share capital of Six Continents Hotels & Holidays Limited, Holiday Inn Limited, NAS Cobalt No. 2 Limited and London Forum Hotel Limited respectively (together, the “LRG Shares”) to LRG and to transfer to LRG certain contractual rights to the extent they related to the hotels LRG indirectly acquired under the SPA (the “LRG Hotels”) and which remained to be completed or performed, or remained in force, after completion of the sale of the LRG Shares to LRG.

The agreed sale price for the LRG Shares was £1 billion. Receipt of £40 million of the total proceeds has been deferred, contingent upon certain pre-agreed performance targets being reached. Following completion, the Group continues to manage the LRG Hotels.

Under the SPA, the Sellers gave certain warranties in relation to the assets disposed of and LRG gave certain warranties in relation to its authority to enter into the SPA and its capacity to perform its obligations under the SPA. Certain indemnities were also given by the Sellers.

Australasian Hotels Disposals

On September 1, 2005, Holiday Inn Holdings (Australia) Pty Limited, SPHC Group Pty Limited and HIA(T) Pty Limited (for the Australian assets) and Hale International Limited (for the New Zealand asset), all three of which are members of the Group, (“IHG”) entered into two sale and purchase agreements with HANZ (Australia) Pty Limited (for the Australian assets) and HANZ Holdings (New Zealand) Limited (for the New Zealand asset), both companies being subsidiaries of the Hotel Alternative (Australia and New Zealand) Private Syndicate managed by Eureka Funds Management Limited (“Eureka”) pursuant to which Eureka purchased from IHG nine hotels situated in Australia and New Zealand for AUS$390 million in cash (before transaction costs) which is AUS$75 million above the net book value of AUS$315 million. IHG has given to Eureka normal warranties in relation to the hotels and an indemnity for pre-completion tax liabilities. The transaction completed on October 31, 2005.

The Group will continue to manage the hotels for Eureka under ten year management contracts entered into at the time of the transaction, with an option to extend for ten further years at the Group’s discretion.

Britvic Underwriting Agreement

An Underwriting Agreement was entered into on November 25, 2005 between, inter alia, Britvic, IHG in its capacity as a selling shareholder, the directors of Britvic, Citigroup and Deutsche Bank AG (as joint sponsors) and Citigroup, Deutsche Bank AG, Lehman Brothers International (Europe) and Merrill Lynch International (as joint Underwriters). This sets out the mechanics for the Britvic initial public offering and includes customary termination rights. Britvic has given customary warranties, indemnities and undertakings in the context of an agreement of this sort. IHG has also given customary warranties and indemnities in its capacity as a selling shareholder. Under this agreement, each of the selling shareholders will pay a commission equal to 2% of the offer price multiplied by the number of shares to be sold by that selling shareholder to the joint Underwriters. A further commission of up to 1% may be payable at each selling shareholder’s discretion.

Disposal to Westbridge

On March 10, 2006 a Sale and Purchase Agreement (“SPA”) was entered into between BHR Luxembourg S.a.r.l. and other wholly owned subsidiaries of IHG as sellers (BHR Luxembourg S.a.r.l. being the principal seller) and Cooperatie Westbridge Europe I U.A. as purchaser and Westbridge Hospitality Fund L.P. as the purchaser’s guarantor. Under the SPA the sellers have agreed to sell 24 hotels situated across Europe in France, Germany, Belgium, the Netherlands, Austria, Italy and Spain. The sale of four hotels is by way of asset transfer, with the remaining 20 hotels being sold through a sale of the shares in the relevant IHG subsidiaries.

The agreed sale price is €352 million. IHG’s share of the proceeds is €345.2 million (before transaction costs), in cash and the assumption of debt, and the balance of € 6.8 million relates to third-party minority interests.

Completion is subject only to clearance by the German Federal Cartel Office (“Bundeskarlellamt”) and is expected to take place at the end of April 2006.

Upon completion the hotels will continue to be operated by the purchaser under the same IHG brands under 15 year franchise agreements.

Under the SPA the sellers gave certain customary warranties and indemnities to the purchaser.

EXCHANGE CONTROLS

There are no restrictions on dividend payments to US citizens.

Although there are currently no UK foreign exchange control restrictions on the export or import of the capital or the payment of dividends on the ordinary shares or the ADSs, from time to time English law imposes restrictions on the payment of dividends to persons resident (or treated as so resident) in or governments of (or persons exercising public functions in) certain countries (each of the foregoing, a “Prohibited Person”).

There are no restrictions under the articles of association or under English law that limit the right of non-resident or foreign owners to hold or vote the ordinary shares. However, under current English law, ordinary shares or ADSs may not be owned by a Prohibited Person. In addition, the Company’s articles of association contain certain limitations on the voting and other rights of any holder of ordinary shares, whose holding may, in the opinion of the directors, result in the loss or failure to secure the reinstatement of any license or franchise from any US governmental agency held by Six Continents Hotels Inc or any subsidiary thereof.

TAXATION

This section provides a summary of the material US federal income tax and UK tax consequences to US holders, as defined below, of owning and disposing of ordinary shares or ADSs of the Company. This section addresses only the tax position of a US holder who holds ordinary shares or ADSs as capital assets. This section does not, however, discuss the tax consequences of members of special classes of holders subject to special rules, such as


	•	certain financial institutions;

	•	insurance companies;

	•	dealers and traders in securities or foreign currencies;

	•	persons holding ordinary shares or ADSs as part of a hedge, straddle, conversion transaction or other integrated transaction;

	•	persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar;

	•	partnerships or other entities classified as partnerships for U.S. federal income tax purposes;

	•	persons liable for the alternative minimum tax;


	•	tax-exempt organizations;

	•	persons who acquired our ADSs or shares pursuant to the exercise of any employee stock option or otherwise as compensation.

and holders that, directly or indirectly, hold 10% or more of the Company’s voting stock. This section does not generally deal with the position of a US holder who is resident or ordinarily resident in the United Kingdom for UK tax purposes or who is subject to UK taxation on capital gains or income by virtue of carrying on a trade, profession or vocation in the United Kingdom.

A US holder is a beneficial owner of shares or ADSs that is for US federal income tax purposes (i) a citizen or resident of the US, (ii) a US domestic corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States or any political subdivision thereof; or (iii) an estate whose income is subject to US federal income tax regardless of its source, or (iv) a trust if a US court can exercise primary supervision over the trust’s administration and one or more United States persons are authorized to control all substantial decisions of the trust.

This section is based on the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations, published rulings and court decisions, and on UK tax laws and published practice of the UK Inland Revenue, all as currently in effect, and on the current Double Taxation Convention between the United States and the United Kingdom (the “Treaty”). These laws are subject to change, possibly on a retroactive basis.

This section is further based in part upon the representations of the Depositary and assumes that each obligation in the Company ADR Deposit Agreement and any related agreement will be performed in accordance with its terms. For US federal income tax purposes, a holder of ADRs evidencing ADSs will be treated as the owner of the shares represented by those ADRs. Generally, exchanges of ordinary shares for ADRs, and ADRs for ordinary shares, will not be subject to US federal income tax or UK taxation on capital gains.

The US Treasury has previously expressed concerns that parties to whom ADRs are pre-released may be taking actions that are inconsistent with the claiming of foreign tax credits for US holders of ADRs. Such actions would also be inconsistent with the claiming of the reduced rate of tax, described below, for qualified dividend income. Accordingly, the analysis of the availability of the reduced rate of tax for qualified dividend income described below could be affected by actions taken by parties to whom the ADRs are pre-released.

Investors should consult their own tax advisor regarding the US federal, state and local, the UK and other tax consequences of owning and disposing of shares and ADSs in their particular circumstances, and in particular whether they are eligible for the benefits of the Treaty.


	*Taxation of Dividends*


	United Kingdom Taxation

Under current UK tax law, the Company will not be required to withhold tax at source from dividend payments it makes.


	United States Federal Income Taxation

Subject to the passive foreign investment company (“PFIC”) rules discussed below, a US holder is subject to US federal income taxation on the gross amount of any dividend paid by the Company out of its current or accumulated earnings and profits (as determined for US federal income tax purposes). Subject to applicable limitations and the discussion above regarding concerns expressed by the US Treasury, dividends paid to a non-corporate US holder in taxable years beginning before January 1, 2009 that constitute qualified dividend income will be taxable to the holder at a maximum tax rate of 15%. The Company expects that dividends paid by the Company with respect to the shares or ADSs will constitute qualified dividend income. U.S. Holders should consult their own tax advisors to determine whether they are subject to any special rules that limit their ability to be taxed at this favorable rate.

Dividends must be included in income when the US holder, in the case of shares, or the Depositary, in the case of ADSs, actually or constructively receives the dividend, and will not be eligible for the dividends-received deduction generally allowed to US corporations in respect of dividends received from other US corporations. For foreign tax credit limitation purposes, dividends will be income from sources outside the United States.

The amount of any dividend paid in pounds will be the US dollar value of the pound sterling payments made, determined at the spot pound sterling/ US dollar rate on the date the dividend distribution is includible in income, regardless of whether the payment is in fact converted into US dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date the dividend payment is includible in income to the date the payment is converted into US dollars will be treated as ordinary income or loss and, for foreign tax credit limitation purposes, from sources within the United States.

Distributions in excess of the Company’s current or accumulated earnings and profits, as determined for US federal income tax purposes, will be treated as a return of capital to the extent of the US holder’s basis in the shares or ADSs and thereafter as capital gain. Because the Company has not historically maintained, and does not currently maintain, books in accordance with US tax principles, the Company does not expect to be in a position to determine whether any distribution will be in excess of the Company’s current or accumulated earnings and profits as computed for US federal income tax purposes. As a result, the Company expects that amounts distributed will be reported to the Internal Revenue Service as dividends.


	*Taxation of Capital Gains*


	United Kingdom Taxation

A US holder who is not resident or ordinarily resident for United Kingdom tax purposes in the United Kingdom will not generally be liable for UK taxation on capital gains realized or accrued on the sale or other disposal of ADSs or ordinary shares unless, at the time of the sale or other disposal, the US holder carries on a trade, profession or vocation in the United Kingdom through a branch, agency or permanent establishment and such ADSs or ordinary shares are or have been used, held or acquired for the purposes of such trade, profession or vocation.

A US holder of ADSs or ordinary shares who is an individual and who, broadly, has temporarily ceased to be resident or ordinarily resident in the UK or has become temporarily treated non-resident for UK tax purposes for a period of less than five years of assessment and who disposes of ordinary shares or ADSs during that period may, for the year of assessment when that individual becomes resident again in the UK, also be liable to UK tax on capital gains (subject to any available exemption or relief), notwithstanding the fact that such US holder was not resident or ordinarily resident in the United Kingdom at the time of the sale or other disposal. As described below, a US holder will be liable to US federal income tax on such gains.


	United States Federal Income Taxation

Subject to the PFIC rules discussed below, a US holder that sells or otherwise disposes of shares or ADSs will recognize a capital gain or loss for US federal income tax purposes equal to the difference between the US dollar value of the amount realized and its tax basis, determined in US dollars, in the shares or ADSs. Generally, capital gain of a non-corporate US holder that is recognized in tax years beginning before January 1, 2009 is taxed at a maximum rate of 15% where the holder has a holding period greater than one year. The gain or loss will generally be income or loss from sources within the United States for foreign tax credit limitation purposes. The deductibility of losses is subject to limitations.


	*PFIC Rules*

The Company believes that the Company shares and ADSs will not be treated as stock of a PFIC for US federal income tax purposes for its 2005 taxable year. However, this conclusion is an annual factual determination and thus may be subject to change. If the Company were to be treated as a PFIC, unless a US holder elects to be taxed annually on a mark-to-market basis with respect to the Company shares or ADSs,

gain realized on the sale or other disposition of Company shares or ADSs would in general not be treated as capital gain. Instead, gain would be treated as if the US holder had realized such gain ratably over the holding period for the Company shares or ADSs and, to the extent allocated to the taxable year of the sale or other exchange and to any year before the Company became a PFIC, would be taxed as ordinary income. The amount allocated to each other taxable year would be taxed at the highest tax rate in effect for each such year to which the gain was allocated, together with an interest charge in respect of the tax attributable to each such year. In addition, similar rules would apply to any “excess distribution” received on the Company shares or ADSs (generally, the excess of any distribution received on the Company shares or ADSs during the taxable year over 125% of the average amount of distributions received during a specified prior period), and the preferential rate for “qualified dividend income” received by certain non-corporate US holders would not apply.


	*Additional Tax Considerations*


	United Kingdom Inheritance Tax

An individual who is domiciled in the United States (for the purposes of the Estate and Gift Tax Convention) and is not a UK national as defined in the Convention will not be subject to UK inheritance tax in respect of ADSs on the individual’s death or on a transfer of the ADSs during their lifetime, provided that any applicable US federal gift or estate tax is paid, unless the ADSs are part of the business property of a UK permanent establishment or pertain to a UK fixed base of an individual used for the performance of independent personal services. Where the ADSs have been placed in trust by a settlor, they may be subject to UK inheritance tax unless, when the trust was created, the settlor was domiciled in the United States and was not a UK national. Where ADSs are subject to both UK inheritance tax and to US federal gift or estate tax, the Estate and Gift Tax Convention generally provides for either a credit against US federal tax liabilities for UK inheritance tax paid or for a credit against UK inheritance tax liabilities for US federal tax paid, as the case may be.


	United Kingdom Stamp Duty and Stamp Duty Reserve Tax (“SDRT”)

The transfer of ordinary shares will generally be liable to stamp duty at the rate of 0.5% of the amount or value of the consideration given (rounded up to the nearest £5). An unconditional agreement to transfer ordinary shares will generally be subject to SDRT at 0.5% of the agreed consideration. However, if within the period of six years of the date of such agreement becoming unconditional an instrument of transfer is executed pursuant to the agreement and duly stamped, any liability to SDRT will usually be repaid, if already paid, or canceled. The liability to pay stamp duty or SDRT is generally satisfied by the purchaser or transferee.

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

A transfer of ordinary shares effected on a paperless basis within CREST will generally be subject to SDRT at the rate of 0.5% of the value of the consideration.

Stamp duty, or SDRT, is generally payable upon the transfer or issue of ordinary shares to, or to a nominee or, in some cases, agent of, a person whose business is or includes issuing depositary receipts or the provision of clearance services. For these purposes, the current rate of stamp duty and SDRT is usually 1.5% (rounded up, in the case of stamp duty, to the nearest £5). The rate is applied, in each case, to the amount or value of the consideration or, in some circumstances, to the value or the issue price of the ordinary shares. In accordance with the terms of the deposit agreement, any tax or duty payable on deposits of ordinary shares by the depositary or by the custodian of the depositary will be charged to the party to whom ADSs are delivered against such deposits.

Provided that the instrument of transfer is not executed in the United Kingdom and remains at all subsequent times outside the United Kingdom, no stamp duty should be payable on the transfer of ADSs. An agreement to transfer ADSs in the form of depositary receipts will not give rise to a liability to SDRT.

DOCUMENTS ON DISPLAY

It is possible to read and copy documents referred to in this annual report on Form 20-F that have been filed with the SEC at the SEC’s public reference room located at 100 F Street, NE Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms and their copy charges. The Company’s SEC filings since May 22, 2002 are also publicly available through the SEC’s website located at http://www.sec.gov.


ITEM 11.	*QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK*

Exchange and Interest Rate Risk, and Financial Instruments

The Group’s treasury policy is to manage the financial risks that arise in relation to the underlying business needs. The activities of the treasury function are carried out in accordance with board approved policies and are subject to regular internal audit. The treasury function does not operate as a profit center. Treasury activities include money market investments, spot and forward foreign exchange instruments, currency options, currency swaps, interest rate swaps and options, and forward rate agreements.

One of the primary objectives of the Group’s treasury risk management policy is to mitigate the adverse impact of movements in interest rates and foreign exchange rates.

Movements in foreign exchange rates, particularly in the US dollar and the euro, can affect the Group’s reported net income, net assets and interest cover. To hedge this translation exposure as far as is reasonably practical, borrowings are taken out in foreign currencies (either directly or via currency swaps) which broadly match those in which the Group’s major net assets are denominated.

Foreign exchange transaction exposure is managed by the forward purchase or sale of foreign currencies or the use of currency options. Most significant exposures of the Group are in currencies that are freely convertible.

Interest rate exposure is managed within parameters that stipulate that fixed rate borrowings should normally account for no less than 25%, and no more than 75%, of net borrowings for each major currency. This is achieved through the use of interest rate swaps and options, and forward rate agreements.

At December 31, 2005, 36% of borrowings in major currencies were at fixed rates and 64% were at variable rates. Based on the December 31, 2005 net debt position and given the underlying maturity profile of investments, borrowings and hedging instruments at that date, a one percentage point rise in US dollar interest rates would increase the annual interest charge by approximately £1 million whilst a similar rise in euro interest rates would increase the annual interest charge by approximately £4 million.

At December 31, 2004 27% of borrowings in major currencies were at fixed rates and 73% were at variable rates. Based on the period end net debt position, and given the underlying maturity profile of investments, borrowings and hedging instruments at that date, a one percentage point rise in US dollar interest rates or a similar rise in euro rates would increase the annual interest charge by approximately £2 million and £6 million respectively.

Quantitative Information about Market Risk


	*Interest Rate Sensitivity*

The tables below provide information about the Group’s derivative and other financial instruments that are sensitive to changes in interest rates, including interest rate swaps and debt obligations. For long-term debt obligations (excluding debt due entirely within one year), the table presents principal cash flows and related weighted average interest rates by expected maturity dates. For interest rate swaps and forward rate agreements, the table presents notional amounts and weighted average interest rates by expected maturity dates. Weighted average variable rates are based on rates set at the balance sheet date. The actual currencies of the instruments are indicated in parentheses.


	At December 31, 2005


	Expected to mature before December 31,

	2006			2007			2008		2009			2010		Thereafter		Total			Fair value⁽ⁱ⁾

	(£ million, except percentages)
Long-Term Debt:
Fixed Rate (US dollar)		—			—			—		—			—		—		—			—
Average dollar interest rate		—			—			—		—			—		—		—			—
Fixed Rate (£)		—			—			—		—			—		—		—			—
Average interest rate		—			—			—		—			—		—		—			—
Fixed Rate (euro)		0.4			27.9			—		—			—		—		28.3			29.5
Average interest rate		7.8	%		7.0	%		—		—			—		—		7.0	%		—
Variable Rate (various currencies)		1.3			5.3			—		377.4			—		—		384.0			384.0
Average interest rate		2.9	%		2.9	%		—		4.0	%		—		—		3.9	%		—


	Expected to mature before December 31,

	2006			2007		2008		2009		2010		Thereafter		Total			Fair value⁽ⁱ⁾

	(local currency million, except percentages)
Interest Rate Swaps and Forward rate agreements:
Principal (US dollar)		200			—		—		—		—		—		200			(4	)
Fixed rate payable		4.5	%		—		—		—		—		—		4.5	%		—
Variable rate receivable		4.3	%		—		—		—		—		—		4.3	%		—
Principal (euro)		160			—		—		—		—		—		160			(1	)
Fixed rate payable		2.1	%		—		—		—		—		—		2.1	%		—
Variable rate receivable		2.5	%		—		—		—		—		—		2.5	%		—


(i)	Represents the net present value of the expected cash flows discounted at current market rates of interest.


	*Exchange Risk Sensitivity*

The following information provides details of the Group’s derivative and other financial instruments by currency presented in sterling equivalents. The tables above provide details of non-sterling denominated long-term debt obligations which are subject to foreign currency exchange rates movements while the table below presents amounts and weighted average rates of foreign currency forward exchange contracts held at December 31, 2005. All forward exchange agreements mature within one year.


	At December 31, 2005


	Receive for $

			Average
	Contract		contractual
	amount		exchange rate

	(£ million)
Sterling		17.4		1.72

Fair value of forward contracts		0.0

As part of the strategy to provide a currency hedge against currency net assets, the Group enters into currency swap agreements. A swap agreement has the effect of depositing cash surplus to immediate requirements and borrowing currencies which are required.

The Group had the following currency swap agreements at December 31, 2005:


	Deposited		Borrowed
	2005		2005

	(million)
Sterling to US dollar		£ 58		$100
Sterling to euro		£304		€450


ITEM 12.	*DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES*

Not applicable.

PART II


ITEM 13.	*DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES*

None.


ITEM 14.	*MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS*

None.


ITEM 15.	*CONTROLS AND PROCEDURES*

As at the end of the period covered by this report, the Company carried out an evaluation under the supervision and with the participation of the Company’s management, including the Chief Executive and Finance Director, of the effectiveness of the design and operation of the disclosure controls and procedures (as defined in Rules 13a-15(c) and 15d-15(e)). These are defined as those controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the specified periods. Based on that evaluation, the Chief Executive and Finance Director concluded that the Company’s controls and procedures were effective.

There have been no significant changes in the Company’s internal controls over financial reporting that occurred during the period covered by this Form 20-F that have materially affected, or are reasonably likely to materially affect, the Group’s internal control over financial reporting.


ITEM 16.	*[RESERVED]*

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

The Senior Independent Director David Kappler, who has significant recent and relevant financial experience is the “Audit Committee Financial Expert” as defined under the regulations of the US Securities and Exchange Commission. David Kappler is independent as that term is defined under the listing Standards of the NYSE.

ITEM 16B. CODE OF ETHICS

The board has agreed the adoption of a specific Code of Ethics for Senior Financial Officers, consistent with the Company’s existing Guidelines for Proper Business Conduct. This Code of Ethics has been signed by the Chief Executive and the Finance Director of the Company and by the Group Financial Controller and regional financial heads. The Company has published its Code of Ethics for Senior Financial Officers on its website.

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Fees for professional services provided by Ernst & Young LLP, the Group’s independent auditors in each of the last two fiscal periods in each of the following categories are:


	Year ended		Year ended
	December 31,		December 31,
	2005		2004

	(£ million)
Audit fees		3.9		3.8
Audit related fees		2.7		1.6
Tax fees		0.6		0.5

Total		7.2		5.9

Non-audit fees payable for UK services were £2.1 million (2004 £1.1 million).

The Audit Committee has a process to ensure that any non-audit services do not compromise the independence and objectivity of the external auditors, and that relevant UK and US professional and regulatory requirements are met. A number of criteria are applied when deciding whether pre-approval for such services should be given. These include the nature of the service, the level of fees, and the practicality of appointing an alternative provider, having regard to the skills and experience required to supply the service effectively. Cumulative fees for audit and non-audit services are presented to the Audit Committee on a quarterly basis for review. The Audit Committee is responsible for monitoring adherence to the pre-approval policy.


ITEM 16D.	*EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES*

Not applicable.


ITEM 16E.	*PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS*


							(d) Maximum
					(c) Total number		number (or
					of shares (or		approximate dollar
			(b) Average		units) purchased		value) of shares (or
	(a) Total number		price paid		as part of publicly		units) that may yet be
	of shares (or		per share		announced plans		purchased under the
Period of fiscal year	units) purchased		(or unit)		or programs		plans or programs

Month 1 (01.01.05 - 01.10.05)		1,750,000		6.46		1,750,000		89,689,655
Month 2 (no purchases in this month)		n/a				n/a
Month 3		8,735,000		6.33		8,735,000		80,954,655
Month 4 (04.01.05 - 04.26.05)		8,975,000		6.26		8,975,000		71,979,655
Month 5 (no purchases in this month)		n/a				n/a
Month 6 (06.01.05 - 06.30.05)		10		6.96		10		90,349,451
Month 7 (no purchases in this month)		n/a				n/a
Month 8 (no purchases in this month)		n/a				n/a
Month 9 (09.08.05 – 09.30.05)		3,270,000		7.20		3,270,000		87,079,451
Month 10 (10.01.05 – 10.24.05)		3,650,000		7.03		3,650,000		83,429,451
Month 11 (11.22.05 – 11.30.05)		550,000		7.88		550,000		82,879,451
Month 12 (12.01.05 – 12.31.05)		3,670,000		7.99		3,670,000		79,209,451

Total		30,600,010				30,600,010

The share buyback program was initially announced on March 11, 2004 with the intention to repurchase £250m worth of shares (US$456,525,000). This program was completed on December 20, 2004.

On September 9, 2004, the Company announced a further £250 million share repurchase program. By December 31, 2005 a further 31.4 million shares had been repurchased at an average price per share of 672 pence (total approximately GBP£211 million). By March 17, 2006 a total of 33.95 million shares had

been repurchased under the second repurchase program at an average price per share of 686 pence per share (approximately £233 million).

During fiscal 2005, 3,489,677 ordinary shares were purchased by the Company’s Employee Share Ownership Trust at prices ranging from 625 pence to 824 pence per share, for the purpose of satisfying future share awards to employees.

PART III


ITEM 17.	*FINANCIAL STATEMENTS*

Not applicable.


ITEM 18.	*FINANCIAL STATEMENTS*

The following consolidated financial statements and related schedule, together with the report thereon of Ernst & Young LLP, are filed as part of this Annual Report:


	Page

Report and Consent of Independent Registered Public Accounting Firm		F-1
Financial Statements
Consolidated Income Statement for the years ended December 31, 2005 and 2004		F-3
Consolidated Statement of Recognized Income and Expense for the years ended December 31, 2005 and 2004		F-4
Consolidated Balance Sheet for the years ended December 31, 2005 and 2004		F-5
Consolidated Statement of Changes in Shareholders’ Funds for the years ended December 31, 2005 and 2004		F-6
Consolidated Cash Flow Statement for the years ended December 31, 2005 and 2004		F-8
Notes to the Financial Statements		F-9
Schedule for the years ended December 31, 2005 and 2004
Schedule II — Valuation and Qualifying Accounts		S-1


ITEM 19.	*EXHIBITS*

The following exhibits, other than Exhibits 13.1 and 13.2, are filed as part of this Annual Report:


Exhibit 1		Memorandum and Articles of Association of IHG (incorporated by reference to Exhibit 4 of InterContinental Hotels Group’s Registration Statement on S-8 (File No. 333-126139) filed with the SEC on June 27, 2005)

Exhibit 2(b)(i)		Instruments defining the Rights of Holders of Long-Term Debt: The total amount of long-term debt securities of the Group authorized under any individual instrument, other than the “Amended and Restated Trust Deed” dated September 21, 2000 relating to the Company’s €2000 million Debt Issuance Program originally constituted on October 9, 1998 (incorporated by reference to Exhibit 2 of Six Continents PLC’s Annual Report on Form 20-F (File No. 1-10409), dated December 20, 2001), and the “Trust Deed” dated September 24, 2003 relating to the Company’s € 1,000 million Debt Issuance Program and filed as Exhibit 2(b)(i) hereto does not exceed 10% of the total assets of the Group on a consolidated basis. The Company agrees to furnish copies of any or all such instruments to the Securities and Exchange Commission upon request

Exhibit 4(a)(i)		£1,600 million Facility Agreement dated November 9, 2004 among Bank of Tokyo-Mitsubishi, Ltd., Barclays Capital, Citigroup Global Markets Limited, HSBC Bank plc, JP Morgan plc, Lloyds Bank plc, The Royal Bank of Scotland plc, SG Corporate & Investment Banking and West LB AG (incorporated by reference to Exhibit 4(ii) of InterContinental Hotels Group PLC Annual Report on Form 20-F (File No 1-10409) dated May 3, 2005)

Exhibit 4(b)(i)		Purchase and Sale Agreement dated July 1, 2003 between InterContinental Hotels Group Resources Inc and HPT (incorporated by reference to Exhibit 4(b)(i) of InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated May 3, 2005)

Exhibit 4(b)(ii)		Amended and Restated Purchase and Sale Agreement dated February 9, 2005 among BHR Texas L.P., InterContinental Hotels Group Resources Inc, Crowne Plaza LAX, LLC, Crowne Plaza Hilton Head Holding Company, Holiday Pacific Partners Limited Partnership, Staybridge Markham and HPT (incorporated by


		reference to Exhibit 4(b)(ii) of InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated May 3, 2005)

Exhibit 4(b)(iii)		Amended and Restated Stock Purchase Agreement dated February 9, 2005 between Six Continents International Holdings, B.V. and HPT IHG-2 (incorporated by reference to Exhibit 4(b)(v) of InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated May 3, 2005)

Exhibit 4(b)(iv)		Share Purchase Agreement dated March 10, 2005 between IHC London (Holdings) Limited, and LGR Acquisition (currently LRG Acquisition) and LGR Holdings Limited (currently LRG Holdings Limited) (incorporated by reference to Exhibit 4(b)(iv) of InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated May 3, 2005)

Exhibit 4(b)(v)		New Zealand Share Sale Deed dated September 1, 2005 between Hale International Limited, Six Continents Limited, HANZ Holdings (New Zealand) Limited and Eureka Funds Management Limited

Exhibit 4(b)(vi)		Australia Share and Unit Sale Deed dated September 1, 2005 between Holiday Inns Holdings (Australia) Pty Limited, SPHC Group Pty Limited, HIA(T) Pty Ltd, Six Continents Limited, HANZ (Australia) Pty Limited and Eureka Funds Management Limited

Exhibit 4(b)(vii)		Britvic Underwriting Agreement dated November 25, 2005 between, inter alia, Britvic, IHG, the directors of Britvic, Citigroup and Deutsche Bank AG (as joint sponsors) and Citigroup, Deutsche Bank AG, Lehman Brothers International (Europe) and Merrill Lynch International (as joint Underwriters)

Exhibit 4(b)(viii)		Sale and Purchase Agreement dated March 10, 2006 among BHR Luxembourg S.à.r.l., Others, Cooperatie Westbridge Europe I.U.A., Others and Westbridge Hospitality Fund L.P. relating to a portfolio of certain companies and businesses in continental Europe

Exhibit 4(c)(i)		Richard Hartman’s service contract dated February 12, 2003 (incorporated by reference to Exhibit 4(c)(i) of InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated April 8, 2004)

Exhibit 4(c)(ii)		Richard Hartman’s letter of appointment dated April 2005, effective from June 27, 2005 on completion of the Scheme of Arrangement and the introduction of the new parent company to the Group

Exhibit 4(c)(iii)		Stevan Porter’s service contract dated February 12, 2003 (incorporated by reference to Exhibit 4(c)(iii) of InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated April 8, 2004)

Exhibit 4(c)(iv)		Stevan Porter’s letter of appointment dated April 2005, effective from June 27, 2005 on completion of the Scheme of Arrangement and the introduction of the new parent company to the Group

Exhibit 4(c)(v)		Richard Solomons’ service contract dated February 12, 2003 (incorporated by reference to Exhibit 4(c)(iv) of InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated April 8, 2004)

Exhibit 4(c)(vi)		Richard Solomons’ letter of appointment dated April 2005, effective from June 27, 2005 on completion of the Scheme of Arrangement and the introduction of the new parent company to the Group


Exhibit 4(c)(vii)		Andrew Cosslett’s service contract dated December 13, 2004 (incorporated by reference to Exhibit 4(c)(v) of InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated May 3, 2005)

Exhibit 4(c)(viii)		Andrew Cosslett’s letter of appointment dated April 2005, effective from June 27, 2005 on completion of the Scheme of Arrangement and the introduction of the new parent company to the Group

Exhibit 8		List of Subsidiaries

Exhibit 12(a)		Certification of Andrew Cosslett filed pursuant to 17 CFR 240.13a-14(a)

Exhibit 12(b)		Certification of Richard Solomons filed pursuant to 17 CFR 240.13a-14(a)

Exhibit 13(a)		Certification of Andrew Cosslett and Richard Solomons furnished pursuant to 17 CFR 240.13a-14(b) and 18 U.S.C.1350

Exhibit 15(a)		Consent of Ernst of Young LLP (included on page F-2)

INTERCONTINENTAL HOTELS GROUP PLC

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Directors of InterContinental Hotels Group PLC

We have audited the accompanying Consolidated Balance Sheets of InterContinental Hotels Group PLC as of December 31, 2005 and 2004, and the related Consolidated Income Statements, Consolidated Statement of Recognized Income and Expense, Consolidated Statement of Changes in Shareholders’ Funds and Consolidated Cash Flow Statement for each of the two years in the period ended December 31, 2005. Our audits also included the financial statement schedule listed in the Index at Item 18. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of InterContinental Hotels Group PLC at December 31, 2005 and 2004, and the consolidated results of its operations and its consolidated cash flows for each of the two years in the period ended December 31, 2005, in conformity with International Financial Reporting Standards as adopted by the European Union which differ in certain respects from United States generally accepted accounting principles (see Note 32 of Notes to the Consolidated Financial Statements). Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 22 of Notes to the Consolidated Financial Statements, the Company changed its method of accounting for financial instruments in 2005.


	Ernst & Young LLP

London, England

March 1, 2006, except for

Note 31 — Post balance sheet events, and

Note 32 — Differences between International Financial Reporting Standards

and United States Generally Accepted Accounting Principles

as to which the date is

March 31, 2006.

F-1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statements (Form F-3 No. 333-108084 and Form S-8 Nos. 333-01572, 333-08336, 333-89508, 333-99785, 333-104691 and 333-126139) of InterContinental Hotels Group PLC of the reference to our name in “Item 3. Key Information” and our report dated March 1, 2006, except for Note 31 — Post balance sheet events and Note 32 — Differences between International Financial Reporting Standards and United States Generally Accepted Accounting Principles, as to which the date is March 31, 2006, on the consolidated Financial statements and schedule both included in the Annual Report (Form 20-F) for the year ended December 31, 2005.


	Ernst & Young LLP

London, England

March 31, 2006

F-2

INTERCONTINENTAL HOTELS GROUP PLC

CONSOLIDATED INCOME STATEMENT


		Year ended December 31,									Year ended December 31,
		2005									2004

		Continuing			Discontinued						Continuing			Discontinued
		operations			operations			Total			operations			operations			Total

		(£ million, except per ordinary share amounts)
Revenue (Note 2)			852			1,058			1,910			731			1,473			2,204
Cost of sales			(442	)		(775	)		(1,217	)		(398	)		(1,079	)		(1,477	)
Administrative expenses			(150	)		(74	)		(224	)		(140	)		(68	)		(208	)

			260			209			469			193			326			519
Depreciation and amortization (Note 2)			(70	)		(60	)		(130	)		(59	)		(114	)		(173	)
Other operating income and expenses (Note 5)			(22	)		—			(22	)		(49	)		—			(49	)

Operating profit (Note 2)			168			149			317			85			212			297
Financial income (Note 6)			30			—			30			70			—			70
Financial expenses (Note 6)			(54	)		(9	)		(63	)		(103	)		—			(103	)

Profit before tax			144			140			284			52			212			264
Tax (Note 7)			(28	)		(52	)		(80	)		194			(67	)		127

Profit after tax			116			88			204			246			145			391
Gain on disposal of assets, net of tax charge of £38 million (2004 credit of £4 million)			—			311			311			—			19			19

Profit available for shareholders			116			399			515			246			164			410

Attributable to:
	Equity holders of the parent⁽ⁱ⁾		116			380			496			246			137			383
	Minority equity interest		—			19			19			—			27			27

Profit for the year			116			399			515			246			164			410

Earnings per ordinary share: (Note 9)
	Basic		22.3	p		72.9	p		95.2	p		34.6	p		19.3	p		53.9	p
	Diluted		21.8	p		71.3	p		93.1	p		34.3	p		19.0	p		53.3	p


(i)	A summary of the significant adjustments to profit available for IHG equity holders of the parent that would be required had United States generally accepted accounting principles been applied instead of International Financial Reporting Standards as adopted by the European Union is set out in Note 32 of Notes to the Financial Statements.

The Notes to the Financial Statements are an integral part of these Financial Statements.

F-3

INTERCONTINENTAL HOTELS GROUP PLC

CONSOLIDATED STATEMENT OF RECOGNIZED INCOME AND EXPENSE


		Year ended			Year ended
		December 31,			December 31,
		2005			2004

		(£ million)
Income and expense recognized directly in equity
	Gains on valuation of available-for-sale assets		31			—
	Gains on cash flow hedges		1			—
	Exchange differences on retranslation of foreign operations		29			(12	)
	Actuarial losses on defined benefit pension plans		(23	)		(51	)
	Deficit transferred in respect of previous acquisition		—			(6	)

			38			(69	)
Transfers to the income statement
	On cash flow hedges		(6	)		—
	On disposal of foreign operations		2			—
Tax on items taken directly to or transferred from equity			7			14

Net income/(expense) recognized directly in equity			41			(55	)
Profit for the year			515			410

Total recognized income and expense for the year			556			355

Attributable to:
	Equity holders of the parent		541			338
	Minority equity interest		15			17

			556			355

Effects of changes in accounting policy
Losses on valuation of available-for-sale assets			(10	)		—
Gains on cash flow hedges			6			—

			(4	)		—


(i)		The statement of comprehensive income required under United States generally accepted accounting principles is set out in Note 32 of Notes to the Financial Statements.

F-4

INTERCONTINENTAL HOTELS GROUP PLC

CONSOLIDATED BALANCE SHEET


	December 31,			December 31,
	2005			2004

	(£ million)
ASSETS
Property, plant and equipment — (Note 10)		1,356			1,926
Goodwill — (Note 12)		118			152
Intangible assets — (Note 13)		120			54
Investment in associates — (Note 14)		42			42
Other financial assets — (Note 15)		113			80

Total non-current assets		1,749			2,254

Inventories — (Note 16)		3			42
Trade and other receivables — (Note 17)		252			390
Current tax receivable		22			14
Cash and cash equivalents — (Note 18)		324			72
Other financial assets — (Note 15)		106			80

Total current assets		707			598
Non-current assets classified as held for sale — (Note 11)		279			1,826

Total assets		2,735			4,678

LIABILITIES
Loans and other borrowings — (Note 20)		(2	)		(32	)
Trade and other payables — (Note 19)		(468	)		(633	)
Current tax payable		(324	)		(261	)

Total current liabilities		(794	)		(926	)

Loans and other borrowings — (Note 20)		(410	)		(1,156	)
Employee benefits — (Note 3)		(76	)		(173	)
Provisions and other payables — (Note 19)		(107	)		(103	)
Deferred tax payable — (Note 25)		(210	)		(234	)

Total non-current liabilities		(803	)		(1,666	)
Liabilities classified as held for sale — (Note 11)		(34	)		(148	)

Total liabilities		(1,631	)		(2,740	)

Net assets		1,104			1,938

EQUITY
Equity share capital		49			723
Capital redemption reserve		1			46
Shares held by employee share trusts		(22	)		(22	)
Other reserves		(1,528	)		1,462
Unrealized gains and losses reserve		23			—
Currency translation reserve		19			(12	)
Retained earnings		2,542			(376	)

IHG shareholders’ equity⁽ⁱ⁾		1,084			1,821
Minority equity interest		20			117

Total equity		1,104			1,938


(i)	A summary of the significant adjustments to IHG shareholders’ equity that would be required had United States generally accepted accounting principles been applied instead of International Financial Reporting Standards as adopted by the European Union is set out in Note 32 of Notes to the Financial Statements.

The Notes to the Financial Statements are an integral part of these Financial Statements.

F-5

INTERCONTINENTAL HOTELS GROUP PLC

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ FUNDS


	Share Capital						Retained earnings and other reserves

																Shares
																held by
	Number of									Capital						employee			Unrealized		Currency						Total
	ordinary			Ordinary			Share			redemption			Other			share			gains and		translation			Retained			shareholders’
	shares⁽ⁱ⁾			shares⁽ⁱ⁾			premium⁽ⁱⁱ⁾			reserve⁽ⁱⁱ⁾			reserves⁽ⁱⁱⁱ⁾			trusts^(iv)			losses^(v)		reserve^(vi)			earnings			funds

	(£ million)
At January 1, 2004		739			739			14			—			1,462			(11	)		—		—			119			2,323
Total recognized income and expense for the year		—			—			—			—			—			—			—		(12	)		350			338
Share capital consolidation		(75	)		—			—			—			—			—			—		—			—			—
Issue of ordinary shares		4			4			12			—			—			—			—		—			—			16
Repurchase of shares		(46	)		(46	)		—			—			—			—			—		—			(211	)		(257	)
Transfer to capital redemption reserve		—			—			—			46			—			—			—		—			(46	)		—
Purchase of own shares by employee share trusts		—			—			—			—			—			(33	)		—		—			—			(33	)
Release of own shares by employee share trusts		—			—			—			—			—			22			—		—			(6	)		16
Equity-settled share-based cost		—			—			—			—			—			—			—		—			18			18
Equity dividends paid		—			—			—			—			—			—			—		—			(600	)		(600	)

At December 31, 2004		622			697			26			46			1,462			(22	)		—		(12	)		(376	)		1,821
Effect of implementing IAS 32/39		—			—			—			—			—			—			3		—			(7	)		(4	)

At January 1, 2005		622			697			26			46			1,462			(22	)		3		(12	)		(383	)		1,817
Total recognized income and expense for the year		—			—			—			—			—			—			20		31			490			541
Issue of ordinary shares		1			1			3			—			—			—			—		—			—			4
Repurchase of shares		(19	)		(22	)		—			—			—			—			—		—			(102	)		(124	)
Transfer to capital redemption reserve		—			—			—			22			—			—			—		—			(22	)		—
Capital reorganization		(161	)		(632	)		(29	)		(68	)		(2,990	)		—			—		—			2,723			(996	)
Proceeds from capital reorganization		—			—			—			—			—			4			—		—			—			4
Issue of ordinary shares		1			—			6			—			—			—			—		—			—			6
Repurchase of shares		(11	)		(1	)		—			—			—			—			—		—			(82	)		(83	)
Transfer to capital redemption reserve		—			—			—			1			—			—			—		—			(1	)		—
Purchase of own shares by employee share trusts		—			—			—			—			—			(29	)		—		—			—			(29	)
Release of own shares by employee share trusts		—			—			—			—			—			25			—		—			(17	)		8
Equity-settled share-based cost		—			—			—			—			—			—			—		—			17			17
Equity dividends paid		—			—			—			—			—			—			—		—			(81	)		(81	)

At December 31, 2005		433			43			6			1			(1,528	)		(22	)		23		19			2,542			1,084


(i)	At December 31, 2003 the authorized share capital was £10,000,050,000, comprising 10,000,000,000 ordinary shares of £1 each and one redeemable preference share of £50,000.


	The Company was incorporated and registered in England and Wales with registered number 5134420 on May 21, 2004 as a limited company under the Companies Act 1985 with the name Hackremco (No. 2154) Limited. On March 24, 2005 Hackremco (No. 2154) Limited changed its name to New InterContinental Hotels Group Limited. On April 27, 2005 New InterContinental Hotels Group Limited re-registered as a public limited company and changed its name to New InterContinental Hotels Group PLC. On June 27, 2005 New InterContinental Hotels Group PLC changed its name to InterContinental Hotels Group PLC.

	On May 21, 2004 the Company had an authorized share capital of £100, divided into 100 ordinary shares of £1 each, of which one ordinary share was allotted, called up and fully paid on incorporation.

	On December 10, 2004 shareholders approved a share capital consolidation on the basis of 25 new ordinary shares for every 28 existing ordinary shares. This provided for all the authorized ordinary shares of £1 each (whether issued or unissued) to be consolidated into new ordinary shares of 112 pence each. The share capital consolidation became effective on December 13, 2004. The consolidation had no impact on the authorized redeemable preference share.

F-6


	On April 21, 2005 the authorized share capital was increased to £50,100 by the creation of one redeemable preference share of £50,000. The redeemable preference share so created was allotted and treated as paid up in full on this date.

	On May 20, 2005 the authorized share capital of the Company was increased from £50,100 to £10,000,050,000 by the creation of 9,999,999,900 ordinary shares of £1 each. On May 20, 2005 all of the ordinary shares of £1 each were consolidated into ordinary shares of £6.25 each.

	On June 27, 2005 the capital reorganization (by means of a scheme of arrangement under Section 425 of the Companies Act 1985) was completed. Under the arrangement, shareholders received 11 new ordinary shares and £24.75 cash in exchange for every 15 existing ordinary shares held on June 24, 2005. The entire issued share capital of InterContinental Hotels Group PLC was transferred to New InterContinental Hotels Group PLC at fair market value, in exchange for the issue of 443 million fully paid ordinary shares of 10 pence each, which were admitted to the Official List of the UK Listing Authority and admitted to trading on the London Stock Exchange on that date. In accordance with the merger relief provisions of Sections 131 and 133 of the Companies Act 1985, the 443 million shares are recorded only at nominal value.

	On June 30, 2005 £6.15 on every £6.25 ordinary share was canceled, thereby reducing the nominal value of each ordinary share to 10 pence.

	On September 8, 2005 the redeemable preference share was redeemed at par value. The redeemable preference share did not carry any right to receive dividends nor to participate in the profits of the Company.

	During 2004 and 2005, the Company undertook to return funds of up to £750 million to shareholders by way of three consecutive £250 million share repurchase programs, the second of which is expected to be completed in the first half of 2006. During the year, 30,600,010 (2004 46,385,981) ordinary shares were repurchased and canceled under the authorities granted by shareholders at general meetings held during 2003, 2004 and 2005. Of these, 19,460,010 (2004 46,385,981) were 112 pence (2004 100 pence) shares in the capital of InterContinental Hotels Limited (formerly InterContinental Hotels Group PLC) and 11,140,000 were 10 pence shares in the capital of InterContinental Hotels Group PLC (formerly New InterContinental Hotels Group PLC).

	The authority given to the Company at the Annual General Meeting on June 1, 2005 to purchase its own shares was still valid at December 31, 2005. A resolution to renew the authority will be put to shareholders at the Annual General Meeting on June 1, 2006.

	At December 31, 2005 the authorized share capital was £160,050,000, comprising 1,600,000,000 ordinary shares of 10 pence each and one redeemable preference share of £50,000.


(ii)	The share premium account and capital redemption reserve are not distributable.

(iii)	Other reserves comprises the revaluation reserve previously recognized under UK GAAP and the merger reserve.

(iv)	The shares held by employee share trusts comprises £21.7 million (2004 £21.8 million) in respect of 2.9 million (2004 3.1 million) InterContinental Hotels Group PLC ordinary shares held by employee share trusts, with a market value at December 31, 2005 of £25 million (2004 £20 million).

(v)	The net unrealized gains and losses reserve records movements for available-for-sale financial assets to fair value and the effective portion of the cumulative net change in the fair value of the cash flow hedging instruments related to hedged transactions that have not yet occurred.

(vi)	The currency translation reserve records the movement in exchange differences arising from the translation of the financial statements of foreign operations and exchange differences on foreign currency borrowings and currency swaps that provide a hedge against a net investment in foreign operations.

The Notes to the Financial Statements are an integral part of these Financial Statements.

F-7

INTERCONTINENTAL HOTELS GROUP PLC

CONSOLIDATED CASH FLOW STATEMENT


		Year ended			Year ended
		December 31,			December 31,
		2005			2004

		(£ million)
Profit for the year			515			410
Adjustments for:
	Net financial expenses		33			33
	Income tax charge/(credit)		80			(127	)
	Gain on disposal of assets, net of tax		(311	)		(19	)
	Other operating income and expenses		22			49
	Depreciation and amortization		130			173
	Equity settled share-based cost, net of payments		12			12
	Other gains and losses		—			4

Operating cash flow before movements in working capital			481			535
Decrease in inventories			—			1
Increase in receivables			—			(13	)
(Decrease)/increase in provisions and other payables			(32	)		50
Decrease in employee benefit obligation			(26	)		(58	)

Cash flow from operations			423			515
Interest paid			(59	)		(91	)
Interest received			29			72
Tax paid			(91	)		(35	)

Net cash from operating activities			302			461

Cash flow from investing activities
Purchases of property, plant and equipment — Hotels			(121	)		(175	)
Purchases of associates and other financial assets — Hotels			(15	)		(12	)
Disposal of assets, net of cash disposed of — Hotels			1,816			101
Proceeds from other financial assets — Hotels			10			5
Purchases of property, plant and equipment — Soft Drinks			(47	)		(70	)
Disposal of business, net of cash disposed of — Soft Drinks			220			—

Net cash from investing activities			1,863			(151	)

Cash flow from financing activities
Proceeds from the issue of share capital			10			16
Purchase of own shares			(207	)		(257	)
Payment to shareholders as a result of the capital reorganisation on June 27, 2005			(996	)		—
Purchase of own shares by employee share trusts			(29	)		(33	)
Proceeds on release of own shares by employee share trusts			16			16
Dividends paid to shareholders			(81	)		(600	)
Dividends paid to minority interests			(177	)		(26	)
(Decrease)/increase in borrowings			(442	)		258
Costs associated with new facilities			—			(5	)
Financial expense on early settlement of debt			—			(17	)

Net cash from financing activities			(1,906	)		(648	)

Net movement in cash and cash equivalents in the year			259			(338	)
Cash and cash equivalents at beginning of the year			72			411
Exchange rate effects			(7	)		(1	)

Cash and cash equivalents at end of the year			324			72


(i)	The significant differences between the cash flow statement presented above and that required under United States generally accepted accounting principles are described in Note 32 of Notes to the Financial Statements.

The Notes to the Financial Statements are an integral part of these Financial Statements.

F-8

Note 1 — Corporate Information and Accounting Policies


	Corporate information

The consolidated financial statements of InterContinental Hotels Group PLC (“IHG”) for the year ended December 31, 2005 were authorised for issue in accordance with a resolution of the Directors on March 1, 2006. InterContinental Hotels Group PLC (the “Company”) is incorporated in Great Britain and registered in England and Wales.


	Summary of significant accounting policies

Basis of preparation

The financial statements have been prepared on an historic cost basis, except for derivative financial instruments and available-for-sale financial assets that have been measured at fair value. The consolidated financial statements are presented in sterling and all values are rounded to the nearest million except where otherwise indicated.


	*Statement of compliance*

From January 1, 2005, as required by the European Union’s International Accounting Standard (“IAS”) Regulation and the Companies Act 1985, the Company has prepared its consolidated financial statements in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union (“EU”). IFRS as adopted by the EU differ in certain respects from IFRS as issued by the International Accounting Standards Board (“IASB”). However, the consolidated financial statements for the periods presented would be no different had the Company applied IFRS as issued by the IASB. References to “IFRS” and International Financial Reporting Standards hereafter should be construed as references to IFRS as adopted by the EU. As permitted, the Company has also early adopted the amendment to IAS 19 “Employee Benefits” published in December 2004.


	*IFRS exemptions*

IFRS 1 “First-time Adoption of International Financial Reporting Standards” has been applied in preparing this financial information. The Company has taken the following exemptions available under IFRS 1:


	a) Not to restate the comparative information disclosed in the 2005 financial statements in accordance with IAS 32 “Financial Instruments: Disclosure and Presentation” and IAS 39 “Financial Instruments: Recognition and Measurement”.

	b) Not to restate business combinations before January 1, 2004.

	c) To recognize all actuarial gains and losses on pensions and other post-employment benefits directly in equity at January 1, 2004.

	d) To retain UK GAAP carrying values of property, plant and equipment, including revaluations, as deemed cost at transition.

	e) Not to recognize separately cumulative foreign exchange movements up to January 1, 2004.

	f) To apply IFRS 2 “Share-based Payments” to grants of equity instruments after November 7, 2002 that had not vested at January 1, 2005.

The disclosures required by IFRS 1 are given in Note 30 of Notes to the Financial Statements.

F-9

The principle accounting policies of the Company are set out below.


	*Basis of consolidation*

The consolidated financial statements comprise the financial statements of the parent company and entities controlled by the Company. All inter-company balances and transactions have been eliminated.

The results of those businesses acquired or disposed of are consolidated for the period during which they were under the Company’s control.

Shareholder approval was given on June 1, 2005 to recommended proposals for the return of approximately £1 billion to shareholders by way of a capital reorganization (by means of a scheme of arrangement under Section 425 of the Companies Act 1985). Under the arrangement, shareholders received 11 new ordinary shares and £24.75 cash in exchange for every 15 existing ordinary shares held on June 24, 2005. The overall effect of the transaction was that of a share repurchase at fair value, therefore no adjustment has been made to comparative earnings per share data (see Note 9).

The capital reorganization of InterContinental Hotels Group PLC to New InterContinental Hotels Group PLC has been accounted for in accordance with the principles of merger accounting as applicable to group reorganizations. The consolidated financial statements are therefore presented as if New InterContinental Hotels Group PLC had been the parent company of the Group throughout the periods presented. Following this capital reorganization, InterContinental Hotels Group PLC changed its name to InterContinental Hotels PLC and re-registered as a private limited company, InterContinental Hotels Limited; New InterContinental Hotels Group PLC changed its name to InterContinental Hotels Group PLC.


	*Foreign currencies*

Transactions in foreign currencies are translated to the functional currency at the exchange rates ruling on the dates of the transactions. All foreign exchange differences arising on translation are recognized in the income statement except on foreign currency borrowings that provide a hedge against a net investment in a foreign operation. These are taken directly to the currency translation reserve until the disposal of the net investment, at which time they are recycled against the gain or loss on disposal.

The assets and liabilities of foreign operations, including goodwill, are translated into sterling at the relevant rates of exchange ruling at the balance sheet date. The revenues and expenses of foreign operations are translated into sterling at weighted average rates of exchange for the period. The exchange differences arising on the retranslation are taken directly to the currency translation reserve. On disposal of a foreign operation, the cumulative amount recognized in the currency translation reserve relating to that particular foreign operation is recycled against the gain or loss on disposal.


	*Financial instruments*

The Company adopted IAS 32 “Financial Instruments: Disclosure and Presentation” and IAS 39 “Financial Instruments: Recognition and Measurement” at January 1, 2005. The balance sheet has been restated to include derivatives and equity securities at fair value, with any movement taken to the appropriate reserve.

Under the transitional rules of IFRS 1, IAS 32 and IAS 39 are not applied to comparative balances. Comparative 2004 balances are presented using UK GAAP values as presented in the Company’s 2004 Annual Report and Financial Statements, where currency swap agreements were retranslated at exchange rates ruling at the balance sheet date with the net amount being included in borrowings. Financial income or expense arising from currency swap agreements is taken to the income statement on a gross basis over the term of the relevant agreements.

Gains or losses arising on forward exchange contracts are taken to the income statement in line with the transactions they are hedging.

F-10


	*Derivative financial instruments and hedging*

Derivatives designated as hedging instruments are accounted for in line with the nature of the hedging arrangement. The Company’s detailed accounting policies with respect to hedging instruments are set out in note 21. Documentation outlining the measurement and effectiveness of the hedging arrangement is maintained throughout the life of the hedge relationship. Any ineffective element of a hedge arrangement is recognized in the income statement.

The fair value of derivatives is calculated by discounting the expected future cash flows at prevailing interest rates.


	*Property, plant and equipment*

Property, plant and equipment are stated at cost less depreciation and any impairment.

Borrowing costs are not capitalized. Repairs and maintenance costs are expensed as incurred.

Land is not depreciated. All other property, plant and equipment are depreciated to a residual value over their estimated useful lives, namely:


Buildings		lesser of 50 years and unexpired term of lease;
Fixtures, fittings and equipment		3-25 years; and
Plant and machinery		4-20 years.

All depreciation and amortization is charged on a straight line basis. Residual value is reassessed annually.

Property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Assets that do not generate independent cash flows are combined into cash-generating units. If carrying values exceed estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amount. Recoverable amount is the greater of fair value less cost to sell and value in use. Value in use is assessed based on estimated future cash flows discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.


	*Goodwill*

Goodwill arises on consolidation and is recorded at cost, being the excess of the cost of acquisition over the fair value at the date of acquisition of the Company’s share of identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses.

Goodwill is tested for impairment at least annually by comparing carrying values with recoverable amounts.


	*Intangible assets*


	Software

Acquired software licenses and software developed in-house are capitalized on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortized over their estimated useful lives of three to seven years.

Management contracts

When assets are sold and a purchaser enters into a management or franchise contract with the Company, the Company capitalizes as part of the gain or loss on disposal an estimate of the fair value of the contract entered into. This value is amortized over the life of the contract which ranges from 10 to 25 years.

F-11


	Other intangible assets

Amounts paid to hotel owners to secure management contracts and franchise agreements are capitalized and amortized over the shorter of the contracted period and 10 years.

Internally generated development costs are expensed unless forecast revenues exceed attributable forecast development costs, at which time they are capitalized and amortized over the life of the product.

Intangible assets are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable.


	*Associates*

An associate is an entity over which the Company has the ability to exercize significant influence, but not control, through participation in the financial and operating policy decisions of the entity.

Associates are accounted for using the equity method unless the investment is held for sale (see below). Using the equity method, the Company’s investment is recorded at cost adjusted by the Company’s share of post acquisition profits and losses. When the Company’s share of losses exceeds its interest in an associate, the Company’s carrying amount is reduced to £nil and recognition of further losses is discontinued except to the extent that the Company has incurred legal or constructive obligations or made payments on behalf of an associate.


	*Financial assets*

Under IAS 39 current and non-current financial assets are classified as fair value through profit or loss; loans and receivables; held-to-maturity investments; or as available-for-sale. The Company determines the classification of its financial assets at initial recognition and are subsequently held at fair value or amortized cost. Changes in fair values of available-for-sale financial assets are recorded directly in the unrealized gains and losses reserve. Changes in fair values of financial assets classified as fair value through profit or loss are recorded in the income statement.

Until January 1, 2005, investments were recorded in accordance with UK GAAP at cost less any provision for impairment.

Available-for-sale financial assets are tested for impairment at each balance sheet date. If impaired, the difference between carrying value and fair value is transferred from equity to the income statement to the extent that there is sufficient surplus in equity; any excess goes directly to the income statement.


	*Inventories*

Inventories are stated at the lower of cost and net realizable value.


	*Trade receivables*

Trade receivables are recorded at their original amount less an allowance for any doubtful amounts. An allowance is made when collection of the full amount is no longer considered probable.


	*Cash and cash equivalents*

Cash comprises cash in hand and demand deposits.

Cash equivalents are short-term highly liquid investments with a maturity of three months or less that are readily convertible to known amounts of cash and subject to insignificant risk of changes in value.


	*Assets held for sale*

Assets and liabilities are classified as held for sale when their carrying amount will be recovered principally through a sale transaction rather than continuing use and a sale is highly probable.

F-12

Assets designated as held for sale are held at the lower of carrying amount at designation and sales value less cost to sell.

Depreciation is not charged against property, plant and equipment classified as held for sale.

The Company has taken advantage of the transitional provisions of IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations” and applied the standard for the period beginning January 1, 2004.


	*Trade payables*

Trade payables are non interest bearing and are stated at their nominal value.


	*Loyalty program*

The hotel loyalty program, Priority Club Rewards, enables members to earn points, funded through hotel assessments, during each stay at an InterContinental Hotels Group hotel and redeem the points at a later date for free accommodation or other benefits. The future redemption liability is included in trade and other payables and provisions and other payables and is estimated using actuarial methods to give eventual redemption rates and points values.


	*Self insurance*

The Company is self insured for various levels of general liability, workers’ compensation and employee medical and dental coverage. Insurance reserves include projected settlements for known and incurred but not reported claims. Projected settlements are estimated based on historical trends and actuarial data.


	*Provisions*

Provisions are recognized when the Company has a present obligation as a result of a past event, it is probable that a payment will be made and a reliable estimate of the amount can be made. If the effect of the time value of money is material, the provision is discounted.


	*Bank and other borrowings*

Bank and other borrowings are held at amortized cost. Finance charges, including issue costs, are charged to the income statement using an effective interest rate method.

Borrowings are classified as non-current when the repayment date is more than 12 months from the balance sheet date or where they are drawn on a facility with more than 12 months to expiry.


	*Pensions*


	Defined contribution plans

Payments to defined contribution schemes are charged to the income statement as they fall due.


	Defined benefit plans

Plan assets are measured at fair value and plan liabilities are measured on an actuarial basis, using the projected unit credit method and discounting at an interest rate equivalent to the current rate of return on a high quality corporate bond of equivalent currency and term to the plan liabilities.

The service cost of providing pension benefits to employees for the year is charged to the income statement. The cost of making improvements to pensions is recognized in the income statement on a straight line basis over the period during which any increase in benefits vests. To the extent that improvements in benefits vest immediately, the cost is recognized immediately as an expense.

Actuarial gains and losses may result from: differences between the expected return and the actual return on plan assets; differences between the actuarial assumptions underlying the plan liabilities and actual

F-13

experience during the year; or changes in the actuarial assumptions used in the valuation of the plan liabilities. Actuarial gains and losses, and taxation thereon, are recognized in the consolidated statement of recognized income and expense.

Actuarial valuations are normally carried out every three years.


	*Deferred tax*

Deferred tax assets and liabilities are recognized in respect of all temporary differences between the tax base and carrying value of assets and liabilities. Those temporary differences recognized include accelerated capital allowances, unrelieved tax losses, unremitted profits from overseas where the Company does not control remittance, gains rolled over into replacement assets, gains on previously revalued properties and other short-term temporary differences.

Deferred tax assets are recognized to the extent that it is regarded as probable that the deductible temporary differences can be utilized. The recoverability of all deferred tax assets is reassessed at each balance sheet date.

Deferred tax is calculated at the tax rates that are expected to apply in the periods in which the asset or liability will be settled, based on rates enacted or substantively enacted at the balance sheet date.


	*Revenue recognition*

Revenue is derived from the following sources: owned and leased properties; management fees; franchise fees; sale of soft drinks and other revenues which are ancillary to the Company’s operations.

Generally, revenue represents sales (excluding VAT and similar taxes) of goods and services, net of discounts, provided in the normal course of business and recognized when services have been rendered. The following is a description of the composition of revenues of the Company.

Owned and leased — primarily derived from hotel operations, including the rental of rooms and food and beverage sales from a worldwide network of owned and leased hotels operated under the Company’s brand names. Revenue is recognized when rooms are occupied and food and beverages are sold.

Management fees — earned from hotels managed by the Company, usually under long-term contracts with the hotel owner. Management fees include a base fee, which is generally a percentage of hotel revenue, and an incentive fee, which is generally based on the hotels’ profitability or cash flows. Revenue is recognized when earned and realized or realizable under the terms of the contract.

Franchise fees — received in connection with the license of the Company’s brand names, usually under long-term contracts with the hotel owner. The Company charges franchise royalty fees as a percentage of room revenue. Revenue is recognized when earned and realized or realizable.


	*Share-based payments*

The cost of equity-settled transactions with employees is measured by reference to fair value at the date at which the shares are granted. Fair value is determined by an external valuer using option pricing models.

The cost of equity-settled transactions is recognized, together with a corresponding increase in equity, over the period in which any performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (vesting date).

The income statement charge for a period represents the movement in cumulative expense recognized at the beginning and end of that period. No expense is recognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied.

F-14

The Company has taken advantage of the transitional provisions of IFRS 2 in respect of equity-settled awards and has applied IFRS 2 only to equity-settled awards granted after November 7, 2002 that had not vested before January 1, 2005.


	*Leases*

Operating lease rentals are charged to the income statement on a straight line basis over the term of the lease.


	*Disposal of Assets*

The Company recognizes the sales proceeds and related profit or loss on disposal on completion of the sales process. The Company considers the following criteria in determining whether revenue and profit or loss should be recorded:


	•	does the Company have a continuing managerial involvement to the degree associated with asset ownership;

	•	has the Company transferred significant risks and rewards associated with asset ownership;

	•	can the Company reliably measure the proceeds; and

	•	will the Company actually receive the proceeds.


	*Discontinued operations*

The results of operations arising from assets classified as held for sale are classified as discontinued operations when the results relate to a separate line of business, geographical area of operations, or where there is a co-ordinated plan to dispose of a separate line of business or geographical area of operations.


	*Use of estimates*

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

On an ongoing basis, management evaluates its estimates and judgments, including those relating to revenue recognition, allowance for doubtful amounts, associates and financial assets, property, plant and equipment, goodwill, intangible assets, income taxes, financial instruments, hotel loyalty program, self-insurance, employee benefits and contingencies and litigation.


	*New standards and interpretations*

During the year, the International Accounting Standards Board (“IASB”) and International Financial Reporting Interpretations Committee (“IFRIC”) issued the following standards and interpretations with an effective date after the date of these financial statements. These standards and interpretations which are relevant to the Company have not been applied in the preparation of the Company’s financial statements:


IFRS 7		Financial Instruments: Disclosures Effective from January 1, 2007
IFRIC 4		Determining whether an arrangement contains a lease Effective from January 1, 2006

F-15

The Company does not anticipate that the adoption of these standards and interpretations will have a material impact on the Company’s financial statements on adoption.


Note 2 —	Segmental Analysis

The results of foreign operations have been translated into sterling at weighted average rates of exchange for the period. In the case of the US dollar, the translation rate is £1 = $1.83 (2004 £1 = $1.82). In the case of the euro, the translation rate is £1 = €1.46 (2004 £1 = € 1.47).

Foreign currency denominated assets and liabilities have been translated into sterling at the rates of exchange on the balance sheet date. In the case of the US dollar, the translation rate is £1 = $1.73 (2004 £1 = $1.93). In the case of the euro, the translation rate is £1 = €1.46 (2004 £1 = € 1.41).

Hotels

The primary segmental reporting format is determined to be three main geographical regions:

the Americas;

Europe, the Middle East and Africa (“EMEA”); and

Asia Pacific.

These, together with Central functions, form the principal format by which management is organized and makes operational decisions.

The Company further breaks each geographic region into three distinct business models which offer different growth, return, risk and reward opportunities:


	*Franchised*

Where the Company neither owns nor manages the hotel, but licenses the use of a Company brand and provide access to reservation systems, loyalty schemes, and know-how. The Company derives revenues from a brand royalty or licensing fee, based on a percentage of room revenue.


	*Managed*

Where, in addition to licensing the use of a Company brand, the Company manages the hotel for third party owners. The Company derives revenues from base and incentive management fees and provides the system infrastructure necessary for the hotel to operate. Management contract fees are generally a percentage of hotel revenue and may have an additional incentive fee linked to profitability or cash flow. The terms of these agreements vary, but are often long-term (for example, 10 years or more). The Company’s responsibilities under the management agreement typically include hiring, training and supervising the managers and employees that operate the hotels under the relevant brand standards. In order to gain access to central reservation systems, global and regional brand marketing and brand standards and procedures, owners are typically required to make a further contribution.


	*Owned and leased*

Where the Company both owns (or leases) and operates the hotel and, in the case of ownership, takes all the benefits and risks associated with ownership. The Company has sold, or plans to sell, the majority of its owned and leased portfolio and in future expects to only own hotels where it is considered strategically important to do so.

Segmental results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.

F-16

Soft Drinks

Manufactures a variety of soft drink brands with distribution concentrated mainly in the UK.


	Year ended December 31, 2005*


	Revenue


						Asia				Total
		Americas		EMEA		Pacific		Central		Hotels

		(£ million)
Hotels
	Owned and leased		122		236		56		—		414
	Managed		65		55		25		—		145
	Franchised		213		35		3		—		251
	Central		—		—		—		42		42

	Continuing operations		400		326		84		42		852
	Discontinued operations — owned and leased		45		285		57		—		387

			445		611		141		42		1,239


		Continuing		Discontinued		Group

		(£ million)
Group
	Hotels		852		387		1,239
	Soft Drinks		—		671		671

Total revenue			852		1,058		1,910


	Segmental result


														Total
		Americas			EMEA			Asia Pacific			Central			Hotels

		(£ million)
Hotels
	Owned and leased		15			11			11			—			37
	Managed		20			31			16			—			67
	Franchised		186			26			2			—			214
	Regional and central		(34	)		(21	)		(8	)		(65	)		(128	)

	Continuing operations		187			47			21			(65	)		190
	Discontinued operations — owned and leased		11			57			11			—			79

			198			104			32			(65	)		269

F-17


		Continuing			Discontinued			Group

		(£ million)
Group
	Hotels		190			79			269
	Soft Drinks		—			70			70

			190			149			339
Unallocated expenses:
	Other operating income and expenses		(22	)		—			(22	)

Operating profit			168			149			317
Net finance costs			(24	)		(9	)		(33	)

Profit before tax			144			140			284
Tax			(28	)		(52	)		(80	)

Profit after tax			116			88			204
Gain on disposal of assets, net of tax			—			311			311

Profit available for shareholders			116			399			515


*	Other than for Soft Drinks which reflects the 50 weeks and three days ended December 14.


	Year ended December 31, 2005*


	Assets and liabilities


						Asia				Total		Soft		Total
		Americas		EMEA		Pacific		Central		Hotels		Drinks		Group

		(£ million)
Segment assets			689		987		346		88		2,110		—		2,110
Non-current assets classified as held for sale			21		258		—		—		279		—		279

			710		1,245		346		88		2,389		—		2,389

Unallocated assets:
	Current tax receivable										22		—		22
	Cash and cash equivalents										324		—		324

Total assets											2,735		—		2,735


Segment liabilities			340		261		50		—		651		—		651
Liabilities classified as held for sale			1		33		—		—		34		—		34

			341		294		50		—		685		—		685

Unallocated liabilities:
	Current tax payable										324		—		324
	Deferred tax payable										210		—		210
	Loans and other borrowings										412		—		412

Total liabilities											1,631		—		1,631

F-18


	Other segment information


						Asia				Total		Soft		Total
		Americas		EMEA		Pacific		Central		Hotels		Drinks		Group

		(£ million)
Continuing operations:
	Capital expenditure		24		27		28		13		92		—		92
	Depreciation and amortization⁽ⁱ⁾		19		28		8		15		70		—		70
	Impairment of property, plant and equipment		—		7		—		—		7		—		7
Discontinued operations:
	Capital expenditure		4		36		4		—		44		47		91
	Depreciation and amortization⁽ⁱ⁾		1		11		3		—		15		45		60


*	Other than for Soft Drinks which reflects the 50 weeks and three days ended December 14.

(i)	Included in the £130 million of depreciation and amortization is £23 million that relates to administrative expenses.


	Year ended December 31, 2004*


	Revenue


						Asia				Total
		Americas		EMEA		Pacific		Central		Hotels

		(£ million)
Hotels
	Owned and leased		93		231		47		—		371
	Managed		30		43		21		—		94
	Franchised		196		27		3		—		226
	Central		—		—		—		40		40

	Continuing operations		319		301		71		40		731
	Discontinued operations — owned and leased		176		528		63		—		767

			495		829		134		40		1,498


		Continuing		Discontinued		Group

		(£ million)
Group
	Hotels		731		767		1,498
	Soft Drinks		—		706		706

Total revenue			731		1,473		2,204

F-19


	Segmental result


								Asia						Total
		Americas			EMEA			Pacific			Central			Hotels

		(£ million)
Hotels
	Owned and leased		4			2			9			—			15
	Managed		6			24			14			—			44
	Franchised		167			21			2			—			190
	Regional and central		(27	)		(23	)		(8	)		(57	)		(115	)

	Continuing operations		150			24			17			(57	)		134
	Discontinued operations — owned and leased		23			105			7			—			135

			173			129			24			(57	)		269


		Continuing			Discontinued			Group

		(£ million)
Group
	Hotels		134			135			269
	Soft Drinks		—			77			77

			134			212			346
Unallocated expenses:
	Other operating income and expenses		(49	)		—			(49	)

Operating profit			85			212			297
Net finance costs			(33	)		—			(33	)

Profit before tax			52			212			264
Tax			194			(67	)		127

Profit after tax			246			145			391
Gain on disposal of assets, net of tax			—			19			19

Profit available for shareholders			246			164			410


*	Other than for Soft Drinks which reflects the 53 weeks ended December 25.

F-20


	Year ended December 31, 2004*


	Assets and liabilities


						Asia				Total		Soft			Total
		Americas		EMEA		Pacific		Central		Hotels		Drinks			Group

		(£ million)
Segment assets			583		1,202		437		86		2,308		458			2,766
Non-current assets classified as held for sale			424		1,402		—		—		1,826		—			1,826

			1,007		2,604		437		86		4,134		458			4,592

Unallocated assets:
	Current tax receivable										14		—			14
	Cash and cash equivalents										60		12			72

Total assets											4,208		470			4,678


Segment liabilities			300		290		28		—		618		291			909
Liabilities classified as held for sale			24		124		—		—		148		—			148

			324		414		28		—		766		291			1,057

Unallocated liabilities:
	Current tax payable										248		13			261
	Deferred tax payable										246		(12	)		234
	Loans and other borrowings										1,185		3			1,188

Total liabilities											2,445		295			2,740


	Other segment information


						Asia				Total		Soft		Total
		Americas		EMEA		Pacific		Central		Hotels		Drinks		Group

		(£ million)
Continuing operations:
	Capital expenditure		45		37		15		12		109		—		109
	Depreciation and amortization⁽ⁱ⁾		12		26		6		15		59		—		59
	Impairment of property, plant and equipment		14		30		4		—		48		—		48
Discontinued operations:
	Capital expenditure		15		58		5		—		78		70		148
	Depreciation and amortization⁽ⁱ⁾		17		44		7		—		68		46		114


*	Other than for Soft Drinks which reflects the 53 weeks ended December 25.

(i)	Included in the £173 million of depreciation and amortization is £23 million that relates to administrative expenses.

F-21


Note 3 —	Staff costs and directors’ emoluments

Costs


	Year ended		Year ended
	December 31,		December 31,
	2005		2004

	(£ million)
Wages and salaries		465		570
Social security costs		61		66
Pension costs		19		21
Other plans		15		12

		560		669

Employee numbers

Average number of employees, including part-time employees:


	Year ended		Year ended
	December 31,		December 31,
	2005		2004

	(Number)
Hotels		18,995		26,835
Soft Drinks		2,991		2,824

		21,986		29,659

Employee benefits

Retirement and death in service benefits are provided for eligible employees in the United Kingdom principally by the InterContinental Hotels UK Pension Plan. The plan covers approximately 400 employees of which 240 are in the defined benefit section and 160 are in the defined contribution section. The assets of the plan are held in self-administered trust funds separate from the Company’s assets. The Company also maintains a US-based InterContinental Hotels Pension Plan and post-employment benefits scheme. This plan is now closed to new members and pensionable service no longer accrues for current employee members. In addition, the Company 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.

On December 14, 2005, the Soft Drinks business, including the Britvic Pension Plan, was sold. The information provided below includes movements for the Britvic Pension Plan up to the date of disposal, at which point they have been removed.

The amounts recognized in the income statement are:


	Pension plans
													Post-
													employment
	UK						US						benefits				Total

Recognized in administrative expenses	2005			2004			2005			2004			2005		2004		2005			2004

	(£ million)
Current service costs		19			18			—			—			—		—		19			18
Past service costs		—			1			—			—			—		—		—			1
Interest cost on benefit obligation		30			27			6			5			1		1		37			33
Expected return on plan assets		(32	)		(27	)		(5	)		(4	)		—		—		(37	)		(31	)

		17			19			1			1			1		1		19			21

Recognized in other operating income and expenses

Plan curtailment		(7	)		—			—			—			—		—		(7	)		—

The curtailment gain arose as a result of the sale of 73 UK hotel properties.

F-22

The amounts recognized in the consolidated statement of recognized income and expense are:


	Pension plans
													Post-
													employment
	UK						US						benefits					Total

Actuarial gains and losses	2005			2004			2005			2004			2005		2004			2005			2004

	(£ million)
Actual return on scheme assets		79			41			4			5			—		—			83			46
Less: expected return on scheme assets		(32	)		(27	)		(5	)		(4	)		—		—			(37	)		(31	)

		47			14			(1	)		1			—		—			46			15
Other actuarial gains and losses		(67	)		(60	)		(3	)		(5	)		1		(1	)		(69	)		(66	)

		(20	)		(46	)		(4	)		(4	)		1		(1	)		(23	)		(51	)

Deficit transferred in respect of previous acquisition		—			(6	)		—			—			—		—			—			(6	)

The assets and liabilities of the schemes are:


	Pension plans
													Post-
													employment
	UK						US						benefits						Total

	2005			2004			2005			2004			2005			2004			2005			2004

	(£ million)
Fair value of scheme assets		250			470			62			56			—			—			312			526
Present value of benefit obligations		(274	)		(600	)		(103	)		(88	)		(11	)		(11	)		(388	)		(699	)

Employee benefits liability — non-current		(24	)		(130	)		(41	)		(32	)		(11	)		(11	)		(76	)		(173	)

The principal assumptions used by the actuaries to determine the benefit obligation were:


	Pension plans
									Post-
									employment
	UK				US				benefits

	2005		2004		2005		2004		2005		2004

	(%)
Wages and salaries increases		4.3		4.3		—		—		4.0		4.0
Pensions increases		2.8		2.8		—		—		—		—
Discount rate		4.7		5.3		5.5		5.8		5.5		5.8
Inflation rate		2.8		2.8		—		—		—		—
Healthcare cost trend rate assumed for next year										9.0		9.5
Ultimate rate that the cost trend rate trends to										4.5		4.5

In 2015 the healthcare cost trend rate reaches the assumed ultimate rate. A one per cent point increase/(decrease) in assumed healthcare costs trend rate would increase/(decrease) the accumulated post-employment benefit obligations as of December 31, 2005 and 2004, by approximately £1 million, and would increase/(decrease) the total of the service and interest cost components of net post-employment healthcare cost for the period then ended by approximately £nil.

F-23


	Pension plans

	UK				US

Post-retirement mortality (years)	2005		2004		2005		2004

Current pensioners at 65 – male^a		21		21		17		17
Current pensioners at 65 – female^a		24		24		22		22
Future pensioners at 65 – male^b		22		22		17		17
Future pensioners at 65 – female^b		25		25		22		22


^a	Relates to assumptions based on longevity (in years) following retirement at the balance sheet date.


^b	Relates to assumptions based on longevity (in years) relating to an employee retiring in 2020.

The post-retirement mortality assumptions allow for expected increases in longevity.


	Pension plans
													Post-
													employment
	UK						US						benefits						Total

Movement in benefit obligation	2005			2004			2005			2004			2005			2004			2005			2004

	(£ million)
Benefit obligation at beginning of year		600			477			88			90			11			11			699			578
Current service cost		19			18			—			—			—			—			19			18
Past service cost		—			1			—			—			—			—			—			1
Members’ contributions		2			2			—			—			—			—			2			2
Interest expense		30			27			6			5			1			1			37			33
Benefits paid		(11	)		(12	)		(6	)		(5	)		(1	)		(1	)		(18	)		(18	)
Plan curtailment		(7	)		—			—			—			—			—			(7	)		—
Deficit transferred in respect of previous acquisition		—			27			—			—			—			—			—			27
Actuarial loss/(gain) arising in the year		67			60			3			5			(1	)		1			69			66
Separation of Soft Drinks		(426	)		—			—			—			—			—			(426	)		—
Exchange adjustments		—			—			12			(7	)		1			(1	)		13			(8	)

Benefit obligation at end of year		274			600			103			88			11			11			388			699

The defined benefit obligation comprises £328 million (2004 £647 million) arising from plans that are wholly or partly funded and £60 million (2004 £52 million) arising from unfunded plans.

The combined assets of the principal schemes and expected rate of return were:


	2005				2004

	Long-term				Long-term
	rate of				rate of
	return				return
	expected		Value		expected		Value

	(%)		(£ million)		(%)		(£ million)
UK Schemes
Equities		7.5		138		8.0		272
Bonds		4.7		110		4.9		173
Other		4.1		2		8.0		25

Total market value of assets				250				470

US Schemes
Equities		9.6		38		9.6		34
Fixed income		5.5		24		5.5		22

Total market value of assets				62				56

F-24


	Pension plans
													Post-
													employment
	UK						US						benefits						Total

Movement in plan assets	2005			2004			2005			2004			2005			2004			2005			2004

	(£ million)
Fair value of plan assets at beginning of year		470			353			56			48			—			—			526			401
Company contributions		45			72			2			12			1			1			48			85
Members’ contributions		2			2			—			—			—			—			2			2
Assets transferred in respect of previous acquisition		—			14			—			—			—			—			—			14
Benefits paid		(11	)		(12	)		(6	)		(5	)		(1	)		(1	)		(18	)		(18	)
Expected return on assets		32			27			5			4			—			—			37			31
Actuarial gain/(loss) arising in the year		47			14			(1	)		1			—			—			46			15
Separation of Soft Drinks		(335	)		—			—			—			—			—			(335	)		—
Exchange adjustments		—			—			6			(4	)		—			—			6			(4	)

Fair value of plan assets at end of year		250			470			62			56			—			—			312			526

History of experience gains and losses:


UK Pension plans	2005			2004			2003

	(£ million)
Fair value of scheme assets		250			470			353
Present value of benefit obligations		(274	)		(600	)		(477	)

Deficit in the scheme		(24	)		(130	)		(124	)
Experience adjustments arising on plan liabilities		(67	)		(60	)
Experience adjustments arising on plan assets		47			14


US Pension plans	2005			2004			2003

	(£ million)
Fair value of scheme assets		62			56			48
Present value of benefit obligations		(103	)		(88	)		(91	)

Deficit in the scheme		(41	)		(32	)		(43	)
Experience adjustments arising on plan liabilities		(3	)		(5	)
Experience adjustments arising on plan assets		(1	)		1


US Post-employment benefits	2005			2004			2003

	(£ million)
Present value of benefit obligations		(11	)		(11	)		(11	)
Experience adjustments arising on plan liabilities		1			(1	)

The cumulative amount of actuarial gains and losses recognized since January 1, 2004 in the consolidated statement of recognized income and expense is £74 million (2004 £51 million). The Company is unable to determine how much of the pension scheme deficit recognized on transition to IFRS of £178 million and taken directly to total equity is attributable to actuarial gains and losses since inception of the schemes. Therefore, the Company is unable to determine the amount of actuarial gains and losses that would have been recognized in the consolidated statement of recognized income and expense before January 1, 2004.

F-25


	*Policy on remuneration of executive directors and senior executives*

The following policy has applied throughout the year and will apply in future years, subject to ongoing review.


	*Total level of remuneration*

The Remuneration Committee aims to ensure that remuneration packages are offered which:


	•	attract high quality executives in an environment where compensation levels are based on global market practice;

	•	provide appropriate retention strength against loss of key executives;

	•	drive aligned focus and attention to key business initiatives and appropriately reward their achievement;

	•	support equitable treatment between members of the same executive team; and

	•	facilitate global assignments and relocation.

The Committee is aware that, as a UK listed company, IHG PLC’s incentive arrangements may be expected to recognize UK investor guidelines. However, given the global nature of the Hotels business, an appropriate balance needs to be drawn in the design of relevant remuneration packages between domestic and international expectations.


	*The main components*

The Company has performance-related reward policies. These are designed to provide the appropriate balance between fixed remuneration and variable “risk” reward, which is linked to the performance of both the Company and the individual. IHG performance-related measures are chosen carefully to ensure a strong link between reward and true underlying financial performance, and emphasis is placed on particular areas requiring executive focus.

Individual performance is measured through an assessment of comprehensive business unit deliverables, demonstrated leadership behaviors, modeling the Company values and the achievement of specific Key Performance Objectives. At the executive level, Key Performance Objectives are linked directly to the Company’s strategic priorities. At a minimum, the individual performance of the executive directors is assessed on an annual basis.

The normal policy for executive directors is that, using “target” or “expected value” calculations, their performance-related incentives will equate to approximately 70% of total annual remuneration (excluding benefits).

The main components of remuneration are:

Basic salary

The salary for each executive director is based on individual performance and on information from independent professional sources on the salary levels for similar jobs in groups of comparable companies. Internal relativities and salary levels in the wider employment market are also taken into account.

In addition, benefits are provided to executive directors in accordance with the policy applying to other executives in their geographic location.

Annual performance bonus

Within both the Short Term Incentive Plan and the Short Term Deferred Incentive Plan, challenging performance goals are set and these must be achieved before the maximum bonus becomes payable. The Short Term Incentive Plan is linked to personal objectives and the Short Term Deferred Incentive Plan is

F-26

linked to the Company’s financial performance. For executive directors, the maximum bonus opportunity under the Short Term Incentive Plan in 2006 is 80% of salary and is payable in cash. The maximum bonus opportunity under the Short Term Deferred Incentive Plan in 2006 is 100% of salary, with 50% linked to adjusted earnings per share and 50% to earnings before special items, interest and taxation. The performance level required to trigger maximum bonus is 110% of budget for both measures. This bonus will normally be paid in IHG PLC shares and deferred. Matching shares may also be awarded up to 0.5 times the deferred amount. Such awards are conditional on the directors’ continued employment with the Company until the release date. The shares will normally be released at the end of the three years following deferral.

The executive directors will be expected to hold all shares earned from the Company’s remuneration plans while the value of their holding is less than twice their basic salary or three times in the case of the Chief Executive.

Bonuses are not pensionable.

Executive share options Following a full review of incentive arrangements, the Committee has concluded that share options are not the most effective incentive for the foreseeable future and therefore no further grants of options will be made. However, the Committee believes that share ownership by executive directors and senior executives strengthened the link between the individual’s personal interest and that of the shareholders.

For options granted in 2005, the Company’s adjusted earnings per share over the three-year period ending December 31, 2007 must increase by at least nine percentage points over the increase in the UK Retail Prices Index (“RPI”) for the same period for one-third of the options granted to vest; 12 percentage points over the increase in RPI for the same period for two-thirds of the options granted to vest; and 15 percentage points over the increase in RPI for the same period for the full award to vest. The options lapse if the performance condition is not met. This remains a realistic but challenging condition in the current economic climate. The achievement or otherwise of the performance condition is assessed, based on the Company’s published results; such assessment is then reviewed by the external auditor.

Executive directors were granted options on April 4, 2005 as shown in the table on page F-34.

Executive share options are not pensionable.

Executive directors are entitled to participate in all-employee share plans. Options granted under the IHG Sharesave Plan are not subject to performance conditions and are not pensionable.

Performance restricted shares The Performance Restricted Share Plan allows executive directors and eligible employees to receive share awards, subject to the satisfaction of a performance condition, set by the Remuneration Committee, which is normally measured over a three-year period. Awards are normally made annually and, except in exceptional circumstances, will not exceed three times annual salary for executive directors. In determining the level of awards within this maximum limit, the Committee takes into account the level of executive share options granted to the same person. The grant of awards is restricted so that in each year the aggregate of (i) 20% of the market value of the executive share options and (ii) 33% of the market value of performance restricted shares, will not exceed 130% of annual salary, taking the market value in each case as at the date of grant.

For the 2005/07 cycle, performance will be measured by reference to:


	•	the increase in IHG PLC Total Shareholder Return (“TSR”) over the performance period relative to 10 identified comparator companies: Accor, De Vere, Hilton Group, Hilton Hotels Corp., Host Marriott, Marriott Hotels, Millennium & Copthorne, NH Hotels, Sol Melia and Starwood Hotels; and

	•	the cumulative annual growth (“CAGR”) in the number of rooms within the IHG system over the performance period relative to nine identified comparator companies: Carlson Hospitality Worldwide, Cendant, Choice, Hilton Group, Hilton Hotels Corp., Hyatt Hotels & Resorts, Marriott Hotels, Sol Melia and Starwood Hotels.

F-27

In respect of TSR performance, 10% of the award will be released for the achievement of sixth place within the TSR group and 50% of the award will be released for the achievement of first or second place. In respect of rooms CAGR performance, 10% of the award will be released for the achievement of median growth and 50% of the award will be released for the achievement of upper quartile growth. Vesting between all stated points will be on a straight line basis.

The asset disposal program, which can significantly impact Return on Capital Employed (“ROCE”), will complete during 2006. The Committee believes that a rooms’ growth related performance measure is now the more appropriate measure going forward, effectively aligning an appropriate element of incentive pay with the Group’s stated objective of increasing the number of rooms in the IHG system.

Benefits under the Performance Restricted Share Plan are not pensionable and the awards lapse if the performance conditions are not met.

During the year, IHG has remained within its headroom limits for the issue of new shares under the share incentive schemes. Prior to the capital reorganization of June 2005 and the consequent reduction in the Company’s share capital, the Company’s position under the Association of British Insurer’s guidelines (that dilution under discretionary schemes should not exceed 5% in 10 years) was that shares equivalent to only 4.58% of ordinary share capital had been allocated. Against the guideline that overall dilution under all schemes should not exceed 10% in 10 years, IHG had allocated only 4.95%. These figures exclude obligations which are to be settled with shares purchased in the market.


	*Companies used for comparison*

In assessing levels of pay and benefits, IHG compares the packages offered by different groups of comparator companies. These groups are chosen having regard to participants’:


	•	size — revenue, profits and the number of people employed;

	•	diversity and complexity of businesses;

	•	geographical spread of businesses;

	•	industry type; and

	•	relevance as:


	a) a potential recruitment target

	b) a potential threat in respect of attracting IHG talent.

External consultants are used to advise the Remuneration Committee on the structure and level of pay and benefits in IHG’s markets.


	*Policy on external appointments*

The Company recognizes that its directors may be invited to become non-executive directors of other companies and that such duties can broaden experience and knowledge, and benefit the business. Executive directors are, therefore, allowed to accept one non-executive appointment (excluding positions where the director is appointed as the Group’s representative), subject to Board approval, as long as this is not likely to lead to a conflict of interest, and to retain the fees received. David Webster received £20,000 during the year for his services as a non-executive director.


	*Contracts of service*


	a) Policy

The Remuneration Committee’s policy is for executive directors to have rolling contracts with a notice period of 12 months.

F-28

Richard Hartman, Stevan Porter and Richard Solomons have service agreements with a notice period of 12 months. Andrew Cosslett entered into a service agreement with an initial notice period of 24 months, reducing month by month to 12 months after 12 months of service. As at the date of this report, Andrew Cosslett’s notice period is 12 months. All new appointments are intended to have 12-month notice periods. However, on occasion, to complete an external recruitment successfully, a longer initial period reducing to 12 months may be used.

Non-executive directors, Ralph Kugler, Robert C. Larson, Sir David Prosser and Sir Howard Stringer signed letters of appointment effective from the listing of IHG PLC in April 2003. These were renewed, effective from completion of the capital reorganization of the Group and the listing of new IHG PLC shares on June 27, 2005. David Kappler signed a letter of appointment effective from his date of original appointment to the Board on June 21, 2004. This was also renewed, effective from June 27, 2005. Jennifer Laing and Jonathan Linen signed letters of appointment effective from their appointment dates, respectively August 25, 2005 and December 1, 2005.

All non-executive directors’ appointments, with the exception of the Chairman, are subject to three months’ notice.

b) Directors’ contracts


	Contract		Unexpired term/
Directors	effective date		notice period

Andrew Cosslett		2.3.05		12 months
Richard Hartman		4.15.03		12 months
Stevan Porter		4.15.03		12 months
Richard Solomons		4.15.03		12 months

Note: each of the executive directors signed a letter of appointment, effective from completion of the capital reorganization of the Group and the listing of new IHG PLC shares on June 27, 2005. The terms of each appointment were as set out in each Executive Director’s original service agreement.

Policy regarding pensions

UK-based executive directors and senior employees participate on the same basis in the executive section of the InterContinental Hotels UK Pension Plan and, if appropriate, the InterContinental Executive Top-Up Scheme. The latter is an unfunded arrangement. However, appropriate security is provided via a fixed charge on a hotel asset. Stevan Porter and senior US-based executives participate in US retirement benefits plans. Executives in other countries, who do not participate in these plans, will participate in local plans, or the InterContinental Hotels Group International Savings & Retirement Plan.

Currently, the pension arrangements for UK-based executive directors and other senior employees provide benefits from both the tax-approved InterContinental Hotels UK Pension Plan and the unfunded InterContinental Executive Top-Up Scheme. In response to the new pension regime resulting from the Finance Act 2004 and applying from April 2006, these plans will be amended to continue to provide, tax efficiently, similar benefits in total, but with a different split of benefits between the two plans.

As an alternative to these arrangements, a cash allowance may be taken.

F-29

Directors’ Emoluments


							Total emoluments
							excluding pensions
	Basic
	salaries		Performance				1.1.05 to		1.1.04 to
	and fees		payments		Benefits		12.31.05		12.31.04

	(£ thousand)
Executive Directors
Andrew Cosslett⁽¹⁾		642		—		21		663		—
Richard Hartman		496		—		302		798		775
Stevan Porter⁽²⁾		402		—		27		429		368
Richard Solomons		406		—		17		423		400
Non-executive Directors
David Webster⁽³⁾		519		—		3		522		424
David Kappler⁽⁴⁾		80		—		—		80		35
Ralph Kugler⁽⁵⁾		50		—		—		50		42
Jennifer Laing⁽⁵⁾		18		—		—		18		—
Robert C. Larson⁽⁵⁾		50		—		—		50		42
Jonathan Linen⁽⁵⁾		4		—		—		4		—
Sir David Prosser⁽⁶⁾		65		—		—		65		50
Sir Howard Stringer⁽⁵⁾		50		—		—		50		42
Former directors⁽⁷⁾		488		413		16		917		1,249

Total		3,270		413		386		4,069		3,427


(1)	Andrew Cosslett joined the Company on February 3, 2005. The emoluments shown include a £53,737 cash payment made as part of his recruitment terms.

(2)	Emoluments for Stevan Porter include £41,140 that were chargeable to UK income tax and £19,088 reimbursement of interest and charges due to a payroll error.

(3)	Fees paid to David Webster represent £41,667 per month payable to him until May 2, 2005 in his capacity as interim Chief Executive and a fixed fee of £350,000 pa for his role as non-executive Chairman.

(4)	With effect from January 1, 2005, David Kappler is paid a total annual fee of £80,000, reflecting his roles as Senior Independent Director and Chairman of the Audit Committee.

(5)	With effect from January 1, 2005, an annual fee of £50,000 is payable to each of Ralph Kugler, Robert C. Larson and Sir Howard Stringer. All fees due to Ralph Kugler are paid to Unilever. Jennifer Laing and Jonathan Linen are paid an annual fee of £50,000 each effective from their dates of appointment, respectively August 25, 2005 and December 1, 2005.

(6)	With effect from January 1, 2005, Sir David Prosser is paid a total annual fee of £65,000, reflecting his role as Chairman of the Remuneration Committee.

(7)	Richard North resigned as a director and as Chief Executive on September 30, 2004 and ceased employment with the Company on December 31, 2004. The emoluments shown for 2004 are for the full year. This includes his participation in the Short Term Deferred Incentive Plan which, in accordance with plan rules, had to be paid in cash due to his employment ending. He was eligible to participate in the Short Term Deferred Incentive Plan for the 2005 performance year. This award was made in cash and pro-rated to September 30, 2005. Richard North’s severance arrangements also provided for him to receive a payment of one month’s basic salary in each month up to September 2005. Sir Ian Prosser retired on December 31, 2003. However, he had an ongoing healthcare benefit of £840 during the year.

‘Performance payments’ include bonus awards in cash in respect of participation in the Short Term Deferred Incentive Plan (“STDIP”), but exclude bonus awards in deferred shares and any matching shares, details of which are set out in the STDIP table on page F-33.

‘Benefits’ incorporate all tax assessable benefits arising from the individual’s employment. For Messrs Cosslett, Hartman and Solomons, this relates in the main to the provision of a fully expensed company car and private healthcare cover. In addition, Mr Hartman received housing, child education and other expatriate benefits. For Stevan Porter, benefits relate in the main to private healthcare cover and financial counselling.

F-30

Long-term Reward

Performance Restricted Share Plan (“PRSP”)

In 2005, there were three cycles in operation and one cycle which vested.

The awards made in respect of the Performance Restricted Share Plan cycles ending on December 31, 2004, December 31, 2005, December 31, 2006 and December 31, 2007 and the maximum pre-tax number of ordinary shares due if performance targets are achieved in full are set out in the table below. In respect of the cycle ending on December 31, 2005, the Company finished in fifth place in the TSR group and achieved ROCE growth of 46%. Accordingly, 42.8% of the award vested on March 3, 2006.


																								Maximum		Expected
				Maximum								PRSP shares									Maximum			value based		value
	Maximum			PRSP shares					Market			vested during		Market					Actual/		PRSP			on share		based on
	PRSP			awarded during					price per			the year		price per					planned		shares			price of		share price
	shares held			the year 1.1.05			Award		share at			1.1.05 to		share at		Value at			vesting		held at			839.5p at		of 839.5p
	at 1.1.05			to 12.31.05			date		award			12.31.05		vesting		vesting			date		12.31.05			12.31.05		at 12.31.05

																£								£		£
Directors
Andrew Cosslett					68,216	⁽²⁾		4.1.05		617.5	p		—							3.3.06		68,216			572,674		245,105	⁽⁸⁾
					136,432	⁽³⁾		4.1.05		617.5	p		—							3.9.07		136,432			1,145,347
					276,200	⁽⁴⁾		6.29.05		706	p		—							3.7.08		276,200			2,318,699

Total																						480,848			4,036,720

Richard Hartman		111,930	⁽¹⁾					6.18.03		445p			67,158		660p		443,243			3.11.05		—
		167,900	⁽²⁾					6.18.03		445p			—							3.3.06		167,900			1,409,521		603,275	⁽⁸⁾
		165,130	⁽³⁾					6.24.04		549.5p			—							3.9.07		165,130			1,386,267
					214,870	⁽⁴⁾		6.29.05		706p			—							3.7.08		214,870			1,803,834

Total																						547,900			4,599,622

Stevan Porter		113,810	⁽¹⁾					6.18.03		445p			68,286		660p		450,688	⁽⁷⁾		3.11.05		—
		170,710	⁽²⁾					6.18.03		445p			—							3.3.06		170,710			1,433,111		613,372	⁽⁸⁾
		142,290	⁽³⁾					6.24.04		549.5p			—							3.9.07		142,290			1,194,525
					174,900	⁽⁴⁾		6.29.05		706p			—							3.7.08		174,900			1,468,286

Total																						487,900			4,095,922

Richard Solomons		110,110	⁽¹⁾					6.18.03		445p			66,066		660p		436,036			3.11.05		—
		165,160	⁽²⁾					6.18.03		445p			—							3.3.06		165,160			1,386,519		593,431	⁽⁸⁾
		144,990	⁽³⁾					6.24.04		549.5p			—							3.9.07		144,990			1,217,192
					176,550	⁽⁴⁾		6.29.05		706p			—							3.7.08		176,550			1,482,138

Total																						486,700			4,085,849

Former Directors
Richard North		188,760	⁽¹⁾					6.18.03		445p			113,256		660p		747,490			3.11.05		—
		283,140	⁽²⁾⁽⁵⁾					6.18.03		445p			—							3.3.06		259,545	⁽⁴⁾		2,178,881		932,562	⁽⁸⁾
		248,560	⁽³⁾⁽⁵⁾					6.24.04		549.5p			—							3.9.07		144,993	⁽⁴⁾		1,217,217

Total																						404,538			3,396,098

Sir Ian Prosser		65,410	⁽¹⁾⁽⁶⁾					6.18.03		445p			39,246		660p		259,024			3.11.05		—
		65,410	⁽²⁾⁽⁶⁾					6.18.03		445p			—							3.3.06		65,410			549,117		235,023	⁽⁸⁾

Total																						65,410			549,117

Total																									20,763,328

(1)

This “transitional” award was based on performance to December 31, 2004 where the performance measure related to the Company’s Total Shareholder Return (“TSR”) against a group of 11 other comparator companies. The number of shares released was graded, according to where the Company finished in the comparator group, with 100% of the award being released for first or second position and 20% of the award being released for sixth place. The Company finished in fourth place and accordingly 60% of the award vested on March 11, 2005.

F-31


(2)	This award is based on performance to December 31, 2005 where the performance measure relates to both the Company’s TSR against a group of 11 other comparator companies and growth in return on capital employed (“ROCE”). The number of shares released is graded, according to a) where the Company finishes in the TSR comparator group, with 50% of the award being released for first or second position and 10% of the award being released for sixth place; and b) growth in ROCE, with 50% of the award being released for 80% growth and 10% of the award being released for 30% growth.

(3)	This award is based on performance to December 31, 2006 where the performance measure relates to both the Company’s TSR against a group of 10 other comparator companies and growth in ROCE.

(4)	This award is based on performance to December 31, 2007 where the performance measure relates to both the Company’s TSR against a group of 10 other comparator companies and cumulative annual growth of rooms in the IHG system against a group of nine other comparator companies.

(5)	Richard North’s awards were pro-rated to reflect his contractual service during the applicable performance periods.

(6)	Sir Ian Prosser’s awards were pro-rated to reflect his actual service during the applicable performance periods.

(7)	The value of Stevan Porter’s shares at vesting includes £43,190 that was chargeable to UK income tax.

(8)	The Company finished in fifth place in the TSR group and achieved ROCE growth of 46%. Accordingly, 42.8% of the award vested on March 3, 2006, with 29,196; 71,861; 73,063 and 70,688 shares released to Messrs Cosslett, Hartman, Porter and Solomons respectively.

Short Term Deferred Incentive Plan (STDIP)

Messrs Cosslett, Hartman, Porter and Solomons participated in the STDIP during the year ended December 31, 2005, and received an award on March 8, 2006.

The awards, inclusive of matching shares, are as follows:


					Market price
					per share at		Value
	Award date		No of shares		award		on award

							£
Andrew Cosslett		3.08.06		105,276		853.67		898,709
Richard Hartman		3.08.06		64,518		853.67		550,771
Stevan Porter		3.08.06		67,557		853.67		576,714
Richard Solomons		3.08.06		67,296		853.67		574,486

F-32

Directors’ pre-tax interests during the year were:


		STDIP							STDIP
		shares							shares										Value
		awarded							vested										based on
	STDIP	during					Market		during			Market		STDIP					share
	shares	the year					price per		the year			price per		shares		Planned			price of
	held at	1.1.05 to			Award		share at		1.1.05 to		Vesting	share at	Value at	held at		vesting			839.5p at
	1.1.05	12.31.05			date		award		12.31.05		date	vesting	vesting	12.31.05		date			12.31.05

													£						£
Directors
Andrew Cosslett			79,832	⁽¹⁾		4.1.05		617.5p		—					39,916		4.1.06			335,095
															39,916		4.1.07			335,095

Total															79,832					670,190

Richard Hartman			88,341	⁽²⁾		3.16.05		654p		—					29,447		3.16.06	⁽⁵⁾		247,208
															29,447		3.16.07			247,208
															29,447		3.16.08			247,208

Total															88,341					741,624

Stevan Porter			80,934	⁽³⁾		3.16.05		654p		—					26,978		3.16.06	⁽⁵⁾		226,481
															26,978		3.16.07			226,481
															26,978		3.16.08			226,481

Total															80,934					679,443

Richard Solomons			87,061	⁽⁴⁾		3.16.05		654p		—					29,020		3.16.06	⁽⁵⁾		243,623
															29,020		3.16.07			243,623
															29,021		3.16.08			243,632

Total															87,061					730,878


(1)	This special award was made to Andrew Cosslett as part of his overall recruitment terms. The shares will vest in equal portions on the first and second anniversary of the award date, subject to his continued employment until that time.

(2)	This award was based on financial year 2004 performance and the bonus target was 50% of base salary. Richard Hartman was awarded 70% (maximum) of his bonus target for EPS performance, 49% of his bonus target for EMEA earnings before interest and tax (EBIT) performance and 45% of his bonus target for his personal performance. Richard Hartman’s total bonus was therefore 164% of his bonus target. One matching share was awarded for every two bonus shares earned.

(3)	This award was based on financial year 2004 performance and the bonus target was 50% of base salary. Stevan Porter was awarded 70% (maximum) of his bonus target for EPS performance, 70% (maximum) of his bonus target for the Americas EBIT performance and 60% (maximum) of his bonus target for his personal performance. Stevan Porter’s total bonus was therefore 200% (maximum) of his bonus target. One matching share was awarded for every two bonus shares earned.

(4)	This award was based on financial year 2004 performance and the bonus target was 50% of base salary. Richard Solomons was awarded 70% (maximum) of his bonus target for EPS performance, 70% (maximum) of his bonus target for Company EBIT performance and 60% (maximum) of his bonus target for his personal performance. Richard Solomons’ total bonus was therefore 200% (maximum) of his bonus target. One matching share was awarded for every two bonus shares earned.

(5)	On March 16, 2006 being the first anniversary of award, the shares detailed in the table above were duly released to the individuals concerned.

F-33

Share Options


	Ordinary shares under option
											Weighted
	Options held at		Granted		Lapsed		Exercised		Options		average
	1.1.05 or date		during the		during the		during the		held at		option		Option
Directors	of appointment		year		year		year		12.31.05		price		price

											(pence)		(pence)
Andrew Cosslett
				157,300										619.83
b										157,300

Total				157,300		—		—		157,300		619.83


Richard Hartman		834,022										435.70
				118,810										619.83
a										364,388		398.99
b										588,444		495.61

Total		834,022		118,810		—		—		952,832		458.66


Stevan Porter		658,319										449.47
				96,370										619.83
								178,176						409.36
b										576,513		490.34

Total		658,319		96,370		—		178,176		576,513		490.34


Richard Solomons		813,360										426.49
				100,550										619.83
								357,545				375.24
b										574,365		492.24

Total		831,360		100,550		—		357,545		574,365		492.24


(a)	Where the options are exercisable and the market price per share at December 31, 2005 was above the option price; and

(b)	Where options are not yet exercisable. A performance condition has to be met before these options can be exercised.

Rolled over options, all of which are showing in (a) above, became exercisable on the separation of Six Continents PLC in April 2003 and will lapse on various dates up to October 2012. Rolled over options ceased to be subject to performance conditions on Separation. Executive share options granted in 2003 and 2004 are exercisable between May 2006 and April 2014, subject to the achievement of the performance condition. Sharesave options granted in 2003 are exercisable between March 2007 and March 2009. Share options under the IHG Executive Share Option Plan were granted on April 4, 2005 at an option price of 619.83p. These options are exercisable between April 2008 and April 2015, subject to the achievement of the performance condition.

Option prices range from 308.48p to 619.83p per IHG PLC share. The closing market value share price on December 30, 2005 was 839.50p and the range during the year was 634.98p to 839.50p per share.

The gain on exercise by Directors in aggregate was £1,658,109 in the year ended December 31, 2005 (nil in the year ended December 31, 2004). The market value share prices on the exercise of options by Stevan Porter and Richard Solomons were 728p per share and 720.50p per share respectively.

F-34

Directors’ Shareholdings


	December 31, 2005			January 1, 2005⁽¹⁾
	InterContinental Hotels Group PLC			InterContinental Hotels Group PLC
	ordinary shares of 10p⁽⁴⁾			ordinary shares of 112p⁽²⁾⁽⁴⁾

Executive Directors
Andrew Cosslett		7,332			—
Richard Hartman		70,117			45,247
Stevan Porter		64,589			88,077
Richard Solomons		60,339			16,031
Non-executive Directors
David Kappler		1,908			2,602
Ralph Kugler		654			892
Jennifer Laing		—			—
Robert C. Larson		7,857	⁽³⁾		10,714	⁽³⁾
Jonathan Linen		—			—
Sir David Prosser		3,273			4,464
Sir Howard Stringer		5,548			7,566
David Webster		31,823			13,395


(1)	Or date of appointment, if later.

(2)	These share interests were in InterContinental Hotels Group PLC 112p ordinary shares prior to the capital reorganization effective from June 27, 2005. For every 15 existing InterContinental Hotels Group PLC shares held on June 24, 2005, shareholders received 11 new ordinary shares of 10p each and £24.75 in cash.

(3)	Held in the form of American Depositary Receipts.

(4)	These shareholdings are all beneficial interests and include shares held by Directors’ spouses and other connected persons. None of the Directors has a beneficial interest in the shares of any subsidiary.

At December 31, 2005, the executive directors of the Company, as potential beneficiaries under the Company’s Employee Benefit Trust (the “Trust”), were each technically deemed to be interested in 2,940,245 unallocated IHG PLC shares held by the Trust. As at March 17, 2006 the number of shares held by the Trust in which these Directors hold a residual interest was 2,295,205 in total.

The Company’s Register of Directors’ Interests, which is open to inspection at the Registered Office, contains full details of Directors’ shareholdings and share options.

Directors’ Pensions

The following information relates to the pension arrangements provided for Messrs Cosslett, Hartman and Solomons under the executive section of the InterContinental Hotels UK Pension Plan (the “IC Plan”) and the unfunded InterContinental Executive Top-Up Scheme (“ICETUS”).

The executive section of the IC Plan is a funded, Inland Revenue approved, final salary, occupational pension scheme. The main features applicable to the executive directors are: a normal pension age of 60; pension accrual of 1/30th of final pensionable salary for each year of pensionable service; life assurance cover of four times pensionable salary; pensions payable in the event of ill health; and spouses’ and dependants’ pensions on death.

All plan benefits are subject to Inland Revenue limits. Where such limitation is due to the earnings ‘cap’, ICETUS is used to increase pension and death benefits to the level that would otherwise have applied.

Richard Hartman, who reached the IC Plan normal pension age of 60 on January 30, 2006, ceased to be an active member of the IC Plan and ICETUS with effect from the date, and in future will participate in the InterContinental Hotels Group International Savings and Retirement Plan.

F-35

Stevan Porter has retirement benefits provided via the 401(k) Retirement Plan for employees of Six Continents Hotels Inc. (401(k)) and the Six Continents Hotels Inc. Deferred Compensation Plan (“DCP”).

The 401(k) is a tax qualified plan providing benefits on a defined contribution basis, with the member and the relevant company both contributing. The DCP is a non-tax qualified plan, providing benefits on a defined contribution basis, with the member and the relevant company both contributing.

Directors’ Pension Benefits


									Increases in
									transfer value
					Transfer value				over the
			Directors’		of accrued benefits				year, less		Increase		Increase		Accrued
	Age at		contributions						Directors’		in accrued		in accrued		pension at
	Dec 31, 2005		in the year		Jan 1, 2005		Dec 31, 2005		contributions		pension		pension		Dec 31, 2005

					£		£		£
			(note 1)								(note 2)		(note 3)		(note 4)
			£								£ pa		£ pa		£ pa
Directors
Andrew Cosslett		50		14,400		Nil		266,900		252,500		19,700		19,700		19,700
Richard Hartman		59		15,700		1,189,800		1,848,200		642,700		23,400		21,500		86,600
Richard Solomons		44		15,700		834,100		1,227,100		377,300		22,500		19,600		119,300


note 1:	Contributions paid in the year by the Directors under the terms of the plans.

note 2:	The absolute increase in accrued pension during the year.

note 3:	The increase in accrued pension during the year excluding any increase for inflation, on the basis that increases to accrued pensions are applied at October 1.

note 4:	Accrued pension is that which would be paid annually on retirement at 60, based on service to December 31, 2005.

The figures shown in the above table relate to the final salary plans only. For defined contribution plans, the contributions made by and in respect of Stevan Porter during the year are:


Director’s contribution to					Company’s contribution to
	DCP		401(k)			DCP		401(k)


	£		£			£		£
Stevan Porter		20,300		5,800	Stevan Porter		59,400		4,700


Note 4 —	Auditors’ Remuneration paid to Ernst & Young LLP


	Year ended		Year ended
	December 31,		December 31,
	2005		2004

	(£ million)
Audit fees		3.9		3.8
Audit related fees		2.7		1.6
Tax fees		0.6		0.5

		7.2		5.9

Non-audit fees payable for UK services were £2.1 million (2004 £1.1 million).

F-36


Note 5 —	Special Items


	Year ended			Year ended
	December 31,			December 31,
	2005			2004

	(£ million)
Other operating income and expenses
Impairment of property, plant and equipment⁽ⁱ⁾		(7	)		(48	)
Restructuring costs⁽ⁱⁱ⁾		(13	)		(11	)
Property damage⁽ⁱⁱⁱ⁾		(9	)		—
Employee benefits curtailment gain^(iv)		7			—
Reversal of previously recorded provisions^(v)		—			20
Provision for investment in associates^(vi)		—			(16	)
Provision for investment in other financial assets		—			(2	)
Write back of provision for investment in other financial assets		—			8

		(22	)		(49	)

Financing
Financial income^(vii)		—			22
Financial expenses^(viii)		—			(16	)
Financial expense on early settlement of debt^(ix)		—			(17	)

		—			(11	)

Tax
Tax credit on above items		—			22
Special tax credit^(x)		8			161

		8			183

Gain on disposal of assets
Gain on disposal of assets		349			15
Tax (charge)/credit		(38	)		4

		311			19

The above items are treated as special by reason of their size or incidence (see Note 9).


(i)		Property, plant and equipment were written down by £7 million (2004 £48 million) following an impairment review of the hotel estate.

(ii)		Restructuring costs relate to the delivery of the further restructuring of the Hotels business.

(iii)		Damage to properties resulting from fire and natural disasters.

(iv)		A curtailment gain arose as a result of the sale of UK hotel properties.

(v)		Following adoption of IAS 39 at January 1, 2005, adjustments to market value are recorded directly in equity. In 2004, under UK GAAP, the adjustment is a reversal of previously recorded provisions.

(vi)		Relates to an impairment in value of associate investments.

(vii)		Relates to interest on special tax refunds.

(viii)		Relates to costs of closing out currency swaps and costs related to refinancing the Company’s debt.

(ix)		Relates to premiums paid on the repurchase of the Company’s public debt.

(x)		Represents the release of provisions relating to tax matters which have been settled or in respect of which the relevant statutory limitation period has expired, principally relating to acquisitions (including provisions relating to pre-acquisition periods) and disposals, intra-group financing and, in 2004, the recognition of a deferred tax asset of £83 million in respect of capital losses.

F-37

Note 6 — Finance costs


	Year ended		Year ended
	December 31,		December 31,
	2005		2004

	(£ million)
Financial income
Interest on tax refunds		—		22
Interest income		30		48

		30		70

Financial expenses
Financial expense on early settlement of debt		—		17
Costs of closing out currency swaps and refinancing the Group’s debt		—		16
Interest expense — Hotels		54		70
Interest expense — Soft Drinks		9		—

		63		103

Note 7 — Tax


	*Income tax*


		Year ended			Year ended
		December 31,			December 31,
		2005			2004

		(£ million)
UK corporation tax at 30% (2004 30%):
	Current period		11			23
	Adjustments in respect of prior periods		(6	)		(48	)

			5			(25	)

Foreign tax:
	Current period		149			62
	Benefit of tax losses on which no deferred tax previously recognized		(2	)		(9	)
	Adjustments in respect of prior periods		(19	)		(82	)

			128			(29	)

Total current tax			133			(54	)

F-38


				Year ended			Year ended
				December 31,			December 31,
				2005			2004

				(£ million)
Deferred tax:
	Origination and reversal of temporary differences				(3	)		18
	Changes in tax rates				(2	)		(11	)
	Adjustments to estimated recoverable deferred tax assets				1			12
	Adjustments in respect of prior periods				(11	)		(96	)

Total deferred tax					(15	)		(77	)

Total income tax on profit for the year					118			(131	)

Further analyzed as tax relating to:
	Profit before special items				88			56
	Special items (Note 5):
		Other operating income and expenses:
			Impairment of property, plant and equipment		—			(14	)
			Restructuring costs		—			(8	)
			Provision for investment in other financial assets		—			3
		Financing:
			Financial expense on early settlement of debt		—			(5	)
			Other		—			2
		Special tax credit⁽ⁱ⁾			(8	)		(161	)

Tax charge /(credit)					80			(127	)
Gain on disposal of assets					38			(4	)

					118			(131	)

The tax charge /(credit), excluding gain on disposal of assets, can be further analyzed as relating to:
	Profit on continuing operations				28			(194	)
	Profit on discontinued operations				52			67

					80			(127	)


(i)	Represents the release of provisions relating to tax matters which have been settled or in respect of which the relevant statutory limitation period has expired, principally relating to acquisitions (including provisions relating to pre-acquisition periods) and disposals, intra-group financing and, in 2004, the recognition of a deferred tax asset of £83 million in respect of capital losses.

F-39


	*Tax reconciliations*


	Reconciliation of tax charge /(credit) on total profit, including gain on disposal of assets


	Year ended			Year ended
	December 31,			December 31,
	2005			2004

	%			%
UK corporation tax at standard rate		30.0			30.0
Permanent differences		1.3			1.5
Net effect of different rates of tax in overseas businesses		2.9			6.3
Effect of changes in tax rates		(0.3	)		(3.9	)
Benefit of tax losses on which no deferred tax previously recognized		(0.1	)		(1.1	)
Effect of adjustments to estimated recoverable deferred tax assets		0.1			4.3
Adjustment to tax charge in respect of prior periods		(4.5	)		(22.6	)
Other		(0.1	)		0.6
Special items and gains on disposal of assets		(10.7	)		(61.9	)

		18.6			(46.8	)

Note 8 — Dividends paid and proposed


		Year ended		Year ended		Year ended		Year ended
		December 31,		December 31,		December 31,		December 31,
		2005		2004		2005		2004

		(pence per share)				(£ million)
Paid during the year:
	Final (declared in previous year)		10.00		9.45		61		70
	Interim		4.60		4.30		20		29
	Special interim		—		72.00		—		501

			14.60		85.75		81		600

Proposed for approval at the Annual General Meeting (not recognized as a liability at December 31):


Final	10.70	10.00	46	62

The proposed final dividend is payable on the shares in issue at March 31, 2006.

Note 9 — Earnings per ordinary share

Basic earnings per ordinary share is calculated by dividing the profit for the year available for IHG equity holders of £496 million (2004 £383 million) by 521 million (2004 710 million), being the weighted average number of ordinary shares, excluding investment in own shares, in issue during the year.

Diluted earnings per ordinary share is calculated by adjusting basic earnings per ordinary share to reflect the notional exercise of the weighted average number of dilutive ordinary share options outstanding during the year. The resulting weighted average number of dilutive ordinary shares is 533 million (2004 718 million).

F-40

The overall effect of the transaction was that of a share repurchase at fair value, therefore no adjustment has been made to comparative data.


		Year ended						Year ended
		December 31,						December 31,
		2005						2004

		Continuing						Continuing
		operations			Total			operations			Total

		(£ million)
Basic earnings per share
Profit available for equity holders			116			496			246			383
Basic weighted average number of ordinary shares (millions)			521			521			710			710
Basic earnings per share (pence)			22.3			95.2			34.6			53.9

Adjusted earnings per share
Profit available for equity holders			116			496			246			383
Less adjusting items:
	Other operating income and expenses (Note 5)		22			22			49			49
	Financing (Note 5)		—			—			11			11
	Tax (Note 5)		(8	)		(8	)		(183	)		(183	)
	Gain on disposal of assets, net of tax		—			(311	)		—			(19	)

Adjusted earnings			130			199			123			241
Basic weighted average number of ordinary shares (millions)			521			521			710			710
Adjusted earnings per share (pence)			24.9			38.2			17.3			33.9

Diluted earnings per share
Profit available for equity holders			116			496			246			383
Diluted weighted average number of ordinary shares (millions) (see below)			533			533			718			718
Diluted earnings per share (pence)			21.8			93.1			34.3			53.3


		2005		2004

		(millions)
Diluted weighted average of ordinary shares is calculated as:
	Basic weighted average number of ordinary shares		521		710
	Dilutive potential ordinary shares — employee share options		12		8

			533		718

Adjusted earnings per ordinary share is disclosed in order to show performance undistorted by special items, to give a more meaningful comparison of the Company’s performance.

F-41

Note 10 — Property, Plant and Equipment


		Land			Fixtures,
		and			fittings and			Plant and
		buildings			equipment			machinery			Total

		(£ million)
Year ended December 31, 2004
Cost:
At January 1, 2004			3,004			1,635			165			4,804
	Exchange and other adjustments		(59	)		(34	)		—			(93	)
	Additions		50			140			27			217
	Net transfers to non-current assets classified as held for sale		(1,471	)		(667	)		—			(2,138	)
	Disposals		(83	)		(89	)		(10	)		(182	)
	Impairment		(20	)		—			—			(20	)

At December 31, 2004			1,421			985			182			2,588

Depreciation:
At January 1, 2004			168			608			97			873
	Exchange and other adjustments		(6	)		(9	)		—			(15	)
	Provided		12			131			18			161
	Net transfers to non-current assets classified as held for sale		(59	)		(253	)		—			(312	)
	On disposals		(11	)		(52	)		(10	)		(73	)
	Impairment		28			—			—			28

At December 31, 2004			132			425			105			662

Net book value at December 31, 2004			1,289			560			77			1,926

Year ended December 31, 2005
Cost:
At January 1, 2005			1,421			985			182			2,588
	Exchange and other adjustments		34			13			—			47
	Additions		15			107			18			140
	Net transfers to non-current assets classified as held for sale		(163	)		(150	)		—			(313	)
	Disposals		(152	)		(333	)		(200	)		(685	)
	Impairment		—			(7	)		—			(7	)

At December 31, 2005			1,155			615			—			1,770

Depreciation:
At January 1, 2005			132			425			105			662
	Exchange and other adjustments		—			14			—			14
	Provided		11			88			17			116
	Net transfers to non-current assets classified as held for sale		(10	)		(58	)		—			(68	)
	On disposals		(32	)		(156	)		(122	)		(310	)

At December 31, 2005			101			313			—			414

Net book value at December 31, 2005			1,054			302			—			1,356

F-42

During the year ended December 31, 2005 property, plant and equipment have been written down by £7 million (2004 £48 million) following an impairment review of certain hotel assets based on current market trading conditions. The fair value has been measured by reference to recent transactions for hotel assets in relevant markets.

Note 11 — Held for Sale and Discontinued Operations


	*Hotels*

During the year ended December 31, 2005, the Company sold 112 hotels (2004 10 hotels) continuing the asset disposal program commenced in 2003. At December 31, 2004, 106 hotel properties were classified as held for sale. During 2005, an additional 35 hotel properties were added and three hotel properties were removed from the held for sale classification. At December 31, 2005 and December 31, 2004, no gain or loss arose on the measurement to fair value less cost to sell of held for sale assets.


	Year ended
	December 31,

Net assets of hotels on disposal	2005			2004

	(£ million)
Property, plant and equipment		1,961			100
Goodwill		20			—
Net working capital		1			(1	)
Cash and cash equivalents		16			—
Deferred tax payable		(121	)		(5	)
Minority equity interest		—			(11	)

Company’s share of net assets disposed of		1,877			83

Net cash inflow
Cash consideration (net of costs paid)		1,832			101
Cash disposed of		(16	)		—

		1,816			101

Total consideration
Cash consideration (net of cost paid)		1,832			101
Deferred consideration		40			—
Management contract value		82			—
Tax (charge)/credit		(38	)		4
Other		(12	)		(3	)

		1,904			102


		Year ended
		December 31,
Assets and liabilities held for sale		2005			2004

		(£ million)
Non-current assets classified as held for sale:
	Property, plant and equipment		279			1,826

Liabilities classified as held for sale:
	Deferred tax payable		(34	)		(148	)

F-43


	Year ended
	December 31,
Cash flows related to discontinued operations	2005			2004

	(£ million)
Operating profit before interest, depreciation and amortization		94			203
Investing activities		(44	)		(78	)
Financing activities		(13	)		(3	)

Soft Drinks

During December 2005, the Company disposed of all of its interests in the Soft Drinks business with the initial public offering of Britvic plc.


Net liabilities of Soft Drinks on disposal	2005

	(£ million)
Property, plant and equipment		234
Goodwill		18
Software		25
Inventories		36
Trade and other receivables		141
Cash and cash equivalents		1
Current liabilities		(162	)
Borrowings		(341	)
Employee benefits		(91	)
Deferred tax payable		8
Minority equity interest		66

Company’s share of net liabilities disposed of		(65	)

Net cash inflow
Cash consideration (net of costs paid)		221
Cash disposed of		(1	)

		220

Total consideration
Cash consideration (net of costs paid)		221
Other		(2	)

		219


Cash flows related to discontinued operations	2005			2004

	(£ million)
Operating profit before interest, depreciation and amortization		115			123
Investing activities		(47	)		(70	)
Financing activities		162			(25	)

F-44

Note 12 — Goodwill


		Goodwill

		(£ million)
Year ended December 31, 2004
Cost:
At January 1, 2004			158
	Exchange and other adjustments		(6	)

At December 31, 2004			152

Year ended December 31, 2005
Cost:
At January 1, 2005			152
	Disposals		(44	)
	Exchange and other adjustments		10

At December 31, 2005			118

Goodwill acquired through past business combinations has been allocated to cash-generating units (“CGUs”) for impairment testing as follows:


		2005		2004

		(£ million)
Hotels
	Americas managed and franchised operations (comprising several CGUs)		82		75
	Asia Pacific managed and franchised operations		36		53
Soft Drinks			—		24

			118		152

The recoverable amounts of the Hotels CGUs are determined from value in use calculations. The key assumptions for the value in use calculations are those regarding discount rates and growth rates. Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the CGUs. Growth rates are based on both management development plans and industry growth forecasts.

Americas managed and franchised operations

The Company prepares cash flow forecasts derived from the most recent financial budgets approved by management for the next year and extrapolates cash flows for the following four years based on an estimated growth rate of 4% (2004 5%). After this period, the terminal value of future cash flows is calculated based on a perpetual growth rate of approximately 2% (2004 2%). The rate used to discount the forecast cash flow ranges from 10.0% to 10.5% (2004 10.0% to 10.5%).

Asia Pacific managed and franchised operations

The Company prepares cash flow forecasts derived from the most recent financial budgets approved by management for the next year and extrapolates cash flows for the following four years based on an estimated growth rate of 4% (2004 7%). After this period, the terminal value of future cash flows is calculated based on a perpetual growth rate of approximately 4% (2004 4%). The rate used to discount the forecast cash flows is 11.0% (2004 11.0%).

The reduction in growth rates from 2004 is a result of the completion of several sale and manage back transactions in 2005 which had previously been included in forecast growth rates.

F-45

Note 13 — Intangible assets


					Management		Other
		Software			contracts		intangibles			Total

					(£ million)
Year ended December 31, 2004
Cost:
At January 1, 2004			22			—		23			45
	Additions		32			—		1			33
	Exchange and other adjustments		(2	)		—		(2	)		(4	)

At December 31, 2004			52			—		22			74

Amortization:
At January 1, 2004			2			—		7			9
	Provided		12			—		—			12
	Exchange and other adjustments		(1	)		—		—			(1	)

At December 31, 2004			13			—		7			20

Net book value at December 31, 2004			39			—		15			54

Year ended December 31, 2005
Cost:
At January 1, 2005			52			—		22			74
	Additions		14			82		5			101
	Disposals		(32	)		—		(1	)		(33	)
	Exchange and other adjustments		4			2		2			8

At December 31, 2005			38			84		28			150

Amortization:
At January 1, 2005			13			—		7			20
	Provided		9			3		2			14
	On disposals		(7	)		—		—			(7	)
	Exchange and other adjustments		2			—		1			3

At December 31, 2005			17			3		10			30

Net book value at December 31, 2005			21			81		18			120

F-46

Note 14 — Investments in associates

The Company holds eight (2004 eight) investments accounted for as associates. The following table summarizes the financial information of the associates.


	Year ended			Year ended
	December 31,			December 31,
	2005			2004

	(£ million)
Share of associates’ balance sheet
Current assets		4			5
Non-current assets		93			92
Current liabilities		(9	)		(7	)
Non-current liabilities		(46	)		(48	)

Net assets		42			42

Share of associates’ revenue and profit
Revenue		18			14
Net profit		1			—

Related party transactions
Revenue from related parties		3			3
Amounts owed by related parties		2			1

Note 15 — Other Financial Assets


	Year ended		Year ended
	December 31,		December 31,
	2005		2004

	(£ million)
Non-current
Equity securities available-for-sale		41		19
Other		72		61

		113		80

Current
Equity securities available-for-sale		104		80
Derivatives		2		—

		106		80

Available-for-sale financial assets consist of equity investments in listed and unlisted shares. The fair value of unlisted equity shares has been estimated using valuation guidelines issued by the British Venture Capital Association and is based on assumptions regarding expected future earnings. Listed equity share valuation is based on observable market prices.

Other financial assets consist mainly of trade deposits made in the normal course of business. The deposits have been designated as loans and receivables and are held at amortized cost. The fair value has been calculated by discounted future cash flows using prevailing interest rates.

F-47

Note 16 — Inventories


	Year ended		Year ended
	December 31,		December 31,
	2005		2004

	(£ million)
Raw materials		—		9
Finished goods		2		23
Consumable stores		1		10

		3		42

Note 17 — Trade and other receivables


	Year ended		Year ended
	December 31,		December 31,
	2005		2004

	(£ million)
Trade receivables		160		285
Other receivables		66		58
Other prepayments		26		47

		252		390

An allowance has been made for doubtful amounts from the provision of services of £47 million (2004 £43 million).

Note 18 — Cash and cash equivalents


	Year ended		Year ended
	December 31,		December 31,
	2005		2004

	(£ million)
Cash at bank and in hand		34		32
Short-term deposits		290		40

		324		72

Short-term deposits are highly liquid investments with a maturity of three months or less, in various currencies.

F-48

Note 19 — Trade and other payables


	Year ended		Year ended
	December 31,		December 31,
	2005		2004

	(£ million)
Current
Trade payables		84		159
Other tax and social security payable		12		50
Other payables		174		187
Accruals		186		232
Derivatives		6		—
Provisions (Note 24)		6		5

		468		633

Non-current
Other payables		107		97
Provisions (Note 24)		—		6

		107		103

Note 20 — Loans and other borrowings


	December 31, 2005						December 31, 2004

	Due within		Due after				Due within		Due after
	1 year		1 year		Total		1 year		1 year		Total

	(£ million)
Secured bank loans		2		36		38		2		49		51
Unsecured bank loans		—		374		374		12		1,104		1,116
Other unsecured borrowings		—		—		—		18		3		21

Total borrowings		2		410		412		32		1,156		1,188


	*Secured bank loans*

These mortgages are secured on the hotel properties to which they relate. The rates of interest and currencies of these loans vary. Amounts falling due after one year include £15 million (2004 £18 million) repayable by instalment. Amounts shown as due within one year are the mortgage repayments falling due within this period. The fair value of secured loans is calculated by discounting the expected future cash flows at prevailing interest rates.


	*Unsecured bank loans*

Unsecured bank loans are borrowings under the Company’s 2009 £1.1 billion Syndicated Facility and its short-term bilateral loan facilities. Amounts are classified as due within one year where the loan facility expires within this period. Covenants exist on these facilities and as at the balance sheet date the Company was not in breach of these covenants. 2004 comparatives include £9 million in respect of currency swaps shown as unsecured bank loans under UK GAAP. The carrying value of these loans approximates fair value.


	*Other unsecured borrowings*

In 2004, other unsecured borrowings relate to an £18 million tranche of the 2010 € 600 million Guaranteed Notes 4.75% and £3 million of other loan stock. Most of the Guaranteed Notes were repurchased in December 2004, the remaining £18 million was repurchased at par on January 7, 2005. The other loan stock relates to the Soft Drinks business, was non interest bearing and was repaid during the year.

F-49


	December 31, 2005						December 31, 2004

	Utilized		Unutilized		Total		Utilized		Unutilized		Total

	(£ million)
Facilities provided by banks
Committed		412		751		1,163		1,155		542		1,697
Uncommitted		—		14		14		14		50		64

		412		765		1,177		1,169		592		1,761


		December 31,

		2005		2004

		(£ million)
Unutilized facilities expire:
	within one year		39		90
	after one year but before two years		—		500
	after two years		726		2

			765		592

Note 21 — Financial risk management policies


	*Financial instruments*

The Group’s treasury policy is to manage financial risks that arise in relation to the underlying business needs. The activities of the treasury function are carried out in accordance with Board approved policies and are subject to regular audit. The treasury function does not operate as a profit center.

The treasury function seeks to reduce the financial risk of the Group and manages liquidity to meet all foreseeable cash needs.

Treasury activities include money market investments, spot and forward foreign exchange instruments, currency options, currency swaps, interest rate swaps and options, and forward rate agreements. One of the primary objectives of the Group’s treasury risk management policy is to mitigate the adverse impact of movements in interest rates and foreign exchange rates.

Movements in foreign exchange rates, particularly the US dollar and euro, can affect the Group’s reported profit, net assets and interest cover. To hedge this translation exposure as far as is reasonably practical, borrowings are taken out in foreign currencies (either directly or via currency swaps) which broadly match those in which the Group’s major net assets are denominated.

Interest rate exposure is managed within parameters that stipulate that fixed rate borrowings should normally account for no less than 25% and no more than 75% of net borrowings for each major currency. This is achieved through the use of interest rate swaps and options and forward rate agreements.

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 for individual counterparties. Most of the Group’s surplus funds are held in the United Kingdom or United States and there are no material funds where repatriation is restricted as a result of foreign exchange regulations.

The Group is in compliance with all of the financial covenants in its loan documentation, none of which is expected to represent a material restriction on funding or investment policy in the foreseeable future.

F-50

Medium and long-term borrowing requirements are met through the Syndicated facility. Short-term borrowing requirements are met from drawings under bilateral bank facilities.


	*Sensitivities*

Based on the year end net debt position and given the underlying maturity profile of investments, borrowings and hedging instruments at that date, a one percentage point rise in US dollar interest rates would increase the net interest charge by approximately £1 million, whilst a similar movement in euro interest rates would increase the net interest charge by £4 million.

A general weakening of the US dollar (specifically a one cent rise in the sterling : US dollar rate) would have reduced the Group’s profit before tax by an estimated £1 million.


	*Hedging*


	Interest rate risk

The Group hedges its interest rate risk by taking out interest rate swaps to fix the interest flows on between 25% and 75% of its borrowings in major currencies. At December 31, 2005 the Group held interest rate swaps with notional principals of US $200 million and €160 million (2004 US $200 million, Australian $60 million, Hong Kong $300 million and € 215 million). The interest rate swaps are designated as cash flow hedges of the syndicated loan facility and they are held on the balance sheet at fair value in other financial assets and other payables.


	Foreign currency risk

The Group is exposed to foreign currency risk on income streams denominated in foreign currencies. The Group hedges a portion of forecast foreign currency income and asset disposal proceeds by taking out forward exchange contracts designated as cash flow hedges. The spot foreign exchange rate is designated as the hedged risk and so the Group takes the forward points on these contracts through finance expenses. The forward contracts all have maturities less than one year from the balance sheet date.

Forward contracts are held at fair value on the balance sheet as other financial assets and other payables.

Changes in cash flow hedge fair values are recognized in the unrealized gains and losses reserve to the extent that the hedges are effective. When the hedged item is recognized, the cumulative gains and losses on the hedging instrument are recycled to the income statement.

During the year, £1.3 million of interest on forward contracts was recognized through finance income and a £4.6 million net foreign exchange gain was recognized in the income statement, recycled against the appropriate hedged item.


	Hedge of net investment in a foreign operation

The Group designates its foreign currency bank borrowings and currency swaps as net investment hedges of foreign operations. The designated risk is the spot foreign exchange risk; the interest on these financial instruments is taken through financial expenses and the swaps are held on the balance sheet at fair value in other financial assets and other payables. Variations in fair value due to changes in the underlying exchange rates are taken to the currency translation reserve until an operation is sold, at which point the cumulative currency gains and losses are recycled against the gain or loss on sale.

F-51

Note 22 — Financial Instruments


	*Interest rate risk*

For each class of interest bearing financial asset and financial liability, the following table indicates the range of interest rates effective at the balance sheet date, the carrying amount on the balance sheet and the periods in which they reprice, if earlier than the maturity date.


								Repricing analysis
					Total
		Effective			carrying			Less than			6 months				More than
As at December 31, 2005		interest rate			amount			6 months			- 1 year		1-2 years		2 years

		(%)			(£ million)
Cash and cash equivalents			0.0-4.5			(324	)		(324	)		—		—		—
Secured bank loans (fixed)*			6.5-7.8			28			—			—		28		—
Secured bank loans (floating)			2.9-8.5			10			10			—		—		—
Unsecured bank loans:
	Euro floating rate		2.9			141			141			—		—		—
	— effect of euro IR swaps*		(0.4	)					(55	)		—		55		—
	US dollar floating rate		4.7			162			162			—		—		—
	— effect of US dollar IR swaps*		0.2						(87	)		87		—		—
	Hong Kong dollar floating rate		4.7			71			71			—		—		—

	Net debt					88			(82	)		87		83		—
Effect of currency swaps:
	Receive and pay fixed*		(1.5	)		3			3			—		—		—
	Receive and pay floating		(2.0	)		2			2			—		—		—

						93			(77	)		87		83		—


*	These items bear interest at a fixed rate.

F-52

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 at December 31, 2004 was:


																	Interest at fixed rate

																			Weighted
											Principal								average
					Currency												Weighted		period for
					swap						At variable			At fixed			average		which rate
As at December 31, 2004		Net debt			agreements			Total			rate*			rate			rate		is fixed

								(£ million)									%		(years)
Current asset investments and cash at bank and in hand:
	Sterling		26			339			365			365			—			—		—
	US dollar		29			—			29			29			—			—		—
	Other		28			—			28			28			—			—		—
Borrowings:
	Sterling		(247	)		—			(247	)		(244	)		(3	)		—		5.0
	US dollar		(283	)		(52	)		(335	)		(231	)		(104	)		4.6		1.7
	Euro		(560	)		(239	)		(799	)		(596	)		(203	)		3.6		1.0
	Hong Kong dollar		(69	)		—			(69	)		(49	)		(20	)		1.5		0.8
	Other		(40	)		(48	)		(88	)		(64	)		(24	)		5.4		0.7

			(1,116	)		—			(1,116	)		(762	)		(354	)		3.9		1.2


*	Primarily based on the relevant inter-bank rate.

Trade and other receivables and trade and other payables are not included in the above tables as they are non-interest bearing and are not subject to interest rate risk.


	*Fair values*

The table below compares carrying amounts and fair values of the Group’s financial instruments.


	December 31,						December 31,
	2005						2004*

	Carrying						Carrying
	value			Fair value			value			Fair value

	(£ million)
Financial assets
Cash and cash equivalents (Note 18)		324			324			72			72
Equity securities available-for-sale (Note 15)		145			145			99			102
Cash flow hedging derivatives (Note 15)		2			2			—			9
Other financial assets (Note 15)		72			72			61			61

Financial liabilities
Borrowings (Note 20)		(412	)		(412	)		(1,188	)		(1,188	)
Cash flow hedging derivatives (Note 19)		(6	)		(6	)		—			(3	)


*	2004 book value is based on UK GAAP.

F-53


	*Unrecognized gains and losses*

The Group’s unrecognized gains and losses for the period ended December 31, 2004 in derivative financial instruments were:


	Gains			Losses			Total

	(£ million)
Unrecognized at January 1, 2004		4			(30	)		(26	)
Recognized in the year		(1	)		21			20
Arising in the year but not recognized		6			6			12

Unrecognized at December 31, 2004		9			(3	)		6

Expected to be recognized in the year ending December 31, 2005		9			(1	)		8
Expected to be recognized thereafter		—			(2	)		(2	)

Note 23 — Share-Based Payments


	*Short Term Deferred Incentive Plan*

The IHG Short Term Deferred Incentive Plan (“STDIP”) enables eligible employees, including Executive Directors, to receive all or part of their bonus in the form of IHG PLC shares together with, in certain cases, a matching award of free shares up to 0.5 times the deferred amount. The bonus and matching shares are deferred and released in three equal tranches on the first, second and third anniversaries of the award date, conditional on the participants remaining in the employment of a participating company. Participation in the STDIP is at the discretion of the Remuneration Committee. The number of shares is calculated by dividing a specific percentage of the participant’s annual performance related bonus by the middle market quoted prices on the three consecutive dealing days immediately preceding the date of grant. A number of executives participated in the plan during the year and conditional rights over 624,508 IHG PLC shares were awarded to participants.


	*Performance Restricted Share Plan*

The Performance Restricted Share Plan (“PRSP”) allows Executive Directors and eligible employees to receive share awards, subject to the satisfaction of a performance condition, set by the Remuneration Committee, which is normally measured over a three year period. Awards are normally made annually and, except in exceptional circumstances, will not exceed three times salary for Executive Directors and four times salary in the case of other eligible employees. In determining the level of awards within this maximum limit, the Remuneration Committee takes into account the level of Executive Share Options granted to the same person. At December 31, 2005, conditional rights over 5,173,633 IHG PLC shares had been awarded to employees under the plan. The plan provides for the grant of ‘nil cost options’ to participants as an alternative to conditional share awards.


	*Executive Share Option Plan*

For options granted, the option price is not less than the market value of an ordinary share, or the nominal value if higher. The market value is the quoted price on the business day preceding the date of grant, or the average of the middle market quoted prices on the three consecutive dealing days immediately preceding the date of grant. A performance condition has to be met before options can be exercised. The performance condition is set by the Remuneration Committee.

In April 2005, options were granted to 58 employees over 2,104,570 IHG PLC shares at 619.83 pence per share. For options granted in 2005, the Company’s adjusted earnings per share over the three year performance period ending December 31, 2007 must increase by at least nine percentage points over the increase in the UK Retail Price Index for the same period for any of the award to vest. Options granted in 2005 are exercisable between 2008 and 2015, subject to achievement of the performance condition.

F-54


	*Sharesave Plan*

The Sharesave Plan is a savings plan whereby employees contract to save a fixed amount each month with a savings institution for three or five years. At the end of the savings term, employees are given the option to purchase shares at a price set before savings began. The Sharesave Plan is available to all UK employees (including Executive Directors) provided they have been employed for at least one year. The plan provides for the grant of options to subscribe for ordinary shares at the higher of nominal value and not less than 80% of the middle market quotations of the ordinary shares on the three dealing days immediately preceding the invitation date. The plan was not operating during 2005 and no options were granted in the year under the plan.


	*US Employee Stock Purchase Plan*

The US Employee Stock Purchase Plan will allow eligible employees resident in the US an opportunity to acquire Company American Depositary Shares (“ADS”s) on advantageous terms. The plan, when operational, will comply with Section 423 of the US Internal Revenue Code of 1986. The option to purchase ADSs may be offered only to employees of designated subsidiary companies. The option price may not be less than the lesser of either 85% of the fair market value of an ADS on the date of grant or 85% of the fair market value of an ADS on the date of exercise. Options granted under the plan must generally be exercised within 27 months from the date of grant. The plan was not operated during 2005 and at December 31, 2005 no options had been granted under the plan.


	*Former Six Continents Share Schemes*

Under the terms of the Separation in 2003, holders of options under the Six Continents Executive Share Option Schemes were given the opportunity to exchange their Six Continents PLC options for equivalent value new options over IHG PLC shares. As a result of this exchange, 23,195,482 IHG PLC shares were put under option at prices ranging from 308.48p to 593.29p. The exchanged options were immediately exercisable and are not subject to performance conditions. During 2005, 4,138,482 such options were exercised, leaving a total of 7,909,002 such options outstanding at prices ranging from 308.48p to 593.29p. The latest date that any options may be exercised is October 2012.

The Company recognized £17 million (2004 £12 million) related to equity settled share-based payment transactions during the year.

The aggregate consideration in respect of ordinary shares issued under option schemes during the year was £10 million (2004 £16 million).

The following table sets forth awards and options granted during 2005. No awards were granted under the Sharesave Plan or US Employee Stock Purchase Plan during the year.

Short Term Deferred

Performance Restricted

Executive Share

Incentive Plan

Share Plan

Option Plan

Number of shares awarded in 2005

624,508

5,173,633

2,104,570

F-55

In 2005 and 2004, the Company used separate option pricing models and assumptions for each plan. The following tables set forth information about how the fair value of each option grant is calculated:


	Short Term Deferred			Performance Restricted			Executive Share
2005	Incentive Plan			Share Plan			Option Plan

Valuation model	Binomial			Monte Carlo			Binomial
				Simulation and
				Binomial
Weighted average share price		652.8	p		702.0	p		627.0	p
Exercise price								620.0	p
Expected dividend yield		2.73	%		3.18	%		3.62	%
Risk-free interest rate								4.69	%
Volatility^(a)								28	%
Term (years)^(b)		2.0			3.0			6.5


	Short Term Deferred			Performance Restricted			Executive Share
2004	Incentive Plan			Share Plan			Option Plan

Valuation model	Binomial			Monte Carlo			Binomial
				Simulation and
				Binomial
Weighted average share price		498.0	p		550.0	p		494.0	p
Exercise price								494.0	p
Expected dividend yield		3.74	%		3.49	%		3.81	%
Risk-free interest rate								4.73	%
Volatility^(a)								31.33	%
Term (years)^(b)		2.8			3.0			6.5


(a)		The expected volatility was determined by calculating the historical volatility of the Company’s share price corresponding to the expected life of the option or share award.

(b)		The expected term of the options is taken to the mid point between vesting and lapse, as historical exercise patterns have shown this to be appropriate.

F-56

Movements in the options outstanding under these schemes for the years ended December 31, 2005 and December 31, 2004 are as follows:


	Short Term Deferred			Performance Restricted
	Incentive Plan			Share Plan

	Number of shares			Number of shares
	thousands			thousands
Outstanding at January 1, 2004		107			5,445
Granted		231			2,665
Vested		(47	)		—
Lapsed or canceled		(50	)		(375	)

Outstanding at December 31, 2004		241			7,735
Granted		625			5,174
Vested		(32	)		(1,278	)
Lapsed or canceled		(5	)		(997	)

Outstanding at December 31, 2005		829			10,634

Fair value of options granted during the period
At December 31, 2005		649.1	p		117.0	p
At December 31, 2004		448.3	p		125.1	p

Weighted average remaining contract life (years)
At December 31, 2005		1.1			1.2
At December 31, 2004		1.7			1.0

The above awards do not vest until the performance conditions have been met.

F-57


	Sharesave Plan							Executive Share Option Plan

						Weighted							Weighted
	Number			Range of		average		Number			Range of option		average
	of shares			option prices		option price		of shares			prices		option price

	thousands			pence		pence		thousands			pence		pence
Options outstanding at January 1, 2004		1,373			420.5		420.5		27,220			295.3-593.3		424.9
Granted		—			—		—		6,951			494.2		494.2
Exercised		—			—		—		(7,430	)		295.3-593.3		408.2
Lapsed or canceled		(111	)		420.5		420.5		—			—		—

Options outstanding at December 31, 2004		1,262			420.5		420.5		26,741			308.5-593.3		447.6
Granted		—			—		—		2,105			619.8		619.8
Exercised		(118	)		420.5		420.5		(4,138	)		308.5-593.3		429.1
Lapsed or canceled		(280	)		420.5		420.5		(2,089	)		345.6-619.8		465.3

Options outstanding at December 31, 2005		864			420.5		420.5		22,619			308.5-619.8		465.4

Options exercisable
At December 31, 2005		—			—		—		8,710			308.5-619.8		434.3
At December 31, 2004		—			—		—		12,569			308.5-593.3		426.4

Fair value of options granted during the period
At December 31, 2005		—							164.0	p
At December 31, 2004		—							136.0	p

Included within this balance are options over 7,909,002 (2004 12,568,562; 2003 19,998,299) shares that have not been recognized in accordance with IFRS 2 as the options were granted on or before November 7, 2002. These options have not been subsequently modified and therefore do not need to be accounted for in accordance with IFRS 2.

The weighted average share price at the date of exercise for share options vested during the year was 713.3 pence. The closing share price on December 30, 2005 was 839.5 pence and the range during the year was 635.0 pence to 839.5 pence per share.

Summarized information about options outstanding at December 31, 2005 under the share option schemes is as follows:


		Options outstanding						Options exercisable

				Weighted
				average		Weighted				Weighted
		Number		remaining		average		Number		average
		outstanding		contract life		option price		exercisable		option price

		thousands		years		pence		thousands		pence
Range of exercise prices (pence)
	Sharesave Plan
420.5			864		1.9		420.5		—		—

	Executive Share Option Plan
308.5 to 353.8			1,734		4.6		342.7		1,734		342.7
353.9 to 498.0			18,526		7.0		457.8		6,315		441.8
498.1 to 619.8			2,359		7.9		614.9		661		602.2

			22,619		6.9		465.4		8,710		434.3

F-58

Note 24 — Provisions


		Hotels
		reorganisation^(a)			Onerous			Total
					contracts^(b)

		(£ million)
At January 1, 2005
	Current		4			1			5
	Non-current		4			2			6

			8			3			11
Income statement			—			(1	)		(1	)
Expenditure			(4	)		—			(4	)

At December 31, 2005 — all current			4			2			6


(a)		Relates to the Hotels reorganization charged to the non-operating special item in 2003 and is expected to be largely utilized in the year to December 31, 2006.

(b)		Primarily relates to onerous fixed lease contracts acquired with the InterContinental hotels business and having expiry dates to 2006.

Note 25 — Deferred tax payable


																Other
	Property,			Deferred												short-term
	plant and			gains on						Employee			Intangible			temporary
	equipment			loan notes			Losses			benefits			assets			differences*			Total

	(£ million)
At January 1, 2004		519			123			(37	)		(42	)		(37	)		(49	)		477
Disposals		(5	)		—			—			—			—			—			(5	)
Income statement		(17	)		—			(77	)		17			5			(5	)		(77	)
Statement of recognized income and expense		—			—			—			(14	)		—			—			(14	)
Exchange and other adjustments		(5	)		(1	)		1			—			2			4			1

At December 31, 2004		492			122			(113	)		(39	)		(30	)		(50	)		382
Disposals		(150	)		—			—			34			—			3			(113	)
Income statement		(87	)		—			(11	)		(5	)		32			56			(15	)
Statement of recognized income and expense		—			—			—			(5	)		—			(2	)		(7	)
Exchange and other adjustments		1			—			1			(1	)		(3	)		(1	)		(3	)

At December 31, 2005		256			122			(123	)		(16	)		(1	)		6			244


*	Other short-term temporary differences relate primarily to provisions and accruals, investments in associates and joint ventures and share-based payments.


		2005		2004

		(£ million)
Analyzed as:
	Deferred tax payable		210		234
	Liabilities classified as held for sale		34		148

At 31 December			244		382

The deferred tax asset of £123 million (2004 £113 million) recognized in respect of losses includes £89 million (2004 £89 million) of capital losses available to be utilized against the realization of capital gains which are recognized as a deferred tax liability and £34 million (2004 £24 million) in respect of revenue tax losses.

F-59

Tax losses with a value of £282 million (2004 £305 million), including capital losses with a value of £93 million (2004 £98 million), have not been recognized as their use is uncertain or not currently anticipated. These losses may be carried forward indefinitely.

Deferred tax assets of £19 million (2004 £4 million) in respect of share-based payments, £7 million (2004 £10 million) in respect of employee benefits and £11 million (2004 £nil) in respect of other items have not been recognized as their use is uncertain or not currently anticipated.

At December 31, 2005 the Company has not provided deferred tax in relation to temporary differences associated with undistributed earnings of subsidiaries. Quantifying the temporary differences is not practical. However, based on current enacted law and on the basis that the Company is in a position to control the timing and realization of these temporary differences, no material tax consequences are expected to arise.

Note 26 — Operating leases

During the year ended December 31, 2005, £62 million (2004 £67 million) was recognized as an expense in the income statement in respect of operating leases.

Total commitments under non cancelable operating leases are as follows:


	December 31,		December 31,
	2005		2004

	(£ million)
Due within one year		36		55
One to two years		31		51
Two to three years		25		47
Three to four years		19		38
Four to five years		14		31
More than five years		149		884

		274		1,106

The average remaining term of these leases, which generally contain renewal options, is approximately 12 years. No material restrictions or guarantees exist in the Company’s lease obligations.

Note 27 — Capital commitments


	December 31,		December 31,
	2005		2004

	(£ million)
Contracts placed for expenditure on property, plant and equipment not provided for in the financial statements		76		53

Note 28 — Contingencies

Contingent liabilities not provided for in the financial statements relate to:


	December 31,		December 31,
	2005		2004

	(£ million)
Guarantees		20		9

In limited cases, the Company may provide performance guarantees to third-party owners to secure management contracts. The maximum exposure under such guarantees is £134 million. It is the view of the Directors that, other than to the extent that liabilities have been provided for in these financial statements, such guarantees are not expected to result in financial loss to the Company.

As of December 31, 2005, the Group had outstanding letters of credit of £18 million mainly relating to self-insurance programs.

F-60

The Company 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 Company.

Note 29 — Related party disclosures

Key management personnel comprises the Board and Executive Committee.


	December 31,		December 31,
	2005		2004

	(£ million)
Total compensation of key management personnel
Short-term employment benefits		6.5		5.5
Post-employment benefits		0.2		0.2
Termination benefits		0.8		0.8
Equity compensation benefits		6.9		4.1

		14.4		10.6

There were no transactions with key management personnel during either the year ended December 31, 2005 or the previous year.

Note 30 — Transition to IFRS


	*Income statement*


		Year ended December 31, 2004

		UK GAAP			Remeasurement			IFRS

		(£ million)
Revenue			2,204			—			2,204
Cost of sales			(1,477	)		—			(1,477	)
Administrative expenses			(198	)		(10	)		(208	)

			529			(10	)		519
Depreciation and amortization			(198	)		25			(173	)
Other operating income and expenses			(29	)		(20	)		(49	)

Operating profit			302			(5	)		297
Financial income			70			—			70
Financial expenses			(103	)		—			(103	)

Profit before tax			269			(5	)		264
Tax			117			10			127

Profit after tax			386			5			391
(Loss)/gain on disposal of assets, net of tax			(59	)		78			19

Profit available for shareholders			327			83			410

Attributable to:
	Equity holders of the parent		299			84			383
	Minority equity interest		28			(1	)		27

Profit for the year			327			83			410

F-61


	*Income statement remeasurement*


	Administrative expenses

Under UK GAAP, the cost of retirement benefits are provided based upon a consistent percentage of employees’ pensionable pay as recommended by independent qualified actuaries. Variations in regular pension costs are amortized over the average expected service life of current employees on a straight line basis. Scheme assets and liabilities are not recognized on the Company’s balance sheet. Under IFRS, the cost of providing defined benefit retirement benefits is recognized over the service life of scheme members. This cost is calculated by an independent qualified actuary, based on estimates of long-term rates of return on scheme assets and discount rates on scheme liabilities.

Under UK GAAP, the cost of share-based payments is expensed based on the intrinsic value method over the performance period of each plan. Under IFRS, the fair value of all share-based payments is expensed over the vesting period of the related equity instruments, based on the Company’s best estimate of the number of shares that will vest. Fair value is determined by an external valuer using option pricing models applied to all share-based payments granted after November 7, 2002.


	Depreciation and amortization

Under UK GAAP, goodwill is amortized over 20 years. Under IFRS, goodwill is subject to annual impairment testing and is not amortized. Under IFRS, assets classified as held for sale are not subject to depreciation from the date the assets are designated as held for sale.


	Other operating income and expenses

Under UK GAAP, impairment of property, plant and equipment is first recorded against the revaluation reserve and then charged to the income statement. Under IFRS transitional rules, the Company elected to retain UK GAAP carrying values of freehold and leasehold hotels including revaluations. All impairments are taken directly to the income statement.


	Income tax expense

Mainly attributable to tax on impairment of property, plant and equipment previously recorded against the revaluation reserve under UK GAAP and the presentation of tax on disposal of assets.


	(Loss)/gain on sale of assets

Under IFRS, net asset carrying values have been reduced by the remeasurement of deferred tax, eliminating the provision for loss on disposal of operations recognized under UK GAAP.

F-62

Balance Sheet


	January 1, 2004

	UK GAAP			Remeasurement			Reclassifications			IFRS

	(£ million)
ASSETS
Property, plant and equipment		3,951			—			(20	)		3,931
Goodwill		158			—			—			158
Intangible assets		—			—			36			36
Investment in associates		53			—			—			53
Other financial assets		119			—			25			144

Total non-current assets		4,281			—			41			4,322

Inventories		44			—			—			44
Trade and other receivables		486			(47	)		(41	)		398
Current tax receivable		37			—			—			37
Cash and cash equivalents		432			—			(21	)		411

Total current assets		999			(47	)		(62	)		890

Total assets		5,280			(47	)		(21	)		5,212

LIABILITIES
Short-term borrowings		(13	)		—			6			(7	)
Trade and other payables		(683	)		86			(22	)		(619	)
Current tax payable		(389	)		—			—			(389	)

Total current liabilities		(1,085	)		86			(16	)		(1,015	)

Loans and other borrowings		(988	)		—			15			(973	)
Employee benefits		—			(177	)		—			(177	)
Provisions and other payables		(176	)		46			22			(108	)
Deferred tax payable		(314	)		(163	)		—			(477	)

Total non-current liabilities		(1,478	)		(294	)		37			(1,735	)

Total liabilities		(2,563	)		(208	)		21			(2,750	)

Net assets		2,717			(255	)		—			2,462

EQUITY
IHG shareholders’ equity		2,554			(215	)		(16	)		2,323
Minority equity interest		163			(40	)		16			139

Total equity		2,717			(255	)		—			2,462

F-63

Balance Sheet


	December 31, 2004

	UK GAAP			Remeasurement			Reclassifications			IFRS

	(£ million)
ASSETS
Property, plant and equipment		3,776			(1,811	)		(39	)		1,926
Goodwill		142			10			—			152
Intangible assets		—			—			54			54
Investment in associates		42			—			—			42
Other financial assets		57			—			23			80

Total non-current assets		4,017			(1,801	)		38			2,254

Inventories		42			—			—			42
Trade and other receivables		542			(110	)		(42	)		390
Current tax receivable		14			—			—			14
Cash and cash equivalents		83			—			(11	)		72
Other financial assets		76			—			4			80

Total current assets		757			(110	)		(49	)		598

Non-current assets classified as held for sale		—			1,826			—			1,826

Total assets		4,774			(85	)		(11	)		4,678

LIABILITIES
Short-term borrowings		(43	)		—			11			(32	)
Trade and other payables		(709	)		81			(5	)		(633	)
Current tax payable		(261	)		—			—			(261	)

Total current liabilities		(1,013	)		81			6			(926	)

Loans and other borrowings		(1,156	)		—			—			(1,156	)
Employee benefits		—			(173	)		—			(173	)
Provisions and other payables		(230	)		122			5			(103	)
Deferred tax payable		(248	)		14			—			(234	)

Total non-current liabilities		(1,634	)		(37	)		5			(1,666	)

Non-current liabilities classified as held for sale		—			(148	)		—			(148	)

Total liabilities		(2,647	)		(104	)		11			(2,740	)

Net assets		2,127			(189	)		—			1,938

EQUITY
IHG shareholders’ equity		1,977			(137	)		(19	)		1,821
Minority equity interest		150			(52	)		19			117

Total equity		2,127			(189	)		—			1,938

F-64


	*Balance Sheet Remeasurement*

Held for sale

Under IFRS, assets are classified as held for sale when their value will be recovered through a sale transaction rather than continuing use and management consider a sale to be highly probable.

Assets classified as held for sale are held at the lower of their carrying value and fair value less cost to sell. No depreciation is charged on assets held for sale.


	Goodwill

Under UK GAAP, goodwill is amortized over 20 years. Under IFRS, goodwill is subject to annual impairment testing and is not amortized.


	Employee benefit obligations

Under UK GAAP, scheme assets and liabilities are not recognized on the Company’s balance sheet. Under IFRS, any excess or deficit of scheme assets over scheme liabilities is recorded as an asset or liability, respectively, in the Company’s balance sheet. Each year, the scheme net assets or liabilities are adjusted for actuarial gains and losses which are recognized directly in reserves.


	Provisions and other payables

Under IFRS, net asset carrying values have been reduced by the remeasurement of deferred tax, eliminating the provision for loss on disposal of operations recognized under UK GAAP.


	Deferred tax

Under UK GAAP, deferred tax is provided on all timing differences, subject to certain exceptions. Accordingly, deferred tax is not provided on revaluation gains and gains rolled over into replacement assets unless there exists a binding agreement for sale, nor on unremitted earnings of investments except to the extent of accrued dividends or where there exists a binding agreement to distribute earnings. Under IFRS, deferred tax is recognized on all temporary differences between the tax base and carrying value of assets and liabilities, including those arising from revaluation of assets, on gains rolled over into replacement assets and on remitted earnings of investments where the Company does not control the timing of distributions.

In addition, IFRS requires the tax base of assets and liabilities to be determined by management’s current intended use and the intended manner of realization of the asset or liability.


	*Balance Sheet Reclassifications*


	Software

Under IFRS, software is classified as an intangible asset.


	Other intangible assets

Under IFRS, amounts paid to hotel owners to secure management contracts and franchise agreements are classified as intangible assets.


	Other financial assets

Under IFRS, long-term receivables are classified as non-current other financial assets.


	Cash and cash equivalents

Bank overdrafts repayable on demand are a component of cash equivalents where the Company has a right of set off.

F-65


	Trade and other payables

Under IFRS, dividends are recognized as an appropriation of equity in the period in which they are approved.

Reclassifications which do not impact net assets but which increase non-current assets by £7 million (2004 opening £11 million), reduce current assets by £18 million (2004 opening £32 million) and current liabilities by £6 million (2004 opening increase by £16 million) and non-current liabilities by £5 million (2004 opening £37 million) have been made to the balance sheet at December 31, 2004 and January 1, 2004 respectively, as presented in the 2004 Annual Report and Financial Statements. A reclassification has also been made of £19 million (2004 opening £16 million), reducing IHG shareholders’ equity and increasing minority equity interest, in respect of dividends to minority shareholders.

Cash flow

The transition from UK GAAP to IFRS has no effect upon reported cash flows generated by the Company. The IFRS cash flow statement is presented in a different format from that required under UK GAAP with cash flows analyzed into three categories of activities — operating activities, investing activities and financing activities.

Adoption of IAS 39

The impact of adopting IAS 39 on January 1, 2005 was to reduce other financial assets by £4 million.

Note 31 — Post balance sheet events

On January 25, 2006, the Group announced the sale to HPT of two hotels in the Americas. On March 13, 2006, the Group announced the sale to Westbridge Hospitality Fund LP, (“Westbridge”), of 24 hotels in the EMEA region. Westbridge is a joint venture between CADIM, a Montreal-based pension fund manager, and Westmont Hospitality, one of IHG’s largest franchisees. The portfolio has been sold for € 352 million in cash and debt assumption (before transaction costs), marginally above net asset value. IHG will franchise the hotels to the joint venture under 15 year franchise contracts.


Note 32 —	Differences between International Financial Reporting Standards and United States Generally Accepted Accounting Principles

The Company financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union (“EU”) which differ from the accounting principles generally accepted in the US (“US GAAP”). The significant differences, as they apply to the Company, are summarized below.

This US GAAP information provides a reconciliation between profit available for IHG equityholders under IFRS and net income under US GAAP and between IHG shareholders’ equity under IFRS and IHG shareholders’ equity under US GAAP, respectively.

The Company has reclassified certain prior year balance sheet information to conform with the current year presentation.


	*Classification of borrowings*

Under US GAAP, the amounts shown as repayable after one year for unsecured bank loans drawn under or supported by bank facilities with maturities of up to five years and amounting to £374 million (2004 £1,104 million) would be classified as current liabilities since the drawings on the facilities are repayable within one year.

F-66


	*Pensions*

Under IFRS, the cost of providing defined benefit retirement benefits is recognized over the service life of the scheme members. The cost is calculated by an independent qualified actuary, based on estimates of long-term rates of return on scheme assets and discount rates on scheme liabilities. Under US GAAP, the projected benefit obligation (pension liability) in respect of the Company’s principal pension plans is matched against the fair value of the plans’ assets and is adjusted to reflect any unrecognized obligations or asset in determining the pension cost or credit for the year.

Under IFRS, any excess or deficit of scheme assets over scheme liabilities is recorded as an asset or liability in the Company’s balance sheet. Actuarial gains and losses are recognized directly in equity.

Under US GAAP, a corridor approach to the recognition of actuarial gains and losses is adopted, such that only actuarial gains and losses in excess of 10% of the greater of plan assets or obligations are recognized in the income statement and spread over the maximum period of the employees’ remaining service period.

At December 31, 2005, the accumulated benefit obligations exceeded the fair value of the plans’ assets. In these circumstances, US GAAP would require the recognition of the difference as a balance sheet liability and the elimination of any amounts previously recognized as a prepaid pension cost. An equal amount, but not exceeding the amount of unrecognized past service cost, would be recognized as an intangible asset with the offsetting balance reported in other comprehensive income.


	*Intangible assets*

Under IFRS, goodwill arising on acquisitions prior to October 1, 1998 was eliminated against equity. From October 1, 1998 to December 31, 2003 acquired goodwill was capitalized and amortized over a period not exceeding 20 years. Since January 1, 2004 goodwill continued to be capitalized but amortization ceased as at that date.

Under US GAAP, goodwill arising on acquisitions prior to July 1, 2001 was capitalized and amortized over its estimated useful life, not exceeding 40 years. From October 1, 2002 goodwill and indefinite life intangible assets are not amortized but are reviewed annually for impairment.

Under IFRS, development costs and software are included in intangible assets. Under US GAAP, these assets are included in property, plant and equipment.

Under IFRS, purchase consideration which is contingent on future events is included in the cost of acquisition when receipt is probable and an amount can be reliably measured. Under US GAAP, contingent consideration is recognized when the related contingencies are resolved.

Under IFRS, when assets are sold and a purchaser enters into a management or franchise contract with the Company, the Company capitalizes an intangible asset as part of the gain or loss on disposal at an estimate of the fair value of the contract entered into. This value is amortized over the life of the contract. Under US GAAP, an intangible asset is not recognized as there remains continuing involvement in the hotel operations.


	*Property, plant and equipment*

Under IFRS, the deemed cost at transition at January 1, 2004 is the UK GAAP carrying values, on that date including revaluations. Under US GAAP, property, plant and equipment are carried at cost less accumulated depreciation and impairment losses.

Under IFRS, depreciation is based on the book value of assets, including revaluation where appropriate. Prior to October 1, 1999, freehold hotels were not depreciated, as any charge would have been immaterial given that such properties were maintained, as a matter of policy, by a program of repair and maintenance such that their residual values were at least equal to their book values. From October 1, 1999, all properties were depreciated. There is now no difference between IFRS and US GAAP with regard to depreciation policies.

F-67

Under IFRS, impairment is measured by comparing the carrying value of property, plant and equipment with the higher of fair value less cost to sell and value in use. Value in use is assessed based on estimated future cash flows discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and risks specific to the asset. Under US GAAP, impairments of long-lived assets are assessed on the basis of undiscounted cash flows. If an impairment charge is required it is measured on the basis of discounted cash flows.

The Company recognizes a profit on disposal of property, plant and equipment provided substantially all the risks and rewards of ownership have transferred. For the purposes of US GAAP, the Company would account for sales of real estate in accordance with FAS 66 “Accounting for Sales of Real Estate”. If there is significant continuing involvement with the property, any gain on sale is deferred and is recognized over the life of the long-term management contract retained on the property.

Prior to the IFRS transition date, cumulative foreign currency exchange gains and losses relating to the disposal of foreign operations were recorded within equity. Since January 1, 2004, foreign currency gains and losses are included in determining the profit or loss on disposal of foreign operations. At that date, the Company opted to set the currency translation reserve to nil. Under US GAAP, such gains and losses are also included in determining the profit or loss on disposal but are tracked from the date of acquisition of the foreign operation.


	*Staff costs*

The Company provides certain compensation arrangements in the US through a Rabbi Trust. Under IFRS, the net deficit is recorded as a provision and the net change in the underlying value of the assets and liabilities is recorded as a charge (or credit) to the income statement. Under US GAAP, the marketable securities held by the Rabbi Trust are accounted for in accordance with FAS 115 “Accounting for certain investments in Debt and Equity Securities”. The trust is shown gross in the balance sheet. The marketable securities held by the trust are recorded at market value and unrealized gains and losses are reported in other comprehensive income except for other than temporary movements which are recognized in the income statement.


	*Deferred tax*

The Company provides for deferred tax in respect of all temporary differences between the tax base and carrying value of assets and liabilities. Those temporary differences recognized include accelerated capital allowances, unrelieved tax losses, unremitted profits from overseas where the Company does not control remittance, gains rolled over into the replacement assets, gains on previously revalued properties and other short-term temporary differences. Under US GAAP, deferred tax would be computed on all temporary differences between the tax bases and book values of assets and liabilities which will result in taxable or tax deductible amounts arising in future years. Deferred tax assets under IFRS are recognized to the extent that it is regarded as probable that the deductible temporary differences can be utilized. Under US GAAP deferred tax assets are recognized in full and a valuation allowance is made to the extent that it is not more likely than not that they will be realized.

Under IFRS, a deductible temporary difference arises in respect of estimated future tax deductions on share-based payments based upon the share price at the balance sheet date. Any excess of the asset recognized over the cumulative compensation expense recorded in the income statement multiplied by the statutory tax rate is recorded directly in equity. Under US GAAP, a deferred tax asset in respect of future deductible amounts is calculated only to the extent of the cumulative compensation expense recorded to date in the income statement. Where actual tax deductions received upon exercise exceed the amount of any deferred tax asset the excess is recorded in equity. Where actual tax deductions are less than the deferred tax asset, the write-down of the asset is recorded against equity to the extent of previous tax benefits recorded in this account with any remainder recorded in the income statement.

F-68


	*Derivative financial instruments and hedging*

The Company enters into derivative instruments to limit its exposure to interest rate and foreign exchange risk. In 2004 under IFRS transitional provisions, these instruments were measured at cost and accounted for as hedges, whereby gains and losses were deferred until the underlying transaction occurred. Under US GAAP, all derivative instruments (including those embedded in other contracts) are recognized on the balance sheet at their fair values. Changes in fair value are recognized in net income unless specific hedge criteria are met. The Company adopted both IAS 32 “Financial Instruments: Disclosure and Presentation” and IAS 39 “Financial Instruments: Recognition and Measurement” from January 1, 2005. There is now no difference between IFRS and US GAAP with regard to derivatives entered into after January 1, 2005.


	*Guarantees*

The Company gives guarantees in connection with obtaining long-term management contracts. Under IFRS, a contingent liability is not recognized. For the purposes of US GAAP, under Financial Accounting Standards Board Interpretation (“FIN”) 45 “Guarantors Accounting and Disclosure Requirements for Guarantees, Including Direct Guarantees of Indebtedness of Others in the Year”, at the inception of guarantees issued after December 31, 2002, the Company records the fair value of such guarantees as an asset and liability, which are amortized over the life of the contract.


	*Assets and liabilities held for sale*

Under IFRS, assets and liabilities are classified as held for sale when the criteria under IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations” are met. Under US GAAP, similar criteria are applied to held for sale assets. However, FAS 66 “Accounting for Sales of Real Estate” excludes any assets from being included as held for sale where there will be a continuing involvement in the asset.


	*Discontinued operations*

Under IFRS, the results of operations arising from assets classified as held for sale are classified as discontinued operations when the results relate to a separate line of business, or geographical area of operations; or where there is a co-ordinated plan to dispose of a separate line of business or geographical area of operations. Under US GAAP, operations are classified as discontinued when they are classified as held for sale and when the Company no longer believes it will have a significant continuing involvement.

F-69


	*Net income in accordance with US GAAP*

The significant adjustments required to convert profit available for IHG equity holders in accordance with IFRS to net income in accordance with US GAAP are:


			Year ended			Year ended
			December 31,			December 31,
			2005			2004

			(£ million)
Profit available for IHG equity holders in accordance with IFRS				496			383
Adjustments:
	Amortization of intangible assets			(1	)		(3	)
	Impairment of property, plant and equipment			(17	)		30
	Disposal of property, plant and equipment			(107	)		5
	Depreciation of property, plant and equipment			(31	)		(20	)
	Deferred revenue			15			5
	Gain on held for sale equity investment			—			(28	)
	Pension costs			(20	)		(9	)
	Staff costs			(1	)		2
	Change in fair value of derivatives⁽ⁱ⁾			6			52
	Provisions			(3	)		(5	)
	Deferred tax:
		on above adjustments		16			4
		methodology		(2	)		(79	)

				(145	)		(46	)
	Minority share of above adjustments			4			3

				(141	)		(43	)

Net income in accordance with US GAAP				355			340

See page F-71 for footnotes.

F-70

The condensed consolidated income statement presented below reflects the adjustments to attributable profit for the year.


		Year ended			Year ended
		December 31,			December 31,
		2005			2004

		(£ million,
		except per ADS amounts)
Net sales			1,521			1,606
Operating and administrative expenses			(1,323	)		(1,374	)
Financial income and financial expenses			(24	)		(33	)

Income before income tax expense and minority interest			174			199

Income tax (expense)/credit			(56	)		79
(Loss)/gain on disposal of assets, net of tax^(iv)			(14	)		3
Minority interest			—			(24	)

Income from continuing operations			104			257
Discontinued operations:
Result for period, net of tax and financial expenses^(v)			41			62
Surplus on disposal, net of tax^(vi)			210			21

Net income			355			340

Per ordinary share and American Depositary Share
Basic⁽ⁱⁱ⁾
	Continuing operations		20.0p			36.2p
	Discontinued operations		48.2p			11.7p

Net income			68.2p			47.9p

Diluted⁽ⁱⁱⁱ⁾
	Continuing operations		19.5p			35.7p
	Discontinued operations		47.1p			11.5p

Net income			66.6p			47.2p


(i)	Comprises net gains in the fair value of derivatives that do not qualify for hedge accounting of £6 million (2004 £50 million) and net gains reclassified from other comprehensive income of £nil (2004 £2 million).

(ii)	Calculated by dividing net income in accordance with US GAAP of £355 million (2004 £340 million) by 521 million (2004 710 million) shares, being the weighted average number of ordinary shares in issue during the period. Each American Depositary Share represents one ordinary share.

(iii)	Calculated by adjusting basic net income in accordance with US GAAP of £355 million income to reflect both the future compensation on share-based payments and the notional exercise of the weighted average number of dilutive ordinary share options outstanding during the period. The resulting weighted average number of ordinary shares is 533 million (2004 720 million).

(iv)	Tax charge for the year ended December 31, 2005 of £3 million (2004 £2 million credit).

(v)	Tax charge for the year ended December 31, 2005 of £17 million (2004 £29 million). Financial expenses for the year ended December 31, 2005 of £9 million (2004 £1 million).

(vi)	Tax charge for the year ended December 31, 2005 of £28 million (2004 £3 million credit).

F-71


	*Comprehensive income*

Comprehensive income under US GAAP is as follows:


	Year ended			Year ended
	December 31,			December 31,
	2005			2004

	(£ million)
Net income in accordance with US GAAP		355			340
Other comprehensive income:
Transfer to Britvic of minimum pension liability on December 14, 2005, net of tax of £21 million		49			—
Minimum pension liability, net of tax credit of £20 million (2004 £1 million charge)		(48	)		8
Change in valuation of marketable securities, net of tax of £6 million (2004 £3 million)		9			29
Change in fair value of derivatives, net of tax credit of £2 million (2004 £nil million)		(4	)		(2	)
Currency translation differences		(132	)		83

		(126	)		118

Comprehensive income in accordance with US GAAP		229			458

Movements in other comprehensive income amounts (net of related tax) are as follows:


	Minimum			Change in		Derivative
	pension			valuation of		financial			Currency
	liability			marketable		instruments			translation
	adjustment			securities		gains/(losses)			differences			Total

	(£ million)
At December 31, 2003		(51	)		2		4			10			(35	)
Movement in the year		8			29		(2	)		83			118

At December 31, 2004		(43	)		31		2			93			83
Movement in the year		1			9		(4	)		(149	)		(143	)

At December 31, 2005		(42	)		40		(2	)		(56	)		(60	)

Of the £149 million currency translation movement in the year ended December 31, 2005 £17 million has been recorded in net income in accordance with US GAAP.

F-72


	*Shareholders’ equity in accordance with US GAAP*

The significant adjustments required to convert IHG shareholders’ equity in accordance with IFRS to IHG shareholders’ equity in accordance with US GAAP are:


				December 31,			December 31,
				2005			2004

				(£ million)
IHG shareholders’ equity in accordance with IFRS					1,084			1,821

Adjustments:
	Intangible assets:
		Cost: goodwill			761			781
		other intangible assets			655			612
		Accumulated amortization			(260	)		(217	)

					1,156			1,176
	Intangible asset — minimum pension liability				1			3

					1,157			1,179
	Property, plant and equipment:
		Cost			327			(29	)
		Assets classified as held for sale			21			1,526
		Accumulated depreciation			(19	)		31

					329			1,528
	Other financial assets				(14	)		3
	Non-current assets classified as held for sale				(21	)		(1,526	)
	Current assets:
		Pension prepayment			—			57
		Other receivables			31			22
		Derivatives			—			9
	Current liabilities:
		Deferred income on property transactions			(15	)		(5	)
		Other payables			8			10
		Derivatives			—			(1	)
	Non-current liabilities:
		Deferred income on property transactions			(309	)		(73	)
		Other payables			(41	)		(26	)
		Derivatives			—			(2	)
		Provisions			4			8
		Employee benefits			15			77
		Deferred tax payable:
			on above adjustments		(204	)		(357	)
			methodology		(10	)		—
	Liabilities held for sale				1			148

					931			1,051
	Minority share of above adjustments				—			(76	)

					931			975

IHG shareholders’ equity in accordance with US GAAP					2,015			2,796

F-73


	*Additional information required by US GAAP in respect of earnings per share*

The following table sets forth the computation of basic and diluted earnings per share from continuing operations under US GAAP:


		Year ended			Year ended
		December 31,			December 31,
		2005			2004

		(£ million,
		except per ADS amounts)
Numerator:
	Numerator for basic and diluted earnings per ordinary share and ADS		104			257

Denominator:
	Denominator for basic earnings per ordinary share and ADS		521			710
	Effect of dilutive securities:
	Employee options and restricted stock awards		12			10

	Denominator for diluted earnings per ordinary share and ADS		533			720

Basic earnings per ordinary share and ADS from continuing operations			20.0	p		36.2	p

Diluted earnings per ordinary share and ADS from continuing operations			19.5	p		35.7	p


	*Consolidated statement of cash flows*

The consolidated statement of cash flows prepared under IFRS presents substantially the same information as that required under US GAAP but may differ with regard to classification of items within the statements.

Under IFRS, interest or dividends paid or received are classified as part of operating cash flows unless they are linked directly to specific items and they are then classified as part of either investing or financing cash flows to coincide with the specific item. Under US GAAP, all interest or dividends paid or received must be classified as operating activities. Under IFRS, income tax should be classified as operating cash flow unless the tax paid can be specifically identified with financing or investing activities. Under US GAAP, income tax must be classified as an operating cash flow.

The categories of cash flow activity under US GAAP can be summarized as follows:


		Year ended			Year ended
		December 31,			December 31,
		2005			2004

		(£ million)
Cash inflow from operating activities			302			444
Cash outflow on investing activities			1,863			(151	)
Cash outflow from financing activities			(1,906	)		(631	)

Increase/(decrease) in cash and cash equivalents			259			(338	)
Effect of foreign exchange rate changes			(7	)		(1	)
Cash and cash equivalents
	At start of the fiscal year		72			411

	At end of the fiscal year		324			72

F-74


	*Additional information required by US GAAP in respect of the Group’s principal pension plans*

The pension cost for these plans computed in accordance with the requirements of US GAAP comprises:


	UK pension benefits						US pension benefits						US postretirement benefits

	Year ended			Year ended			Year ended			Year ended			Year ended		Year ended
	December 31,			December 31,			December 31,			December 31,			December 31,		December 31,
	2005			2004			2005			2004			2005		2004

	(£ million)
Service cost		20			17			—			—			—		—
Interest cost		30			26			5			5			1		1
Expected return on plan assets		(33	)		(25	)		(4	)		(4	)		—		—
Net amortization and deferral		5			7			—			—			—		—
Recognized net actuarial gain		—			—			2			2			—		—

Net periodic pension cost		22			25			3			3			1		1

The major assumptions used in computing the pension expense were:


	UK pension benefits				US pension benefits				US postretirement benefits

	Year ended		Year ended		Year ended		Year ended		Year ended		Year ended
	December 31,		December 31,		December 31,		December 31,		December 31,		December 31,
	2005		2004		2005		2004		2005		2004

Expected long-term rate of return on plan assets		5.80%		6.90%		8.00%		8.00%		—		—
Discount rate		4.70%		5.30%		5.50%		5.75%		5.50%		5.75%
Expected long-term rate of earnings increases		4.30%		4.30%		3.50%		3.50%		4.00%		4.00%

The plans’ expected return on assets, as shown above, is based on the Company’s expectations of long-term average rates of return to be achieved by the underlying investment portfolios. In establishing this assumption, management considers historical and expected returns for the asset classes in which the plans are invested, as well as current economic and capital market conditions.

The assumed health care cost trends rates for medical and dental plans at December 31, 2005 and 2004 are as follows:


	2005			2004

Health care cost trend rate assumed for next year		9.0	%		9.5	%
Rate that the cost trend rate gradually declines to		4.5	%		4.5	%
Year that rate reaches the assumed ultimate rate		2015			2014

A one-percentage point increase/ (decrease) in assumed health care costs trend rate would increase/ (decrease) the accumulated post employment benefit obligations as of December 31, 2005 and 2004, by £1 million, and would increase/ (decrease) the total of the service and interest cost components of net post-employment health care cost for the period then ended by approximately £nil million.

In 2006, the Company expects to make projected regular contributions to the UK principal plan of £4 million.

F-75


		UK pensions benefits						US pensions benefits						US postretirement benefits

		Year ended			Year ended			Year ended			Year ended			Year ended			Year ended
		December 31,			December 31,			December 31,			December 31,			December 31,			December 31,
Change in benefit obligation		2005			2004			2005			2004			2005			2004

		(£ million)
Benefit obligation at beginning of year			600			477			89			90			11			12
	Service cost		20			17			—			—			—			—
	Members contributions		2			—			—			—			—			—
	Interest expense		30			26			5			5			1			1
	Benefits paid		(11	)		(12	)		(6	)		(5	)		(1	)		(1	)
	Curtailments		(7	)		—			—			—			—			—
	Age-related national insurance rebates		—			5			—			—			—			—
	Bulk transfer to scheme		—			27			—			—			—			—
	Actuarial loss arising in the year		67			60			3			5			—			—
	Separation of Britvic		(426	)		—			—			—			—			—
	Exchange		—			—			11			(6	)		1			(1	)

Benefit obligation at end of year			275			600			102			89			12			11

The following table sets forth movements in fair value of the plan assets and the projected benefit obligation of the principal plan.


		UK pensions benefits						US pensions benefits						US postretirement benefits

		Year ended			Year ended			Year ended			Year ended			Year ended			Year ended
		December 31,			December 31,			December 31,			December 31,			December 31,			December 31,
Changes in plan assets		2005			2004			2005			2004			2005			2004

		(£ million)
Fair value of plan assets at beginning of year			472			355			55			48			—			—
	Contributions payable		46			72			2			11			1			1
	Members contributions		2			5			—			—			—			—
	Benefits paid		(11	)		(12	)		(6	)		(5	)		(1	)		(1	)
	Bulk Transfer to scheme		—			14			—			—			—			—
	Actual return on assets		77			38			3			5			—			—
	Separation of Britvic		(335	)		—			—			—			—			—
	Exchange		—			—			7			(4	)		—			—

Fair value of plan assets at end of year			251			472			61			55			—			—

Accumulated benefit obligation (all vested)			264			519			100			87			—			—

Fair value of plan assets			251			472			61			55			—			—
Projected benefit obligation			(275	)		(600	)		(102	)		(89	)		(12	)		(11	)

Net plan obligation			(24	)		(128	)		(41	)		(34	)		(12	)		(11	)
Unrecognized prior service cost			1			5			—			—			—			—
Unrecognized net loss			76			199			27			23			3			3

Net amount recognized			53			76			(14	)		(11	)		(9	)		(8	)

F-76


	UK pensions benefits						US pensions benefits						US postretirement benefits

	Year ended			Year ended			Year ended			Year ended			Year ended			Year ended
	December 31,			December 31,			December 31,			December 31,			December 31,			December 31,
Changes in plan assets	2005			2004			2005			2004			2005			2004

	(£ million)
The amounts recognized in the balance sheet consist of:
Prepaid pension cost		—			57			—			—			—			—
Accrued pension cost		(13	)		(54	)		(39	)		(31	)		(9	)		(8	)
Pension costs		—			—			—			—			—			—
Intangible asset		1			3			—			—			—			—
Other comprehensive income (before tax)		65			70			25			20			—			—

Net amount recognized		53			76			(14	)		(11	)		(9	)		(8	)


	*Additional information required by US GAAP in respect of accounting for the impairment of fixed assets and fixed assets to be disposed of*

A summary of the impairment charges that have been recognized under US GAAP is as follows:


	Year ended		Year ended
	December 31,		December 31,
	2005		2004

	(£ million)
Assets to be disposed of		—		—
Assets to be held and used		24		18

Total		24		18

Disclosed as:
Impairment charges recognized under IFRS:
Charge for the year under IFRS		7		48
Adjustment to impairment recognized under US GAAP		17		(30	)

		24		18

Charged against:
Intangible assets — goodwill		—		—
Property, plant and equipment		24		18

		24		18

Under IFRS, in the year ended December 31, 2005 property, plant and equipment have been written down by £7 million (2004 £48 million) following an impairment review of certain hotel assets based on current market trading conditions. The fair value has been measured by reference to recent transactions for hotel assets in relevant markets.

Under US GAAP, the impairment charge recognized in 2005 relates to a specific property that historically was not subject to an impairment charge. In 2004, with the exception of the impairment charge of £18 million in respect of short leasehold properties, the IFRS impairment charge was reversed.

Under US GAAP, the impairment test is first performed using undiscounted cash flows to assess whether an asset has been impaired. If it is determined that an impairment exists the charge is measured by comparing the value calculated using discounted cash flows and carrying value.

The adjustment to the impairment recognized under IFRS is therefore the difference between the charge under IFRS and US GAAP and is shown in the reconciliation to US GAAP accounting principles.

F-77


	*Additional information required by US GAAP in respect of accounting for deferred gains*

For US GAAP, the Company accounts for sales of real estate in accordance with FAS 66 “Accounting for Sales of Real Estate”. If there is significant continuing involvement with the property, any gain on sale is deferred and is recognized over the life of the long-term management contract retained on the property. The deferral of gains on such sales totaled £5 million in 2005 and £nil million in 2004.


	*Additional information required by US GAAP in respect of accounting for intangible assets subject to amortization*

Other intangible assets subject to amortization consist of:


	December 31, 2005							December 31, 2004

			Accumulated			Net book				Accumulated			Net book
	Cost		amortization			value		Cost		amortization			value

	(£ million)
Management & franchise contracts		96		(42	)		54		329		(277	)		52
Other		—		—			—		4		(1	)		3

Total		96		(42	)		54		333		(278	)		55

The estimated aggregate amortization expense for each of the next five years is £5 million. The weighted average remaining life of intangible assets subject to amortization is 8 years.


	*Additional information required by US GAAP in respect of accounting for intangible assets not subject to amortization*


	December 31, 2005						December 31, 2004

	Hotels		Soft drinks		Total		Hotels		Soft drinks		Total

	(£ million)
Goodwill		811		—		811		840		124		964
Trademarks		530		—		530		474		—		474

Total		1,341		—		1,341		1,314		124		1,438


	*Additional information required by US GAAP in respect of taxation*


	Analysis of tax (credit)/charge on continuing operations in accordance with US GAAP


	Year ended		Year ended
	December 31,		December 31,
	2005		2004

	(£ million)
Current taxes		59		(60	)
Deferred taxes		—		7

Total		59		(53	)

F-78


	Reconciliation of UK statutory tax rate to US GAAP tax charge on income from continuing operations


	Year ended			Year ended
	December 31,			December 31,
	2005			2004

	(%)
UK corporate tax standard rate		30.0			30.0
Permanent differences		11.1			1.1
Net effect of different rates of tax in overseas business		10.2			6.7
Adjustment to tax charge in respect of prior periods		(16.6	)		(20.4	)
Other		(1.2	)		(0.2	)
Special items		3.0			(35.5	)

Effective current tax rate on continuing operations		36.5			(18.3	)

The tax rate in 2005 compared with 2004 has been impacted primarily by an increased proportion of non UK profits within continuing operations and increases in the valuation allowance against deferred tax assets.

The Company operates, manages and franchises hotels in a significant number of countries and consequently a wide range of matters of interpretation of tax law arise in the normal course of business. Although reliance is placed on generally available interpretations in these countries, there is no certainty that the relevant tax authorities will agree with the Company’s interpretation or that the Company’s interpretation will be upheld. Consequently it is possible that certain matters will be resolved adversely resulting in additional cash tax settlements. The Company provides against all quantifiable tax exposures based upon best estimates and management’s judgment and total tax provisions of £328 million were held at December 31, 2005. The wide range of potential tax issues which arise include, in particular, the application of transfer pricing regulations and the allocation of costs and revenues between countries (£17 million), the deduction of intra-group charges (£10 million), the scope of controlled foreign company regulations (£160 million), and the scope and basis of application of tax laws of particular jurisdictions (including whether taxable permanent establishments exist) (£37 million).

Deferred tax in accordance with US GAAP


	Deferred tax

	(£ million)
At January 1, 2004		721
Disposals		(5	)
Exchange and other adjustments		(15	)
Income statement		—
Adjustment to other intangible assets⁽ⁱ⁾		(110	)

At December 31, 2004		591
Disposals		(132	)
Exchange and other adjustments		27
Income statement		(29	)

At December 31, 2005		457


(i)	In 2004, the adjustment to other intangible assets relates to the recognition of pre-acquisition losses in respect of which a valuation allowance had previously been made.

F-79

The analysis of the deferred tax liability required by US GAAP is as follows:


		December 31,			December 31,
		2005			2004

		(£ million)
Deferred tax liabilities:
	Excess of book value over taxation value of property, plant and equipment		242			452
	Taxation effect of deferred gains		122			122
	Intangible assets		163			138
	Investments in associates, joint ventures and partnerships		41			—
	Other temporary differences		96			75

			664			787

Deferred tax assets:
	Taxation effect of losses carried forward		(123	)		(113	)
	Taxation effect of employee benefits		(14	)		(6	)
	Other temporary differences		(70	)		(77	)

			(207	)		(196	)

			457			591

Of which:
	Current		(40	)		(45	)
	Non-current		497			636

			457			591

The taxation effect of losses carried forward is stated net of a valuation allowance of £282 million (2004 £305 million). The tax effect of employee benefits and other temporary differences are stated net of valuation allowances of £3 million (2004 £nil million) and £14 million (2004 £nil million) respectively.

On release, £18 million (2004 £16 million) of the valuation allowance would be recognized in goodwill. An increase of £1 million (2004 reduction of £88 million) has been made to the opening valuation allowance in respect of a change in judgment regarding the realizability of deferred tax assets. There are no material expiration dates in respect of operating losses.

No deferred tax is provided in respect of temporary differences relating to the unremitted earnings of overseas subsidiaries and joint ventures which the group controls on the basis that the differences are permanent in nature. It is not practicable to determine the amounts unprovided.


	*Additional information required under US GAAP in respect of restructuring provisions*


	Employee			Facilities			Other			IHG
	costs			costs			costs			total

	(£ million)
Balance at January 1, 2004		7			7			4			18
Expenditure		(7	)		(3	)		(4	)		(14	)

Balance at December 31, 2004		—			4			—			4
Expenditure		—			(1	)		—			(1	)

Balance at December 31, 2005		—			3			—			3

F-80


	*Variable Interest Entities*

FIN 46, “Consolidation of Variable Interest Entities” (“the Interpretation”), was effective for all enterprises with variable interest in variable interest entities created after January 31, 2003. FIN 46(R), which was revised in December 2003, was effective for all entities to which the provisions of FIN 46 were not applied as of December 24, 2003. We applied the provisions of FIN 46(R) to all entities subject to the Interpretation as of December 31, 2004. Under FIN 46(R), if an entity is determined to be a variable interest entity (“VIE”), it must be consolidated by the enterprise that absorbs the majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, the “primary beneficiary”.

The Group’s evaluation of the provisions of FIN 46 as it relates to its various forms of arrangements focused primarily on a review of the key terms of its equity investment agreements, management contracts and franchise agreements against the criteria in FIN 46 to determine if any of these arrangements qualify as VIEs. In general, a VIE represents a structure used for business purposes that either does not have equity investors with voting rights or that has equity investors that do not provide sufficient financial resources for the entity to support its activities. However, other contractual arrangements could qualify an entity as a VIE and designate which party to the contract is the primary beneficiary.

The Group’s evaluation of its equity investments, management contracts and franchise agreements identified one management contract, due to the terms of performance guarantees, and one equity investment, in which it has variable interests. For those entities in which the Group holds a variable interest, it determined that it was not the primary beneficiary and as such was not required to consolidate the VIEs. The performance guarantee associated with the management contracts with HPT does not expose the Group to the majority of expected cash flow variability and therefore those hotels have not been consolidated. As of December 31, 2005, the maximum exposure to loss on these contracts, consisting of future management fees and the potential obligation to fund the performance guarantee, totaled an aggregate amount of approximately £72 million over the life of the contracts. The Group also has one significant equity interest in an entity that is a VIE. In November 2003, the Group purchased a one-third share of an equity venture that owns the InterContinental Warsaw which is managed by the Group. The equity investment in the VIE totaled £13 million at December 31, 2005 and £13 million at December 31, 2004.


	*New Accounting Standards*

In December 2004, the FASB issued FAS No. 123(R), “Share-Based Payment” (“FAS No. 123R”), which is a revision of FAS No. 123, (“FAS No. 123”) “Accounting for Stock-Based Compensation”. Generally, the approach in FAS No. 123R is similar to the approach described in FAS No. 123. FAS No. 123R requires all share-based payments to employees, including grants of share options, to be recognized in the income statement based on their fair values. The Group plans to adopt FAS No. 123R for the financial year ended December 2006.

The Company believes that the adoption of FAS No. 123R, using the modified prospective method, will not have a material impact on the results for the fiscal year 2006.

F-81

INTERCONTINENTAL HOTELS GROUP PLC

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS


			Additions
	Balance at		charged to								Balance at
	beginning		costs and		Exchange						end of
	of period		expenses		differences			Deductions			period

Year ended December 31, 2005
Provisions for bad and doubtful debts		43		14		4			(14	)		47
Year ended December 31, 2004
Provisions for bad and doubtful debts		45		20		(3	)		(19	)		43

S-1

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.


	INTERCONTINENTAL HOTELS GROUP PLC
	(Registrant)


	By:	/s/ Richard Solomons



	Name: Richard Solomons
	Title: Finance Director

Date: March 31, 2006