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SIX CONTINENTS PLC PRELIMINARY RESULTS (for the financial year ended 30 September 2002)

SIX CONTINENTS PLC PRELIMINARY RESULTS (for the financial year ended 30 September 2002)


Financial Highlights

  • Operating profit
     - Six Continents Hotels down 38.6% to £262m*
     - Six Continents Retail up 5.1% to £288m**
     - Britvic Soft Drinks up 10.5% to £63m
  • Profit before tax and exceptional items down 23.7% to £558m
  • Adjusted earnings per share before major exceptional items were 42.4p compared to 56.2p*** in 2001
  • Earnings per share were 53.0p compared to 51.3p*** in 2001
  • Total dividend up 2.9% to 35.3p per share

    * before major operating exceptional
    ** ongoing estate
    *** restated for FRS 19

Business Highlights

  • Hotels - Impacted by both the effects of 11 September 2001 and the downturn in economies across the globe. Continued to invest in the business to position it for the upturn
    - Results cover one of the toughest trading periods after the tragedy of 11 September 2001
    - RevPAR improvement in second half against first half.
    - Demonstrates relative resilience of our managed/ franchise, largely midscale business
    - 1,600 Holiday Inn UK rooms renovated; Chicago, New York, Madrid InterContinental renovations completed
    - Future growth through strong pipeline of 479 hotels with 64,362 rooms
  • Retail - strong performance, with successful brand conversion strategy
    - Ongoing sales up 5.7% EBITDA up 7.5% – reinforced position as UK’s leading operator of managed pubs, bars and restaurants
    - Average weekly sales per outlet up 2.2% to £14,200: nearly three times the industry average
    - Focusing capex on the resilient suburban market (75% of conversions in the year)
    - Margins maintained despite regulatory cost increases
    - 198 conversions to brands and formats opened during the year – further pipeline of 500 outlets for conversion fuelling future growth
  • Soft Drinks - record performance
    - Britvic continued to grow market share and operating profit
    - Strong cost controls drive growth in operating profit of 10.5% to £63m
    - Robinsons and Pepsi made strong progress with volumes up 13% and 9% respectively


The macro-economic context remains uncertain, with business confidence at depressed levels and thus we remain cautious as to the extent and timing of any hotel recovery. Corporate travel is unlikely to rebound in 2003 to the extent that some had hoped, and there is pressure on room rates as our corporate customers inevitably squeeze prices, combined with a less attractive guest mix. Current indications are that corporate rates will be flat to marginally negative for 2003. Nonetheless we expect to benefit from the performance of the renovated InterContinentals and from our increased investment in sales and marketing.

In Hotels we are performing far better than we did in October and November of last year, but last year’s October and November numbers were more affected by September 11th than by recession. In comparison to the figures two years ago, which was in effect the peak of the last boom year, we are still well down and there is no discernible trend of improvement against that year to date. It is for this reason that we are more cautious as to the prospects for 2003 than we were as recently as the end of September. It is, however, worth noting that independent forecasters PWC have, since the end of August, brought their RevPAR forecasts down by 1.5%- 3% for the calendar year to December 2003.

In Retail, October and November have seen some weakening of trading particularly in Greater London and on High Streets in the rest of the country, which together account for approximately 40% of Retail’s sales mix. By contrast, the 60% of sales generated in residential areas outside of London have been more resilient.

As a result, overall sales are ahead by 0.7%, but uninvested like for like sales, which were 3.4% lower in the second half of last year, were 4.5% down in the first eight weeks of this year, although gross margins overall have been held. It is not yet clear that this will prove a lasting trend. However, significant management action is being taken to defend sales and flex costs in order to protect profits.

Britvic has begun the year well with volumes in the first eight weeks of the year up 4%.

Across the business, we are taking the appropriate actions to drive profitable sales, service and productivity in order to mitigate the pressure from these economic conditions.


We expect the indicative timetable for the separation of the business will remain as outlined on 1 October 2002.

On that basis, in February 2003 the circular and the listing particulars will be posted to shareholders in preparation for the EGM in March. Also in February 2003 the final dividend will be paid for the year to September 30th 2002, a sum of 24.6p per share making a total of 35.3p per share for the year.

In April the dividend for the period prior to the separation will be paid to shareholders, a sum of 6.6p per share. Court sanction will be requested for the reduction of share capital. Assuming no material change in the trading environment or capital markets, once approval is granted the two companies will then be listed separately and shareholders will receive shares in both companies and 81p in cash for each share they hold.


Sir Ian Prosser, Chairman, commented:

“These results were against a backdrop of tough market conditions. Our managed and franchised US hotel business showed relative resilience in this environment while our retail business showed a strong performance and Britvic continued its highly successful profit growth.

Our plan to separate the businesses and, absent a material change in circumstances in the trading environment or capital markets, return £700 million of capital, announced on 1 October, represents the next phase in our strategy to deliver value to shareholders. Over the last five years Six Continents has undergone a massive transformation selling off our leisure and brewing operations and will have returned £1.55 billion in capital together with £1.45 billion in dividends to the date of separation whilst creating two businesses which have powerful market positions.

The separation will create two excellent standalone businesses which will have greater flexibility to pursue their own strategies, will be able to pursue consolidation opportunities that are more difficult within a single Group, and which will have clear market valuations and efficient balance sheets.”

Tim Clarke, Chief Executive, commented on the past year’s performance:

“In Hotels, this has been one of the toughest trading periods ever, especially after the tragedy of 11 September 2001. Despite this, our performance has been in line with expectations and we have benefited from the relative resilience of our midscale managed and franchised hotels and from the management actions to generate revenues and improve efficiency. We have also continued to take advantage of the downturn to invest in the business, renovate our assets and drive the distribution of our brands to position us optimally for the upturn.

In Retail, we have achieved good operating profit growth, maintaining margins despite significant regulatory cost increases. A strong performance in the suburban pubs and restaurants, a focus of our conversion strategy, was partially offset by difficult trading conditions in London and in the High Street.”

He commented further on the strategy and outlook for Retail:

“Our Retail strategy is to develop strong customer offers which can add maximum value to prime sites. We drive scale benefits in productivity and margins at each level of the business. Our focus is on generating high operational cash returns.

In a market, parts of which have seen some weakening in recent weeks, we have put in place clear actions for the year ahead. We will increase marketing, promotional and pricing activity to defend the top line and we will drive further gains in staff productivity above and beyond the 15% increase of the past four years. We will also accelerate the cost reductions in the supply chain and central costs.

With the vast majority of the ex-Allied sites successfully converted, we are focusing our development programme on the highest return opportunities now available. We currently plan to spend a net £140 million this year, (£227 million last year) which will compare with estimated depreciation of £100 million.”

Richard North, Group Finance Director and CEO of Hotels, commented on the strategy and outlook for Hotels:

“We have one of the leading brand portfolios in the hotel industry. These brands, combined with our global scale with operations in nearly 100 countries and territories, and more than 3,300 hotels and 515,000 rooms, give us real competitive advantage being number one or two in the market in each region we operate in.

We intend to build on this strong competitive position. We will develop our portfolio of strongly differentiated consumer brands and continue to improve the asset quality and service standards. At the same time we will leverage our global system scale economies to drive superior RevPAR and GOP performances. We will also continue to expand our global network of hotels, making use of selective capital investment and as we optimise capital deployment move towards a greater emphasis on managed and franchise operations.

We remain cautious as to the extent and timing of recovery in the hotel industry. However, I am confident that the excellent business that we have built up combined with our continued capital and revenue investment and our clear strategy will stand us in good stead for the future and allow us to take full advantage of the upturn.

We should also not forget Britvic, which will be retained with Hotels. This is a great business where profit before tax has increased over the last 4 years at a compound annual growth rate of 21%.”


Since the company’s announcement on 1 October 2002 of its intention to carry out the proposed business separation, the company has reviewed various options with respect to the disposition of the Notes and Debentures of the company going forward. In this process the company and its advisors have discussed this matter with a range of holders of the Notes and Debentures, the Trustee for the Notes and the Debentures, and certain members of the Association of British Insurers (“ABI”).

Disposition of Notes

The company has decided to seek to repurchase these securities while at the same time seeking consent from accepting Note holders for the removal of key covenants of these Notes. The repurchase will apply to the £10 million Notes due 2004, the Euro 25 million Notes due 2006 and the £250 million Notes due 2007.

Disposition of Debentures

The company intends to repurchase the Debentures and therefore plans to convene a meeting of Debenture holders to approve the insertion of a call option in the terms and conditions of the £250 million 10 3/8% Debenture Stock due 2016. The call option will enable the company to repurchase the Debentures at a price corresponding to a yield of 100 basis points over the yield of the U.K. Treasury Stock 8% due 2015 for a limited period of time and the call will be exercised by the company. The company expects to give notice of the meeting of Debenture holders within the next month. A special committee of Debenture holders convened under the auspices of the ABI has indicated that it finds this proposal acceptable.

In light of the intended repurchases of the Notes and the Debentures, the Board is now clear that Retail will not have any public debt obligations at the time of the Separation. Therefore, the Board does not believe there is a need for Retail to obtain a public credit rating at this stage.

Hotels Current Trading – RevPAR 2002 vs 2001        
Americas July Aug Sept Oct Nov
InterContinental (Owned & Leased) -7.6% -4.1% 50.8% 31.4% 11.0%
Crowne Plaza -10.2% -12.2% 6.6% 6.7% 6.4%
Holiday Inn -2.1% -3.7% 4.6% 4.6% 1.3%
Holiday Inn Express 1.7% 0.8% 3.5% 5.1% 1.6%
InterContinental (Owned & Leased) -4.6% -8.6% 6.6% 22.1% 5.2%
Holiday Inn UK Regions 4.6% - -2.8% 9.7% 5.5%
Holiday Inn UK London -4.3% -9.7% -10.9% 14.2% 15.7%
Hotels Current Trading – RevPAR 2002 vs 2000        
Americas July Aug Sept Oct Nov
InterContinental (Owned & Leased) -28.7% -25.7% -26.7% -21.9% -26.5%
Crowne Plaza -8.4% -14.9% -20.7% -20.3% -18.6%
Holiday Inn -7.0% -7.3% -20.7% -12.3% -14.9%
Holiday Inn Express 0.2% -0.1% -7.6% -0.7% -2.7%
InterContinental (Owned & Leased) -11.6% -11.5% -15.8% -20.9% -24.4%
Holiday Inn UK Regions 0.7% -6.5% 1.9% -3.1% -2.0%
Holiday Inn UK London -19.9% -17.6% -22.8% -25.0% -23.6%

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