Millennium & Copthorne Hotels Regulatory News (MLC)

21 Feb 2006 07:03

Millennium & Copthorne Hotels PLC21 February 2006 21 February 2006 MILLENNIUM & COPTHORNE HOTELS PLC RESULTS FOR THE YEAR ENDED 31 DECEMBER 2005 Millennium & Copthorne Hotels plc today presents its results for the year ended31 December 2005. The Group has a portfolio of 91 hotels located in theAmericas, Europe, Middle-East, Asia and New Zealand. These results have been prepared under International Financial ReportingStandards ('IFRS') and the 2004 comparatives restated. Financial Highlights • Revenue up 8% to £595.2m (2004 restated: £551.0m)• Hotel operating profit up 22% to £106.7m (2004 restated: £87.4m)• Group operating profit before other operating income and impairment up 17% to £99.6m (2004: £85.2m) - Other operating income of £28.3m (2004: £55.0m) and impairment of £6.5m (2004: £15.2m)• Profit before tax excluding other operating income and impairment up 45% to £74.0m (2004 restated: £51.2m) • Profit before tax £95.8m (2004 restated: £91.0m) • Earnings per share up 19% to 21.3p (2004 restated: 17.9p) • Proposed final dividend 5.62p per share giving 7.7p for the year, up 23% (2004: 6.25p excluding special dividend). Overview of Group Performance • Group RevPAR up by 7.4%• Performance reflects revenue growth and improved operational efficiency, mitigating cost pressures within the industry as a whole.• Ten new management and franchise contracts including the Group's first management contract in China.• Continued success in maximising value from asset portfolio through the sales of Bayswater Tower Sydney and the Kingsgate Shopping and Commercial Centres. Further redevelopment of assets in progress at Four Points Sunnyvale and Copthorne Orchid Singapore. Commenting today, Mr Kwek Leng Beng, Chairman said: "In 2005, we delivered good earnings growth by exploiting our operating skillsin an improving trading environment. We also used our real estate expertise andresources to derive further gains from our portfolio of assets. We haveundoubtedly benefited from our twin strategy of both operating and owning hotelsworldwide. We now propose an increase in our dividend of 23% over the ordinarydividend paid for 2004. "In the first six weeks of 2006, trading has continued in line with the positivetrends of 2005. "Looking to the future, we believe that our established ability to combine ouroperating and real estate strengths gives us a real competitive edge. We willuse this advantage to deliver better value for shareholders. "It is too early to give precise indications of the outlook for the current yearbut we are confident that we can make further progress." Enquiries: Tony Potter, Group Chief Executive +44 (0) 20 7831 3113 (21 February 2006)Robin Lee, Senior Vice President Finance +44 (0) 20 7831 3113 (21 February 2006)Millennium & Copthorne Hotels plc Ben FosterFinancial Dynamics +44 (0) 20 7831 3113 (21 February 2006) There will be an audio webcast of the results presentation from 9.15am on 21February 2006 on http://www.millenniumhotels.com/ MILLENNIUM & COPTHORNE HOTELS PLCRESULTS FOR THE TWELVE MONTHS ENDED 31 DECEMBER 2005 CHAIRMAN'S STATEMENT OVERVIEW 2005 was another year of positive development with strong growth inprofitability. RevPAR grew across all regions with improvements in each quarter.New York improved strongly with double digit growth each quarter. Asia has alsoseen positive growth. Results were achieved through our strategy of being an integrated owner andoperator of international hotel assets, with a balanced geographic portfolio. Wehave benefited from our focus on operational improvement and from our commitmentto achieving sustained operational excellence in our hotels. Our propertyexpertise has allowed us to manage our real estate assets actively and to unlocklong term value to ensure superior value creation over time. GROUP RESULTS Group revenue for the year was up 8.0% to £595.2m (2004: £551.0m). Groupoperating profit before other income and impairment increased 16.9% to £99.6m(2004: £85.2m) and profit before tax excluding other operating income andimpairment was £74.0m (2004: £51.2m). Profit before tax was £95.8m (2004:£91.0m). 3 months to 31 3 months to 31 Year to 31 Year to 31 December December December December 2005 2004 2005 2004 £m £m £m £m Restated Restated Revenue 167.6 151.1 595.2 551.0Group operating profit before otheroperating income and impairment 35.1 28.6 99.6 85.2Profit before tax before otheroperating income and impairment 31.0 20.9 74.0 51.2Profit before tax 36.7 60.2* 95.8 91.0 * 2004 financials include £51.8m arising from the profit from the disposal ofthe Plaza joint venture ASSET PORTFOLIO 2005 was another successful year for our continued effort to maximise value fromour portfolio through disposal of selected assets: Bayswater Tower Sydney In the third quarter we completed the sale of the Bayswater tower in Sydney at aprice of A$20 million (£8.5m). Profit on disposal was £3.3m. Kingsgate Shopping Centre and Kingsgate Commercial Centre We announced the completion of the disposal of the Kingsgate Shopping Centre inSydney in our trading update for the third quarter for a net consideration ofA$19.9 million (£8.5m). Subsequent to that announcement, we have sold a furthersection of the complex, the Kingsgate Commercial Centre for a net considerationof A$19.0 million (£8.0m). The combined profit on the disposal of these twoproperties was £6.3 million. Four Points Hotel Sunnyvale We announced in the third quarter the proposed redevelopment of the Four PointsSunnyvale Hotel in California into 240 residential condominiums for sale and a250-room hotel. Planning permission has been obtained and the hotel has closed.Work on the redevelopment should commence in the third quarter of 2006. Copthorne Orchid Inn Singapore We announced the planned redevelopment of the Copthorne Orchid Inn Singaporeinto residential condominiums. We expect work to commence on this project laterin the year. Millennium Seoul Hilton Hotel We have entered into a lease agreement with the State casino operator for theconvention space at the Millennium Seoul Hilton. Conversion work is expected tobe completed early in the second half of 2006. MANAGEMENT AND FRANCHISE CONTRACTS The Group announced ten new management and franchise contracts during the yearcomprising 1,839 rooms: • The Millennium Hongqiao Shanghai, a 350 bedroom 5-star property, scheduled to open during 2006. Our first management contract in China in an increasingly competitive market. • The Millennium Hotel and Resort Montazah near Sharm el Sheikh with 350 hotel bedrooms and 115 villas scheduled to open early 2007. • The Millennium Sukhumvit Hotel Bangkok, a 326 bedroom hotel, which is scheduled to open in December 2007. • The Millennium Hotel Southampton Ocean Village, a 200 bedroom 4-star luxury hotel on the waterfront. • The Copthorne Hotel Reading, the 81 bedroom Kirtons Farm property by the M4, which will be rebranded into a Copthorne following a refurbishment in late 2006. • The Millennium Hotel Doha in Qatar, a 238 bedroom, 5-star property scheduled to open late 2006. • Four new franchise contracts signed in New Zealand: the Copthorne Hotel Grand Central, New Plymouth, and the Copthorne Hotels & Resorts - Hokianga, the Kingsgate Hotel Wanganui and the Kingsgate Hotel Beachcomber, Nelson. DIVIDEND The Board proposes a final dividend of 5.62p per share. With the interimdividend of 2.08p, the total for the year is 7.7p per share, an increase of 23%(2004: 6.25p plus 6.25p special dividend). PROSPECTS In 2005, we delivered good earnings growth by exploiting our operating skills inan improving trading environment. We also used our real estate expertise andresources to derive further gains from our portfolio of assets. We haveundoubtedly benefited from our twin strategy of both operating and owning hotelsworldwide. We now propose an increase in our dividend of 23% over the ordinarydividend paid for 2004. In the first six weeks of 2006, trading has continued in line with the positivetrends of 2005. Looking to the future, we believe that our established ability to combine ouroperating and real estate strengths gives us a real competitive edge. We willuse this advantage to deliver better value for shareholders. It is too early to give precise indications of the outlook for the current yearbut we are confident that we can make further progress. Kwek Leng BengChairman21 February 2006 OPERATING REVIEW GROUP PERFORMANCE Occupancy for the Group was 73.0% (2004: 71.8%) and the average room rate was£64.01 (2004: £60.59). RevPAR increased 7.4% to £46.73 (2004: £43.50). All fourregions experienced year-on-year average room rate growth. Revenue for the yearwas £595.2m (2004: £551.0m) and Group operating profit before other income andimpairment was £99.6m (2004: £85.2m). REGIONAL PERFORMANCE For comparability, we have restated the 2004 figures at 2005 exchange rates.2004 average room rate was £61.69, RevPAR £44.29, revenue £563.1m and Groupoperating profit before other income and impairment £87.3m. UNITED STATES New York Occupancy was 84.5% (2004: 84.0%) and the average room rate £129.42 (2004:£109.28). RevPAR was £109.36 (2004: £91.80), up 19.1%. All three New York hotels performed strongly. An aggressive rate strategy andcapital expenditure this year resulted in an average room rate of £129.42 (2004:£109.28), growth of 18.4%. 2005 occupancy grew by half a percentage point from2004. At the Millennium Broadway Hotel, our decision to renovate the Hudson TheatreConference Facility at the end of 2004 produced food and beverage revenuessignificantly ahead of 2004. The property has also increased RevPAR against itscompetitive set. Millenium Hilton New York, which reopened in May 2003, continues to capture agrowing share of the market and increase rates at the same time. The Millennium UN Plaza experienced the highest RevPAR growth of our three NewYork properties. Regional US Occupancy was 66.2% (2004: 61.2%) and the average room rate was £49.63 (2004:£53.15), with RevPAR at £32.86 (2004: £32.53). Excluding the impact of ourrepossession of the Best Western Lakeside in December 2004, RevPAR increased by7.9% on 2004. RevPAR improved significantly at Los Angeles, Scottsdale and Nashville.Cincinnati continues to be impacted by the temporary closure of the conventioncentre. EUROPE London Occupancy was 84.8% (2004: 83.5%) and the average room rate was £80.20 (2004:£79.79),with RevPAR at £68.01 (2004: £66.62). Improvements in the first half of the year were primarily driven by increasedvolume. The incidents in July reduced room sales for the third quarter. The refurbishment of 115 rooms at the Millennium Mayfair enabled a moreaggressive approach to rates but with a loss of available room inventory duringthe refurbishment. The performance from our London hotels was in line with the market, in spite ofthe Millennium Gloucester which was weak relative to our expectations. In thesecond half of 2005, the hotel embarked on a number of sales programmes toidentify and secure further corporate business. The hotel is also impacted by a142 room refurbishment to reposition its inventory, which is scheduled forcompletion in the first half of 2006. The hotel will also be refurbishing theMillennium Conference Centre during 2006. We expect to see the benefits of theseactivities towards the end of 2006 and beyond. Rest of Europe Occupancy was 72.8% (2004: 72.8%) and the average room rate was £69.83 (2004:£66.89) with RevPAR increasing to £50.84 (2004: £48.70). In our regional UK hotels, occupancy was 77.2% (2004: 76.0%), average room rate £67.91 (2004: £64.71), and RevPAR £52.43 (2004: £49.18). In France and Germany, occupancy was 65.9% (2004: 67.8%) and the average roomrate was £73.40 (2004: £70.78), with RevPAR at £48.37 (2004: £47.99). Asia Occupancy for the region was 73.7% (2004: 73.2%) and the average room rate was£52.40 (2004: £49.15), with RevPAR at £38.62 (2004: £35.98). 2005 has been a strong year in Singapore with RevPAR growth of 21.4%. Bothoccupancy and average rate improved. The Orchard Hotel and the Copthorne KingsHotel have benefited from extensive refurbishment programmes which have assistedrate growth in both properties. RevPAR at the Grand Hyatt Taipei improved but RevPAR at the Millennium SeoulHilton reduced. Overall, RevPAR increased by 2.5% in Asia excluding Singapore. Our joint venture properties in Hong Kong, whose figures are not included in theregional or Group statistics, improved RevPAR by 24.3% built on strong averagerate growth and demand particularly from the Chinese market. Australasia Occupancy for the region was 69.6% (2004: 71.5%) and the average room rate was£43.43 (2004: £41.29). This led to an increase in RevPAR to £30.23 (2004:£29.52). The performance of our New Zealand properties continued to improve, albeit at aslower rate than in previous years. At constant currency, there has been RevPARgrowth every year since our acquisition of this portfolio. Both the Copthorneand Kingsgate brands saw improvements in RevPAR this year. There was a marginaldecline in the Millennium portfolio due to the loss of a key leisure contract atthe Millennium Queenstown, but we expect a return to positive growth during2006. CURRENT TRADING Whilst the early part of the year is not a significant trading period in thecontext of the overall Group performance, trading in our main regions continuesto be in line with the positive trends of 2005. In the period to 14 February2006 the Group RevPAR increased by 9.4% compared to the corresponding period in2005. Looking to the future, we believe that our established ability to combine ouroperating and real estate strengths gives us a real competitive edge. We willuse this advantage to deliver enhanced shareholder value. FINANCIAL REVIEW Operating results The overall results and trading performance are discussed by the Chairman in theabove paragraphs. IFRS The financial information presented in this preliminary announcement has beenprepared in accordance with International Financial Reporting Standards adoptedfor use in the European Union ('IFRS'). IFRS1, 'First-time Adoption ofInternational Financial Reporting Standards' has been applied in preparing thesefinancial statements. These are the first full year consolidated financialstatements that the Group has prepared in accordance with IFRS. Consolidated financial statements of the Group had been prepared until 31December 2004 in accordance with UK Generally Accepted Accounting Principles ('UK GAAP'), which differ in certain respects from IFRS. The Group's revisedaccounting policies for 2005 under IFRS are set out in Appendix (A). The 2004comparative figures have been restated and an explanation and a reconciliationof the adjustments arising, which principally relate to revaluations, deferredtaxation and employee benefits, are set out in Appendix (B). Valuations of assets Interim IFRS financial information published by the Group during 2005 hadapplied an accounting policy of on-going revaluation of hotel land andbuildings, which was consistent with the former UK GAAP accounting policy.Subsequently, for better industry comparability, this policy has been revisedand now, under the transition provisions of IFRS 1, the Group states land andbuildings which were previously revalued under UK GAAP at depreciated deemedcost. This is their UK GAAP carrying value, including revaluations, as at 1January 2004 less subsequent depreciation or provision for impairment. Norevaluation surpluses or deficits will be recorded after 1 January 2004. Allother fixed assets are stated at cost less depreciation and any provision forimpairment. External professional open market valuations were undertaken at 31 December 2004and 31 December 2005 in respect of hotel land and buildings. In 2005 twentyfour hotels were subject to valuation and twenty one hotels were valued in 2004.Based on these valuations, together with such adjustments as the Directorsconsider appropriate, a valuation surplus of £62.4m is estimated. Of this,£11.5m was reported in 2004 in respect of group hotels and a further £50.9muplift is estimated for 2005. In addition, £17.5m in respect of the Group'sshare of valuation surpluses for joint venture hotels, all reported in 2004, isestimated. Under the Group's IFRS accounting policy for hotel land andbuildings described above, these valuation surpluses have not been recordedwithin the financial statements. If the Group were to incorporate valuations in the accounts, the revalued amountof property, plant and equipment and lease premium prepayments would rise to£2,086.6m from £2,024.2m and the value of the investments in joint ventureswould increase to £46.5m from £29.0m. Asset disposals The Group made a net profit on asset sales in Australasia of £9.6m. In December the Group took possession of the Wynfield Inn, Westwood in Floridadue to loan payment default. This property had been sold by way of a loan noteas part of the disposal programme following the Regal acquisition. The hotelonly traded for two weeks under our control and the operating statistics havenot been included in the results. Cash flow and capital expenditure The Group's operating net cash inflow for 2005 was £116.1m compared with £122.8mfor 2004. Net capital expenditure was £4.7m, comprising maintenance capital of£39.2m and £34.5m disposal proceeds, principally from the sale of assets inAustralasia. Net interest paid was £29.3m, and tax payments totalled £13.1m.Equity dividend payments totalled £31.5m including the special dividend approvedin 2005. Millenium Hilton New York In the first quarter we announced the successful conclusion of negotiations inthe settlement of the 11 September 2001 Business Interruption/Property damageinsurance claim for US$85.0m at the Millenium Hilton Hotel in New York. Thefinal proceeds received in 2005 of US$25.0m (£12.8m) are disclosed within otheroperating income. As announced in October 2005 the Group filed a legal action against itsinsurance advisor. The action seeks damages in excess of US$45m on variousgrounds relating to damages and business interruption losses at its other UShotel properties resulting from the terrorist attack on 11 September 2001. Financing and gearing At 31 December 2005 net debt was £480.4m (2004: £483.0m) representing a gearingof 38.4% (2004: 42.1%). The Group has sufficient capacity to finance growth with£98.4m of undrawn and committed facilities which will be enhanced by future cashgeneration from the Group's activities. Finance income and expense Interest receivable and similar income was £6.7m (2004: £5.8m). Total interestexpense was £35.8m (2004: £41.5m). The principal reason for the reduction is therefinancing of US debt. The net finance cost for the year was £29.1m (2004: £35.7m), which was covered3.4 times (2004: 2.4 times) by Group operating profit before other operatingincome and impairment. Taxation The tax charge for the Group is £26.0m (2004: £31.4m) which, excluding theGroup's share of profit of joint ventures and associates of £3.5m (2004: £1.7m),represents a blended tax rate of 28.2% (2004: 35.2%). Changes in regional profitmix, the level of other financial income and expense, and adjustments for prioryears can give rise to marked variations in the Group's effective rate. Pensions The Group's major defined benefit plans are those operated in the UK, Korea andTaiwan. The UK plan is closed to new entrants. The Group's net defined benefitplans balance sheet liability increased in the year by £2.7m to £16.0m. Most ofthe increase was due to the UK plan with a £4.0m charge to equity which haslargely risen from a change in assumption on mortality rates. This reflects anindustry-wide recognition that mortality rates have reduced. Earnings and dividend The total basic earnings per share rose by 3.4p to 21.3p, an increase of 19%. An interim dividend of 2.08p per share was paid and charged in the 2005 accountsin October 2005 (2004: 2.08p). A final dividend of 5.62p per share is proposedfor 2005 and will be charged in the 2006 accounts. The final dividend of 4.17pper share relating to 2004 was paid for and charged in the 2005 accounts. Afinal 2004 special dividend of 6.25p per share in respect of exceptional profitswas paid for and charged in the 2005 accounts. In respect of dividends paid in 2005 the Group offered shareholders the right toa scrip dividend. This resulted in dividend cash payments in 2005 of £31.5m(2004: £3.0m) out of total dividends of £35.7m (2004: £11.7m). The balance of£4.2m (2004: £8.7m) was credited to reserves on issue of the related sharecapital. The Group will again be offering shareholders the option of a scripdividend. Consolidated income statementFor the year ended 31 December 2005 Notes 2005 2004 £m £m Revenue 1 595.2 551.0 Cost of sales (259.1) (246.2) ________ _______ Gross profit 336.1 304.8 Administrative expenses 2 (243.0) (234.8) Other operating income 3 28.3 55.0 ________ _______Group operating profit 121.4 125.0 Analysed between: ________ _______Group operating profit before other operating income andimpairment 99.6 85.2 Other operating income 3 28.3 55.0 Impairment 2 (6.5) (15.2) ________ _______ Share of profit of joint ventures and associates 121.4 125.0 ________ _______Operating profit 8.5 7.8 Interest (1.3) (3.2) Taxation (1.4) (0.8) Minority interests (2.3) (2.1) ________ _______ 3.5 1.7Finance income 4 6.7 5.8Finance expense 4 (35.8) (41.5) ________ _______Profit before tax 95.8 91.0Income tax expense 5 (26.0) (31.4) ________ _______Profit for the year 69.8 59.6 ======= ======= Attributable to:Equity holders of the parent 61.1 50.9Minority interests 8.7 8.7 ________ _______ 69.8 59.6 ======= ======= Basic earnings per share (pence) 7 21.3 17.9Diluted earnings per share (pence) 7 21.2 17.8 Consolidated statement of recognised income and expenseFor the year ended 31 December 2005 2005 2004 £m £mForeign exchange translation differences 79.8 (45.6)Cash flow hedges: amounts recycled to income statement 4.0 -Actuarial gains and losses arising in respect of defined benefit (2.4) (3.3)pension schemesTaxation credit arising on defined benefit pension plans 0.6 1.0 ________ _______Income and expense recognised directly in equity 82.0 (47.9)Profit for the year 69.8 59.6 ________ _______Total recognised income and expense for the year 151.8 11.7 ________ _______First-time adoption of IAS 39 and IAS 32:Hedging reserve (4.0) -Retained earnings (1.4) - ________ _______ (5.4) - ________ _______Total 146.4 11.7 ======= ======= Attributable to:Equity holders of the parent 137.0 7.9Minority interests 14.8 3.8 ________ _______Total recognised income and expense for the year 151.8 11.7 ======= ======= Consolidated balance sheetFor the year ended 31 December 2005 2005 2004 £m £mNon-current assetsProperty, plant and equipment 1,943.4 1,818.2Lease premium prepayment 80.8 80.5Investment properties 48.0 43.7Investments in joint ventures and associates 29.0 23.0Loans due from joint ventures and associates 26.3 22.3Other financial assets 2.2 2.8 ________ _______ 2,129.7 1,990.5Current assets ________ _______ Assets held for sale - 14.5Inventories 4.4 3.9Development properties 48.5 32.3Lease premium prepayment 1.0 1.0Trade and other receivables 53.2 49.8Other financial assets 5.9 4.1Cash and cash equivalents 104.6 90.7 ________ _______ 217.6 196.3 ________ _______Total assets 2,347.3 2,186.8 ________ _______Non-current liabilitiesInterest-bearing loans bonds and borrowings (530.1) (248.0)Employee benefits (16.0) (13.3)Provisions (1.6) (2.0)Other non-current liabilities (6.8) (6.7)Deferred tax liabilities (239.9) (208.1) ________ _______ (794.4) (478.1) ________ _______Current liabilitiesInterest-bearing loans, bonds and borrowings (54.9) (325.7)Trade and other payables (100.3) (99.0)Provisions (0.4) (0.4)Income taxes payable (19.5) (22.6) ________ _______ (175.1) (447.7) ________ _______Total liabilities (969.5) (925.8) ________ _______Net assets 1,377.8 1,261.0 ======= =======Equity ________ _______Total equity attributable to equity holders of the 1,250.3 1,146.2parentMinority interests 127.5 114.8 ________ _______Total equity 1,377.8 1,261.0 ======= ======= Consolidated statement of cash flowsFor the year ended 31 December 2005 2005 2004 £m £mCash flows from operating activitiesProfit for the year 69.8 59.6Adjustments for:Depreciation and amortisation 36.4 37.1Property, plant and equipment written off - 0.2Share of profit of joint ventures and associates (3.5) (1.7)Impairment for property, plant and equipment 6.5 15.2Profit on sale of property, plant and equipment (9.6) (3.2)Revaluation of investment properties (5.9) -Gain on sale of joint venture - (51.8)Employee stock options 0.7 0.4Finance income (6.7) (5.8)Finance expense 35.8 41.5Income tax expense 26.0 31.4 ________ _______Operating profit before changes in working capital and 149.5 122.9provisionsIncrease in inventories, trade and other receivables (19.3) (6.9)(Increase)/decrease in development properties (17.6) 2.4Increase in trade and other payables 3.9 4.0(Decrease)/increase in provisions and employee benefits (0.4) 0.4 ________ _______Cash generated from operations 116.1 122.8Interest paid (35.4) (41.0)Interest received 6.1 5.5Income taxes paid (13.1) (10.5) ________ _______ Net cash from operating activities 73.7 76.8 ________ _______ Cash flows from investing activitiesProceeds from sale of property, plant and equipment 34.5 45.1Change in financial assets (1.8) 0.3Proceeds from disposal of joint venture 6.5 90.8Acquisition of property, plant and equipment (39.2) (25.4) ________ _______Net cash from investing activities - 110.8 ________ _______Balance carried forward 73.7 187.6 ________ _______ Consolidated statement of cash flows (continued)For the year ended 31 December 2005 2005 2004 £m £mBalance brought forward 73.7 187.6Cash flows from financing activitiesProceeds from the issue of share capital 2.0 1.4Purchase of shares from minority interests - (5.9)Repayment of borrowings (419.0) (396.9)Drawdown of borrowings 387.0 273.1Payment of finance lease obligations (1.8) (1.6)Loan arrangement fees (1.3) (0.6)Dividends paid to minorities (2.3) (1.6)Dividends paid (31.5) (3.0) ________ _______Net cash from financing activities (66.9) (135.1) ________ _______ Net increase in cash and cash equivalents 6.8 52.5Cash and cash equivalents at beginning of year 89.8 39.6Effect of exchange rate fluctuations on cash held 7.1 (2.3) ________ _______Cash and cash equivalents at end of year 103.7 89.8 ====== ====== Reconciliation of cash and cash equivalentsCash and cash equivalents shown in the balance sheet 104.6 90.7Overdraft bank accounts included in borrowings (0.9) (0.9) ________ _______Cash and cash equivalents for cash flow statement purposes 103.7 89.8 ======= ======= Notes to the preliminary announcement 1) Segmental analysis Business segments (primary) Hotel Property Central Total operations costs Group 2005 2005 2005 2005 £m £m £m £mRevenue 580.7 14.5 - 595.2 _______ _______ _______ _______Gross operating profit 200.0 6.7 - 206.7 Depreciation (35.4) - - (35.4) Amortisation of lease prepayments (1.0) - - (1.0) Other hotel fixed charges* (56.9) - - (56.9) _______ _______ _______ _______Profit before central costs 106.7 6.7 - 113.4 Central costs - - (13.8) (13.8) _______ _______ _______ _______Group operating profit before other operating 106.7 6.7 (13.8) 99.6income and impairment Other operating income 12.8 15.5 - 28.3 Impairment (6.5) - - (6.5) Share of profit of joint ventures and associates 3.5 - - 3.5 _______ _______ _______ _______Profit before financing 116.5 22.2 (13.8) 124.9 _______ _______ _______Net financing costs (29.1) _______Profit before tax 95.8 ====== Geographical segments (secondary) New York Regional US London Rest of Asia Australasia Central Total Europe costs Group 2005 2005 2005 2005 2005 2005 2005 2005 £m £m £m £m £m £m £m £mRevenueHotel 91.2 112.8 78.7 97.7 151.7 48.6 - 580.7 Property operations - 2.6 - - 1.4 10.5 - 14.5 ______ ______ ______ ______ ______ ______ ______ ______Total 91.2 115.4 78.7 97.7 153.1 59.1 - 595.2 ====== ====== ====== ====== ====== ====== ====== ======Hotel gross operating 31.2 23.5 38.1 31.1 55.7 20.4 - 200.0profit Hotel fixed charges (14.2) (18.5) (13.5) (17.0) (20.7) (9.4) - (93.3) ______ ______ ______ ______ ______ ______ ______ ______Hotel operating profit 17.0 5.0 24.6 14.1 35.0 11.0 - 106.7 Property operations - 0.6 - - 0.8 5.3 - 6.7operating profit ______ ______ ______ ______ ______ ______ ______ ______Profit before central 17.0 5.6 24.6 14.1 35.8 16.3 - 113.4costs Central costs - - - - - - (13.8) (13.8) ______ ______ ______ ______ ______ ______ ______ ______Group operating profit 17.0 5.6 24.6 14.1 35.8 16.3 (13.8) 99.6before other operating income and impairmentOther operating income 12.8 5.9 - - - 9.6 - 28.3 Impairment - - - (6.5) - - - (6.5) Share of profit of joint - - - - 3.5 - - 3.5venturesand associates ______ ______ ______ ______ ______ ______ ______ ______Profit before financing 29.8 11.5 24.6 7.6 39.3 25.9 (13.8) 124.9 ______ ______ ______ ______ ______ ______ ______Net financing costs (29.1) ______Profit before tax 95.8 ===== *'Other hotel fixed charges' include property rent, taxes and insurance,operating lease rentals and management fees. There are no inter-segment sales. Revenue by origin is not significantlydifferent from revenue by destination. 1) Segmental analysis (continued) Business segments (primary) Hotel Property Central Total operations costs Group 2004 2004 2004 2004 £m £m £m £mRevenue 529.6 21.4 - 551.0 ======= ======= ======= =======Gross operating profit 177.8 10.3 - 188.1 Depreciation (35.9) - - (35.9) Amortisation of lease prepayments (1.2) - - (1.2) Other hotel fixed charges (53.3) - - (53.3) _______ _______ _______ _______Profit before central costs 87.4 10.3 - 97.7 Central costs - - (12.5) (12.5) _______ _______ _______ _______Group operating profit before other 87.4 10.3 (12.5) 85.2operatingincome and impairment Other operating income 51.8 3.2 - 55.0 Impairment (15.2) - - (15.2) Share of profit of joint ventures and 1.7 - - 1.7associates _______ _______ _______ _______Profit before financing 125.7 13.5 (12.5) 126.7 _______ _______ _______Net financing costs (35.7) _______Profit before tax 91.0 ======= Geographical segments (secondary) New York Regional London Rest of Asia Australasia Central Total US Europe costs Group 2004 2004 2004 2004 2004 2004 2004 2004 £m £m £m £m £m £m £m £mRevenueHotel 77.6 100.7 77.2 93.0 136.6 44.5 - 529.6 Property operations - 2.5 - - 1.4 17.5 - 21.4 _______ _______ _______ _______ _______ _______ _______ _______Total 77.6 103.2 77.2 93.0 138.0 62.0 - 551.0 ====== ====== ====== ====== ====== ====== ====== ======Hotel gross operating 22.4 21.1 39.5 27.9 48.4 18.5 - 177.8profit Hotel fixed charges (12.3) (17.0) (13.6) (17.3) (21.5) (8.7) - (90.4) _______ _______ _______ _______ _______ _______ _______ _______Hotel operating profit 10.1 4.1 25.9 10.6 26.9 9.8 - 87.4 Property operations - 0.6 - - 0.8 8.9 - 10.3operating profit _______ _______ _______ _______ _______ _______ _______ _______Profit before central 10.1 4.7 25.9 10.6 27.7 18.7 - 97.7costs Central costs - - - - - - (12.5) (12.5) _______ _______ _______ _______ _______ _______ _______ _______Group operating profit 10.1 4.7 25.9 10.6 27.7 18.7 (12.5) 85.2before other operating income and impairment Other operating income 51.8 - - - 0.5 2.7 - 55.0 Impairment - (15.2) - - - - - (15.2) Share of profit of joint (2.3) - - - 4.0 - - 1.7ventures and associates _______ _______ _______ _______ _______ _______ _______ _______Profit before financing 59.6 (10.5) 25.9 10.6 32.2 21.4 (12.5) 126.7 _______ _______ _______ _______ _______ _______ _______Net financing costs (35.7) ______Profit before tax 91.0 ====== 2) Administrative expenses The following item is included within administrative expenses: 2005 2004 £m £m _______ _______Impairment on hotel properties 6.5 15.2 ======= ======= The properties are annually reviewed for indications of impairment andappropriate charges made where their value is less than the current carryingvalues. In 2005 the impairment related to one European region hotel whereas in2004 it related to five US hotel properties. 3) Other operating income 2005 2004 Notes £m £mFair value adjustments of investment property (a) 5.9 -Business interruption insurance proceeds (b) 12.8 -Gain on disposal of joint venture (c) - 51.8Net gain on disposal of property, plant and (d) 9.6 3.2equipment ______ ______ 28.3 55.0 (a) At the end of 2005, the Group's investment properties consisting of theKings Tanglin Shopping Centre in Singapore and the Biltmore Court & Tower, LosAngeles were subject to external professional valuation on an open marketexisting use basis. The Kings Tanglin Shopping Centre was valued at its carryingvalue and the Court & Tower recorded uplift in value of £5.9m which has beencredited to the income statement in accordance with the Group's accountingpolicy. No surplus or deficit arose on the valuations undertaken in 2004. (b) In March 2005, the Group settled the 11 September 2001 businessinterruption/property damage insurance claim regarding the Millenium Hilton forUS$85.0m. The final proceeds received in 2005 of US$25.0m (£12.8m) have beencredited to the income statement. (c) The gain on disposal of joint venture in 2004 related to The PlazaHotel, New York. (d) The net gains on property disposal in 2004 and 2005 arise principallyon assets in Australasia. 4) Finance income and expense 2005 2004 £m £mInterest income 3.4 2.0Interest receivable from joint ventures 0.1 0.5Foreign exchange gain 3.2 3.3 _______ _______Finance income 6.7 5.8 _______ _______ Interest expense (32.6) (38.3)Foreign exchange loss (3.2) (3.2) _______ _______Finance expense (35.8) (41.5) ======= ======= 5) Income tax expense 2005 2004 £m £mCurrent tax expenseCurrent year 16.7 27.4Adjustments for prior years (8.5) (3.1) _______ _______ 8.2 24.3 _______ _______Deferred tax expenseOrigination and reversal of temporary differences 11.5 (22.1)Increase/(reduction) in tax rate 2.5 (1.1)Benefits of tax losses recognised 1.5 30.3Under provision in respect of prior years 2.3 - _______ _______ 17.8 7.1 _______ _______Total income tax expense in income statement 26.0 31.4 ======= ======= 2005 2005 2004 2004 % £m % £mProfit before tax in income statement 95.8 91.0Less share of profit in joint ventures and associates (3.5) (1.7) ______ ______ ______ _______Profit on ordinary activities excluding share of joint 92.3 89.3ventures and associates ______ ______ ______ _______Income tax on ordinary activities at the standard rate of UK 30.0 27.7 30.0 26.8tax of 30% (2004: 30%)Permanent differences (2.9) (2.7) (5.2) (4.6)Non-utilisation of tax losses arising in the year 0.3 0.3 1.5 1.3Utilisation of brought forward tax losses (0.7) (0.7) (1.3) (1.2)Higher rates on overseas earnings 1.7 1.6 1.5 1.3Overseas tax suffered 1.6 1.5 13.4 12.0Effect of change in tax rates on opening deferred taxes 2.7 2.5 (1.2) (1.1)Adjustment to tax charge in respect of prior years (6.7) (6.2) (3.5) (3.1)Unrecognised deferred tax assets 2.2 2.0 - - ______ ______ ______ _______ 28.2 26.0 35.2 31.4 ===== ====== ====== ======= 6) Dividends 2005 2004 2005 2004 pence pence £m £mFinal ordinary dividend paid for 2004 of 4.17p (2004: for 4.17 2.05 11.9 5.82003 - 2.05p)Final special dividend paid for 2004 of 6.25p (2004: for 6.25 - 17.9 -2003 - nil)Interim dividend paid for 2005 2.08p (2004: for 2004 2.08p) 2.08 2.08 5.9 5.9 _______ ______ _______ ______ 12.50 4.13 35.7 11.7 After the balance sheet date, the Directors proposed the following ordinarydividends, which have not been provided for: 2005 2004 2005 2004 pence pence £m £mFinal ordinary dividend paid for 2005 of 5.62p (2004: for 5.62 4.17 16.2 11.92004 - 4.17p)Final special dividend paid for 2005 of nil (2004: for 2004 - 6.25 - 17.9- 6.25p) _____ _____ _____ _____ 5.62 10.42 16.2 29.8 _____ _____ _____ _____ An interim dividend of 2.08p per share was paid and charged in the 2005 accountsin October 2005 (2004: 2.08p). A final dividend of 5.62p per share is proposedfor 2005 and will be charged in the 2006 accounts. The final dividend of 4.17pper share relating to 2004 was paid for and charged in the 2005 accounts. Afinal 2004 special dividend of 6.25p per share in respect of exceptional profitswas paid for and charged in the 2005 accounts. In respect of dividends paid in 2005, the Group offered shareholders the optionof a scrip dividend. This resulted in dividend cash payments in 2005 of £31.5m(2004: £3.0m) out of total dividends of £35.7m (2004: £11.7m). The balance of£4.2m (2004: £8.7m) has been credited to reserves on issue of the related sharecapital. The Group will again be offering shareholders the option of a scripdividend. 7) Earnings per share The basic earnings per share are calculated using the following information: - profit for the year attributable to holders of the parent £61.1m (2004:£50.9m) - weighted average number of ordinary shares in issue of 287.0m (2004: 284.5m). In calculating diluted earnings per share, the weighted average number ofordinary shares is adjusted for the effect of all dilutive potential ordinaryshares: 2005 2004 Number of Number of shares sharesWeighted average number of shares issued used in the calculation of basic 287.0 284.5earnings per shareDilutive effect of shares under option that would have been issued for nil value 0.9 0.7 ______ ______Weighted average number of ordinary shares (diluted) 287.9 285.2 ______ ______ Appendix (A) Accounting Policies A Basis of preparation The financial information presented in this preliminary announcement has beenprepared in accordance with International Financial Reporting Standards adoptedfor use in the European Union (IFRS). IFRS 1, 'First-time Adoption ofInternational Financial Reporting Standards' has been applied. The preparation of the financial information in accordance with InternationalFinancial Reporting Standards resulted in changes to the accounting policies ascompared with the 2004 annual financial statements prepared under UK GAAP. Withthe exception of accounting policies in respect of financial instruments, theaccounting policies set out below have been applied consistently to all periodspresented. They also have been applied in preparing an opening IFRS balancesheet at 1 January 2004 for the purposes of the transition to IFRS, as requiredby IFRS 1. The impact of the transition from previous GAAP to IFRS is explainedin Appendix B. The financial information is prepared on the historical cost basis exceptinvestment property and, from 1 January 2005, derivative financial instruments,financial instruments held for trading and financial instruments classified asavailable-for-sale, which are stated at their fair value. Hotel properties arestated at cost or deemed cost. Deemed cost is calculated based on the hotel'scost or valuation as at 1 January 2004. Non-current assets and disposal groupsheld for sale are stated at the lower of carrying amount and fair value lesscosts to sell. The Group has adopted the transitional rules of IAS 32: 'Financial instruments(Disclosures and presentation)' and IAS 39: 'Financial Instruments (Recognitionand measurement)'. The Group has therefore adopted these standards, and therelated accounting policies D and E, only with effect for the current year from1 January 2005 and not within the comparative financial year. A reconciliationshowing the impact of the adoption of these standards from 1 January 2005 is setout in Appendix (B). The Group has adopted IFRS 5 'Non-current assets held for sale and discontinuedoperations' with effect from 1 January 2004. The financial information set out in this preliminary announcement does notconstitute the company's statutory accounts for the years ended 31 December 2005or 2004. Statutory accounts for 2004, which were prepared under UK GAAP, havebeen delivered to the registrar of companies, and those for 2005, prepared underaccounting standards adopted by the EU, will be delivered in due course. Theauditors have reported on those accounts; their reports were (i) unqualified,(ii) did not include references to any matters to which the auditors drewattention by way of emphasis without qualifying their reports and (iii) did notcontain statements under section 237(2) or (3) of the Companies Act 1985. B Basis of consolidation (i) Subsidiaries Subsidiaries are all entities over which the Group has the power, directly orindirectly, to govern the financial and operating policies so as to obtainbenefits from their activities. In assessing control, potential voting rightsthat are presently exercisable or convertible are taken into account. Thefinancial statements of subsidiaries are included in the consolidated financialstatements from the date that control commences until the date that controlceases. (ii) Joint ventures and associates Joint ventures are those entities over whose activities the Group has jointcontrol, established by contractual agreement. Associates are those entities in which the Group has significant influence butnot control over the financial and operating policies. The consolidated financial statements include the Group's share of the totalrecognised gains and losses of joint ventures and associates on an equityaccounted basis, from the date that significant influence or joint controlrespectively commences until the date that it ceases. When the Group's share oflosses exceeds its interest in an associate or joint venture, the Group'scarrying amount is reduced to nil and recognition of further losses isdiscontinued except to the extent that the Group has incurred legal orconstructive obligations or made payments on behalf of an associate. (iii) Transactions eliminated on consolidation Intragroup balances, and any unrealised gains and losses or income and expensesarising from intragroup transactions, are eliminated in preparing theconsolidated financial statements. Unrealised gains arising from transactionswith associates and jointly controlled entities are eliminated to the extent ofthe Group's interest in the entity. Unrealised losses are eliminated in the sameway as unrealised gains, but only to the extent that there is no evidence ofimpairment. C Foreign currency (i) Foreign currency translation Transactions in foreign currencies are translated at the foreign exchange rateruling at the balance sheet date of the transaction. Monetary assets andliabilities denominated in foreign currencies at the balance sheet date aretranslated into sterling at the foreign exchange rate at that date. Foreignexchange differences arising on translation are recognised in the incomestatement. Non-monetary assets and liabilities that are measured in terms ofhistorical cost in a foreign currency are translated at the date of thetransaction. Non-monetary assets and liabilities denominated in foreigncurrencies that are stated at fair value are translated into sterling at foreignexchange rates ruling at the dates the fair value was determined. (ii) Financial statements of foreign operations The assets and liabilities of foreign operations, including fair valueadjustments arising on consolidation, are translated to sterling at foreignexchange rates ruling at the balance sheet date. The revenues and expenses offoreign operations are translated to sterling at rates approximating to theforeign exchange rates ruling at the dates of the transactions. Foreign exchangedifferences arising on retranslation are recognised directly in a separatecomponent of equity. (iii) Net investment in foreign operations Exchange differences arising from the translation of the net investment inforeign operations and of related hedges are taken to translation reserve. Theyare released into the income statement upon disposal. D Derivative financial instruments * The Group uses derivative financial instruments to hedge its exposure to foreignexchange and interest rate risks arising from operational, financing andinvestment activities. In accordance with its treasury policy, the Group doesnot hold or issue derivative financial instruments for trading purposes.However, derivatives that do not qualify for hedge accounting are accounted foras trading instruments. Derivative financial instruments are stated at fair value. The gain or loss onremeasurement to fair value is recognised immediately in the income statement.However, where derivatives qualify for hedge accounting, recognition of anyresultant gain or loss depends on the nature of the item being hedged. The fair value of interest rate swaps is the estimated amount that the Groupwould receive or pay to terminate the swap at the balance sheet date, takinginto account current interest rates and the current creditworthiness of the swapcounterparties. The fair value of forward exchange contracts is their quotedmarket price at the balance sheet date, being the present value of the quotedforward price. E Hedges * (i) Cash flow hedges When a derivative financial instrument is designated as a hedge of thevariability in cash flows of a recognised asset or liability, or a highlyprobable forecasted transaction, the effective part of any gain or loss on thederivative financial instrument is recognised directly in equity. When theforecasted transaction subsequently results in the recognition of anon-financial asset or non-financial liability, the associated cumulative gainor loss is removed from equity and included in the initial cost or othercarrying amount of the non-financial asset or liability. If a hedge of aforecasted transaction subsequently results in the recognition of a financialasset or a financial liability, then the associated gains and losses that wererecognised directly in equity are reclassified into the income statement in thesame period or periods during which the asset acquired or liability assumedaffects profit or loss (when interest income or expense is recognised). For cash flow hedges, other than those covered by the preceding two policystatements, the associated cumulative gain or loss is removed from equity andrecognised in the income statement in the same period or periods during whichthe hedged forecast transaction affects profit or loss. The ineffective part ofany gain or loss is recognised immediately in the income statement. When a hedging instrument expires or is sold, terminated or exercised, or theGroup revokes designation of the hedge relationship but the hedged forecasttransaction still is expected to occur, the cumulative gain or loss at thatpoint remains in equity and is recognised in accordance with the above policywhen the transaction occurs. If the hedged transaction is no longer expected totake place, then the cumulative unrealised gain or loss recognised in equity isrecognised immediately in the income statement. (ii) Hedge of monetary assets and liabilities When a derivative financial instrument is used as an economic hedge of theforeign exchange exposure of a recognised monetary asset or liability, hedgeaccounting is not applied and any gain or loss on the hedging instrument isrecognised in the income statement. (iii) Hedge of net investment in foreign operation The portion of the gain or loss on an instrument used to hedge a net investmentin a foreign operation that is determined to be an effective hedge is recogniseddirectly in equity. The ineffective portion is recognised immediately in theincome statement. * accounting policies D and E have been adopted with effect from 1 January 2005,as set out in section A. F Property, plant, equipment and depreciation Land and buildings are stated at cost (or deemed cost) less depreciation and anyprovision for impairment. All other fixed assets are stated at cost lessdepreciation and any provision for impairment. Any impairment of such propertiesbelow depreciated historical cost is charged to the income statement. Under the transition provisions of IFRS 1, land and buildings which werepreviously revalued under UK GAAP are stated at deemed cost, being their UK GAAPcarrying value, including revaluations, as at 1 January 2004. Freehold land is not depreciated. All other assets are depreciated to theirresidual values on a straight-line basis over their estimated useful lives asfollows:Building core 50 years or lease term if shorterBuilding surface, finishes and services 30 years or lease term if shorterPlant and machinery 15-20 yearsFurniture and equipment 10 yearsSoft furnishings 5-7 yearsComputer equipment 5 yearsMotor vehicles 4 years No residual values are ascribed to building surface finishes and services.Residual values ascribed to building core depend on the nature, location andtenure of each property and are reassessed annually. Capital expenditure on major projects is recorded separately within fixed assetsas capital work in progress. Once the project is complete the balance istransferred to the appropriate fixed asset categories. Capital work in progressis not depreciated. Interest attributable to funds used to finance the construction or acquisitionof new hotels or major extensions to existing hotels is capitalised gross of taxrelief and added to the cost of the hotel core. Operating supplies, which include china, linen, glass and silverware, aretreated as a base stock upon initial hotel opening. Subsequent renewals andreplacements of such stocks are written off as incurred to the income statement. G Leases Assets financed by way of finance leases, which transfer substantially all therisks and rewards of ownership to the Group, are initially recorded at the lowerof fair value and the present value of the minimum lease payments. Theequivalent liability, categorised as appropriate, is included within creditors.Assets are depreciated over the shorter of the lease term and their usefuleconomic lives. Finance charges are allocated to accounting periods over theperiod of the lease to produce constant rates of return on the outstandingbalance. Rentals under operating leases are charged to the income statement on astraight line basis over the lease term. Lease incentives received arerecognised in the income statement as an integral part of the total leaseexpense. On occasion, the Group makes initial payments on entering into long leases ofland and buildings. As leases of land are normally classified as operatingleases if title is not expected to pass, the element of the payment attributableto land is recorded in the balance sheet as prepaid rentals and is charged tothe income statement on a straight line basis over the term of the lease. Wherethe lease is for substantively all of the economic life of the building, thebuilding is recognised on balance sheet as property, plant and equipment andaccounted for in accordance with note F above. H Impairment The carrying amounts of the Group's assets, other than investment property,inventories, employee benefit assets and deferred tax assets are reviewed ateach balance sheet date to determine whether there is any indication ofimpairment. If any such indication exists, the asset's recoverable amount isestimated. The recoverable amount of assets is the greater of their net selling price andvalue in use. In assessing value in use, the estimated future cash flows arediscounted to their present value using a pre-tax discount rate that reflectscurrent market assessments of the time value of money and the risks specific tothe asset. An impairment is recognised in the income statement whenever the carrying amountof an asset or its cash-generating unit exceeds its recoverable amount.Impairments are reversed if there has been a change in the estimates used todetermine the recoverable amount. An impairment is reversed only to the extentthat the asset's carrying amount does not exceed the carrying amount that wouldhave been determined, net of depreciation or amortisation, if no impairment hadbeen recognised. I Investment properties Investment properties are properties which are held either to earn rental incomeor for capital appreciation or both. Investment properties are stated at fairvalue. An external, independent valuation company, having an appropriate recognisedprofessional qualification and recent experience in the location and category ofthe property being valued, values the portfolio annually. The fair values arebased on market values, being the estimated amount for which a property could beexchanged on the date of valuation between a willing buyer and a willing sellerin an arm's length transaction after proper marketing wherein the parties hadeach acted knowledgeably, prudently and without compulsion. J Inventories Inventories are recorded at the lower of cost and net realisable value. Netrealisable value is the estimated selling price in the ordinary course ofbusiness, less the estimated costs of completion and selling expenses. K Development properties Development properties are stated at the lower of cost and net realisable value.The cost of development properties includes interest and other relatedexpenditure incurred in order to get the asset ready for its intended use. L Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits with anoriginal maturity of three months or less. Bank overdrafts that are repayable ondemand and form an integral part of the Group's cash management are included asa component of cash and cash equivalents for the purpose of the statement ofcash flows. M Borrowings Borrowings are recognised initially at fair value, net of transaction costsincurred. Borrowings are subsequently stated at amortised cost: any differencebetween proceeds (net of transaction costs) and the redemption value isrecognised in the income statement over the period of the borrowings using theeffective interest method. N Income tax Income tax on profit or loss comprises current and deferred tax. Income tax isrecognised in the income statement except to the extent that it relates to itemsrecognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year,using tax rates enacted or substantially enacted at the balance sheet date, andany adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing fortemporary differences between the carrying amounts of assets and liabilities forfinancial reporting purposes and the amounts used for taxation purposes. Thefollowing temporary differences are not provided for: the initial recognition ofassets or liabilities that affect neither accounting nor taxable profit; anddifferences relating to investments in subsidiaries to the extent that they arenot expected to reverse in the foreseeable future. The amount of deferred taxprovided is based on the expected manner or realisation or settlement of thecarrying amount of assets and liabilities, using tax rates enacted orsubstantially enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable thatfuture taxable profits will be available against which the asset can beutilised. Deferred tax assets are reduced to the extent that it is no longerprobable that the benefit will be realised. Deferred tax assets and liabilities are offset only to the extent that: theGroup has a legally enforceable right to offset current tax assets againstcurrent tax liabilities; the Group intends to settle net; and the deferred taxassets and the deferred tax liabilities relate to income taxes levied by thesame taxation authority. O Employee benefits (i) Defined contribution plans Obligations for contributions to defined contribution pension plans arerecognised as an expense in the income statement. (ii) Defined benefit plans The Group's net obligation in respect of defined benefit post-employment plans,including pension plans, is calculated separately for each plan by estimatingthe amount of future benefit that employees have earned in return for theirservice in the current and prior periods. That benefit is discounted todetermine its present value, and the fair value of any plan assets is deducted.The discount rate is the yield at the balance sheet date on AA credit ratedbonds that have maturity dates approximating the terms of the Group'sobligations. The calculation is performed by a qualified actuary using theprojected unit credit method. O Employee benefits (continued) When the benefits of a plan are improved, the portion of the increased benefitrelating to past service by employees is recognised as an expense in the incomestatement on a straight-line basis over the average period until the benefitsbecome vested. To the extent that the benefits vest immediately, the expense isrecognised immediately in the income statement. All actuarial gains and losses at 1 January 2004, the date of transition toIFRS, were recognised. The Group recognises actuarial gains and losses thatarise subsequent to 1 January 2004 within the Consolidated Statement ofRecognised Income and Expense in the period in which they occur. (iii) Long-term service benefits The Group's net obligation in respect of long-term service benefits, other thanpost-employment plans, is the amount of future benefit that employees haveearned in return for their service in the current and prior periods. Theobligation is calculated using the projected unit credit method and isdiscounted to its present value and the fair value of any plan assets isdeducted. The discount rate is the yield at the balance sheet date on AAcredit-rated bonds that have maturity dates approximating to the terms of theGroup's obligations. (iv) Share-based payment transactions The Group's share option programme allows Group employees to acquire shares ofMillennium & Copthorne Hotels plc. The fair value of options granted isrecognised as an employee expense with a corresponding increase in equity. Thefair value is measured at grant date and spread over the period during which theemployees become unconditionally entitled to the options. The fair value of theoptions granted is measured using a stochastic model, taking into account theterms and conditions upon which the options were granted. The amount recognisedas an expense is adjusted to reflect the actual number of share options thatvest except where forfeiture is only due to share prices not achieving thethreshold for vesting. P Provisions A provision is recognised in the balance sheet when the Group has a presentlegal or constructive obligation as a result of a past event, and it is probablethat an outflow of economic benefits will be required to settle the obligation.If the effect is material provisions are determined by discounting the expectedfuture cash flows at a pre-tax rate that reflects current market assessments ofthe time value of money and, when appropriate, the risks specific to theliability. A provision for onerous contracts is recognised when the expectedbenefits to be derived by the Group from a contract are lower than the avoidablecost of meeting its obligations under the contract. Q Revenue and its recognition Revenue comprises: • income from the ownership, management and operation of hotelsrecognised as the related goods and services are provided; • income from investment property rental: recognised on a straight linebasis over lease term, lease incentives granted are recognised as an integralpart of the total rental income; and • land, development property and property sales: recognised when legaltitle transfers provided the related significant risk and rewards of ownershiphave passed by that date. R Dividend distribution Dividends are recognised as a liability in the period in which they are approvedfor payment. S Segment reporting The Group's primary reporting format is two business segments, hotel andproperty operations, with each segment representing a business unit that offersdifferent products or serves different markets. The hotel operations compriseincome from the ownership and management of hotels. Property operations comprisethe development and the sale of land and development properties and investmentproperty rental income. The Group's secondary reporting format is geographic location. The hotel andproperty operations are managed on a worldwide basis and operate in sixprincipal geographical areas; New York, Regional US, London, Rest of Europe,Asia and Australasia. T Non-current assets held for sale Non-current assets are classified as held for sale when their disposal isconsidered highly probable. Immediately before classification as held for sale,the measurement of the assets (and all assets and liabilities in a disposalgroup) is brought up to date in accordance with applicable IFRS. Then on initialclassification as held for sale, non-current assets and disposal groups arerecognised at the lower of carrying value amount and fair value less costs tosell. Impairments on initial classification as held for sale are included in theincome statement, even for assets measured at fair value, as are gains andlosses on subsequent re-measurement. U Other financial assets and liabilities Trade investments are classified as available for sale assets and are includedunder non-current assets within 'other financial assets'. They are recorded atmarket value with movements in value taken to equity. Any impairment to value isrecorded in the income statement. Trade and other receivables are stated at their nominal amount (discounted ifmaterial) less impairments. Trade and other payables are stated at their nominal amount (discounted ifmaterial). Appendix (B) Explanation of transition to International Financial ReportingStandards These are the Group's first consolidated annual financial statements prepared inaccordance with International Financial Reporting Standards adopted for use inthe European Union (IFRS). The accounting policies given in Appendix A have been applied in preparing theconsolidated annual financial statements for the year ended 31 December 2005,the comparative information for the year ended 31 December 2004 and thepreparation of an opening IFRS balance sheet at 1 January 2004 (the Group's dateof transition). First Time Adoption IFRS 1 establishes the transitional requirements for the first time preparationof financial statements in accordance with IFRS. In general, a company isrequired to determine its IFRS accounting policies effective at the reportingdate and apply these retrospectively to the balance sheet at the date oftransition, and all financial statements for the comparative period and thereporting period. To assist in the transition process, there are a number of exemptions to thisretrospective application. The following significant exemptions have beenadopted by the Group: (i) Business combinations: the Group has elected not to account forbusiness combinations retrospectively in accordance with IFRS 3 'BusinessCombinations'. Those combinations recognised prior to the date of transitionhave not been restated. (ii) Employee benefits: the Group has elected to adopt the amendments toIAS 19 'Employee Benefits' which provide the Group with the option ofrecognising all cumulative actuarial gains and losses in equity at the date oftransition, with subsequent actuarial gains and losses being taken directly toequity via the Statement of Recognised Income and Expense. This is consistentwith the treatment under UK GAAP, required by FRS 17 'Retirement benefits'. (iii) Share-based payment: in accordance with IFRS 2 'Share-based Payment',the Group is recognising a charge to income representing the fair value ofoutstanding employee share options over the relevant option vesting periods,adjusted to reflect the actual and expected levels of vesting. However, theGroup has elected not to apply IFRS 2 retrospectively to equity instrumentseither granted on or before 7 November 2002 and/or vesting prior to 1 January2005. (iv) Financial instruments: the Group has elected to apply the requirementsof IAS 32 'Financial Instruments: Disclosures and Presentation' and IAS 39'Financial Instruments: Recognition and Measurement' prospectively from 1January 2005 and consequently the restated figures for 2004 do not reflect theimpact of these standards. (v) Valuation of properties: the Group has elected to treat the revaluedamount of properties at 1 January 2004 as deemed cost as at that date and willnot continue its policy of revaluing properties triennially. Overview of impact For the Group the adoption of IFRS gives rise to the following significantchanges: Measurement (i) the recognition, on balance sheet, of pension liabilities togetherwith associated pension fund assets, and other employee benefit liabilities; (ii) the inclusion in the income statement of a fair value charge inrespect of outstanding employee share options; (iii) the recognition of certain financial instruments at fair value.Specifically under UK GAAP the Group did not recognise derivatives on balancesheet; (iv) the recognition of deferred tax in respect of all taxable temporarydifferences arising between the tax base and the accounting base of balancesheet items; (v) amounts of proposed dividends are not provided for. Dividends arerecorded as liabilities when declared; (vi) the recognition of payments made on entering into or acquiring operatingleasehold land and buildings is required to be amortised over the lease term andclassified as a prepayment versus the UK GAAP treatment of inclusion withintangible fixed assets and the cost less residual value depreciated; (vii) the recognition of investment property valuation surpluses and deficitsthrough the income statement (in other operating income) instead of throughreserves; (viii) revenue in respect of non-hotel land development sales is now recognisedon transfer of legal title and the risks and rewards of ownership, rather thanon unconditional completion of sale; Appendix (B) Explanation of transition to International Financial ReportingStandards First Time Adoption: Overview of impact (continued) (ix) the Group no longer revalues hotel land and buildings from 1 January2004 but records properties at depreciated cost or, where properties have beenpreviously revalued, their depreciated deemed cost, being their carrying valueat 1 January 2004, including previously recognised revaluation surpluses at thatdate. Presentation (i) for joint ventures and associates, the share of equity accountedearnings, after tax and minority interests is presented as a single line item inthe operating result rather than separate inclusion within operating profit,interest, taxation and minority interests; and (ii) the reclassification of the initial payment element of operating leasedland is required to be accounted for as a prepayment instead of being recordedas a tangible fixed asset. An explanation of how the transition from previous UK GAAP to IFRS has affectedthe Group's financial position, financial performance and cash flows is set outin the following tables and the notes that accompany the tables. Table(a) Reconciliation to present the 31 December 2004 UK GAAP consolidated profit and loss account under IFRS format headings(b) Reconciliation to restate the 31 December 2004 consolidated UK GAAP profit and loss account (under IFRS format headings) for IFRS accounting policies(c) Reconciliation to present the 31 December 2004 UK GAAP consolidated balance sheet under IFRS format headings(d) Reconciliation to restate the 31 December 2004 consolidated UK GAAP balance sheet (under IFRS format headings) for IFRS accounting policies(e) Reconciliation to restate the 1 January 2004 consolidated UK GAAP balance sheet for IFRS accounting policies Table (a) Reconciliation to present the 31 December 2004 UK GAAP consolidatedprofit and loss account under IFRS format headings Consolidated Profit and loss account/income statement 2004 2004Classification UK GAAP IFRS UK GAAP reported presentational (IFRS £m reclassifications presentation) £m £m ________ ________ ________ Group turnover / Revenue 547.1 - 547.1Cost of sales (243.8) - (243.8) ________ ________ ________Gross profit 303.3 - 303.3Administrative expenses (232.6) - (232.6) ________ ________ ________Group operating profit / 70.7 - 70.7 Operating profit before other operating incomeOther operating income - 55.0 55.0 ________ ________ ________Share of operating profits of joint ventures 8.0 (8.0) -Total operating profit 78.7 47.0 125.7 ________ ________ ________Share of profit of joint ventures and associates:- operating profit - 8.0 8.0- interest - (3.2) (3.2)- taxation - 2.9 2.9- minority interests - (2.1) (2.1) ________ ________ ________ - 5.6 5.6Profit on disposal of fixed assets 3.2 (3.2) -Profit on disposal of joint venture 51.8 (51.8) - ________ ________ ________Profit before interest and taxation 133.7 (2.4) 131.3 Interest receivable / finance income 5.8 - 5.8Interest payable / finance expense- Group (41.5) - (41.5)- Joint ventures (3.2) 3.2 - ________ ________ ________ Profit before tax 94.8 0.8 95.6 Tax on profit on ordinary activities / Income tax (16.4) (2.9) (19.3) ________ ________ ________Profit on ordinary activities after tax 78.4 (2.1) 76.3Minority interests - equity (8.8) 2.1 (6.7) ________ ________ ________ 69.6 - 69.6Dividends paid and proposed (35.7) 35.7 - ________ ________ ________Retained profit for the financial year 33.9 35.7 69.6 ________ ________ ________Attributable to:Equity holders of the parent 69.6 - 69.6Minority interests 8.8 (2.1) 6.7 ________ ________ ________Profit for the year 78.4 (2.1) 76.3 ________ ________ ________ Table (b) Reconciliation to restate the 31 December 2004 consolidated UK GAAPprofit and loss account (under IFRS format headings) for IFRS accountingpolicies UK Lease New Zealand IFRS GAAP premium land bank Employee Share Deferred pre sales benefits based taxes payment payments £m £m £m £m £m £m £m ______ ______ ______ ______ ______ ______ ______ Note (i) (iv) (vi) (vii) (viii) Revenue 547.1 - 3.9 - - - 551.0 Cost of sales (243.8) - (2.4) - - - (246.2) ______ ______ ______ ______ ______ ______ ______ Gross profit 303.3 - 1.5 - - - 304.8 Administrative expenses (232.6) (1.2) (0.2) (0.4) (0.4) - (234.8) Other operating income 55.0 - - - - - 55.0 ______ ______ ______ ______ ______ ______ ______ Operating profit 125.7 (1.2) 1.3 (0.4) (0.4) - 125.0 Share of profit of jointventuresand associates ______ ______ ______ ______ ______ ______ ______- operating profit 8.0 (0.2) - - - - 7.8- interest (3.2) - - - - - (3.2)- taxation 2.9 - - - - (3.7) (0.8)- minority interests (2.1) - - - - - (2.1) ______ ______ ______ ______ ______ ______ ______ 5.6 (0.2) - - - (3.7) 1.7 Finance income 5.8 - - - - - 5.8Finance expense (41.5) - - - - - (41.5) ______ ______ ______ ______ ______ ______ ______Profit before tax 95.6 (1.4) 1.3 (0.4) (0.4) (3.7) 91.0 Income tax expense (19.3) - (0.5) - - (11.6) (31.4) ______ ______ ______ ______ ______ ______ ______Profit for the year 76.3 (1.4) 0.8 (0.4) (0.4) (15.3) 59.6 ______ ______ ______ ______ ______ ______ ______ Attributable to:Equity holders of the 69.6 (1.3) 0.4 (0.4) (0.4) (17.0) 50.9parentMinority interests 6.7 (0.1) 0.4 - - 1.7 8.7 ______ ______ ______ ______ ______ ______ ______Profit for the year 76.3 (1.4) 0.8 (0.4) (0.4) (15.3) 59.6 ______ ______ ______ ______ ______ ______ ______Basic earnings per share 24.5 17.9(pence)Diluted earnings per share 24.4 17.8(pence) Table (c) Reconciliation to present the 31 December 2004 UK GAAP consolidatedbalance sheet under IFRS format headings 2004 2004 UK GAAP IFRS UK GAAPClassification Reported presentational IFRS presentation reclassifications £m £m £m ________ ________ ________Fixed assets / Non-current assetsTangible assets / Property, plant and equipment 1,970.6 (140.9) 1,829.7Lease premium prepayment - 81.7 81.7Investment properties - 43.7 43.7Investments in joint ventures / associates 40.3 0.4 40.7Loans to joint ventures 22.3 - 22.3Investment in associated undertakings 0.4 (0.4) -Other investments / Other financial assets 0.8 2.0 2.8 ________ ________ ________ 2,034.4 (13.5) 2,020.9 ________ ________ ________Current assetsAssets held for sale - 14.5 14.5Stocks / Inventories 36.0 (32.1) 3.9Development properties - 32.1 32.1Lease premium prepayment - 1.0 1.0Debtors due within one year / Trade and other 50.4 - 50.4receivablesDebtors due after more than one year 2.0 (2.0) -Other financial assets - 4.1 4.1Cash and short term deposits / Cash and cash 94.8 (4.1) 90.7equivalents ________ ________ ________ 183.2 13.5 196.7 ________ ________ ________Creditors: less than one year / Current liabilities (477.2) 477.2 -Interest-bearing loans, bonds and borrowings - (325.7) (325.7)Trade and other payables - (128.8) (128.8)Provisions - (0.4) (0.4)Income taxes payable - (22.7) (22.7) ________ ________ ________ (477.2) (0.4) (477.6) ________ ________ ________Creditors: greater than one year / Non-current (258.6) 258.6 -liabilitiesInterest-bearing loans, bonds and borrowings - (248.0) (248.0)Employee benefits - (3.9) (3.9)Provisions - (2.0) (2.0)Other non-current liabilities - (6.7) (6.7)Deferred tax liabilities - (51.9) (51.9) ________ ________ ________ (258.6) (53.9) (312.5) ________ ________ ________Provisions for liabilities and charges (54.3) 54.3 - ________ ________ ________Net assets 1,427.5 - 1,427.5 ________ ________ ________Capital and reservesCalled up share capital 85.9 - 85.9Share premium account 846.1 - 846.1Revaluation reserve 287.9 - 287.9Profit and loss account 77.5 - 77.5 ________ ________ ________Shareholders' funds 1,297.4 - 1,297.4Minority interests - equity 130.1 - 130.1 ________ ________ ________Total capital employed 1,427.5 - 1,427.5 ________ ________ ________ Table (d) Reconciliation to restate the 31 December 2004 consolidated UK GAAPbalance sheet (under IFRS format headings) for IFRS accounting policies Property, plant, New equipment Lease Zealand and premium Land investment Reclassification UK pre bank Employee Deferred in joint of GAAP payment sales benefits taxes ventures Dividend reserves IFRS £m £m £m £m £m £m £m £m £m ______ ______ ______ ______ ______ ______ ______ ______ ______ (i) (iv) (vi) (viii) (v) (ix) NoteNon-currentassetsProperty, plant 1,829.7 - - - - (11.5) - - 1,818.2andequipment Lease premium 81.7 (1.2) - - - - - - 80.5 prepaymentInvestment 43.7 - - - - - - - 43.7properties Investments injointventuresand associates 40.7 (0.2) - - - (17.5) - - 23.0 Loans due from 22.3 - - - - - - - 22.3jointventures Other financial 2.8 - - - - - - - 2.8assets ______ ______ ______ ______ ______ ______ ______ ______ ______ 2,020.9 (1.4) - - - (29.0) - - 1,990.5Current assetsAssets held for 14.5 - - - - - - - 14.5sale Inventories 3.9 - - - - - - - 3.9 Development 32.1 - 0.2 - - - - - 32.3properties Lease premium 1.0 - - - - - - - 1.0prepayment Trade and other 50.4 - (0.6) - - - - - 49.8receivables Other financial 4.1 - - - - - - - 4.1assets Cash and cash 90.7 - - - - - - - 90.7equivalents ______ ______ ______ ______ ______ ______ ______ ______ ______ 196.7 - (0.4) - - - - - 196.3 ______ ______ ______ ______ ______ ______ ______ ______ ______Total assets 2,217.6 (1.4) (0.4) - - (29.0) - - 2,186.8 ______ ______ ______ ______ ______ ______ ______ ______ ______Non-currentliabilitiesInterest-bearingloans,bondsand borrowings (248.0) - - - - - - - (248.0) Employee benefits (3.9) - - (9.4) - - - - (13.3) Provisions (2.0) - - - - - - - (2.0) Other non-current (6.7) - - - - - - - (6.7)liabilities Deferred tax (51.9) - - - (156.2) - - - (208.1)liabilities ______ ______ ______ ______ ______ ______ ______ ______ ______ (312.5) - - (9.4) (156.2) - - - (478.1) ______ ______ ______ ______ ______ ______ ______ ______ ______Currentliabilities Interest-bearingloans,bondsand borrowings (325.7) - - - - - - - (325.7) Trade and other (128.8) - - - - - 29.8 - (99.0)payables Provisions (0.4) - - - - - - - (0.4) Income taxes (22.7) - 0.1 - - - - - (22.6)payable ______ ______ ______ ______ ______ ______ ______ ______ ______ (477.6) - 0.1 - - - 29.8 - (447.7) ______ ______ ______ ______ ______ ______ ______ ______ ______ (790.1) - 0.1 (9.4) (156.2) - - (925.8) Total liabilities 29.8 ______ ______ ______ ______ ______ ______ ______ ______ ______Net assets 1,427.5 (1.4) (0.3) (9.4) (156.2) (29.0) 29.8 - 1,261.0 ______ ______ ______ ______ ______ ______ ______ ______ ______EquityIssued capital 85.9 - - - - - - - 85.9Share premium 846.1 - - - - - - - 846.1Revaluation 287.9 - - - (52.2) (21.4) - (214.3) -reserveTranslation - - - - - - - (40.7) (40.7)reserveRetained earnings 77.5 (1.4) (0.1) (9.2) (96.7) - 29.8 255.0 254.9 ______ ______ ______ ______ ______ ______ ______ ______ ______Total equityattributable toequity holders of 1,297.4 (1.4) (0.1) (9.2) (148.9) (21.4) 29.8 - 1,146.2theparentMinority ______ ______ ______ ______ ______ ______ ______ ______ ______interests Total equity 1,427.5 (1.4) (0.3) (9.4) (156.2) (29.0) 29.8 - 1,261.0 ______ ______ ______ ______ ______ ______ ______ ______ ______ Table (e) Reconciliation to restate the 1 January 2004 consolidated UK GAAPbalance sheet for IFRS accounting policies New Lease Zealand Reclas- UK premium land sification of GAAP pre- bank Employee Deferred revaluation IFRS payment sales benefits taxes Dividend reserves £m £m £m £m £m £m £m £m _______ _______ _______ _______ _______ _______ _______ _______ Note (i) (iv) (vi) (viii) (ix)Non-current assets Property, plant and 2,012.7 (83.5) - - - - - 1,929.2equipment Lease premium - 82.2 - - - - - 82.2prepayment Investment properties 90.3 - - - - - - 90.3 Investments in jointventuresand associates 58.6 - - - (13.0) - - 45.6 Loans due from joint 32.7 - - - - - - 32.7ventures Other financial assets 2.8 - - - - - 2.8 _______ _______ _______ _______ _______ _______ _______ _______ 2,197.1 (1.3) - - (13.0) - - 2,182.8 _______ _______ _______ _______ _______ _______ _______ _______Current assetsAssets held for sale - - - - - - - -Inventories 4.0 - - - - - - 4.0 Development properties 12.0 - 2.6 - - - - 14.6 Lease premium - 1.3 - - - - - 1.3prepayment Trade and other 59.6 - (4.5) - - - - 55.1receivables Other financial assets 4.4 - - - - - - 4.4 Cash and cash 40.5 - - - - - - 40.5equivalents _______ _______ _______ _______ _______ _______ _______ _______ 120.5 1.3 (1.9) - - - - 119.9 _______ _______ _______ _______ _______ _______ _______ _______Total assets 2,317.6 - (1.9) - (13.0) - - 2,302.7 _______ _______ _______ _______ _______ _______ _______ _______Non-current liabilitiesInterest-bearing loans,bondsand borrowings (659.3) - - - - - - (659.3) Employee benefits (4.4) - - (5.7) - - - (10.1)Provisions (2.4) - - - - - - (2.4)Other non-current (7.3) - - - - - - (7.3)liabilitiesDeferred tax liabilities (52.2) - - - (144.7) - - (196.9) _______ _______ _______ _______ _______ _______ _______ _______ (725.6) - - (5.7) (144.7) - - (876.0) _______ _______ _______ _______ _______ _______ _______ _______Current liabilitiesInterest-bearing loans,bondsand borrowings (66.5) - - - - - - (66.5)Trade and other payables (97.5) - 0.2 - - 5.8 - (91.5)Provisions (0.4) - - - - - - (0.4)Income taxes payable (14.2) - 0.6 - - - - (13.6) _______ _______ _______ _______ _______ _______ _______ _______ (178.6) - 0.8 - - 5.8 - (172.0) _______ _______ _______ _______ _______ _______ _______ _______Total liabilities (904.2) - 0.8 (5.7) (144.7) 5.8 - (1,048.0) _______ _______ _______ _______ _______ _______ _______ _______Net assets 1,413.4 - (1.1) (5.7) (157.7) 5.8 - 1,254.7 _______ _______ _______ _______ _______ _______ _______ _______EquityIssued capital 84.8 - - - - - - 84.8Share premium 845.8 - - - - - - 845.8Revaluation reserve 296.4 8.2 - - (57.3) - (247.3) -Retained earnings 59.5 (8.2) (0.5) (5.6) (91.4) 5.8 247.3 206.9 Total equity _______ _______ _______ _______ _______ _______ _______ _______attributable toequity holders of the 1,286.5 - (0.5) (5.6) (148.7) 5.8 - 1,137.5parentMinority interests 126.9 - (0.6) (0.1) (9.0) - - 117.2 _______ _______ _______ _______ _______ _______ _______ _______Total equity 1,413.4 - (1.1) (5.7) (157.7) 5.8 - 1,254.7 _______ _______ _______ _______ _______ _______ _______ _______ Notes to tables (a) to (e) (i) Lease premium prepayment The Group has adopted the requirements of IAS 17: 'Leases'. IAS 17 requires alease of land and buildings to be considered separately between its land andbuilding constituent parts. Land is only able to be treated as a tangible fixedasset, held under finance lease, where it is considered likely that the Groupwill obtain title to the land during or at the end of the lease term. The Group holds a number of hotels under long leases where land title is notanticipated to pass to the Group under the terms of the lease. In respect ofthese leases, under UK GAAP, payment made on entering into or acquiringleasehold land and buildings was previously included within tangible fixedassets and the cost less residual value was depreciated over the shorter of itslease length and useful economic life. Under IFRS, the initial payment made in respect of the operating leased land andbuildings is required to be accounted for as a prepayment and amortised in fullover the lease term in accordance with the pattern of benefits provided. This change in accounting policy has been adopted retrospectively to the date oflease acquisition by the Group. Retained reserves at 1 January 2004 have beendebited by £7.5m (Group) and £0.7m (joint venture) accumulated amortisationwhich would have been charged to that date, in excess of depreciation previouslycharged under UK GAAP. This has not impacted total equity as an equal credit hasbeen recorded to the revaluation reserve at 31 December 2003 to reflect how theGroup's total interest in the hotel property is carried at valuation and inaggregate, should be maintained at the level of the most recent externalvaluation recorded. This change in accounting policy has increased the annual amortisation charge inrespect of leasehold land by £1.2m. Long leasehold buildings lease premium continue to be accounted for as tangiblefixed assets where the Group holds the asset for substantially all of its usefuleconomic life. (ii) Investment property The Group has adopted IAS 40: 'Investment Property'. IAS 40 is consistent withthe Group's previous accounting policy of revaluing investment propertiesannually. The principal change under IFRS is that valuation surpluses anddeficits arising are required to be recorded in the income statement (otheroperating income) under IAS 40. Under UK GAAP, such surpluses and deficits wererecorded directly within reserves. However, this change of accounting policy did not impact the 2004 incomestatement as no investment property valuation movements were recorded in thatyear. (iii) Assets held for sale The Group applied IFRS 5 retrospectively from 1 January 2004 in respect ofassets held for sale. No adjustments were necessary in order to state assets atthe lower of cost and fair value less disposal costs. (iv) Real estate and land development sales On adoption of IAS 18, the Group changed the timing of revenue recognition inrespect of its non-hotel land development sales. Revenue in respect of thesesales is now recognised on the transfer of legal title and of the risks andrewards of ownership (previously on completion of sale). Operating profit for the year ended 31 December 2004 was increased by £1.3m. Total equity at 1 January 2004 and 31 December 2004 has been reduced by £1.1mand £0.3m respectively. (v) Property, plant and equipment and investment in joint ventures andassociates On adoption of IAS 16, the Group changed the policy of triennial valuations onits portfolio of hotel operating assets. Under the transition rules of IFRS 1,the Group has elected to use previous UK GAAP carrying values at 1 January 2004,including revaluations, as deemed cost at transition. Adoption of this policyhas resulted in reversing the effect of surpluses previously capitalised during2004. Property, plant and equipment has reduced by £11.5m and reversal of theGroup's share of revaluation of property, plant and equipment within investmentsin joint ventures and associates has reduced that investment by £17.5m. Notes to tables (a) to (e) (continued) (vi) Employee benefits IAS 19: 'Employee benefits' requires full recognition of defined benefit pensionobligations in the financial statements. Under UK GAAP, the Group recognised inthe profit and loss account the estimated cost of providing the pensionablebenefits accrued in the period. Variations from these costs were charged orcredited to the profit and loss account over the average remaining service livesof employees. Adoption of IAS 19 has reduced equity at 1 January 2004 and 31 December 2004 by£5.7m and £9.4m respectively (excluding recognition of deferred tax). Movements in the defined benefit obligation are primarily recognised in theStatement of Recognised Income and Expense. Actuarial gains and losses of £3.3mwere charged to the Statement of Recognised Income and Expense in the year ended31 December 2004. The pension charge to the income statement was increased inthe year ended 31 December 2004 by £0.4m. (vii) Share based payments The Group applied IFRS 2 to its active employee share-based payment arrangementsat 1 January 2005 except for equity-settled employee share-based paymentarrangements granted before 7 November 2002. The Group has granted employeeequity-settled share-based payments in 2004 and 2005. The Group accounted for these share-based payment arrangements at intrinsicvalue under UK GAAP. Under IFRS the effect of accounting for equity-settled share-based paymenttransactions at fair value is to increase administrative expenses by £0.4m forthe year ended 31 December 2004. The adoption of IFRS 2 is equity-neutral forequity-settled transactions. The expense recognised for the consumption ofemployee services received as consideration for share options granted will bedeductible for tax purposes when the share options are exercised. (viii) Deferred taxes 1 January 31 December 2004 2004 £m £mGroup deferred tax liability - UK 52.2 51.9GAAP ________ ________ Property assets* 170.9 162.2Employee benefits (2.4) (3.3)Other 2.7 (0.1)Tax losses carried forward (26.5) (2.6) ________ ________Increase in deferred tax liability 144.7 156.2 ________ ________ Group deferred tax liability - IFRS 196.9 208.1 ________ ________ *Property assets comprise property, plant and equipment, investment properties,assets held for sale and lease premium prepayments The deferred tax liability has been increased at each period end as shown in thetable. The increase in liability in respect of property assets is a result of therequirement under IFRS to provide for deferred tax for fair value adjustmentsand revaluation surpluses. Deferred tax is matched to how the asset value willbe recovered, either through use in the business or through sale. Under UKGAAP, such provision was not required. This adjustment is significant,principally due to the Group having previously adopted until 1 January 2004 apolicy of carrying its hotel property assets at open market value. The provision for employee benefits and defined benefit pension liabilities, asset out above, gives rise to a matching recognition of a deferred tax asset. (viii) Deferred taxes (continued) The overall increase in deferred tax liabilities resulting from property assetshas allowed the Group to increase its matching recognition of tax losses, whichwere not recorded in the balance sheet under UK GAAP. Such losses are recognisedas deferred tax assets to the extent that it is probable that future taxableprofits will be available against which the asset can be utilised. The effecton the income statement for the year ended 31 December 2004 was to increase thepreviously reported tax charge for the period by £11.6m for subsidiaryundertakings and by £3.7m for joint ventures. The increase in the tax charge forthe year ended 31 December 2004 principally relates to the disposal of theGroup's joint venture interest in the Plaza Hotel. This is principally due tothe utilisation of tax losses which were carried as assets on the IFRS balancesheet at 1 January 2004, and therefore formed part of the deferred tax charge.These losses were largely unrecognised under UK GAAP and therefore their use didnot incur a deferred tax charge. The reported current tax charge in respect ofthe transaction remains unchanged. (ix) Dividends Under IFRS dividends are recorded as liabilities in the period in which they areapproved. Under UK GAAP dividends were previously recorded when proposed. (x) Adoption of IAS 32 and IAS 39 at 1 January 2005 UK GAAP Effect of IFRS £m transition to £m IFRS £mFair value derivatives - (5.4) (5.4) ________ ________ ________ Hedging reserve - (4.0) (4.0)Retained earnings - (1.4) (1.4) ________ ________ ________ - (5.4) (5.4) ________ ________ ________ Under UK GAAP, the Group did not recognise derivatives. In accordance with IFRSderivatives are recognised at fair value. The effect is to increase theliability for derivatives and the hedging reserve by £5.4m at 1 January 2005. (xi) Total effect on equity and profit for year A summary of the effect on total equity of the adjustments set out in the abovenotes is set out below. 1 January 31 December 2004 2004 £m £mDividends 5.8 29.8Real estate and land developments (1.1) (0.3)Lease premium amortisation - (1.4)Employee benefits (5.7) (9.4)Deferred taxes - group and joint (157.7) (156.2)ventureRevaluation surplus - (29.0) _______ _______Total (158.7) (166.5) _______ _______ A summary of the effect on profit for the year to 31 December 2004 of theadjustments in the above notes is set out below. Profit Income tax Profit for before expense year taxation £m £m £mUK GAAP 94.8 (16.4) 78.4Presentational adjustments/reclassifications:- Joint venture tax included within profit before tax under 2.9 (2.9) -IFRS- Joint venture minorities included within profit before tax (2.1) - (2.1)under IFRSMeasurement adjustments:- Lease premium amortisation (1.4) - (1.4)- Revenue recognition on development properties 1.3 (0.5) 0.8- Pension and share option charges (0.8) - (0.8)- Deferred tax charge (including joint ventures) (3.7) (11.6) (15.3) _______ _______ _______IFRS 91.0 (31.4) 59.6 Key operating statisticsFor the year ended 31 December 2005 2005 2004 2004 Reported currency Constant currency Reported currencyOccupancy % _________ _________ _________ New York 84.5 84.0Regional US 66.2 61.2 _________ _________ _________Total US 70.4 66.9 _________ _________ _________London 84.8 83.5Rest of Europe 72.8 72.8 _________ _________ _________Total Europe 78.1 77.6 _________ _________ _________Asia 73.7 73.2Australasia 69.6 71.5 _________ _________ _________Total Group 73.0 71.8 _________ _________ _________ Average Room Rate (£)New York 129.42 109.28 108.77Regional US 49.63 53.15 52.91 _________ _________ _________Total US 71.53 70.76 70.43 _________ _________ _________London 80.20 79.79 79.79Rest of Europe 69.83 66.89 66.67 _________ _________ _________Total Europe 74.82 73.05 72.93 _________ _________ _________Asia 52.40 49.15 46.76Australasia 43.43 41.29 38.77 _________ _________ _________Total Group 64.01 61.69 60.59 _________ _________ _________ RevPAR (£)New York 109.36 91.80 91.37Regional US 32.86 32.53 32.38 _________ _________ _________Total US 50.36 47.34 47.12 _________ _________ _________London 68.01 66.62 66.62Rest of Europe 50.84 48.70 48.54 _________ _________ _________Total Europe 58.43 56.69 56.59 _________ _________ _________Asia 38.62 35.98 34.23Australasia 30.23 29.52 27.72 _________ _________ _________Total Group 46.73 44.29 43.50 _________ _________ _________ Gross Operating ProfitMargin (%)New York 34.2 28.9Regional US 20.8 21.0 _________ _________ _________Total US 26.8 24.4 _________ _________ _________London 48.4 51.2Rest of Europe 31.8 30.0 _________ _________ _________Total Europe 39.2 39.5 _________ _________ _________Asia 36.7 35.4Australasia 42.0 41.6 _________ _________ _________Total Group 34.4 33.6 _________ _________ _________ Consolidated income statementFor the fourth quarter ended 31 December 2005 2005 2004 £m £mRevenue 167.6 151.1 Cost of sales (69.4) (67.0) ________ _______Gross profit 98.2 84.1 Administrative expenses (69.6) (70.7) Other operating income 12.2 54.5 ________ _______Group operating profit 40.8 67.9 Analysed between: ________ _______Group operating profit before other operating income andimpairment 35.1 28.6 Other operating income 12.2 54.5 Impairment (6.5) (15.2) ________ _______ 40.8 67.9Share of profit of joint ventures and associates ________ _______Operating profit 3.2 2.5Interest (0.5) (0.4) Taxation (0.5) (0.3) Minority interests (0.9) (0.8) ________ _______ 1.3 1.0Finance income 0.3 3.3Finance expense (5.7) (12.0) ________ _______Profit before tax 36.7 60.2Income tax expense (8.4) (25.4) ________ _______Profit for the period 28.3 34.8 ====== ====== Attributable to:Equity holders of the parent 25.3 32.7Minority interests 3.0 2.1 ________ _______ 28.3 34.8 ======= ======= Key operating statisticsFor the fourth quarter ended 31 December 2005 2005 2004 2004 Reported currency Constant currency Reported currency ___________ ___________ ____________Occupancy %New York 87.0 85.8Regional US 60.1 61.0 ___________ ___________ ____________Total US 66.2 67.2 ___________ ___________ ____________London 84.7 86.8Rest of Europe 72.7 73.2 ___________ ___________ ____________Total Europe 78.0 79.2 ___________ ___________ ____________Asia 74.9 74.0Australasia 73.9 73.5 ___________ ___________ ____________Total Group 72.3 72.9 ___________ ___________ ____________ Average Room Rate (£)New York 156.74 132.00 125.36Regional US 51.13 54.62 51.14 ___________ ___________ ____________Total US 82.82 79.28 74.79 ___________ ___________ ____________London 82.89 82.08 82.08Rest of Europe 69.98 67.65 68.16 ___________ ___________ ____________Total Europe 76.19 74.66 74.92 ___________ ___________ ____________Asia 55.63 52.11 48.63Australasia 44.56 44.07 41.56 ___________ ___________ ____________Total Group 68.83 66.03 63.40 ___________ ___________ ____________ RevPAR (£)New York 136.36 113.26 107.56Regional US 30.73 33.32 31.20 ___________ ___________ ____________Total US 54.83 53.28 50.26 ___________ ___________ ____________London 70.21 71.25 71.25Rest of Europe 50.88 49.52 49.89 ___________ ___________ ____________Total Europe 59.43 59.13 59.34 ___________ ___________ ____________Asia 41.67 38.56 35.99Australasia 32.93 32.39 30.55 ___________ ___________ ____________Total Group 49.76 48.14 46.22 ___________ ___________ ____________ Gross Operating ProfitMargin (%)New York 42.2 35.2Regional US 19.6 20.5 ___________ ___________ ____________Total US 30.8 27.4 ___________ ___________ ____________London 50.9 52.1Rest of Europe 35.9 31.3 ___________ ___________ ____________Total Europe 42.5 40.7 ___________ ___________ ____________Asia 40.0 36.3Australasia 46.2 43.4 ___________ ___________ ____________Total Group 38.0 35.4 ___________ ___________ ____________ This information is provided by RNS The company news service from the London Stock Exchange