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IHG Annual Report and Financial Statements 2007 Contents

1 Welcome to IHG 2 Highlights 1 Overview 3 Message from the Chairman and Chief Executive 4 The IHG brands

6 Business overview 9 People 11 Corporate responsibility 5 Business review 12 Group performance 14 Regional performance 20 Other financial information 22 Risk management

26 The Board of Directors 25 The Board, 27 Other members of the Executive Committee 28 Directors’ report senior management 30 Corporate governance and their responsibilities 35 Audit Committee report 36 Remuneration report

46 Statement of Directors’ responsibilities 47 Independent auditor’s report to the members 48 Group income statement 49 Group statement of recognised income and expense 45 Group financial statements 50 Group cash flow statement 51 Group balance sheet 52 Corporate information and accounting policies 57 Notes to the Group financial statements

90 Statement of Directors’ responsibilities 89 Parent company 91 Independent auditor’s report to the members financial statements 92 Parent company balance sheet 93 Notes to the parent company financial statements

96 Glossary 97 Shareholder profiles 98 Investor information 95 Useful information 99 Financial calendar 100 Contacts 101 Forward-looking statements Welcome to IHG OVERVIEW

In 2007 our operating profits grew, reflecting BUSINESS REVIEW a record increase in our room and hotel count and a healthy increase in our revenues per room night. We are one of the world’s largest hotel companies and are focused on quality growth through managing and

franchising our seven distinctive brands. THEIR RESPONSIBILITIES MANAGEMENT AND THE BOARD, SENIOR Our core purpose is to create Great Hotels Guests Love. We do this by placing guest satisfaction at the heart of everything we do and, as a result, developing our financial strength for the benefit of all our stakeholders. This Report presents a full review of our business STATEMENTS GROUP FINANCIAL endeavours, embracing the key areas of employee engagement and corporate responsibility as well as our financial and operational performance and approach towards risk management. We also present a wide range of statutory and governance data and our full financial

statements for the year. FINANCIAL STATEMENTS PARENT COMPANY USEFUL INFORMATION

Overview 1 Highlights

RECORD NET ROOMS GROWTH “2007 was a year of excellent progress for IHG in which the Company recorded UP 5% BY 28,848 ROOMS strong growth in an expanding industry. We opened and signed a record number TOTAL HOTELS OPEN UNDER IHG BRANDS of hotels, and grew revenue per available room (RevPAR) faster than the market UP 208 TO 3,949 HOTELS in all our major geographies. Our brands are increasingly being chosen over those RECORD SIGNINGS of our competitors, by guests and by the hotel owners with whom we partner.” UP 22% TO 125,533 ROOMS

DEVELOPMENT PIPELINE

UP 43% TO 225,872 ROOMS

REVENUE PER AVAILABLE ROOM‡

UP 7%

TOTAL GROSS REVENUE† Andrew Cosslett FROM ALL HOTELS IN IHG SYSTEM Chief Executive + UP 17% TO $18bn

CONTINUING REVENUE

UP 12% TO £883m

CONTINUING OPERATING PROFIT*

UP 19% TO £237m

ADJUSTED CONTINUING EARNINGS PER SHARE

UP 23% TO 46.9p

SPECIAL DIVIDEND

£709m PAID

FINAL DIVIDEND

UP 12% TO 14.9p

‡ Total system room revenue divided by the number of room nights available. † Total room revenue from franchised hotels and total David Webster hotel revenue from managed, owned and leased hotels (not revenue attributable to IHG, as it is derived Chairman mainly from hotels owned by third parties). + US dollars. * Operating profit before exceptional items.

2IHG Annual Report and Financial Statements 2007 OVERVIEW OVERVIEW 3 usiness model usiness We also made changes to our Executive also made changes to We previously Kirk Kinsell, Committee. the for Officer Chief Development up the position took region, Americas Middle Europe, of our of President Gowers, Peter region. and Africa East Officer, Chief Marketing formerly of our Asia Pacific President became back welcomed and we region, worked Seddon (who had previously Tom Officer. IHG) as Chief Marketing for Dividend increase Dividend a is recommending The Board the final dividend to increase 12 per cent 14.9p per share. it to 2007, taking for dividend of 20.6p, a full year This will give Subject higher than in 2006. 12 per cent the final approval, shareholder to dividend will be paid on 6 June 2008. Outlook from contribution The outstanding excellent has driven our people the biggest have in 2007. We results pipeline in the industry development another high level and this will deliver openings in 2008. Although of hotel environment economic the current than in 2007, our predictable is less broadly-based and of brands portfolio our resilient fee-based b Shareholder returns Shareholder £790 million returned we During the year by way of a £709 million shareholders to special dividend and £81 million of our total buybacks. This takes share since shareholders to funds returned £3.5 billion. 2004 to March growth. future for position us well Andrew Cosslett Andrew Chief Executive Highlights and Message from the Chairman and Chief Executive from Highlights and Message Board and Executive Committee Board and Executive announced, As previously the Board from Hartman retired Richard him for thank 2007. We in September the for and wish him well his service was 2007 Ying Yeh In December future. Director. as a Non-Executive appointed of the Asia Her in-depth knowledge value will be of great region Pacific Non-Executive of our IHG. Two to and Sir David Prosser Directors, retire planning to are Robert C Larson, at the end of May and the Board from Both 2008, respectively. December IHG. to service outstanding given have Improving brand performance brand Improving have we years two the last Over research hotel extensive conducted are and we the globe across studies this work the insights from applying now brands. our hotel and renew refresh to of the InterContinental The performance we gather pace; to continues brand hotels InterContinental signed 33 new in 2007 and ended the the world around pipeline of 62 hotels. with a record year the announced 2007 we In October of our Holiday Inn brand global relaunch family. raise is designed to The relaunch and of quality, style the standards in comfort and will deliver the hotels, to service best-in-class a consistent, will and franchisees Owners our guests. invest up to £500 million in Holiday Inn around hotels the next over world the and IHG will separately years, three a £30 million contribution. make a strong This activity should generate expected through on investment return following in RevPAR increases of the relaunch. completion David Webster David Chairman Accelerating growth Accelerating which operate The number of hotels at a record grew brands under IHG’s in 2007, one opened 366 hotels We pace. focus to continued We a day on average. the quality of our hotel on improving 150 hotels over and removed estate account into Taking during the year. the number of hotel these removals, by over increased in our system rooms than a more representing 5 per cent, growth in rooms increase 50 per cent lies in the growth 2006. Our future over that book of contracts order forward – our hotels new signed for have we at a pipeline. This pipeline also grew stands in 2007, and now pace record 225,872 comprising at 1,674 hotels, on 2006. increase a 43 per cent rooms, in the year, signed 873 hotels We a 22 per 125,533 rooms, comprising on 2006. This is by far increase cent of signings in the hotel level the highest added a total now have We industry. against our system to of 47,419 rooms of adding 50,000 target our three-year by the end of 2008. 60,000 net rooms to the will exceed we confident remain We end of this target. top Strong trading Strong was strong. Our financial performance before profit Continuing operating cent, was up 19 per items exceptional million, and £237 to £200 million from exchange at constant up 30 per cent earnings continuing Adjusted rates. 38.0p from 23 per cent rose per share by rose RevPAR Global 46.9p. to by guests’ driven mainly 7 per cent, an for more pay to willingness experience. customer enhanced Message from the the from Message Executive and Chief Chairman The IHG brands

Our seven hotel brands and our Priority Club Rewards programme are among the best known in the world.

High-class facilities and Simple elegance and Relaunched in 2007 to Convenience, comfort services for the discerning full-service facilities for improve our ability to meet and value make Holiday Inn business and leisure business and leisure guests guest needs for contemporary, Express a popular choice traveller. Memorable in more than 50 countries high-quality facilities. with guests and hotel owners. experiences in special around the world. locations. The relaunch included a new identity for the Holiday Inn brand family.

149 HOTELS 299 HOTELS 1,381 HOTELS 1,808 HOTELS 8 OWNED AND LEASED 1 OWNED AND LEASED 6 OWNED AND LEASED 1 OWNED AND LEASED 104 MANAGED 89 MANAGED 193 MANAGED 23 MANAGED 37 FRANCHISED 209 FRANCHISED 1,182 FRANCHISED 1,784 FRANCHISED 50,762 ROOMS 83,170 ROOMS 256,699 ROOMS 156,531 ROOMS 62 HOTELS IN 118 HOTELS IN 365 HOTELS IN 712 HOTELS IN DEVELOPMENT PIPELINE DEVELOPMENT PIPELINE DEVELOPMENT PIPELINE DEVELOPMENT PIPELINE

The industry’s first branded A high-end brand offering Studios and one-bedroom Our award-winning rewards boutique hotel, aimed at guests a home from home suites offer convenience programme is the world's style-conscious guests for extended hotel stays. and comfort for guest largest hotel loyalty scheme, who want peaceful The brand will develop stays of a week or longer. offering unrivalled incentives and affordable luxury. outside the US in 2008. to choose our hotels.

11 HOTELS 122 HOTELS 158 HOTELS 37 MILLION MEMBERS 2 MANAGED 2 OWNED AND LEASED 78 MANAGED WORLDWIDE 9 FRANCHISED 41 MANAGED 80 FRANCHISED PRIORITY CLUB 79 FRANCHISED REWARDS WEBSITES IN NINE LANGUAGES 1,501 ROOMS 13,466 ROOMS 16,825 ROOMS 52 HOTELS IN 157 HOTELS IN 207 HOTELS IN DEVELOPMENT PIPELINE DEVELOPMENT PIPELINE DEVELOPMENT PIPELINE

4IHG Annual Report and Financial Statements 2007 BUSINESS REVIEW BUSINESS REVIEW 5 The IHG brands and Business review and Business The IHG brands Business overview Business environment and competitive Market Strategy model Operating relationships Business People responsibility Corporate performance Group results Group revenues gross Total count room and hotel Global pipeline Global The Americas and Africa East Middle Europe, Asia Pacific Central Other financial information items operating Exceptional Net financial expenses Taxation Earnings per share Dividends capitalisation and market price Share Cash flow and liquidity management structure Capital programme disposal Asset Return of funds programme Risk management 6 6 7 8 8 9 11 12 12 12 13 13 14 16 18 19 20 20 20 20 20 20 20 20 20 21 21 22 Business review Business including of our business, an overview we present In this section resources activities, our strategy, work, we in which the markets also describe the development We environment. and operating during 2007, main business of the and financial performance with together the business, impacting and factors trends matters. and employee environmental Business review

This Business Review provides a commentary on the performance of InterContinental Hotels Group PLC (the Group or IHG) for the financial year ended 31 December 2007.

Business overview Branded v unbranded Market and competitive environment 2006 branded hotel rooms by region as a percentage Global room capacity of the total market The global hotel market has an estimated room capacity of 18 million rooms. Room capacity has grown at approximately US 67% 3% per annum over the last five years. Competitors in the Europe, Middle East and Africa (EMEA) market include other large hotel companies and independently 35% owned hotels. Asia Pacific 28%

The market remains fragmented, with an estimated seven million Source: IHG Analysis, Northstar Travel Management. branded hotel rooms (approximately 40% of the total market). IHG has an estimated 8% share of the branded market (approximately Within the global market, a relatively low proportion of hotel 3% of the total market). The top six major companies, including rooms are branded; however, there has been an increasing IHG, together control approximately 38% of the branded rooms, trend towards branded rooms. Branded companies are therefore only 15% of total hotel rooms. gaining market share at the expense of unbranded companies. Geographically, the market is more concentrated with the top IHG is well positioned to benefit from this trend. Hotel owners are 20 countries accounting for 80% of global hotel rooms. Within increasingly recognising the benefits of working with a group such this, the United States (US) is dominant (more than 25% of global as IHG which can offer a portfolio of brands to suit the different hotel rooms) with China, Japan and Italy being the next largest real estate opportunities an owner may have, together with markets. The Group’s brands have a leadership position (top three effective revenue delivery through global reservation channels. by room numbers) in each of the six largest geographic markets, Furthermore, hotel ownership is increasingly being separated a greater representation than any other major hotel company. from hotel operations, encouraging hotel owners to use third parties such as IHG to manage or franchise their hotels. Drivers of growth Other factors US market data indicates a steady increase in hotel industry revenues, broadly in line with Gross Domestic Product, with Potential negative trends impacting hotel industry growth growth of approximately 1% to 1.5% per annum in real terms include increased terrorism, environmental considerations since 1967, driven by a number of underlying trends: and economic factors such as high oil prices, risk of recession and global credit restrictions. • change in demographics – as the population ages and becomes wealthier, increased leisure time and income Supply growth in the industry is cyclical, averaging between encourages more travel and hotel visits; zero and 5% per annum historically. The Group’s fee-based profit is partly protected from changes of supply due to its model of • increase in travel volumes as low cost airlines grow rapidly; third-party ownership of hotels under IHG management and • globalisation of trade and tourism; franchise contracts. • increase in affluence and freedom to travel within the Chinese middle class; and • increase in the preference for branded hotels amongst consumers.

6IHG Annual Report and Financial Statements 2007 BUSINESS REVIEW BUSINESS REVIEW 7 Business review Business hotel additions; and hotel – growth; net room 50,000-60,000 – in China; 125 hotels – 15-25 net InterContinental for core strategic countries. strategic core for behind core purpose of behind core Love; Guests Hotels Great and compete to countries key talent. for to provide a seamless and a seamless provide to experience differentiated guests; for programme IHG loyalty and initiatives; insight, guest across upgrades insight and revenue owner systems. delivery brand family relaunch; and relaunch; family brand and Indigo internationally in build scale to continue the US. • targets: 2008 growth Achieve • strategies agreed Execute • Align organisation • in investment Increase • channels reservation Integrate • the from value more Drive • technology Implement • of the Holiday Inn Roll-out • Hotel and roll-out Define 2008 priorities with 2008 growth targets; 2008 growth 22.4%, China 31.0%, Japan 269.9%; and countries. strategic core for the organisation – the organisation for Love; Guests Hotels Great senior management team and functional regional new appointments; and initiatives, be yourself Room to on page 9 of this as explained in increased Report, resulting engagement. employee IHG global reservation channels by reservation IHG global system $6.8bn of global 19.3% to in 2007, including revenue room the internet; $2.6bn from with 37programme million contributingmembers, $5.2bn revenue, room system of global of 16.3%; and an increase is the industry’s holidayinn.com with around site, visited most annum; new visits per 75 million site launch. website InterContinental brand family; brand and Suites; Staybridge with gain ground, to continued material driving a advertising ‘intent change in consumer up 10% in the year. stay’, to • against progress Significant • in US 8.5%, UK growth TGR • on 90% of pipeline focused • purpose’ Defined ‘core • IHG’s strengthen Continued to • and Winning Ways Created • through delivery revenue Increased • PCR loyalty leading Industry • presence: web Strong • of Holiday Inn Relaunch •of launch International • positioning InterContinental 2007 developments Holiday Inn Express UK. Holiday Inn Express hotel additions. hotel – growth; 47,419 net room – in China; and 81 hotels – 13 net InterContinental growth targets, set in targets, growth June 2005: of 65%, as defined on page 10 of this Report. growth 17.1%; growth 1.4% pts; growth margin 17.6%; growth membership and by 4% pts (ROCE) increased flagship IHG’s 7% for to hotels InterContinental London Park York, (New and Le Grand Lane, Paris Hong Kong). room (RevPAR) growth 6.9%; and growth (RevPAR) room market key respective to segments** (% pt increase) (KPIs) v 2006* • 2008 against Progress • engagement 2007 employee • Total gross revenue (TGR) • revenue gross Total • Continuing operating profit • (PCR) Priority Club Rewards • employed Return on capital • per available revenue Global • premiums growth RevPAR US + 4.4 InterContinental + 1.0 Holiday Inn US US + 0.7 Holiday Inn Express EMEA + 3.5 InterContinental + 0.3 Holiday Inn and Key performance indicators indicators performance Key and status Current Aligned organisation efficient a more create To core with strong organisation capabilities. To accelerate profitable growth profitable accelerate To where markets in the largest has scale. currently the Group Market scale and knowledge scale Market Brand performance Brand of brands a portfolio operate To and both owners to attractive market clear that have guests in positions and differentiation of the guest. the eyes Strategic priorities Strategic Excellent hotel returns hotel Excellent higher owner generate To revenue through returns and improved delivery efficiency. operating * otherwise. stated KPIs v 2006 unless ** STR, Deloitte Source: Strategy ambition IHG’s peer group. hotel global a broad against when measured returns, shareholder quartile enduring top deliver IHG seeks to strategy IHG’s brands in core hospitality of differentiated a portfolio IHG will grow first, the guest is that by putting strategy underlying The Group’s and a number of brands growth room for target With a clear advantage. maximise our scale cities to key and global countries strategic priorities: strategic the following execute to placed is well the Group owners, for returns excellent offering premiums with market Business review continued

Operating model

Global room count by ownership type at 31 December 2007 IHG’s future growth will be achieved predominantly by managing and franchising rather than owning hotels. Approximately 580,000 rooms operating under Group brands are managed or franchised. Owned and leased Managed The managed and franchised fee-based model is attractive because it enables the Group to achieve its goals with limited capital Franchised investment at an accelerated pace. For this reason, the Group has executed a disposal programme for most of its owned hotels, releasing capital and enabling the return of funds to shareholders as well as targeted investment in the business.

Continuing operating profit* by ownership type at 31 December 2007 A key characteristic of the managed and franchised business is that it generates more cash than is required for investment in the business, with a high return on capital employed. Currently 86% Owned and leased of continuing earnings before regional and central overheads, Managed exceptional items, interest and tax is derived from managed Franchised and franchised operations.

* Before regional and central overheads, exceptional items, interest and tax.

Business relationships IHG maintains effective relationships across all aspects of its to support and facilitate the continued development of IHG’s operations. The Group’s operations are not dependent upon any brands and systems, with specific emphasis during 2007 on the single customer, supplier or hotel owner due to the extent of relaunch of the Holiday Inn brand family. Additionally, IHG and its brands, market segments and geographical coverage. For the IAHI began working together to develop and facilitate key example, IHG’s largest third-party hotel owner controls less Corporate Responsibility (CR) initiatives within the IHG brands. than 4% of the Group’s total room count. Many jurisdictions and countries regulate the offering of franchise To promote effective owner relationships, the Group’s agreements and recent trends indicate an increase in the number management meets with owners on a regular basis. In addition, of countries adopting franchise legislation. As a significant IHG has an important relationship with the IAHI – The Owners’ percentage of the Group’s revenue is derived from franchise fees, Association. The IAHI is an independent worldwide association the Group’s continued compliance with franchise legislation is for owners of the Crowne Plaza, Holiday Inn, Holiday Inn Express, important to the successful deployment of the Group’s strategy. Hotel Indigo, Staybridge Suites and Candlewood Suites brands. IHG and the IAHI work together

8IHG Annual Report and Financial Statements 2007 BUSINESS REVIEW BUSINESS REVIEW 9 Business review Business Non-Executive Director of IHG, effective 1 December 2007; 1 December IHG, effective of Director Non-Executive 2007; 1 November effective region, of the Asia Pacific Committee, and member of the Executive the EMEA region outgoing President 2007, succeeding 1 September effective on Hartman, who retired Member, Richard and Board 2007; and 25 September effective Committee, and member of the Executive Officer 2007. 1 November Defining IHG’s commitment to our people to commitment Defining IHG’s all employees from what is expected define Winning Ways While characterise that standards also developed at IHG, the Group encompass promises IHG. Four from expect can what employees and be yourself Room to called internally the IHG commitment, on at IHG. rely can that employees environment describe the work management focus Talent purpose, core IHG’s deliver to and meet the demands of growth To talent an ongoing IHG implements Love, Guests Hotels Great was manifested In 2007, this strategy management agenda. and inspire retain, attract, designed to programmes in key portfolio, and managed hotel the owned across employees programmes These centres. and reservation offices, corporate skills and leadership, developing on fulfilling expectations, focus and benefits, measuring progress, rewards competitive providing and ensuring safety. technology leveraging diversity, celebrating in 2007. category every in IHG made progress leadership Strengthening to in place programmes IHG has a number of development Great deliver to offices and corporate in hotels support leaders individual of These include the assessment Love. Guests Hotels and clarity on expectations with along capability, and potential stage third In 2007, IHG launched the education. business-related on the role concentrating programme, of its senior leadership people. through and results play in driving performance leaders roles senior leadership key for planning process The succession proactively manage enabling IHG to and refined, was reviewed key several As part of this review, changes in leadership. and depth the strength made, demonstrating appointments were team. senior management in IHG’s made in 2007: were senior appointments The following • as an additional independent appointment of Ms Ying Yeh the • as President Gowers appointment of Peter internal the • of appointment of Kirk Kinsell as President the internal • Seddon as Chief Marketing appointment of Tom the external set out on pages 26 and 27 are of the above details Biographical of this Report. to form a powerful team. We listen to each to listen We team. a powerful form to other and combine our expertise to create create to our expertise other and combine and trusted supportive focused, a strong, of people. team We are at our best when we collaborate collaborate when we at our best are We We believe it is the knowledge of our people it is the knowledge believe We We aim to do what we believe is right and believe do what we to aim We have the courage and conviction to put it into to and conviction the courage have and straightforward honest are We practice. and see our decisions through. that understands be a company to want We else in our than anyone needs better people’s others, to This means being sensitive industry. and taking noticing the things that matter getting things right. for responsibility leaders, industry be acknowledged to aim We people of talented a team built and have strive We be the best. will to the who have individuals who are value and we success for do things. ways to better for looking always do not We life. to that brings our brands view of the world. impose a rigid, uniform celebrating from comes strength Our global that some knowing while differences, local things should be the same. Work better Work together Celebrate Celebrate Aim higher difference Show we care we Show Do the right thing People worldwide people of 10,366 an average employed IHG directly are hotels managed and franchised during 2007. When the globally employed are 315,000 people included, approximately in this any data otherwise stated, Unless IHG's brands. across by IHG and those employed directly the people to section relates 93,000 people. approximately in total in managed hotels, who work Winning Ways of Culture IHG interacts define how that a set of behaviours Winning Ways, in 2006 developed was owners and hotel colleagues with guests, have people in 2007. IHG’s the business into and integrated and creativity with enthusiasm these behaviours embraced as follows: are They worldwide. Business review continued

Communicating and measuring progress Leveraging technology Great emphasis is placed on employee communication, IHG is leveraging technology to improve communications and particularly on matters relating to the Group’s business and engagement with employees. In 2007, the Group introduced its performance. Communication channels include global an upgraded corporate intranet site, ‘Merlin’, which provides management conferences, team meetings, informal briefings, continuous access to people information, policies and news. in-house publications and intranets. A best-in-class recruitment management system, e-Careers, reduces time to access and hire the most qualified candidates. Regular employee feedback is obtained to ensure that IHG meets expectations and delivers on its commitments. The Group Ensuring health and safety conducts a twice-yearly survey that measures employee opinion IHG applies high standards of health and safety equally to and attitudes. This survey covers employees in owned and all employees and guests. The Group strives to provide and managed hotels, corporate offices and reservation centres. maintain a safe environment for all employees, customers and other visitors to its premises and to comply with relevant The first survey in 2007 achieved a very high response rate of health and safety legislation. Further details can be found in 83%, with over 77,500 employees participating. IHG’s key measure the Corporate Reputation section of the Annual Review and is the engagement index. This is constructed from a set of Summary Financial Statement 2007 and in the online questions which measure advocacy, retention and effort. CR Report at www.ihg.com/responsibility During 2007, IHG’s engagement index improved by 5 percentage Celebrating diversity points to 65%. The survey also reported that nine out of IHG benefits from the diversity of its employees, owners, business 10 people are proud to work for IHG and 84% of employees partners and guests. The Group regards diversity as a fundamental would recommend IHG as a good place to work, a figure that factor in its success in operating as a global organisation and this is 10 percentage points higher than external benchmark data principle is embedded in IHG’s Winning Ways. (source: TNS). The Group is committed to providing equality of opportunity The survey highlights that initiatives undertaken during the year to all employees without discrimination and continues to be on Winning Ways and Room to be yourself are strongly correlated supportive of the employment of disabled persons. Where existing to employee engagement. employees become disabled, it is the Group’s policy to provide Continuing skills development continuing employment wherever practical in the same or an During the year, IHG continued to place importance on the alternative position. growth and development of its people in the owned and managed Code of Ethics hotels, and within its corporate and reservation offices, and Among the Group’s core values is the concept that all employees ensured training programmes were available to all of its should have the courage and conviction to do what is right. The employees. The Group’s internal surveys indicate that the Group’s global Code of Ethics and Business Conduct consolidates majority of employees agree that IHG delivers training to and clarifies expected standards of behaviour and communicates assist with both current roles and future skills development. the ethical values of the Group. The code is applicable to all Rewarding people by offering competitive compensation employees and is available on the Company's website at and benefits www.ihg.com/corporate IHG’s compensation and benefits programmes are designed to be competitive and to recognise and reward achievement. The benefits offered to employees vary according to region. IHG contributes to both mandatory and company-sponsored retirement plans to ensure benefits are competitive within each local market. The majority of employees believe they are fairly paid for the work they do.

10 IHG Annual Report and Financial Statements 2007 BUSINESS REVIEW BUSINESS REVIEW 11 the year Business review Business least 70% of owned and managed 70% of owned least 2008; by the end of hotels and CR strategy of the overall for targets appropriate consider and reduction; energy head offices. corporate support data. research and consider research application; appropriate and planning process; the brand hotels all to made available are and owners. steering group members on members group steering and 2008 objectives; agreed widely CR Report, in line with guidelines. CR accepted 2008 priorities • at to Roll-out the online tool • in context data footprint Review • Expand CR activities at IHG’s • visibility of community Increase • insight consumer Complete • in CR strategy integrate Further • guides practice best Ensure • of performance Monitor • the online update Periodically its water, waste and energy across the globe; the globe; across and energy waste its water, group; by a major hotel will that this initiative bulbs. It is estimated incandescent for savings; and $2m of annual energy in over result and improved including recycling offices, corporate IHG’s management. waste managers general During 2007, all hotel evolve. to continuing both in terms of activities undertaken, details for surveyed were Based communities. support their local and in kind, to of cash that IHG hotels it is estimated of the survey, on the results than $14m during 2007. more provided responsible tourism and the need to respect local communities; local respect need to and the tourism responsible initiatives environmental global aligning IHG’s and brands, and communities; and supporting local an online CR Report. in the US and the UK; conducted groups with focus clients and guests; corporate including the design of an environmentally-friendly strategies, and materials; construction less which requires prototype and owners. hotels to 2007 developments • measure IHG to which will enable an online tool Piloted • the first footprint, and environmental a carbon Completed • bulbs as replacements light fluorescent compact Distributed • at initiatives of environmental a range Implemented • support which is of community tradition IHG has a long • IHG executives; of senior group a steering Established • on feedback in light of stakeholder a CR strategy Developed • objectives; corporate with IHG’s CR strategy the Integrated • hotels CR priorities which include engaging IHG Agreed • including communication and external internal Improved • project insight research major consumer Commenced engage • to resource Hotel an online Innovation Created • brand into of CR considerations integration Commenced • CR guides practice best distributed and Developed CR priorities Engaging hotels and brands Building the base delivery for Supporting local Supporting local communities Aligning global environmental initiatives and priorities for 2008. Further details on IHG’s CR activities can be found on the website, www.ihg.com/responsibility, including IHG’s www.ihg.com/responsibility, on the website, be found CR activities can on IHG’s details 2008. Further and priorities for 2007. Statement and Summary Financial in the Annual Review online CR Report and Corporate responsibility Corporate during developments CR priorities, overall IHG’s outlines below The table its business. into CR integrating to IHG is committed Business review continued

Group performance

Group results

12 months ended 31 December 2007 2006 % £m £m change Revenue Revenue from continuing operations increased by 12.3% to Americas 450 422 6.6 £883m and continuing operating profit increased by 18.5% to EMEA 245 198 23.7 £237m during the 12 months ended 31 December 2007. The Asia Pacific 130 111 17.1 growth was driven by strong underlying RevPAR gains across Central 58 55 5.5 all regions, hotel expansion in key markets and profit uplift from owned and leased assets. Furthermore, strong revenue Continuing operations 883 786 12.3 conversion led to a 1.4 percentage point increase in continuing Discontinued operations 40 174 (77.0) operating profit margins to 26.8%. 923 960 (3.9) Including discontinued operations, total revenue decreased by Operating profit 3.9% to £923m whilst operating profit before exceptional items Americas 220 215 2.3 increased by 6.1% to £245m, reflecting the year-on-year impact EMEA 67 37 81.1 of asset disposals. Discontinued operations represent the results Asia Pacific 31 29 6.9 from operations that have been sold, or are held for sale, and Central (81) (81) – where there is a coordinated plan to dispose of the operations Continuing operations 237 200 18.5 under IHG’s asset disposal programme. In this Business Review, Discontinued operations 8 31 (74.2) discontinued operations include owned and leased hotels in the US, the UK and Continental Europe that have been sold or placed Operating profit before exceptional items 245 231 6.1 on the market from 1 January 2006. Exceptional operating items 30 27 11.1 As the weighted average US dollar exchange rate to sterling has Operating profit 275 258 6.6 weakened during 2007 (2007 $2.01:£1, 2006 $1.84:£1), growth Net financial expenses (45) (11) (309.1) rates for results expressed in US dollars are higher than those Profit before tax* 230 247 (6.9) in sterling. Continuing operating profit before exceptional items Analysed as: was $474m, ahead of 2006 by 29.2%. Including discontinued Continuing operations 222 216 2.8 operations, operating profit before exceptional items was $491m, 15.8% higher than 2006. Translated at constant currency, Discontinued operations 8 31 (74.2) applying 2006 exchange rates, continuing revenue increased Earnings per ordinary share by 19.6% and continuing operating profit increased by 30.0%. Basic 72.2p 104.1p (30.6) Adjusted 48.4p 42.9p 12.8 Adjusted – continuing operations 46.9p 38.0p 23.4 * Profit before tax includes the results of discontinued operations.

Total gross revenues

12 months ended 31 December 2007 2006 % $bn $bn change InterContinental 3.7 3.0 23.3 One measure of overall IHG hotel system performance is the Crowne Plaza 2.8 2.3 21.7 growth in total gross revenue, defined as total room revenue from Holiday Inn 6.7 6.3 6.3 franchised hotels and total hotel revenue from managed, owned Holiday Inn Express 3.5 3.0 16.7 and leased hotels. Total gross revenue is not revenue attributable Other brands 1.1 0.6 83.3 to IHG, as it is derived mainly from hotels owned by third parties. Total 17.8 15.2 17.1 Total gross revenue increased by 17.1% from $15.2bn in 2006 to $17.8bn in 2007, with strong growth levels achieved across IHG’s key brands reflecting hotel performance and room growth. Translated at constant currency, total gross revenue increased by 14.5%.

12 IHG Annual Report and Financial Statements 2007 BUSINESS REVIEW BUSINESS REVIEW 13 Business review Business During 2007, the IHG global system (the number of hotels and (the number of hotels system global During 2007, the IHG by the managed or franchised leased, owned, which are rooms to or 5.2%) (28,848 rooms, 208 hotels by increased Group) was driven, level growth The record (585,094 rooms). 3,949 hotels US, the UK, China and in the expansion in particular, by continued (52,846 rooms). in openings of 366 hotels Japan, resulting growth, 58.7% of the net hotel represented Holiday Inn Express limited demand in the midscale, market strong demonstrating Staybridge comprising portfolio, stay The extended sector. service by 53 hotels expanded hotels, Suites and Candlewood Suites in this sector. confidence owner indicating (5,189 rooms), (14 hotels count and room The net decline in the Holiday Inn hotel to strategy continued IHG’s reflects primarily and 3,771 rooms) of lower the removal through the Holiday Inn brand reinvigorate is in the US. This strategy hotels conforming quality, non-brand of the Holiday relaunch brand by the worldwide further supported the 2007, which entails in October announced family, Inn brand quality and physical service of best-in-class delivery consistent hotels. in all Holiday Inn and Holiday Inn Express signed for At the end of 2007, the IHG pipeline (contracts totalled system) the IHG global enter to yet and rooms hotels signings room record the year, In (225,872 rooms). 1,674 hotels of pipeline growth to led rooms of 125,533 all regions across demonstrates of growth (or 43.0%). This level 67,881 rooms represents and regions all across IHG brands demand for strong profitability. of future driver a key 90 608 4,545 6,882 7,538 2,513 2,676 6,802 3,520 1,163 5,172 9,669 Rooms Rooms Rooms Change Change Change (3,771) (2,064) 22,759 67,881 67,881 28,848 28,848 19,249 12,171 14,622 30,166 37,715 21,243 12,949 over 2006 over 2006 over over 2006 over 90 2007 2007 2007 6,565 1,501 6,140 6,396 36,362 56,945 17,150 18,605 71,814 20,013 70,142 83,170 13,466 16,825 50,762 125,533 225,872 225,872 585,094 585,094 154,058 256,699 134,883 443,815 156,531 1 1 5 (7) 58 66 37 79 26 28 24 25 28 27 17 (14) 156 433 433 208 208 108 325 138 188 122 Hotels Hotels Hotels Change Change Change over 2006 over 2006 over over 2006 over 1 62 52 18 11 21 873 207 247 118 365 712 157 122 158 539 149 299 2007 2007 2007 1,674 1,674 3,949 3,949 1,427 3,392 1,381 1,808 Franchised Candlewood Suites Candlewood Indigo Hotel Other Managed InterContinental Plaza Crowne Holiday Inn Holiday Inn Express Suites Staybridge Owned and leased Managed Franchised Holiday Inn Holiday Inn Express Suites Staybridge Suites Candlewood Indigo Hotel Other InterContinental Plaza Crowne Total At 31 December Total Total type by ownership Analysed At 31 December by brand Analysed pipeline signings Global Global pipeline Global Analysed by ownership type by ownership Analysed Total Total At 31 December by brand Analysed Global hotel and room count and room hotel Global Business review continued

The Americas

Americas results

12 months ended 31 December 2007 2006 % $m $m change Revenue Revenue and operating profit from continuing operations Owned and leased 257 192 33.9 increased by 15.9% to $902m and 11.4% to $440m respectively. Managed 156 143 9.1 Discontinued operations include the results of hotels sold during Franchised 489 443 10.4 2006 and 2007, together with two hotels currently on the market Continuing operations 902 778 15.9 for disposal. Including discontinued operations, revenue increased by 13.1% whilst operating profit increased by 12.0%. Discontinued operations* 62 74 (16.2) Total $m 964 852 13.1 The region achieved healthy RevPAR growth across all ownership types and RevPAR premiums to the US market segments for hotels Sterling equivalent £m 481 463 3.9 operating under InterContinental, Crowne Plaza, Holiday Inn and Holiday Inn Express brands. During the fourth quarter, consistent Operating profit before exceptional items with the US market, the region was impacted by a marginal softening Owned and leased 40 22 81.8 in RevPAR growth due to a slight decline in occupancy levels. Managed 41 50 (18.0) Continuing owned and leased revenue increased by 33.9% to Franchised 425 382 11.3 $257m and operating profit increased by 81.8% to $40m. Positive 506 454 11.5 underlying trading was driven by RevPAR growth of 9.7%, led by Regional overheads (66) (59) (11.9) the InterContinental brand with growth of 10.6%. The results were Continuing operations 440 395 11.4 favourably impacted by trading performance at the InterContinental Discontinued operations* 16 12 33.3 Boston which became fully operational during the first half of the Total $m 456 407 12.0 year (year-on-year profit increase of $11m) and trading at the InterContinental New York where robust market conditions lifted Sterling equivalent £m 228 221 3.2 average occupancy levels to over 90%. * Discontinued operations are all owned and leased. Managed revenues increased by 9.1% to $156m during the year, driven by strong RevPAR growth, particularly in Latin America where rate-led RevPAR growth exceeded 20%. Robust brand performance resulted in RevPAR growth premiums, compared to respective Americas comparable RevPAR movement on previous year US market segments, for InterContinental, Crowne Plaza and 12 months ended Holiday Inn. Growth in the extended stay segment was impacted 31 December 2007 by an increase in market supply. Managed revenues included Owned and leased $86m (2006 $80m) from properties that are structured, for legal InterContinental 10.6% reasons, as operating leases but with the same characteristics Managed as management contracts. InterContinental 10.8% Managed operating profit decreased by 18.0% to $41m, including Crowne Plaza 7.2% $6m (2006 $9m) from managed properties held as operating leases. Holiday Inn 7.7% The decline in profit principally reflects increased revenue Staybridge Suites 2.0% investment to support growth in contract signings, the impact Candlewood Suites 3.4% of fewer hotels under management contracts following the Franchised restructuring of the FelCor agreement in 2006, foreign exchange Crowne Plaza 7.6% losses in Latin America and lower ancillary revenues together with higher costs at one of the hotels held as an operating lease. These Holiday Inn 4.7% items reduced operating profit margins in the managed estate by Holiday Inn Express 6.7% 8.7 percentage points to 26.3% and reduced continuing operating profit margins in the region by 2.0 percentage points to 48.8%. Franchised revenue and operating profit increased by 10.4% to $489m and 11.3% to $425m respectively, compared to 2006. The increase was driven by RevPAR growth of 5.8%, net room count growth of 4.0% and fees associated with growth in signings. Regional overheads were affected positively in 2006 by lower claims in the Group-funded employee healthcare programme. Excluding this, regional overheads were in line with the prior period.

14 IHG Annual Report and Financial Statements 2007 BUSINESS REVIEW BUSINESS REVIEW 15 Business review Business The Americas pipeline continued to achieve high growth levels high growth achieve to pipeline continued The Americas 2007. at 31 December (141,157 rooms) 1,330 hotels and totalled compared completed, were signings 75,279 room During the year, outpaced signings in 2006. These signing levels with 61,673 room Inn and Holiday Inn Express Holiday as demand for the prior year brands, stay the extended Furthermore, accelerate. to continued 24.3% of contributed Suites, and Candlewood Suites Staybridge signings. room the region’s The Americas hotel and room count grew by 150 hotels (13,950 by 150 hotels grew count and room hotel The Americas included growth The (408,859 rooms). hotels 3,080 to rooms) demand by continued led (31,744 rooms) openings of 274 hotels Franchised (13,908 rooms). of 156 hotels Holiday Inn Express for the reflecting 98% of net growth, over contributed hotels also Net growth model. the franchised demand for sustained Holiday of which rooms), (17,794 hotels of 124 included removals 54.0% (69.2% of rooms). represented Inn hotels 99 439 787 608 (650) 6,463 3,894 6,882 5,289 2,513 2,676 3,197 3,520 1,251 Rooms Rooms Change Change (8,068) 35,472 35,472 13,950 13,950 10,729 14,161 34,221 10,833 over 2006 over over 2006 over 2007 2007 3,722 9,036 6,565 4,961 1,501 4,029 33,029 15,921 18,605 54,279 47,893 13,466 16,825 39,696 16,624 141,157 141,157 408,859 408,859 177,999 136,196 365,134 134,551 2 7 4 1 5 (2) 53 32 79 13 28 17 25 28 (35) 318 318 150 150 111 311 148 109 Hotels Hotels Change Change over 2006 over over 2006 over 8 37 52 21 11 50 11 265 614 147 207 952 122 158 193 172 2007 2007 1,330 1,330 3,080 3,080 1,309 2,876 1,615 Managed Franchised Crowne Plaza Crowne Holiday Inn Holiday Inn Express Suites Staybridge Suites Candlewood Indigo Hotel InterContinental Owned and leased Managed Franchised Holiday Inn Holiday Inn Express Suites Staybridge Suites Candlewood Indigo Hotel InterContinental Plaza Crowne Analysed by ownership type by ownership Analysed Total Total Americas pipeline Americas At 31 December by brand Analysed Total Total type by ownership Analysed At 31 December by brand Analysed Americas hotel and room count and room hotel Americas Business review continued

Europe, Middle East and Africa

EMEA results

12 months ended 31 December 2007 2006 % £m £m change Revenue Revenue and operating profit from continuing operations Owned and leased 121 92 31.5 increased by 23.7% to £245m and 81.1% to £67m respectively. Managed 84 71 18.3 Including discontinued operations, revenue decreased by 23.3% Franchised 40 35 14.3 whilst operating profit increased by 8.1%, reflecting the impact Continuing operations 245 198 23.7 of hotels sold and converted to management and franchise contracts over the past two years. Discontinued operations* 9 133 (93.2) Total £m 254 331 (23.3) During the year, the region achieved RevPAR growth of 8.6% driven by substantial gains across all brands and ownership types. Dollar equivalent $m 509 608 (16.3) From a regional perspective, RevPAR levels benefited from the positive market conditions in the Middle East, France and the UK. Operating profit before exceptional items The region’s continuing operating profit margins increased by Owned and leased 17 (4) 525.0 8.6 percentage points to 27.3% as a result of improved revenue Managed 43 37 16.2 conversion in the owned and leased portfolio and increased Franchised 29 24 20.8 scalability in the franchised operations. 89 57 56.1 In the owned and leased estate, continuing revenue increased Regional overheads (22) (20) (10.0) by 31.5% to £121m as a result of trading at the InterContinental Continuing operations 67 37 81.1 London Park Lane which became fully operational during the first Discontinued operations* – 25 – half of 2007, together with strong rate-led RevPAR growth at the Total £m 67 62 8.1 InterContinental Paris Le Grand. Effective revenue conversion led to an increase in continuing operating profit of £21m to £17m, Dollar equivalent $m 135 114 18.4 including operating profit growth of £14m at the InterContinental London Park Lane. * Discontinued operations are all owned and leased. EMEA managed revenues increased by 18.3% to £84m and operating profit increased by 16.2% to £43m. The growth was driven by management contracts negotiated in 2006 as part of EMEA comparable RevPAR movement on previous year the hotel disposal programme in Europe and strong underlying 12 months ended trading in markets such as the Middle East, the UK, Spain 31 December 2007 and Russia. Owned and leased InterContinental 14.0% Franchised revenue and operating profit increased by 14.3% to £40m and 20.8% to £29m respectively. The growth was principally All ownership types driven by RevPAR gains and room count expansion in the UK and UK 6.2% Continental Europe. Continental Europe 7.6% Middle East 19.6%

16 IHG Annual Report and Financial Statements 2007 BUSINESS REVIEW BUSINESS REVIEW 17 Business review Business During 2007, EMEA hotel and room count increased by 28 hotels increased count and room During 2007, EMEA hotel The net growth (109,560 rooms). 651 hotels to (2,960 rooms) removal and the (7,956 rooms) of 55 hotels included the opening by openings was led growth System (4,996 rooms). of 27 hotels the largest Holiday Inn was (2,522 rooms). in the UK of 22 hotels total. 50% of the region’s openings, adding over of room contributor to (10,832 rooms) by 44 hotels The pipeline in EMEA increased of level included a record The growth rooms). (32,889 187 hotels demand in the Middle exceptional by signings, driven 19,153 room and Saudi Arabia. Emirates Arab in the United particularly East, the Holiday Inn brand demand for sustained the region, Across the region whilst signings during the year 6,004 room to led the signings for in room increase a significant also experienced The EMEA pipeline Plaza brands. and Crowne InterContinental the of which (1,229 rooms), hotels Suites included 10 Staybridge East open in the UK and the Middle to expected are hotels first during 2008. 90 886 651 2,960 2,960 3,318 2,214 1,271 5,976 3,411 2,631 1,728 2,321 7,514 Rooms Rooms Change Change (1,414) (1,602) (1,411) 10,832 10,832 over 2006 over over 2006 over 90 2007 2007 5,960 6,298 9,546 9,766 1,229 1,674 17,326 32,889 32,889 17,686 15,203 52,842 19,380 39,073 68,813 20,012 109,560 109,560 5 1 4 (3) (3) (5) (4) 28 28 44 44 13 14 10 17 31 18 10 36 Hotels Hotels Change Change over 2006 over over 2006 over 1 5 24 25 51 76 10 70 62 72 651 187 187 651 117 335 182 171 475 2007 2007 Staybridge Suites Staybridge Other Managed Franchised InterContinental Plaza Crowne Holiday Inn Holiday Inn Express Holiday Inn Holiday Inn Express Owned and leased Managed Franchised InterContinental Plaza Crowne Total type by ownership Analysed Total At 31 December by brand Analysed Total EMEA pipeline Total type by ownership Analysed At 31 December by brand Analysed EMEA hotel and room count and room EMEA hotel Business review continued

Asia Pacific

Asia Pacific results

12 months ended 31 December 2007 2006 % $m $m change Revenue Asia Pacific revenue increased by 27.5% to $260m whilst Owned and leased 145 131 10.7 operating profit increased by 21.2% to $63m. Managed 99 65 52.3 The region achieved strong RevPAR growth across all brands and Franchised 16 8 100.0 ownership types and continued its strategic expansion in China Total $m 260 204 27.5 and Japan. Strong growth in total profit was achieved; however, revenue conversion was impacted by continued investment to Sterling equivalent £m 130 111 17.1 support expansion, resulting in a 1.3 percentage point reduction in operating profit margins to 24.2%. Operating profit before exceptional items Owned and leased 36 31 16.1 In the owned and leased estate, revenue increased by 10.7% to Managed 46 39 17.9 $145m due to the combined impact of strong room and food and beverage trading at the InterContinental Hong Kong, despite the Franchised 6 5 20.0 impact of renovation works throughout a significant part of the 88 75 17.3 year. The hotel’s revenue growth combined with profit margin Regional overheads (25) (23) (8.7) gains drove the estate’s operating profit growth of 16.1% to $36m. Total $m 63 52 21.2 Managed revenues increased by 52.3% to $99m as a result of the full year contribution from the hotels which joined the system Sterling equivalent £m 31 29 6.9 in 2006 as part of the IHG ANA joint venture in Japan, continued organic expansion in China and solid RevPAR growth across Southern Asia and Australia. Operating profit increased by Asia Pacific comparable RevPAR movement on previous year 17.9% to $46m as revenue gains were offset by integration and ongoing costs associated with the ANA joint venture and 12 months ended 31 December 2007 continued infrastructure investment in China. Owned and leased Franchised revenues doubled from $8m to $16m, primarily driven InterContinental 7.3% by hotels in the IHG ANA joint venture. Similar to the managed All ownership types operations, growth in profitability was impacted by ANA Greater China 7.0% integration and ongoing costs. Regional overheads increased by $2m to $25m primarily as a result of investment in technology and corporate infrastructure in China and Japan and included the favourable impact of a legal settlement.

18 IHG Annual Report and Financial Statements 2007 BUSINESS REVIEW BUSINESS REVIEW 19 Business review Business During 2007, net central costs were flat on 2006 but increased were costs During 2007, net central currency at constant in line with inflation when translated rates. exchange The pipeline in Asia Pacific increased by 71 hotels (21,577 rooms) by 71 hotels increased The pipeline in Asia Pacific China Demand in the Greater (51,826 rooms). 157 hotels to 82.3% and represented the year throughout continued market Crowne perspective, a brand signings. From room of the region’s half of the over contributing interest, significant Plaza attracted signings. room total Asia Pacific hotel and room count increased by 30 hotels by 30 hotels increased count and room hotel Asia Pacific The net growth (66,675 rooms). 218 hotels to (11,938 rooms) China reflecting in Greater (7,827 rooms) included 16 hotels together markets, strategic in one of IHG’s expansion continued as in Japan that joined the system (3,542 rooms) with 15 hotels venture. part of the IHG ANA joint – % 176 845 2,604 3,980 1,572 2,475 1,363 2,083 5,172 1,106 Rooms Rooms Change Change 11,938 11,938 21,577 21,577 13,421 21,401 10,832 over 2006 over over 2006 over 55 5.5 £m change (81) – 2006 176 693 2007 2007 (136) (2.2) (149) (9.4) 6,097 9,868 2,600 6,140 66,675 66,675 51,826 51,826 51,650 10,331 21,028 14,370 56,114 14,126 17,951 25,858 12 months ended 31 December 1 4 4 3 3 3 – 30 30 71 71 70 10 35 16 10 26 17 58 £m (81) 2007 (139) (163) Hotels Hotels Change Change over 2006 over over 2006 over 1 2 30 56 49 22 41 37 55 94 11 21 218 157 157 218 156 175 2007 2007 Holiday Inn Express Managed Franchised InterContinental Plaza Crowne Holiday Inn Franchised Holiday Inn Holiday Inn Express Other Owned and leased Managed InterContinental Plaza Crowne Dollar equivalent $m Revenue costs central Gross Net central costs £m Central results Central Total type by ownership Analysed Total At 31 December by brand Analysed Total pipeline Asia Pacific Total type by ownership Analysed At 31 December by brand Analysed Asia Pacific hotel and room count and room hotel Asia Pacific Business review continued

Other financial information Cash flow The net movement in cash and cash equivalents in the 12 months Exceptional operating items to 31 December 2007 was an outflow of £131m. This included net Exceptional operating items of £30m included an £18m gain cash inflows from operating activities of £232m, net cash on the sale of financial assets and an £11m gain on the sale overflows from investing activities of £19m and net cash outflows of associate investments. from financing activities of £344m. Exceptional operating items are treated as exceptional items Key components of investing and financing activities included: by reason of their size or nature and are excluded from the • proceeds from the disposal of hotels and equity investments calculation of adjusted earnings per share in order to provide totalled £106m; a more meaningful comparison of performance. • capital expenditure totalled £93m and included the completion Net financial expenses of the major refurbishment at the InterContinental London Net financial expenses increased from £11m in 2006 to £45m Park Lane and the renovation works at the InterContinental in 2007, as a result of higher debt levels following payment Hong Kong; of the £709m special dividend in June 2007. • cash outflows associated with shareholder returns during the Financing costs included £10m (2006 £10m) of interest costs year included a special dividend of £709m and share buybacks associated with Priority Club Rewards where interest is charged of £81m; and on the accumulated balance of cash received in advance of the • increased borrowings of £553m. redemption points awarded. Financing costs in 2007 also included £9m (2006 £4m) in respect of the InterContinental Boston IHG’s cash flow strategy has focused on reducing capital finance lease. intensity and returning surplus funds to shareholders. Capital investment in new projects will be made where this creates value Taxation by accelerating the development of IHG’s brands. Such investment The effective rate of tax on profit before tax, excluding the impact will be funded largely from the proceeds of hotel and minority of exceptional items, was 22% (2006 24%). By also excluding shareholding disposals, with the objective of subsequently the impact of prior year items, which are included wholly within recycling that capital into other projects. continuing operations, the equivalent tax rate would be 36% (2006 36%). This rate is higher than the UK statutory rate of Capital structure and liquidity management 30% due mainly to certain overseas profits (particularly in the US) Net debt at 31 December 2007 was £825m and included £100m being subject to statutory rates higher than the UK statutory rate in respect of the finance lease commitment for the and disallowable expenses. InterContinental Boston.

Taxation within exceptional items totalled a credit of £30m 2007 2006 (2006 £94m credit) in respect of continuing operations. This Net debt at 31 December £m £m represented, primarily, the release of exceptional provisions Borrowings (including derivatives): relating to tax matters which were settled during the year, or Sterling 275 102 in respect of which the statutory limitation period had expired. US dollar 439 282 In 2006, taxation exceptional items, in addition to such provision Euro 121 101 releases, included £12m for the recognition of a deferred tax Other 48 48 asset in respect of tax losses. Cash (including derivatives) (58) (403) Net tax paid in 2007 totalled £69m (2006 £49m) including £32m 825 130 (2006 £6m) in respect of disposals. Excluding fair value of derivatives (net) – 4 Earnings per share Net debt 825 134 Basic earnings per share in 2007 were 72.2p, compared with 104.1p Average debt levels 536 92 in 2006. Adjusted earnings per share were 48.4p, against 42.9p in 2007 2006 2006. Adjusted continuing earnings per share were 46.9p, 23.4% up Facilities at 31 December £m £m on last year. Committed 1,154 1,157 Dividends Uncommitted 25 39 The Board has proposed a final dividend per share of 14.9p; Total 1,179 1,196 with the interim dividend per share of 5.7p, the normal dividend per share for 2007 will total 20.6p. Interest risk profile of net debt for major currencies (including 2007 2006 Share price and market capitalisation derivatives) at 31 December % % The IHG share price closed at 884.0p on 31 December 2007, down At fixed rates 45 57 from 1262.0p on 31 December 2006. The market capitalisation of At variable rates 55 43 the Group at the year end was £2.6bn.

20 IHG Annual Report and Financial Statements 2007 BUSINESS REVIEW BUSINESS REVIEW 21 book value £0.9bn Business review Business to dateto be returned 18 181 £3.0bn £2.9bn Total Returned Still to to Returned Total Still return Number Net of hotels Proceeds £3,603m £3,503m £100m Timing Under way £150m £50m £100m At the year end, £100m of this buyback was outstanding. end, £100m of this buyback was outstanding. At the year shareholders. £3.5bn to IHG has returned 2004, March Since The Syndicated Bank Facility contains two financial covenants, two contains Facility Bank The Syndicated interest cover and net debt/earnings before interest, tax, depreciation tax, interest, before and net debt/earnings cover interest with both is in compliance Group and amortisation. The a material represent to neither of which is expected covenants, future. policy in the foreseeable funding or investment on restriction be management can treasury on the Group’s information Further Financial the Group to on page 74 in the notes 21 in note found 2007. Statements its of growing strategy continued support IHG’s These transactions ownership. asset reducing whilst business managed and franchised of £2.9bn have with a net book value April 2003, 181 hotels Since of £3.0bn, of which 162 proceeds aggregate been sold, generating the successful through system in the IHG remained of these hotels agreements. negotiation of either management or franchise of equity interests a number During 2007, IHG also divested in interest £57m, including a 33.3% totalled of which proceeds £19m and a 15% interest Plaza London The City for the Crowne £11m. for Chicago in the InterContinental Paid in July 2005 in July Paid £996m £996m Nil Paid in June 2006Paid in June 2007Paid £497m £709m £497m £709m Nil Nil Completed in 2007Completed £250m £250m Nil Completed in 2004Completed in 2006Completed £250m £250m £250m £250m Nil Nil Paid in December 2004 in December Paid £501m £501m Nil £150m share buyback £150m share Total £501m special dividend buyback £250m share First return £996m capital buyback £250m share Second £497m special dividend buyback £250m share Third £709m special dividend Disposed since April 2003 Disposed since hotels and leased Remaining owned transaction costs, approximately $9m above net book value. $9m above approximately costs, transaction contract; franchise a 10 year IHG retained Under the agreement, £5m above approximately costs, transaction £17m before for a 30 year IHG retained Under the agreement, book value. and on the hotel; management contract Under book value. £2m above approximately costs, transaction contract. franchise year a five IHG retained the agreement, In the year, IHG paid a £709m special dividend, completed a third IHG paid a £709m special dividend, completed In the year, buyback. a £150m share buyback and commenced £250m share Treasury policy is to manage financial risks that arise in relation financial risks that arise manage to policy is Treasury treasury The activities of the needs. business underlying to approved with Board out in accordance carried function are function audit. The treasury regular subject to policies and are centre. as a profit does not operate at 31 December requirements borrowing Medium and long-term which Bank Facility a £1.1bn Syndicated met through 2007 were requirements borrowing Short-term 2009. in November matures and committed under drawings met from principally were end, the Group At the year facilities. loan bilateral uncommitted drawing. for available facilities had £377m of committed Return of funds programme During 2007, IHG achieved further progress with its asset disposal its asset with further progress During 2007, IHG achieved including: programme, • $21m before Plaza Santiago for of the Crowne sale the • Montreal of the InterContinental of its 74.11% share sale the • £14m before for Paris of the Holiday Inn Disney, sale the Asset disposal programme disposal Asset Business review continued

Risk management rights to the same extent as the laws in the US and the European Union. This is particularly relevant in China where, despite recent The Group is subject to a variety of risks which could have a improvements in intellectual property rights, the relative lack negative impact on its performance and financial condition. The of protection increases the risk that the Group will be unable Board is responsible for the Group’s system of internal control to prevent infringements of its intellectual property in this key and risk management, and for reviewing its effectiveness. In order growth market. Any widespread infringement or misappropriation to discharge that responsibility, the Board has established an could materially harm the value of the Group’s brands and its ongoing process to identify significant business risks facing the ability to develop the business. Group. The Board also receives assurance from the internal The Group is exposed to a variety of risks related to identifying, audit and risk management functions that these risks are being securing and retaining management and franchise agreements appropriately managed, having regard to the balance of risk, The Group’s growth strategy depends on its success in identifying, cost and opportunity. securing and retaining management and franchise agreements. This section describes some of the risks that could materially Competition with other hotel companies may generally reduce affect the Group’s business. The factors below should be considered the number of suitable management, franchise and investment in connection with any financial and forward-looking information opportunities offered to the Group and increase the bargaining in this Business Review and the cautionary statements contained power of property owners seeking to engage a manager or on page 101. become a franchisee. The terms of new management or franchise agreements may not be as favourable as current arrangements The risks below are not the only ones that the Group faces. and the Group may not be able to renew existing arrangements Some risks are not yet known to IHG and some that IHG does not on the same terms. currently believe to be material could later turn out to be material. All of these risks could materially affect the Group’s business, There can also be no assurance that the Group will be able to revenue, operating profit, earnings, net assets and liquidity identify, retain or add franchisees to the Group system or to and/or capital resources. secure management contracts. For example, the availability of suitable sites, planning and other local regulations or the The Group is reliant on the reputation of its brands and the availability and affordability of finance may all restrict the supply protection of its intellectual property rights of suitable hotel development opportunities under franchise or Any event that materially damages the reputation of one or more management agreements. There are also risks that significant of the Group’s brands and/or failure to sustain the appeal of the franchisees or groups of franchisees may have interests that Group’s brands to its customers could have an adverse impact conflict, or are not aligned, with those of the Group including, on the value of that brand and subsequent revenues from that for example, the unwillingness of franchisees to support brand brand or business. In addition, the value of the Group’s brands is improvement initiatives. In connection with entering into influenced by a number of other factors, some of which may be management or franchise agreements, the Group may be outside the Group’s control, including commoditisation (whereby required to make investments in, or guarantee the obligations price/quality becomes relatively more important than brand of, third-parties or guarantee minimum income to third-parties. identifications due, in part, to the increased prevalence of third- party intermediaries), consumer preference and perception, Changes in legislation or regulatory changes may be failure by the Group or its franchisees to ensure compliance implemented that have the effect of favouring franchisees relative with the significant regulations applicable to hotel operations to brand owners. (including fire and life safety requirements), or other factors The Group is exposed to the risks of political and economic affecting consumers’ willingness to purchase goods and services, developments including any factor which adversely affects the reputation of The Group is exposed to the risks of global and regional adverse those brands. political, economic and financial market developments, including In particular, where the Group is unable to enforce adherence to recession, inflation and currency fluctuations that could lower its operating and quality standards, or the significant regulations revenues and reduce income. A recession in one country or more applicable to hotel operations, pursuant to its management and widely tends to reduce leisure and business travel to and from franchise contracts, there may be further adverse impact upon affected countries and would adversely affect room rates and/or brand reputation or customer perception and therefore the value occupancy levels and other income-generating activities resulting of the hotel brands. in deterioration of results of operations and potentially reducing the value of properties in affected economies. The owners or Given the importance of brand recognition to the Group’s potential owners of hotels managed or franchised by one group business, the Group has invested considerable effort in protecting face similar risks which could adversely affect IHG’s ability to its intellectual property, including registration of trademarks and secure management or franchise agreements. More specifically, domain names. However, the laws of certain foreign countries in the Group is highly exposed to the US market and, accordingly, is which the Group operates do not protect the Group’s proprietary particularly susceptible to adverse changes in the US economy.

22 IHG Annual Report and Financial Statements 2007 BUSINESS REVIEW BUSINESS REVIEW 23 Business review Business The Group is reliant upon its proprietary reservation system system reservation proprietary upon its is reliant The Group and in the system failures the risk of to and is exposed infrastructure in reservation competition increased the from derived is partly of the Group of the brands The value HolidexPlus its proprietary through reservations drive ability to channel booking and delivery an electronic system, reservation networks. and internet hotels agents, travel to linked directly or inadequate arrangements, recovery disaster Inadequate of key loss to leading in this technology, investment continued HolidexPlus, to in relation linkages, particularly communications parts of the IT and other key channels reservation internet may period, or permanently, a prolonged for infrastructure and subsequent interruption business in significant result impact on revenues. third- from the risk of competition to is also exposed The Group In infrastructure. reservation who provide party intermediaries in the use of these reservation increase particular, any significant channels may impact the proprietary to channels in preference of and price presentation the supply, control ability to Group’s inventory. its room technology to risks in relation certain to is exposed The Group and systems technologies upon certain is reliant the Group degrees, varying To the running of its business, for (including IT systems) and systems with business integrated highly those which are particularly could systems or those technologies Disruption to processes. notwithstanding of the business, the efficiency affect adversely The Group processes. recovery or disaster continuity business in new additional investments substantial make to may have keep to Failing competitive. remain to or systems technologies may put the or systems in technologies with developments pace or systems The technologies disadvantage. at a competitive Group successful chooses may not be commercially that the Group may not be employed strategy or system or the technology to or responsive business the needs of the aligned to sufficiently lose could the Group As a result, strategy. changes in business or incur substantial customers new attract to fail customers, an develop to failure Additionally, other losses. or face costs the right partners and select strategy e-commerce appropriate share. market the Group’s erode could supply industry the risks of the hotel to is exposed The Group and demand cycle be adversely could of the Group results operating The future and weak (by number of rooms) over-capacity by industry affected industry, of the hotel nature the cyclical demand due, in part, to and actual planning assumptions between or other differences and occupancy rates Reductions in room conditions. operating operations. of Group impact the results adversely would levels Further political or economic factors or regulatory action could action or regulatory factors or economic political Further or selling from, profits receiving from the Group prevent effectively affect adversely or otherwise countries, in, certain its investments in or legislation rates tax to changes example, For operations. the decrease could operates the Group the jurisdictions in which or the Group’s retain, to is entitled the Group of profits proportion to may prove laws and regulations tax of various interpretation charges. tax in higher than expected resulting be incorrect, between rates exchange in currency In addition, fluctuations its financial reports which the Group in the currency sterling, in which the US dollar and other currencies and statements, do business, or investments operations international the Group’s earnings and the value reported the Group’s affect adversely could been experienced Fluctuations of this type have of its business. of sterling strengthening the significant with years recent over are profits As the majority of the Group’s dollar. the US against a significant in the US, such fluctuations may have generated results. reported impact on the Group’s key and retaining recruiting is dependent upon The Group their skills developing and personnel the Group its products, support and market develop, to In order with particular employees skilled highly and retain hire must business strategic of the Group’s The implementation expertise. key or retain recruit to be undermined by failure plans could failures senior employees, of key loss unexpected the personnel, plans, or a planning and incentive succession in the Group’s skills. Some of the of key in the development invest to failure rapid experiencing are operates in which the Group markets a number against compete must and the Group growth economic for industry inside and outside the hospitality of companies attract to Failure employees. qualified or experienced suitably of the the success may threaten these employees and retain skills unless Additionally, in these markets. operations Group’s knowledge enable to by a sufficient infrastructure supported are accumulated risks losing on, the Group be passed and skills to the Group. leave employees if key knowledge impact that adversely the risk of events to is exposed The Group travel or international domestic could of the Group levels and occupancy rates The room or domestic that reduce by events impacted be adversely acts of terrorism such as actual or threatened travel, international travel-related accidents, or war, epidemics, travel-related and and fuel costs transportation action, increased industrial or other travel worldwide in reduced resulting disasters natural in the A decrease impacting individual hotels. factors local an may have of such events as a result rooms hotel demand for and financial results. operations impact on the Group’s adverse planning or contingency preparedness, In addition, inadequate a major incident or crisis may to in relation capability recovery impact the and consequently continuity operational prevent of the Group. reputation or the of the brand value Business review continued

The Group may experience a lack of selected development existing facilities on terms it considers favourable. The availability opportunities of funds for future financing is, in part, dependent on conditions While the strategy of the Group is to extend the hotel network and liquidity in the capital markets. through activities that do not involve significant capital, in some The Group is required to comply with data privacy regulations cases the Group may consider it appropriate to acquire new land Existing and emerging data privacy regulations limit the extent or locations for the development of new hotels. If the availability to which the Group can use customer information for marketing of suitable sites becomes limited, this could adversely affect its or promotional purposes. Compliance with these regulations results of operations. in each jurisdiction in which the Group operates may require The Group is exposed to risks related to corporate responsibility changes in marketing strategies and associated processes which The reputation of the Group and the value of its brands are could increase operating costs or reduce the success with which influenced by a wide variety of factors, including the perception products and services can be marketed to existing or future of key stakeholders and the communities in which the Group customers. In addition, non-compliance with privacy regulations operates. The social and environmental impacts of business are may result in fines, damage to reputation or restrictions on the under increasing scrutiny, and the Group is exposed to the risk use or transfer of information. of damage to its reputation if it fails to demonstrate sufficiently The Group is exposed to funding risks in relation to the defined responsible practices in a number of areas such as sustainability, benefits under its pension plans responsible tourism, environmental management, human rights The Group is required by law to maintain a minimum funding and support for the local community. level in relation to its ongoing obligation to provide current and The Group is exposed to the risk of litigation future pensions for members of its pension plans who are entitled The Group could be at risk of litigation from its guests, customers, to defined benefits. In addition, if any plan of the Group is wound joint venture partners, suppliers, employees, regulatory authorities, up, the Group could become statutorily liable to make an franchisees and/or the owners of hotels managed by it for breach immediate payment to the trustees to bring the funding of these of its contractual or other duties. Claims filed in the US may defined benefits to a level which is higher than this minimum. include requests for punitive damages as well as compensatory The contributions payable by the Group must be set with a view damages. Exposure to litigation or fines imposed by regulatory to making prudent provision for the benefits accruing under the authorities may affect the reputation of the Group even though plans of the Group. the monetary consequences are not significant. Some of the issues which could adversely affect the funding of The Group may face difficulties insuring its business these defined benefits (and materially affect the Group’s funding Historically, the Group has maintained insurance at levels obligations) include: determined by it to be appropriate in light of the cost of cover • poor investment performance of pension fund investments and the risk profiles of the business in which it operates. However, which are substantially weighted towards global equity forces beyond the Group’s control including market forces, may markets; limit the scope of coverage the Group can obtain as well as the Group’s ability to obtain coverage at reasonable rates. Other • long life expectancy (which will make pensions payable forces beyond the Group’s control, such as terrorist attacks or for longer and therefore more expensive to provide); natural disasters may be uninsurable or simply too expensive • adverse annuity rates (which tend in particular to depend to insure against. Inadequate or insufficient insurance could on prevailing interest rates and life expectancy) as these will expose the Group to large claims or could result in the loss of make it more expensive to secure pensions with an insurance capital invested in properties, as well as the anticipated future company; and revenue from properties, and could leave the Group responsible • other events occurring which make past service benefits more for guarantees, debt or other financial obligations related to expensive than predicted in the actuarial assumptions by such properties. reference to which the Group’s past contributions were assessed. The Group is exposed to a variety of risks associated with its ability The trustees of the UK defined benefit plan can demand increases to borrow and satisfy debt covenants to the contribution rates relating to the funding of this pension The Group is reliant on having access to borrowing facilities plan, which would oblige the relevant members of the Group to to meet its expected capital requirements and to maintain an contribute extra amounts to such pension funds. The trustees efficient balance sheet. The majority of the Group’s borrowing must consult the plan’s actuary and principal employer before facilities are only available if the financial covenants in the exercising this power. In practice, contribution rates are agreed facilities are complied with. If the Group is not in compliance between the Group and the trustees on actuarial advice, and are with the covenants, the lenders may demand the repayment of set for three year terms. The last such review was as at the funds advanced. If the Group’s financial performance does 31 March 2006. not meet market expectations it may not be able to refinance its

24 IHG Annual Report and Financial Statements 2007 THE BOARD, SENIOR THEMANAGEMENT BOARD, SENIOR AND MANAGEMENTTHEIR RESPONSIBILITIES AND THEIR RESPONSIBILITIES 25 Business review and The Board, senior management and their responsibilities and The Board, review Business The Board of Directors The Board Committee of the Executive Other members report Directors’ governance Corporate report Audit Committee report Remuneration remuneration on executive Policy Components of remuneration appointments on external Policy graph Performance of service Contracts pensions regarding Policy remuneration on non-executive Policy emoluments Directors’ Plan Incentive Deferred Short Term Plan Incentive Long Term options Share shareholdings Directors’ pensions Directors’ Remuneration Committee Committee Remuneration The Board, senior management and their responsibilities senior management The Board, team, senior management and our Board we present In this section compliance and our and procedures, processes our governance also We committed. are which we to and regulations with the codes 2007. in remuneration of Directors’ details present 26 27 28 30 35 36 36 36 37 38 39 39 39 40 40 41 42 43 43 44 The Board of Directors

David Webster Non-Executive Chairman* Ralph Kugler Non-Executive Director• Appointed Deputy Chairman and Senior Independent Director Appointed a Director in April 2003, he is President, Unilever of InterContinental Hotels Group on the separation of Home and Personal Care, and joined the boards of Unilever plc Six Continents PLC in April 2003. Appointed Non-Executive and Unilever NV in May 2005. Held a variety of senior positions Chairman on 1 January 2004. Also Non-Executive Chairman globally for Unilever and has experience of regional management of Makinson Cowell Limited, a capital markets advisory firm, in Asia, Latin America and Europe, with over 25 years’ experience and a member of the Appeals Committee of the Panel on of general management and brand marketing. Will become Takeovers and Mergers. Formerly Chairman of Safeway plc Chairman of the Remuneration Committee following the and a Non-Executive Director of Reed Elsevier PLC. Chairman retirement of Sir David Prosser on 31 May 2008. Age 51. of the Nomination Committee. Age 63. Jennifer Laing Non-Executive Director• † Andrew Cosslett Chief Executive Appointed a Director in August 2005, she was Associate Dean, Appointed Chief Executive in February 2005, joining the External Relations at London Business School, until 2007. A fellow Group from Cadbury Schweppes plc where he was most recently of the Marketing Society and of the Institute of Practitioners in President, Europe, Middle East & Africa. During his career Advertising, she has over 30 years’ experience in advertising at Cadbury Schweppes he held a variety of senior regional including 16 years with Saatchi & Saatchi, to whom she sold her management and marketing roles in the UK and Asia Pacific. own agency. Also serves as a Non-Executive Director of Hudson Also has over 11 years’ experience in brand marketing with Highland Group Inc., a US human resources company. Age 60. Unilever. Non-Executive Chairman of Duchy Originals Limited. Age 52. Robert C Larson Non-Executive Director‡ Appointed a Director in April 2003, he is a Managing Director † Richard Solomons Finance Director of Lazard Alternative Investments LLC and Chairman of Qualified as a chartered accountant in 1985, followed by seven Lazard Real Estate Partners, LLC. Also Chairman of Larson years in investment banking, based in London and New York. Realty Group and Non-Executive Chairman of UDR, Inc. Served Joined the Group in 1992 and held a variety of senior finance as a Non-Executive Director of Six Continents PLC (formerly and operational roles. Appointed Finance Director of the Hotels Bass PLC) from 1996 until April 2003. Will retire from the Board business in October 2002 in anticipation of the separation of on 31 December 2008. US citizen. Age 73. Six Continents PLC in April 2003. Responsible for corporate and regional finance, Group financial control, strategy, investor Jonathan Linen Non-Executive Director‡ relations, tax and treasury. Age 46. Appointed a Director in December 2005, he was formerly Vice Chairman of the American Express Company, having held † Stevan Porter President, The Americas a range of senior positions throughout his career of over 35 years Previously 13 years with Hilton Corporation in a variety with American Express. Also serves as a Non-Executive Director of senior management positions. Joined the Group in 2001 of Yum! Brands, Inc. and on a number of US Councils and advisory as Chief Operating Officer, The Americas. Subsequently, as boards. US citizen. Age 64. President, The Americas, he was appointed an Executive Director in April 2003. Responsible for the business development and Sir David Prosser Non-Executive Director# performance of all the hotel brands and properties in the Qualified actuary with over 40 years’ experience in financial Americas region. Additionally, has responsibility for the services. Appointed a Director in April 2003, he was formerly development and deployment of best practice in franchising, Group Chief Executive of Legal & General Group Plc. Also a globally. US citizen. Age 53. Non-Executive Director of Investec plc and of Investec Limited, a Director of the Royal Automobile Club Limited and of Epsom # David Kappler Senior Independent Non-Executive Director Downs Racecourse Limited. Chairman of the Remuneration Appointed a Director and Senior Independent Director in Committee. Will retire from the Board on 31 May 2008. Age 63. June 2004. Non-Executive Chairman of Premier Foods plc and a Non-Executive Director of Shire plc. A qualified accountant Ying Yeh Non-Executive Director‡ and formerly Chief Financial Officer of Cadbury Schweppes plc Appointed a Director in December 2007, she is Chairman and until April 2004. Also served as a Non-Executive Director President, North Asia Region, President, Business Development, of Camelot Group plc and of HMV Group plc. Chairman of Asia Pacific Region and Vice President, Eastman Kodak Company. the Audit Committee. Age 60. Also a Non-Executive Director of AB Volvo. Prior to joining Kodak in 1997 she was, for 15 years, a diplomat with the US Foreign Service in Hong Kong and Beijing. US citizen. Age 59.

26 IHG Annual Report and Financial Statements 2007 THE BOARD, SENIOR THEMANAGEMENT BOARD, SENIOR AND MANAGEMENTTHEIR RESPONSIBILITIES AND THEIR RESPONSIBILITIES 27 where where ® †§ Executive Vice President and President Vice Executive Not a main Board Director Not a main Board A Non-Executive Director and a member of the Director A Non-Executive Nomination Committee Committee A member of the Executive and a member Director An independent Non-Executive and Nomination Committees of the Audit, Remuneration and a member Director An independent Non-Executive of the Audit and Nomination Committees and a member Director An independent Non-Executive Nomination Committees and of the Remuneration The Board of Directors and other members of and other members of Directors The Board the comprise together Committee the Executive Team. IHG Senior Leadership and specific legal certain have Directors the While with and work they duties and responsibilities, regulatory of all the and experience knowledge on the detailed rely the effective secure to members Committee Executive purpose core in support of IHG’s running of the business Love. Guests Hotels Great create to * he was responsible for worldwide sales and marketing activities. and marketing sales worldwide for he was responsible in management consulting held senior positions Has in the past brand worldwide for Has responsibility and at Motorola. sales, global e-commerce, management, reservations, programmes. and loyalty marketing and distribution relationship Age 39. British and US citizen. † # • ‡ § Tom Seddon Tom in the marketing and sales in experience 15 years’ Has over parent predecessor including with IHG’s industry, hospitality in 2004. Rejoined the Group 1994 to from companies SUBWAY business restaurant 2007, from November Chief Marketing Officer Officer Chief Marketing The Board of Directors and Other members of the Executive Committee of the Executive and Other members of Directors The Board †§ †§ †§ †§ †§ Executive Vice President, Corporate President, Vice Executive Executive Vice President, President, Vice Executive Executive Vice President and President Vice Executive President, Asia Pacific President, President, EMEA President, Services, General Counsel and Company Secretary Counsel and Company General Services, Tracy Robbins Robbins Tracy in service in line and HR roles experience 22 years’ Has over Compass 2005 from in December Joined the Group industries. she was where company, service food leading a world PLC, Group Director. & Development Leadership Human Resources Group Responsible Group. Hotels Forte for HR Director Group Previously development, management and leadership talent global for Age 44. and implementation. strategy reward Kirk Kinsell including industry, in the hospitality experience 25 years’ Has over and positions with Holiday Inn Corporation senior franchise Vice in 2002 as Senior joining the Group prior to ITT Sheraton, region. the Americas for Officer Chief Development President, EMEA and joined the Executive of President, the role to Promoted the business for 2007. Responsible in September Committee and brands of all the hotel and performance development US citizen. Age 53. in the EMEA region. properties Peter Gowers Gowers Peter appointments as in 1999. Following Joined the Group in 2003, and Services Brand Global President, Vice Executive President, in 2005, he was appointed Officer as Chief Marketing the for has responsibility 2007. Now in November Asia Pacific brands hotel of all the and performance development business international Has previous region. in the Asia Pacific and properties based in London and in management consultancy, experience Age 35. Singapore. Has over 27 years’ experience in the IT industry, including the IT industry, in experience 27 years’ Has over solutions technology of new management and development Joined the Group business. and hospitality within the travel & Resorts International Hotels Starwood 2006 from in February & Chief President Vice he held the position of Executive where including technology, global for Responsible Officer. Technology the Group. management throughout and information IT systems US citizen. Age 47. Tom Conophy Tom Other members of the Executive Committee of the Executive Other members Winter Richard law commercial 20 years’ qualified in 1973 with over Solicitor, as in 1994 the Group Joined practice. in private experience Company Secretary appointed Legal and was Group of Director corporate governance, corporate for responsible in 2000. Now audit, data internal risk management, insurance, responsibility, Age 58. matters. legal and Group secretariat company privacy, Chief Information Officer Chief Information Global Human Resources Global Directors’ report

The Directors present their report for the financial year ended Share repurchases 31 December 2007. During the year, 7,724,844 ordinary shares were purchased and Certain information required for disclosure in this report is cancelled at a cost of £80,772,397 (excluding transaction costs) provided in other appropriate sections of the full Annual Report under IHG’s planned share repurchase programmes. Of these 3 and Financial Statements 2007. These include the Business shares, 2,237,264 were 11 ⁄7p shares in the capital of the Review, the Corporate Governance and Remuneration Reports, Company, purchased at an average price of 1227p per share and 29 and the Group financial statements and these are, accordingly, 5,487,580 were 13 ⁄47p shares in the capital of the Company, incorporated into this Directors’ Report by reference. purchased at an average price of 972p per share. Shares purchased and cancelled represented approximately 2% Activities of the Group of the issued share capital of the Company at the start of the year The principal activities of the Group are in hotels and resorts, and were purchased and cancelled under the authorities granted with franchising, management, ownership and leasing interests by shareholders at an Extraordinary General Meeting held on in almost 4,000 establishments, with over 585,000 guest rooms 1 June 2006 and at the Annual and Extraordinary General in nearly 100 countries and territories around the world. Meetings held on 1 June 2007. Business review The share buyback authority remains in force until the Annual General Meeting in 2008, and a resolution to renew the authority This Directors’ Report should be read in conjunction with will be put to shareholders at that Meeting. the Message from the Chairman and Chief Executive on pages 2 and 3, and the Business Review on pages 6 to 24. Taken Share plans together, these provide a fair review of the Group’s strategy and Under the terms of the separation of Six Continents PLC in 2003, business and a description of the principal risks and uncertainties holders of options under the Six Continents Executive Share it faces. The development and performance of the business during Option Schemes were given the opportunity to exchange their and at the end of the year are described, together with main Six Continents options for equivalent value new options over trends, factors and likely developments, environmental and InterContinental Hotels Group PLC shares. At 31 December 2007, employee matters, and social and community issues. 2,696,883 such options were outstanding. Significant growth during the year During 2007, 101,846 options granted to employees in During 2007, the Group increased its development pipeline December 2003 under IHG’s Sharesave Plan matured. Of these, to 1,674 hotels (225,872 rooms), up by 35% and 43% respectively 99,678 were exercised during the year. compared with 2006. During 2007, 6,211,990 options granted in April 2004 under the IHG Executive Share Option Plan, vested in full. Of these, Return of shareholders’ funds 3,428,514 had been exercised by 31 December 2007. and share consolidation During 2007, conditional rights over 3,538,535 shares were In June 2007, the Company completed a £250m share repurchase awarded to employees under the Performance Restricted Share programme and commenced a further £150m share repurchase Plan (now called the Long Term Incentive Plan) and 1,694,173 programme which is well under way. Additionally, £709m was shares were released to employees under the plan. returned to shareholders on 15 June 2007 by way of a special interim dividend of 200p per share. This special dividend was A number of employees participated in the Short Term Deferred accompanied by a consolidation of the Company’s ordinary share Incentive Plan (now called the Annual Bonus Plan) during the capital on the basis of 47 new ordinary shares for every 56 existing year. Conditional rights over 675,515 shares were awarded to ordinary shares, effective from 4 June 2007. The nominal value participants. 418,450 shares were released under the plan during of the new shares is 13 29⁄47p per share. the year. A number of participants are eligible to receive a bonus award in shares on 25 February 2008. Results and dividends No options were granted under either the Executive Share Option The profit on ordinary activities before taxation was £230m. Plan or the Sharesave Plan during the year. Neither the Hotels In addition to the special dividend referred to above, an interim Group Share Incentive Plan nor the US Employee Stock Purchase dividend of 5.7p per share was paid on 5 October 2007. The Plan was operated during the year. Directors are recommending a final dividend of 14.9p per share to be paid on 6 June 2008 to shareholders on the Register at During the year, no awards or grants over shares were made that close of business on 28 March 2008. Total dividends relating would be dilutive of the Company’s ordinary share capital. Current to the year are expected to amount to £770m. policy is to settle all awards or grants under the Company’s share plans with shares purchased in the market, with the exception of a number of options granted before 2005, which are yet to be exercised and settled with the issue of new shares.

28 IHG Annual Report and Financial Statements 2007 THE BOARD, SENIOR THEMANAGEMENT BOARD, SENIOR AND MANAGEMENTTHEIR RESPONSIBILITIES AND THEIR RESPONSIBILITIES 29 Directors’ report Directors’ The Notice convening the Annual General Meeting to be held at Meeting to the Annual General convening The Notice sent in a circular 30 May 2008 is contained 11.00am on Friday, with this Report. shareholders to of the Board By order Winter Richard Company Secretary 2008 18 February Policy on payment of suppliers on payment of suppliers Policy and is a holding company PLC Group Hotels InterContinental the to adhere aim to companies Group creditors. has no trade contingent are Payments with suppliers. agreed payment terms the required to or services goods on the supplier providing between is sometimes coordinated and purchasing standard, undertakings. Group Going concern 88 on pages 48 to which appear The financial statements making as, after basis on a going concern been prepared have a reasonable have enquiries, the Directors appropriate continue to resources has adequate that the Group expectation future. the foreseeable for existence in operational Auditors of this of approval as at the date who held office The Directors themselves make to steps taken have they that confirm report is None of the Directors audit information. of relevant aware which has not been audit information of any relevant aware the auditors. to disclosed continue to their willingness expressed LLP have & Young Ernst will of the Company and their reappointment as auditors in office Meeting. Annual General at the members be put to Meeting Annual General Charitable donations Charitable of £626,000 in support donated the Group year, During the these addition to In causes. and charitable initiatives community their time give to encouraged are employees contributions, cash in kind, donations and IHG makes of causes a variety and skills to into these contributions Taking accommodation. such as hotel at £770,000. estimated donations in 2007 are total account, donations Political and during the year donations made no political The Group policy of not making such payments. its maintain to proposes Financial risk management and policies, financial risk management objectives The Group’s set out on pages are including its use of financial instruments, the 21 and 22 to in notes and Review 20 and 21 of the Business 76. on pages 73 to financial statements Group upon terminable are banking arrangements A number of IHG’s of the Company. a change of control p each. There 47 ⁄ 29 are no special control rights or restrictions on transfer attaching on transfer rights or restrictions no special control are shares. these ordinary to by shareholders utilised the authority given The Company has not cash for shares allot to Meetings, at any of its Annual General shareholders. existing to such shares without offering Employees worldwide of 10,366 people an average employed IHG directly and 2007. When the managed ended 31 December in the year 315,000 people is included, approximately estate franchised the globe. across brands IHG’s for work policies, employment the Group’s regarding information Further including its obligations under equal opportunities legislation, and its approach communications employee to its commitment on pages 9 and 10 be found can development, staff towards Review. of the Business Details of Directors who served on the Board during the year during the year on the Board who served of Directors Details interests of the beneficial share on page 31. Details shown are shown end are at the year on the Board who were of Directors between occurred these interests on page 43. No changes to of this report. and the date end the year and its Directors for cover IHG has maintained During the year, under a directors’ and those of its subsidiary companies, officers, by the policy, as permitted liability insurance and officers’ Companies Act 2006. indemnities limited all of its Directors, to has provided The Group them, and claims against of defending of costs in respect all qualifying third-party liabilities. These are third-party the purposes of the Companies Act 2006 for indemnity provisions in force. all currently and are the UK pension to relating no indemnity provisions were There of the Company, in place Directors the benefit of the plan, for during the period. Directors Directors Substantial shareholdings shareholdings Substantial 2008, the Company had been notified by As at 18 February representing interests, substantial of the following shareholders capital: share of its ordinary 3% or more 10% Limited Corporation Ellerman 5.60% Management Limited Investment Stanley Morgan 5.07% Limited Cedar Rock Capital 4.09% Plc Group Legal & General 3.84% Plc TSB Group Lloyds Share capital capital Share under issued were shares new 3,512,783 year, During the capital the share plans and, following share employee 2007 at 31 December capital share Company’s the consolidation, of 13 shares of 294,623,308 ordinary consisted Corporate governance

Combined Code compliance The review was carried out through the monitoring process set The Board is committed to compliance with the principles set out above, which accords with the Turnbull Guidance. The system out in the Combined Code on Corporate Governance (the Code) of internal control is designed to manage, rather than eliminate, and considers that the Company has complied with the Code the risk of failure to achieve business objectives and it must be requirements throughout the year ended 31 December 2007. recognised that it can only provide reasonable and not absolute assurance against material misstatement or loss. In that context, As InterContinental Hotels Group PLC’s shares are also listed the review, in the opinion of the Board, did not indicate that the on the New York Stock Exchange (NYSE), the Company is subject system was ineffective or unsatisfactory. to the rules of the NYSE, US securities laws and the rules of the Securities and Exchange Commission (SEC). As required To comply with the Group’s US obligations, arising from the by the SEC, a statement outlining the differences between the Sarbanes-Oxley Act 2002, a project has been completed to Company’s corporate governance practices and those followed identify, evaluate and test key financial controls across all by US companies may be found on the Company’s website at our business units. This enabled appropriate representations www.ihg.com/investors under corporate governance/ regarding the effectiveness of internal financial controls to NYSE differences. be made in the Company’s Annual Report on Form 20-F for the December 2006 year end, in compliance with these US Control environment obligations, and will enable similar representations to be made in the Company’s 2007 Annual Report on Form 20-F. The Board is responsible for the Group’s system of internal control and risk management and for reviewing its effectiveness. With regard to insurance against risk, it is not practicable to In order to discharge that responsibility, the Board has insure against every risk to the fullest extent. While the insurance established the procedures necessary to apply the Code, market has eased in some areas, certain risks, eg natural including clear operating procedures, lines of responsibility catastrophe, remain difficult to insure both as to breadth and cost and delegated authority. of coverage. In some cases external insurance is not available at all or not at an economic price. The Group regularly reviews both Business performance is managed closely and, in particular, the type and amount of external insurance that it buys, bearing the Board, the Executive Committee and the Regional Operating in mind the availability of such cover, its price and the likelihood Committees have established processes, as part of the normal and magnitude of the risks involved. good management of the business, to monitor: • strategic plan achievement, through a comprehensive Board and Committee structure series of Group and regional strategic reviews; To support the principles of good corporate governance, the • financial performance, within a comprehensive financial Board and Committee structure operates as set out below. planning and accounting framework; • capital investment performance, with detailed appraisal The Board and authorisation processes; and The Board’s current composition of the Non-Executive Chairman, • risk management, (through an ongoing process, which three Executive and seven Non-Executive Directors meets the has been in place up to the date of the accounts) providing requirement of the Combined Code for at least half the Board, assurance through reports from both the Head of Risk excluding the Chairman, to be independent Non-Executive Management and the Head of Internal Audit that the significant Directors. In the Board’s view, all of the current Non-Executive risks faced by the Group are being identified, evaluated and Directors are independent. appropriately managed, having regard to the balance of risk, The Board is responsible to the shareholders for the strategic cost and opportunity. direction, development, performance and control of the Group. In addition, the Audit Committee receives: It therefore approves strategic plans and capital and revenue • reports from the Head of Internal Audit on the work carried budgets. It reviews significant investment proposals and the out under the annual internal audit plan, including an annual performance of past investments and maintains an overview report on the operation of the monitoring processes set out and control of the Group’s operating and financial performance. above to support the Board’s annual statement on internal It monitors the Group’s overall system of internal controls, control; and governance and compliance. The Board ensures that the necessary financial and human resources are in place for • reports from the external auditor. the Group to meet its objectives. The Board has established The Board has conducted a review of the effectiveness of the a schedule of matters which are reserved for its attention system of internal control during the year ended 31 December 2007, and decision. These may be found on the Company’s website. taking account of any material developments which have taken The Board adopts objective criteria for the appointment of place since the year end. Directors, and the roles of the Chairman and of the Chief Executive have been defined in writing and approved by the Board.

30 IHG Annual Report and Financial Statements 2007 THE BOARD, SENIOR THEMANAGEMENT BOARD, SENIOR AND MANAGEMENTTHEIR RESPONSIBILITIES AND THEIR RESPONSIBILITIES 1 31 3.2.05 10.2.03 appointment Date of original Date Corporate governance Corporate Non-Executive Director Director Non-Executive 1.12.07 Senior Independent Director 21.6.04 Position Europe, President, and Africa East Middle 15.4.03 2 n Porter n Porter The Americas President, 15.4.03 entailed the insertion of a new parent company of the Group. All Directors of the Group. company parent the insertion of a new entailed that from of appointment effective letters serving at that time signed new of appointment the original dates represent above shown The dates date. company. parent the Group’s to of each of the Directors 2007. 25 September During the year, the Non-Executive Directors met together Directors the Non-Executive year, During the of under the chairmanship Chairman present, without the the Chairman’s appraise to Director, the Senior Independent was positive. of this appraisal The outcome performance. of the Audit during the year and effectiveness The work to reported were results the and also evaluated, were Committee and Nomination of the Remuneration The performance the Board. concluded These reviews was also considered. Committees that manner. in an effective was operating each Committee of the Company during the year: Directors were The following Ralph Kugler Ralph Kugler LaingJennifer Robert C Larson Director Non-Executive Jonathan Linen Director Non-Executive Director Non-Executive Sir David Prosser Ying Yeh Director Non-Executive Director Non-Executive 15.4.03 1 on 27 June 2005, effective of the Group, 15.4.03 25.8.05 reorganisation The capital 1.12.05 15.4.03 2 of the Company on as a Director Hartman retired Richard on page 26 set out are details biographical Directors’ Current commitments. of this Report. These include their main external in induction participate Directors On appointment, Non-Executive needs and to meet their individual designed to programmes them with, the principal and familiarise them to, introduce management. and regional and with central activities of the Group during the year, appointed Director a Non-Executive as Ying Yeh, in such a programme. participate to and intends has been invited for also put in place are induction programmes Comprehensive These induction who may join the Group. Director any Executive in the to with the guidelines referred accord programmes skills and Combined Code. The updating of all Directors’ at This is accomplished exercise. is a progressive knowledge and visits presentations meetings, through and strategy Board contact and through premises, and other business hotels to at all levels. with employees David Webster David Webster Cosslett Andrew Solomons Richard Chairman Non-Executive Chief Executive Hartman Richard Director Finance 15.4.03 Steva David Kappler and Director Non-Executive The Board has responsibility for the planned and progressive for has responsibility The Board and It establishes Committees. and its of the Board refreshing and it is the its policy in both of these areas reviews regularly formally evaluate to responsibility Nomination Committee’s of the Board, and experience knowledge skills, the required way. in a structured and year each scheduled meetings are Board Eight regular 2007, 11 Board held as needed. During further meetings are with by all Directors attended were held. These meetings were not could Prosser Laing and Sir David that Jennifer the exception Jonathan Linen could and one meeting each. Ralph Kugler attend attend to being unable each. Despite meetings two not attend and with all the papers provided were meetings, these Directors discuss to able those meetings and were to relevant information arising with the Chairman and the Chief Executive. matters given time, particularly time to that, from It is unavoidable of the responsibilities and international the other corporate individual Non-Executive concerned, people experienced very meeting. Any such a Board attend to may be unable Directors is satisfied that all and the Board is occasional non-attendance and responsibilities. their roles to committed remain Directors in papers by means of comprehensive briefed are All Directors at meetings. by presentations meetings and of Board advance by is enhanced operations of the Group’s Their understanding meetings and outside Board presentations business regular are meetings a year Board two At least regions. the visits to held overseas. and the Directors of the Board evaluations performance Formal An independent third-party during 2007. undertaken were in alternate evaluation in the performance assists facilitator assistance. such external involved The 2007 evaluation years. including that of the Chairman and evaluation, The 2007 Board of comprehensive completion involved Directors, the Executive each with having discussions and the Chairman questionnaires had been assessment for A number of areas individually. Director used as of these meetings, and these were identified in advance the discussions. for a framework and report a formal through the Board to was provided Feedback that it was concluded The Board discussed. the findings were to areas manner but identified certain in an effective operating emphasis might be given. which more as part of individual Directors, the performance to With regard the Chairman held meetings with each process, of the evaluation an make to continue that they and it was concluded Director are All Directors of the Board. the work to contribution effective by be considered to items concerning and informed prepared well businesses of the Group’s a good understanding have the Board, their roles. to commitment a strong and retain Corporate governance continued

Chairman Non-Executive Directors have the opportunity of continuing David Webster was Non-Executive Chairman throughout the year. professional development during the year and of gaining further He is also Non-Executive Chairman of Makinson Cowell Limited. insight into the Group’s business. During 2007, visits to operating During 2007 he became a member of the Appeals Committee of premises, including hotels across the brand portfolio, were the Panel on Takeovers and Mergers. undertaken. In addition, the training requirements of the Non-Executive Directors are kept under review. The Chairman has responsibility for ensuring the efficient operation of the Board and its Committees, for seeing that Company Secretary corporate governance matters are addressed, and for All Directors have access to the advice and services of the representing the Group externally and communicating particularly Company Secretary, Richard Winter. His responsibilities with shareholders. He also ensures that Directors receive a full, include ensuring good information flows to the Board and formal and tailored induction to the Group and its businesses and its Committees and between senior management and the that all Directors are fully informed of relevant matters, working Non-Executive Directors. He facilitates the induction of Directors, closely with the Chief Executive and the Company Secretary. The the regular updating and refreshing of their skills and knowledge, Chairman also meets with the Non-Executive Directors, without and he assists them in fulfilling their duties and responsibilities. Executive Directors present. Through the Chairman, he is responsible for advising the Board Chief Executive on corporate governance and generally for keeping the Board up to date on all legal, regulatory and other developments. Andrew Cosslett was Chief Executive throughout the year. He also has responsibility for developing the Group’s position He has responsibility to recommend to the Board and to on corporate responsibility. The Company Secretary acts as implement the Group’s strategic objectives. He is responsible secretary to each of the main Board Committees. for the executive management of the Group. Andrew Cosslett is Non-Executive Chairman of Duchy Originals Limited. He Committees receives no remuneration for this role. The Board is satisfied Each Committee of the Board has written terms of reference that this additional commitment has no adverse impact on which have been approved by the Board and which are subject the successful fulfilment of his duties to IHG. to review every year. Senior Independent Director Audit Committee David Kappler was Senior Independent Director throughout The Audit Committee is chaired by David Kappler who has the year. His responsibilities include being available to liaise significant recent and relevant financial experience and is with shareholders who have issues to raise and leading the the Committee’s financial expert. Throughout 2007, the other performance evaluation of the Chairman. Committee members were Sir David Prosser, Ralph Kugler and Jennifer Laing. The Committee is scheduled to meet at least Non-Executive Directors four times a year. The Committee met six times in the year. These meetings were attended by all Committee members, A team of experienced independent Non-Executive Directors with the exception that Jennifer Laing and Ralph Kugler could represents a strong source of advice and judgement. There are not attend one meeting each. The Audit Committee’s role is currently seven such Directors, in addition to the Non-Executive described on page 35. Chairman, each of whom has significant external commercial experience. The Non-Executive Directors, including the Chairman, Remuneration Committee meet during the year to consider the Group’s business and The Remuneration Committee, chaired by Sir David Prosser, also management. comprises the following Non-Executive Directors: David Kappler, Robert C Larson, Jonathan Linen and, from 1 December 2007, Robert C Larson was first appointed to the Board of the Group’s Ying Yeh. It meets at least three times a year. Its role is described predecessor parent company, Bass PLC, in 1996. He may on page 36. The Committee met six times during the year. therefore be regarded as having served for over nine years as All Directors who were Committee members throughout the year a Director. The Combined Code requires such Directors to be attended all these meetings. Ying Yeh attended the meeting held subject to rigorous performance review, and to be subject to in December 2007 following her appointment. election annually. The formal performance evaluation referred to above has confirmed Mr Larson’s valuable contribution during 2007 and he is seeking re-election by shareholders at the 2008 Annual General Meeting. The transformed structure of the Group, and of the parent company Board, since 1996, have ensured that the length of Mr Larson’s service has no bearing on his independence. Mr Larson will be retiring from the Board on 31 December 2008.

32 IHG Annual Report and Financial Statements 2007 THE BOARD, SENIOR THEMANAGEMENT BOARD, SENIOR AND MANAGEMENTTHEIR RESPONSIBILITIES AND THEIR RESPONSIBILITIES 33 Corporate governance Corporate Independent advice of the Board members by which procedure is an agreed There in the furtherance advice independent professional may take and services the advice to access have of their duties and they of the Company Secretary. Election and re-election of Directors of Directors and re-election Election who those Directors that only provide Articles The Company’s within the last by shareholders election not been subject to have next at the re-election for and stand need retire years, three this into fall Directors three Meeting. In 2008, Annual General and Ralph David Kappler Cosslett, Andrew Therefore category. re-election for themselves and offer by rotation will retire Kugler 30 May 2008. Meeting on at the Annual General with the provisions in accordance In addition, Robert C Larson, and annual retirement is subject to of the Combined Code, as a Director. serve to continue if he wishes to re-election, as a serve to continue his wish to has expressed Mr Larson 2008 on 31 December his planned retirement until Director be will therefore his re-election propose to and a resolution Meeting. General the Annual put to the last since as a Director having been appointed Ying Yeh, election for and stand Meeting, will also retire Annual General Meeting. Annual General at the next shareholders Meeting, sent to of Annual General The Notice Directors about the information further with this Report, provides on Executive Information and re-election. election for standing on page 39. The is set out contracts service Directors’ independent Chairman and the seven Non-Executive appointment. of letters have Directors Non-Executive Nomination Committee Nomination Non-Executive three any comprises Committee The Nomination Directors all Non-Executive possible, although, where Directors Its of the Company. by the Chairman It is chaired present. are good as duties proposed the principal reflect of reference terms in the Combined Code. The Committee to and referred practice appointment for candidates by the Board, approval for nominates, engages external generally The Committee the Board. to and appointments Board for advise on candidates to consultants Candidate with the appointment of Ying Yeh. did so in connection in advance prepared are criteria selection and objective profiles for also has responsibility The Committee of any engagements. the in identifying and developing planning and assists succession met seven The Committee Senior Independent Director. of the role Laing and Jonathan Linen were Jennifer times during the year. to was unable Ralph Kugler one meeting each. attend to unable meetings. two attend Committee Executive of It consists Chief Executive. by the is chaired This Committee the Group from and senior executives Directors the Executive consider is to Its role meets monthly. and usually and the regions issues and business strategic of important and manage a range the performance monitoring for It is responsible the Group. facing approve It is authorised to businesses. Hotels of the regional by the Board. agreed within levels investment revenue and capital significant the most the Board to and recommends It reviews proposals. investment Committee Disclosure Financial by the Group’s chaired Committee, The Disclosure and other the Company Secretary and comprising Controller, and the Finance the Chief Executive to reports senior executives, ensuring Its duties include the Audit Committee. and to Director, to pursuant in reports be disclosed to required that information fairly requirements, or listing statutory UK and US accounting, respects. position in all material the Group’s represents Purposes Committee General any one Executive comprises Purposes Committee The General an from with a senior officer member together Committee chaired always It is of senior executives. list and restricted agreed of a business to It attends member. Committee by an Executive the principles of matters, the administration and to nature routine or an by the Board previously been agreed of which have Committee. appropriate Corporate governance continued

Shareholder relations The Group reports formally to shareholders twice a year when its half-year and full-year results are announced. The Chief Executive and the Finance Director give presentations on these results to institutional investors, analysts and the media. Telephone dial-in facilities and live audio webcasts enable access to these presentations for all shareholders. In addition, there are telephone conferences after the release of the first and third quarter results. The data used in these presentations and conferences may be found at www.ihg.com/investors under financial library/presentations. IHG also has a programme of meetings throughout the year with its major institutional shareholders, which provides an opportunity to discuss, using publicly available information, the progress of the business, its performance, plans and objectives. The Chairman, the Senior Independent Director and other Non-Executive Directors are available to meet with major shareholders to understand their issues and concerns and to discuss governance and strategy. Any new Director is available for meetings with major shareholders as a matter of course. Additionally, the Annual General Meeting provides a useful interface with private shareholders, many of whom are also customers. The Chairmen of the Audit, Remuneration and Nomination Committees are available at the Annual General Meeting to answer questions. Information about the Group is maintained and available to shareholders through the website. A formal external review of shareholder opinion is presented to the Board on an annual basis and both the Executive Committee and the Board receive regular updates on shareholder relations activities. Further information The terms of reference of all the Committees were reviewed during the year and it was confirmed that they continue to reflect best practice. Main Committee terms of reference are available on the Company’s website www.ihg.com/investors under corporate governance/committees or from the Company Secretary’s office on request. The terms and conditions of appointment of Non-Executive Directors are also available on request.

Richard Winter Company Secretary 18 February 2008

34 IHG Annual Report and Financial Statements 2007 THE BOARD, SENIOR THEMANAGEMENT BOARD, SENIOR AND MANAGEMENTTHEIR RESPONSIBILITIES AND THEIR RESPONSIBILITIES 35 Corporate governance and governance Corporate report Audit Committee public financial statements are reviewed by the Committee by the Committee reviewed are public financial statements time Adequate Board. by the of their consideration in advance and the Board’s review the Committee’s between is allowed by the requested any actions or further work for approval be completed; to Committee with the in accordance in the non-audit fees) (and trends of audit the safeguarding ensure to policy Committee’s objectivity; and independence and reappointment; of their objectivity, independence its resourcing assurance, delivering to approach department’s of its reviews; and the results standards; with professional compliance process; risk review of the Group’s major risks, and the results activities of that function; impairment review; the Chairman of the from periodic reports to with reference Committee; Disclosure of authority; main pension plan; Group’s procedures whistleblowing made via the Group’s allegations of these procedures; and the effectiveness of reference. of its terms appropriateness and the continuing During the year, the Committee’s deliberations included the included deliberations the Committee’s year, During the matters: following • These results. financial and full-year interim quarterly, • audit; of the external and cost the scope • auditor external out by the Group’s carried any non-audit work • reports; and full-year interim quarterly, auditor’s external the • and consideration auditor the external of effectiveness the • audit audit plan, the internal of the annual internal scope the • audit function and its the internal of effectiveness the • controls; internal the Group’s any major changes in • audit functions; and external of the internal the co-ordination • of and control the identification for framework Group’s the • in the UK and the US; developments governance corporate • Risk Management on the the Head of Group from reports • asset tangible of the Group’s of the results consideration • work; Act compliance Sarbanes-Oxley Group’s the overseeing • by the Group, operated and procedures controls disclosure the • risk; managing tax to approach the Group’s reviewing • and policies; objectives treasury of the Group’s consideration • policy on delegation the Group’s of changes to a review • of the of the funding position and governance a review • or any incidents of fraud on any significant periodic reports • and the Group; litigation involving any material • of the Audit Committee of the effectiveness consideration David Kappler Chairman of the Audit Committee 2008 18 February corporate governance compliance prior to their consideration their prior to compliance governance corporate by the Board; consider and to weaknesses and control misconduct fraud, overseeing including any such occurrence, to the response of concerns; enabling the anonymous submission the process financial control, of internal the effectiveness audit concerning and risk management processes; reporting before under UK or US legislation required statements the Board; to submission the audit function, including overseeing of the internal Audit; appointment of the Head of Internal auditor, of the external and the overseeing dismissal resignation, and effectiveness; audit, its cost of the external including review with the along that work, be paid for to and the fees auditor, and independence; auditor’s of the external monitoring adherence. monitoring for procedures and associated Audit Committee report Audit Committee The Audit Committee assists the Board in meeting its the Board assists The Audit Committee financial of the Group’s the integrity to in relation responsibilities adequacy the announcements, associated and statements and the and risk management systems control of internal auditors. and external of the internal appointment and work and in is summarised below of the Audit Committee The role on of which is available a copy of reference, full in its terms or in writing on request. website the Company’s of its members, and the attendance composition, The Committee’s set out on page 32. 2007, are throughout all of whom served David Kappler, and financial expert, Chairman The Committee’s was and until April 2004 management accountant is a chartered chairs He also plc. of Cadbury Schweppes Chief Financial Officer of another UK FTSE 100 company. the Audit Committee to: are principal responsibilities The Committee’s • and control on internal statements public the Group’s review • and addressing detecting for processes the Group’s review • audit and external management, internal from reports review • any financial auditor and the external with management review • and effectiveness the role and maintain review establish, • the appointment, compensation, for responsibility assume • out by the external be carried to work non-audit pre-approve • Conduct Code of Ethics and Business the Group’s oversee a series of through its responsibilities discharges The Committee reports at which detailed meetings during the year, Audit Committee reports, commissions The Committee review. for presented are Audit, or Group the Head of Internal advisers, external either from the Group of the major risks to consideration management, after attends auditor The external issues. developing to or in response Audit, both of whom its meetings as does the Head of Internal in the with the Committee, privately meet the opportunity to have of each meeting. management, at the conclusion of Group absence by the of non-audit services the provision for All proposals or its by the Audit Committee pre-approved are auditor external ensure being to consideration member, the overriding delegated does not impact the of non-audit services that the provision and objectivity. independence auditor’s external Remuneration report

This report has been prepared by the Remuneration Committee Group. Towers Perrin did not provide any other services to the and has been approved by the Board. It complies with Schedule 7A Group. Linklaters provided other legal services to the Group. to the Companies Act 1985, which incorporates the Directors’ Ms Robbins and Ms Gaytan, Linklaters and Towers Perrin were Remuneration Report Regulations 2002, and also with the originally appointed by the Group. PWC were appointed by the Combined Code applicable for the 2007 financial year. This report Committee. The terms of engagement for PWC and Towers Perrin will be put to shareholders for approval at the forthcoming Annual are available from the Company Secretary’s office on request. General Meeting. 2 Policy on remuneration of Executive Directors 1 The Remuneration Committee and senior executives During the year, the Committee comprised the following The following policy has applied throughout the year and, except Non-Executive Directors: where stated, will apply in future years, subject to regular review. Sir David Prosser – Chairman 2.1 Total level of remuneration David Kappler The Committee aims to ensure that overall remuneration is Robert C Larson offered which: Jonathan Linen Ying Yeh (from 1 December 2007) • attracts high-quality executives in an environment where compensation levels are based on global market practice; Sir David Prosser will retire from the Board and as Chairman • provides appropriate retention strength against loss of the Committee on 31 May 2008. He will be succeeded as of key executives; Chairman by Ralph Kugler, who previously served on the Committee from 2003 until May 2005. • drives aligned focus and attention to key business initiatives and appropriately rewards their achievement; No member of the Committee has any personal financial • supports equitable treatment between members of the interest, other than as a shareholder, in the matters to be decided same executive team; and by the Committee. The Committee met six times in the year. All meetings were fully attended by Committee members. • facilitates global assignments and relocation. The Committee advises the Board on overall remuneration policy. The Committee is aware that, as its primary listing is on the The Committee also determines, on behalf of the Board, and with London Stock Exchange, IHG’s incentive arrangements may be the benefit of advice from external consultants and members of the expected to recognise UK investor guidelines. However, given Human Resources department, the remuneration of the Executive the global nature of the Hotels business, an appropriate balance Directors and other members of the Executive Committee. needs to be drawn in the design of relevant remuneration between domestic and international expectations. During 2007, with the assistance of PricewaterhouseCoopers LLP (PWC), the Committee also undertook a review of executive 2.2 Key developments remuneration arrangements and, as a consequence of this, During 2007, the Committee undertook a major review of the made some changes which are described later in this report. executive remuneration structure. The purpose of the review was to ensure that executive remuneration arrangements are Those who provided material advice or services to the Committee simple, relevant to participants and easily understood. during the year were: The review resulted in two main amendments to the executive David Webster – Chairman incentives: Andrew Cosslett – Chief Executive Tracy Robbins – Executive Vice President, Global Human Resources • restructuring of the Short Term Incentive Plan and the Lori Gaytan – Senior Vice President, Global Human Resources Short Term Deferred Incentive Plan into a single plan, Linklaters renamed the Annual Bonus Plan; and Towers Perrin • a change to the Total Shareholder Return (TSR) performance PricewaterhouseCoopers LLP measure linked to the Performance Restricted Share Plan, The Executive Vice President, Global Human Resources has which has been renamed the Long Term Incentive Plan. direct access to the Chairman of the Committee. Ms Robbins Further details of the changes are included in the relevant and Ms Gaytan, who are human resource professionals and sections below. employees, advised the Committee on all aspects of the Group’s reward policies and structures. PWC advised the Committee on The Committee believes that the changes will enhance the remuneration issues, having been formally appointed by the effectiveness of the arrangements in support of the aims of Committee in May 2007. PWC also provided additional services attracting, retaining, and motivating high-quality executives in to IHG with regard to employer and employee tax compliance the highly competitive global environment in which the Company processes for expatriate employees and on tax withholding operates. The greater simplification introduced will make overall obligations in relation to employee share plans. Towers Perrin, reward more transparent and motivational to executives. The an external consultancy, also advised the Committee on reward changes to the performance measures are intended to generate structures and levels applicable in the markets relevant to the a more robust alignment between reward and performance.

36 IHG Annual Report and Financial Statements 2007 THE BOARD, SENIOR THEMANAGEMENT BOARD, SENIOR AND MANAGEMENTTHEIR RESPONSIBILITIES AND THEIR RESPONSIBILITIES 37 EBIT (20%) (30%) (50%) Individual measures Rooms Growth Performance Key EBIT = Earnings interest before and tax Remuneration report Remuneration 50% 50% Cash Shares Deferred Structure Target 115% Target Maximum 200% Plan Bonus Annual Annual bonus performance the annual years, and in previous During 2007, Plan Incentive Short Term the elements, of two bonus consisted Plan (STDIP). Both Incentive Deferred (STI) and the Short Term performance of challenging the achievement required elements bonus is payable. target goals before payable is 2007 earned under the STI arrangement Any bonus for to relative on individual performance in 2008, based in cash competencies. and leadership objectives personal in 2007 is payable under the STDIP for 100% of any bonus earned basis. Participants on a mandatory and deferred 2008 in shares deferred the total half of to up shares matching also receive could when the account into was taken award amount. This matching of payment under the STDIP. the basic level decided Committee the governing test performance is no separate there Therefore, however, are, Such awards awards. of matching vesting with the employment continued on the Directors’ conditional be released will normally The shares date. until the release Group deferral. following years at the end of the three 2008 onwards, of financial year be made in respect to awards For that all Executive so the STI and STDIP will be combined, bonuses in the Annual Bonus Plan. Cash will participate Directors within powers under the STI. Existing be payable will no longer pay the Annual Bonus Plan, will be used to the STDIP, renamed a bonuses. The maximum bonus amount and share both cash The is 200% of salary. any one year in receive participant can Half of any bonus earned will be 115% of salary. level award target Matching years. three for of shares in the form will be deferred awards and share cash The first be awarded. will no longer shares of in 2009, in respect arrangements will be made under the new the 2008 financial year. bonus arrangements A summary of the way in which the new below: is shown work ) ) and ) 50% ( 50% ( incentive Long Term Long Term growth growth adjusted EPS adjusted Incentive Plan Incentive Long-term Long-term TSR Linked to relative relative to Linked Performance Shares Performance ( ) Variable (approx 70%) (approx Variable Cash and measures ( incentive Short-term Short-term and operational Deferred Shares Deferred Annual Bonus Plan Linked to individual to Linked performance, financial performance, Base salary Fixed (approx 30%) (approx Fixed The main components of remuneration are as follows: are of remuneration The main components Base salary and benefits annually is reviewed Director each Executive The salary for and on the most and based on both individual performance independent from provided information market relevant recent Internal salary levels. on comparable sources professional market in the wider employment and salary levels relativities element Base salary is the only account. into also taken are which is pensionable. of remuneration in Directors Executive to provided In addition, benefits are in their other executives to with the policy applying accordance location. geographic those offered IHG analyses of pay and benefits, levels In assessing are These groups companies. of comparator groups by different participants’: to chosen having regard • employed; and the number of people profits size – turnover, • of businesses; and complexity diversity • and of businesses; spread geographical • industry. the hotel to relevance 2.3 Main components emphasis a strong place reward of overall The components are The individual elements reward. on performance-related fixed between balance appropriate the provide designed to to which is linked reward, ‘risk’ and variable remuneration and the individual. Group of both the Group the performance ensure to chosen carefully are measures performance-related financial and true underlying reward between link a strong on particular areas and emphasis is placed performance, focus. executive requiring is that, using Directors all Executive The normal policy for their performance- calculations, value’ or ‘expected ‘target’ 70% of total approximately to equate will incentives related pensions and benefits). (excluding annual remuneration of executive elements and variable A summary of the fixed below: is shown remuneration Key return shareholder TSR = Total EPS = Earnings per share Remuneration report continued

Awards under the Annual Bonus Plan will be linked to individual • the other 50% of the award will depend on growth in adjusted performance (30% of total award), EBIT (50% of total award) EPS over the period. 10% of the award will be released for and net annual rooms additions (20% of total award). Individual threshold performance and 50% of the award will be released performance is measured by the achievement of specific for superior performance. The Committee reviews the EPS Key Performance Objectives that are linked directly to the targets each year and, at the time of this report, the target had Group’s strategic priorities, and an assessment of performance not yet been determined. It will be disclosed when awards are against leadership competencies and behaviours. made in due course. In setting the target, the Committee will take into account a range of factors, including IHG’s strategic Under the financial measure (EBIT), threshold payout is 90% plans, City analysts’ expectations for IHG’s performance and of target performance, with maximum payout at 110% of target. for the industry as a whole, the historical performance of the If performance under the financial measure in any year is below industry and FTSE 100 market practice. threshold, payouts on all other measures are reduced by half. Executive share options Long Term Incentive Plan Since 2006, executive share options have not formed part of The Long Term Incentive Plan (LTIP) was formerly called the the Group’s remuneration strategy. Details of prior share option Performance Restricted Share Plan. It allows Executive Directors grants are given in the table on page 43. and eligible employees to receive share awards, subject to the satisfaction of a performance condition, set by the Committee, For options granted in 2005, a performance condition has to be which is normally measured over a three-year period. Awards met before options can be exercised. The Company’s adjusted are normally made annually and, other than in exceptional EPS over a three-year period must increase by at least nine circumstances, will not exceed three times annual salary for percentage points over the increase in the UK Retail Price Index Executive Directors. (RPI) for the same period for one-third of the options granted to vest; 12 percentage points over the increase in RPI for the For the 2007/09 LTIP cycle, performance will be measured same period for two-thirds of the options granted to vest; and by reference to: 15 percentage points over the increase in RPI for the same • the increase in IHG’s Total Shareholder Return (TSR) over period for the full award to vest. the performance period relative to eight* identified comparator companies: Accor, Choice, Marriott Hotels, Share capital Millennium & Copthorne, NH Hotels, Sol Melia, During 2007, no awards or grants over shares were made that Starwood Hotels and Wyndham Worldwide; and would be dilutive of the Company’s ordinary share capital. Current policy is to settle all awards or grants under any of the Company’s • growth in adjusted Earnings Per Share (EPS) over the period. share plans with shares purchased in the market, with the * Following the delisting of Hilton Hotels Corp. shares in October 2007. exception of a number of options granted before 2005, which are yet to be exercised and settled with the issue of new shares. In respect of TSR performance, 10% of the award will be released for the achievement of median performance and 50% of the award Share ownership will be released for the achievement of first place only (previously The Committee believes that share ownership by Executive first or second place). In respect of EPS performance, 10% of the Directors and senior executives strengthens the link between award will be released if adjusted EPS growth is 10% per annum the individual’s personal interest and that of the shareholders. and 50% of the award will be released if adjusted EPS growth is The Executive Directors are expected to hold all shares earned 20% per annum or more. (net of any share sales required to meet personal tax liabilities) Vesting between all stated points will continue to be on from the Group’s remuneration plans while the value of their a straight-line basis. Awards under the LTIP lapse if the holding is less than twice their base salary or three times in performance conditions are not met – there is no retesting. the case of the Chief Executive. For the 2008/10 cycle, the performance measures for the LTIP 2.4 Policy on external appointments will be as follows: The Company recognises that its Directors may be invited to • 50% of the award will be based on IHG’s TSR relative to become Non-Executive Directors of other companies and that the Dow Jones World Hotels index. 10% of the award will be such duties can broaden experience and knowledge, and benefit released for the achievement of growth equal to the index and the business. Executive Directors are, therefore, allowed to accept 50% of the award will be released for the out-performance of one non-executive appointment (not including positions where the the index by 8% per annum. Vesting between all stated points Director is appointed as the Group’s representative), subject to will continue to be on a straight-line basis; and Board approval, as long as this is not likely to lead to a conflict of interest, and to retain the fees received. Andrew Cosslett is Non-Executive Chairman of Duchy Originals Limited, for which he receives no remuneration.

38 IHG Annual Report and Financial Statements 2007 THE BOARD, SENIOR THEMANAGEMENT BOARD, SENIOR AND MANAGEMENTTHEIR RESPONSIBILITIES AND THEIR RESPONSIBILITIES 39 s N/A term/ term/ LC, 31 Dec 2007 notice period notice 12 months 12 months 12 months Source: Datastream Source: Remuneration report Remuneration 1 Contract Unexpired Unexpired Contract 15.04.03 03.02.05 15.04.03 15.04.03 effective date effective 31 Dec 2006 2 31 Dec 2005 n Porter from completion of the June 2005 capital reorganisation of the Group on of the Group reorganisation of the June 2005 capital completion from agreements. as their original service the same terms expired. notice with 12 months’ contract b) Directors’ contracts b) Directors’ Director Cosslett Andrew Hartman Richard Steva Solomons Richard 1 of appointment, effective signed a letter Directors Each of the Executive 2 2007, at which point his rolling in September Hartman retired Richard pensions regarding 2.7 Policy and other senior UK-based Solomons Richard Cosslett, Andrew section on the same basis in the executive participate employees Plan and, if UK Pension Hotels InterContinental of the registered appropriate, Scheme. The Top-Up Executive the InterContinental security but with appropriate is an unfunded arrangement, latter to As an alternative asset. on a hotel charge via a fixed provided may be taken. allowance a cash these arrangements, in US participate senior US-based executives and Porter Stevan benefits plans. retirement be to Hartman ceased 30 January 2006, Richard from With effect Plan UK Pension Hotels member of the InterContinental an active that Scheme, and from Top-Up Executive and InterContinental 2007, he participated on 25 September his retirement up to date Savings and International Group Hotels in the InterContinental Plan. Retirement plans or in these participate in other countries Executives plans. local FTSE 100 – Total Shareholder Return Index Return Index Shareholder FTSE 100 – Total 31 Dec 2004 31 Dec 2003 IHG shares listed 15 April 2003 listed IHG shares InterContinental Hotels Group PLC – Total Shareholder Return Index Shareholder – Total PLC Group Hotels InterContinental 14 April 2003) up to (Six Continents PLC 0 50 450 400 350 300 250 200 150 100 1 Oct 2002 assuming dividends are reinvested, compared with the TSR performance achieved by the FTSE 100 index. by the FTSE 100 achieved TSR performance with the compared reinvested, dividends are assuming v FTSE 100 PLC Group Hotels Return: InterContinental Shareholder Total 2.6 Contracts of service 2.6 Contracts a) Policy Directors Executive policy is for Committee’s The Remuneration months. period of 12 with a notice contracts rolling have to have Solomons and Richard Porter Stevan Cosslett, Andrew new period of 12 months. All with a notice agreements service periods. 12-month notice have to intended appointments are recruitment an external complete to on occasion, However, 12 months to initial period reducing a longer successfully, in the Combined Code. guidance may be used, following change following termination for compensation for No provisions included damages of any kind, are liquidated or for of control, of any early In the event contracts. Directors’ in the current the policy is contract, Director’s of an Executive termination liability. minimise any seek to to of appointment. David letters have Directors Non-Executive effective Chairman, appointment as Non-Executive Webster’s dates The notice. six months’ 1 January 2004, is subject to from set are Directors of appointment of the other Non-Executive out on page 31. subsequent reappointments appointments and All Directors’ by shareholders. and re-election election subject to are the most appropriate market index against which to test the Company’s performance. The graph below shows the TSR performance of TSR performance the shows below The graph performance. Company’s the test which to against index market appropriate the most P Group Hotels of InterContinental the performance 14 April 2003, and subsequently 2002 up to 1 October from Six Continents PLC 2.5 Performance graph 2.5 Performance this i that has determined the Committee Accordingly, 100 index. a member of the FTSE the Company has been the year, Throughout Remuneration report continued

3 Policy on remuneration of Non-Executive Directors Non-Executive Directors are paid a fee which is approved by the Board on the recommendation of the Executive Directors, having taken account of the fees paid in other companies of a similar complexity, and the skills and experience of the individual. Higher fees are payable to the Chairman of the Remuneration Committee and to the Senior Independent Director, who chairs the Audit Committee, reflecting the additional responsibilities of these roles. Non-Executive Directors’ fee levels were last established by the Board on 1 January 2007. Having taken into account the global nature, scale and complexity of the Group’s business, and current competitive fee levels, the following annual fee rates apply:

Role Fee Chairman £390,000 Senior Independent Director & Chairman of Audit Committee £95,000 Chairman of Remuneration Committee £80,000 Other Non-Executive Directors £60,000

The information provided in the following pages of this report has been audited by Ernst & Young LLP. Total emoluments excluding pensions Base salaries Performance 1 Jan 2007 to 1 Jan 2006 to and fees payments1 Benefits2 31 Dec 2007 31 Dec 2006 4 Directors’ emoluments £000 £000 £000 £000 £000 Executive Directors Andrew Cosslett 732 519 25 1,276 1,268 Richard Hartman3 398 201 247 846 1,005 Stevan Porter4 416 253 8 677 726 Richard Solomons 468 285 18 771 806 Non-Executive Directors David Webster 390 – 2 392 354 David Kappler 95 – – 95 80 Ralph Kugler5 60––60 50 Jennifer Laing 60 – – 60 50 Robert C Larson 60 – – 60 50 Jonathan Linen 60 – – 60 50 Sir David Prosser 80 – – 80 65 Sir Howard Stringer6 –––– 43 Ying Yeh7 5––5 – Former Directors8 ––11 1 Total 2,824 1,258 301 4,383 4,548

1 Performance payments include bonus awards in cash in respect of 3 Richard Hartman retired as a Director on 25 September 2007. participation in the Short Term Incentive Plan (STI) and the Short Term 4 Emoluments for Stevan Porter include £79,051 that was chargeable Deferred Incentive Plan (STDIP) but exclude bonus awards in deferred to UK income tax. shares and any matching shares, details of which are set out in the STDIP table on page 41. 5 All fees due to Ralph Kugler were paid to Unilever. 2 Benefits incorporate all tax assessable benefits arising from the 6 Sir Howard Stringer resigned as a Director on 10 November 2006. individual’s employment. For Messrs Cosslett, Hartman and Solomons, this 7 Ying Yeh was appointed as a Director on 1 December 2007. relates in the main to the provision of a fully expensed company car and 8 Sir Ian Prosser retired as a Director on 31 December 2003. However, private healthcare cover. In addition, Mr Hartman received housing, child he had an ongoing healthcare benefit of £1,150 during the year. education and other expatriate benefits. For Stevan Porter, benefits relate in the main to private healthcare cover and financial counselling.

40 IHG Annual Report and Financial Statements 2007 THE BOARD, SENIOR THEMANAGEMENT BOARD, SENIOR AND MANAGEMENTTHEIR RESPONSIBILITIES AND THEIR RESPONSIBILITIES £ 41 Value based price of price on share on share 898,994 n Porter's 1,004,446 1,026,521 p each and 47 / 29 Remuneration report Remuneration – – 2007 date STDIP 55,870 26.2.10 493,891 29,447 16.3.08 260,312 51,281 26.2.10 453,325 26,978 16.3.08 238,486 29,778 26.2.10 263,238 29,021 16.3.08 256,546 35,757 26.2.10 316,092 18,53118,530 8.3.08 163,815 8.3.09 163,806 18,45918,459 8.3.08 163,178 8.3.09 163,178 28,87728,878 8.3.08 255,273 8.3.09 255,282 17,69817,696 8.3.08 156,451 8.3.09 156,433 93,817 829,345 orter was awarded 50% for EPS 50% for orter was awarded 101,696 113,625 116,122 10 10 £ Dec 31 tevan P n Porter's shares at vesting includes £67,953 that was shares n Porter's price Value shares Planned 884.0p at p ordinary shares which were subject to the share subject to which were shares p ordinary Market 7 / 3 Steva target was 50% of base salary. S was 50% of base salary. target performance and 33.8% for Americas EBIT performance. Steva EBIT performance. Americas and 33.8% for performance share One matching 83.8% of his base salary. bonus was therefore total earned. bonus shares two every for was awarded 50% for was awarded Solomons Richard was 50% of base salary. target Solomons' Richard EBIT performance. Group and 42% for EPS performance share One matching 92% of his base salary. bonus was therefore total earned. bonus shares two every for was awarded 11 PLC Group a special dividend of 200p per existing ordinary share. As a consequence, As a consequence, share. ordinary a special dividend of 200p per existing accordingly. been reduced 2007 have held at 31 December shares period. Participants a full three-year for and deferred was paid in shares 20% of bonus on the same terms. the remaining also defer could tax. UK income to chargeable consolidation effective from 4 June 2007. For every 56 existing every 4 June 2007. For from effective consolidation held on 1 June 2007, shares PLC Group Hotels InterContinental of 13 shares ordinary 47 new received shareholders 6 and the bonus 2006 performance was based on financial year This award 7 and the bonus 2006 performance was based on financial year This award 8 Hotels in InterContinental were interests of these share A proportion 9 2006 STDIP, paid in 2007, 80% of the bonus award Under the financial year 10 The value of STDIP vested shares price the year share to 2007 Jan 1 Vesting per share at vesting held at vesting 31 Dec 07 Market during 8.3.06 853.67p 8.3.06 853.67p 8.3.06 853.67p8.3.06 20,563 853.67p 8.3.06 853.67p 8.3.07 1239.6p 254,899 – 8.3.06 853.67p 8.3.06 853.67p8.3.06 19,714 853.67p 8.3.06 853.67p 8.3.07 1239.6p 244,3758.3.06 853.67p – 20,643 8.3.07 1239.6p 255,891 1.4.058.3.06 617.5p 853.67p8.3.06 39,916 32,168 853.67p 1.4.07 8.3.07 1260.0p 502,942 1239.6p 398,755 – – 26.2.07 1235p 16.3.05 653.67p16.3.05 29,020 653.67p 16.3.07 1210.5p 351,28726.2.07 1235p – 26.2.07 1235p 16.3.05 653.67p16.3.05 29,447 653.67p 16.3.07 1210.5p 356,45626.2.07 1235p 16.3.05 – 653.67p16.3.05 26,978 653.67p 16.3.07 1210.5p 326,569 5,9 6,8,9 7,8,9 4,8,9 STDIP during shares 2007 to Award per awarded 51,281 33,352 40,048 62,575 2 3 3,8 2 1 3,8 3,8 3 2 3 3,8 3,8 2 3 2 3,8 3,8 3,8 2 STDIP the year 29,021 32,168 32,167 20,642 32,168 20,563 20,643 19,714 19,713 29,447 19,714 20,642 20,562 20,563 26,978 shares held shares Jan 1 at 1 Jan 2007 31 Dec 2007 date at award 31 Dec 2007 date at vesting recruitment terms. The shares were to vest in equal portions on the first vest to were The shares terms. recruitment his continued subject to date, of the award anniversary and second on vested half of the award until that time. The second employment 1 April 2007. earnings (EPS), share earnings per to related were measures performance held shares Total performance. (EBIT) and personal and tax interest before shares. include matching personal EPS, EBIT and to related were measures performance shares. held include matching shares Total performance. EPS 50% for was awarded Cosslett Andrew was 50% of base salary. target total Cosslett's Andrew EBIT performance. Group and 42% for performance was share One matching 92% of his base salary. bonus was therefore earned. bonus shares two every for awarded EPS 50% for Hartman was awarded Richard was 50% of base salary. target Hartman's Richard EMEA EBIT performance. and 34.3% for performance share One matching 84.3% of his base salary. bonus was therefore total earned. bonus shares two every for was awarded Total 1 as part of his overall Cosslett Andrew was made to This special award 2 the where 2004 performance was based on financial year This award 3 the where 2005 performance was based on financial year This award 4 and the bonus 2006 performance was based on financial year This award 5 and the bonus 2006 performance was based on financial year This award Total SolomonsRichard 29,020 Stevan Porter 26,978 Richard HartmanRichard 29,447 Total Andrew CosslettAndrew 39,916 Total Directors 5 Long-term reward 5 Long-term Plan (STDIP) – Incentive Deferred Short Term the Annual Bonus Plan called now expected and are 2007, ended 31 December the STDIP during the year in participated and Solomons Hartman, Porter Cosslett, Messrs were: during the year interests pre-tax 2008. Directors’ on 25 February an award receive to Remuneration report continued

Long Term Incentive Plan (LTIP) – previously called the Performance Restricted Share Plan In 2007, there were three cycles in operation and one cycle which vested. The awards made in respect of cycles ending on 31 December 2006, 2007, 2008 and 2009 and the maximum pre-tax number of ordinary shares due if performance targets are achieved in full are set out in the table below. In respect of the cycle ending on 31 December 2007, the Company finished in fourth place in the TSR group and achieved a relative cumulative annual rooms growth (CAGR) of 3.1%. Accordingly, 55.3% of the award will vest on 20 February 2008.

Maximum Maximum Expected LTIP LTIP value value shares shares based based Maximum awarded vested on share on share LTIP during Market during Market Actual/ Maximum price of price of shares the year price per the year price per Value at planned LTIP shares 884.0p at 884.0p at held at 1 Jan 2007 to Award share at 1 Jan 2007 to share at vesting vesting held at 31 Dec 2007 31 Dec 2007 Directors 1 Jan 2007 31 Dec 2007 date award 31 Dec 2007 vesting £ date 31 Dec 2007 £ £ Andrew Cosslett 136,4321 1.4.05 617.5p 85,133 1249p 1,063,311 21.2.07 – 276,2002 29.6.05 706p – 20.2.08 276,200 2,441,608 1,350,0108 200,7403 3.4.06 941.5p – 18.2.09 200,740 1,774,542 159,5064 2.4.07 1256p – 17.2.10 159,506 1,410,034 Total 636,446 5,626,184 Richard Hartman 165,1301 24.6.04 549.5p 103,041 1249p 1,286,982 21.2.07 – 214,8702 29.6.05 706p – 20.2.08 196,9645 1,741,162 962,8638 146,1103 3.4.06 941.5p – 18.2.09 85,2305 753,434 113,7314 2.4.07 1256p – 17.2.10 28,4325 251,339 Total 310,626 2,745,935 Stevan Porter 142,2901 24.6.04 549.5p 88,788 1249p 1,108,9626 21.2.07 – 174,9002 29.6.05 706p – 20.2.08 174,900 1,546,116 855,0038 132,2403 3.4.06 941.5p – 18.2.09 132,240 1,169,002 92,6674 2.4.07 1256p – 17.2.10 92,667 819,177 Total 399,807 3,534,295 Richard Solomons 144,9901 24.6.04 549.5p 90,473 1249p 1,130,008 21.2.07 – 176,5502 29.6.05 706p – 20.2.08 176,550 1,560,702 863,0698 128,4703 3.4.06 941.5p – 18.2.09 128,470 1,135,675 102,1094 2.4.07 1256p – 17.2.10 102,109 902,644 Total 407,129 3,599,021 Former Directors Richard North 144,9931,7 24.6.04 549.5p 90,475 1249p 1,130,033 21.2.07 – Total –

1 This award was based on performance to 31 December 2006 where the 3 This award is based on performance to 31 December 2008 where the performance measure related to both the Company's TSR against a group performance measure relates to both the Company’s TSR against a group of eight other comparator companies and growth in return on capital of eight other comparator companies and the relative CAGR of rooms in employed (ROCE). The number of shares released was graded, according to the IHG system. a) where the Company finished in the TSR comparator group, with 50% of 4 This award is based on performance to 31 December 2009 where the the award being released for first or second position and 10% of the award performance measure relates to both the Company's TSR against a group being released for fifth place; and b) growth in ROCE, with 50% of the of eight other comparator companies and the compound annual growth award being released for 141.6% growth and 10% of the award being rate in earnings per share (EPS) over the performance period. released for 70% growth. The Company finished in third place in the TSR group and achieved ROCE growth of 98.2%. Accordingly, 62.4% of the award 5 Richard Hartman’s awards were pro-rated to reflect his contractual service vested on 21 February 2007. during the applicable performance periods. 2 This award is based on performance to 31 December 2007 where the 6 The value of Stevan Porter’s shares at vesting includes £129,378 that was performance measure relates to both the Company’s TSR against a group chargeable to UK income tax. of seven other comparator companies and the cumulative annual growth 7 Richard North’s award was pro-rated to reflect his contractual service rate (CAGR) of rooms in the IHG system relative to a group of five other during the applicable performance period. comparator companies. The number of shares released is graded, 8 The Company finished in fourth place in the TSR group and achieved CAGR according to a) where the Company finished in the TSR comparator group, of 3.1%. Accordingly, 55.3% of the award will vest on 20 February 2008. with 50% of the award being released for first or second position and 10% of the award being released for median position; and b) relative CAGR with 50% of the award being released for 3.4% (upper quartile) CAGR and 10% of the award being released for 2.4% (median) CAGR.

42 IHG Annual Report and Financial Statements 2007 THE BOARD, SENIOR THEMANAGEMENT BOARD, SENIOR AND MANAGEMENTTHEIR RESPONSIBILITIES AND THEIR RESPONSIBILITIES 1 3 3 p 43 7 ⁄ 3 572 875 Option 1,669 2,863 6,874 8,750 price (p) price 42,063 31,975 619.83 494.17 114,446 104,247 1 January 2007 ordinary shares of 11 shares ordinary option price (p) price average Remuneration report Remuneration Weighted 3 3 2 p –– 47 ⁄ 29 held at 3,769 420.50 Options 7,343 1,400 1,169 1,404 2,402 96,370 10,269 31,938 118,810225,260230,320 619.83 100,550 494.17 494.17 619.83 157,300 619.83 133,101 168,162 156,810 31 December 2007 31 December – 157,300 619.83 – 321,630 531.82 – 334,639 531.10 during ordinary shares of 13 shares ordinary the year 31 Dec 2007 218,950 InterContinental Hotels Group PLC Group Hotels InterContinental PLC Group Hotels InterContinental by Directors’ spouses and other connected persons. None of the Directors None of the Directors persons. spouses and other connected by Directors’ of any subsidiary. in the shares has a beneficial interest Option prices range from 420.50p to 619.83p per IHG share. The closing 619.83p per IHG share. 420.50p to from range Option prices 2007 was 884.00p and the range on 31 December price share value market 1413.00p per share. was 873.50p to during the year there therefore options during the year; exercised No serving Director ended the year for in aggregate gain by Directors is no disclosable 2007 (2006 £6,662,750). 31 December 2007. on 25 September until his retirement Hartman was a Director Richard of 494.17p per share. options at an option price exercised He subsequently share. was 911.78p per on exercise price share value The market – – 218,950– 118,810 619.83 – 2 held and include shares all beneficial interests are These shareholdings 3 Receipts. Depositary of American Held in the form during Lapsed Exercised the year p 7 ⁄ p 3 47 ⁄ 29 – – – – Ordinary shares under option under shares Ordinary during Granted the year held at Options 321,630 334,639 157,300 337,760 157,300 337,760 321,630 334,639 1 Jan 2007 n Porter options granted in 2004 are exercisable up to April 2014. up to exercisable in 2004 are options granted April 2015. The up to exercisable in 2005 are options granted share share of executive the 2005 grant to relating condition performance options is set out on page 38. 2009. and September March ordinary shares prior to the share consolidation effective from 4 June 2007. from effective consolidation the share prior to shares ordinary held on shares PLC Group Hotels InterContinental 56 existing every For of 13 shares ordinary 47 new received 1 June 2007, shareholders each and 200p per existing ordinary share. ordinary each and 200p per existing Robert C Larson Jonathan Linen Sir David Prosser David Webster Ying Yeh 1 11 PLC Group Hotels in InterContinental were interests These share Andrew Cosslett Andrew Stevan Porter Solomons Richard Directors Non-Executive David Kappler Ralph Kugler Laing Jennifer 6 Directors’ shareholdings 6 Directors’ Directors Executive Total A share 2007. Executive at 31 December exercisable options are Where B 2007. Executive at 31 December exercisable not yet options are Where C between exercisable in 2003. These are options granted Sharesave B Total Solomons Richard A B C Total Hartman Richard B Total Steva A Directors Cosslett Andrew B Share options Share been have options share Plan. No executive Option Share the IHG Executive made under of options were 2005, grants 2003 and Between Plan. Sharesave under the IHG all-employee of options was made 2005. In 2003, a grant since granted Remuneration report continued

7 Directors’ pensions Richard Hartman, who reached the IC Plan normal pension The following information relates to the pension arrangements age of 60 on 30 January 2006, ceased to be an active member provided for Messrs Cosslett, Hartman and Solomons under the of the IC Plan and ICETUS with effect from that date, and, up executive section of the InterContinental Hotels UK Pension Plan to his retirement on 25 September 2007, instead participated (the IC Plan) and the unfunded InterContinental Executive Top-Up in the InterContinental Hotels Group International Savings and Scheme (ICETUS). Retirement Plan (IS&RP), which is a Jersey-based defined contribution plan to which the Company contributes. The executive section of the IC Plan is a funded, registered, final salary, occupational pension scheme. The main features Stevan Porter has retirement benefits provided via the 401(k) applicable to the Executive Directors are: a normal pension age Retirement Plan for employees of Six Continents Hotels Inc. of 60; pension accrual of 1⁄ 30th of final pensionable salary for each (401(k)) and the Six Continents Hotels Inc. Deferred Compensation year of pensionable service; life assurance cover of four times Plan (DCP). pensionable salary; pensions payable in the event of ill health; The 401(k) is a tax qualified plan providing benefits on a defined and spouses’, partners’ and dependants’ pensions on death. contribution basis, with the member and the relevant company When benefits would otherwise exceed a member’s lifetime both contributing. The DCP is a non-tax qualified plan, providing allowance under the post-April 2006 pensions regime, these benefits on a defined contribution basis, with the member and benefits are limited in the IC Plan, but the balance is provided the relevant company both contributing. instead by ICETUS.

Directors’ pension benefits

Increase/ (decrease) in transfer value over the Increase/ Increase/ Transfer value Directors’ year, less (decrease) (decrease) Accrued of accrued benefits contributions Directors’ in accrued in accrued pension at Age at in the year1 1 Jan 2007 31 Dec 2007 contributions pension2 pension3 31 Dec 20074 Directors 31 Dec 2007 £ £ £ £ £ pa £ pa £ pa Andrew Cosslett 52 34,400 595,300 1,184,200 554,500 27,100 25,300 70,900 Richard Hartman 61 – 1,935,400 1,812,600 (122,800) (19,300) (23,300) 75,4005 Richard Solomons 46 22,000 1,470,500 2,371,600 879,100 24,900 18,700 168,700

1 Contributions paid in the year by the Directors under the terms of the 4 Accrued pension is that which would be paid annually on retirement at 60, plans. Contributions have been 5% of full pensionable salary. based on service to 31 December 2007. 2 The absolute increase or decrease in accrued pension during the year. 5 When Richard Hartman retired on 25 September 2007, his pension was 3 The increase or decrease in accrued pension during the year, excluding any £97,600 per annum pre-commutation. He took a tax-free cash sum of increase for inflation, on the basis that increases or decreases to accrued £385,400, leaving a residual pension of £75,400 per annum. pensions are applied at 1 October.

The figures shown in the above table relate to the final salary plans only. For defined contribution plans, the contributions made by and in respect of Stevan Porter during the year are:

Director’s contribution to Company contribution to DCP 401(k) DCP 401(k) ££ ££ Stevan Porter 105,000 5,600 Stevan Porter 74,700 4,500

The Company contributions made in respect of Richard Hartman to the IS&RP during the year were £159,300. He made no contributions.

By order of the Board Richard Winter Company Secretary 18 February 2008

44 IHG Annual Report and Financial Statements 2007 GROUP FINANCIAL GROUPSTATEMENTS FINANCIAL STATEMENTS 45 Group financial statements Group 1 rates Exchange 2 information Segmental 3 emoluments and Directors’ costs Staff 4 LLP & Young Ernst paid to remuneration Auditor’s 5 items Exceptional 6 costs Finance 7Tax 8 Dividends paid and proposed 9 share Earnings per ordinary Group financial statements Group responsibilities of Directors’ Statement the members to report Independent auditor’s statement income Group statement flow cash Group sheet balance Group policies and accounting information Corporate statements financial the Group to Notes 10 plant and equipment Property, 11 operations discontinued and sale Held for 12 Goodwill 13 assets Intangible 14 in associates Investments 15 Other financial assets 16 Inventories 17 and other receivables Trade 18 equivalents Cash and cash 19 and other payables Trade 20 Loans and other borrowings 21management policies Financial risk 22 Financial instruments 23 Net debt 24 benefits Retirement 25 payments Share-based 26 payable tax Deferred 27 capital share issued Authorised and 28 equity IHG shareholders’ 29 interest Minority equity 30 leases Operating 31 and other commitments Capital 32 Contingencies 33 party disclosures Related 34subsidiary Acquisition of 35 subsidiary undertakings Principal operating Group statement of recognised income and expense and income of recognised statement Group 46 47 48 49 50 51 52 57 57 62 62 63 63 64 65 65 66 67 68 69 70 70 71 71 72 72 72 73 75 77 77 81 84 85 86 87 87 87 87 88 88 88 Group financial statements financial Group of Directors’ the statement we present In this section and the report auditor’s the independent responsibilities, 2007. for of the Group financial statements consolidated Statement of Directors’ responsibilities

In relation to the Group financial statements The following statement, which should be read in conjunction with the independent auditor’s report set out opposite, is made with a view to distinguishing for shareholders the respective responsibilities of the Directors and of the auditor in relation to the Group financial statements. The Directors are responsible for preparing the Annual Report and the Group financial statements in accordance with applicable United Kingdom law and those International Financial Reporting Standards as adopted by the European Union. The Directors are required to prepare Group financial statements for each financial year which present fairly the financial position of the Group and the financial performance and cash flows of the Group for that period. The Directors consider that in preparing the Group financial statements on pages 48 to 88 inclusive, the Group has used appropriate accounting policies, applied in a consistent manner and supported by reasonable and prudent judgements and estimates, and that all applicable accounting standards have been followed. The Directors have responsibility for ensuring that the Group keeps accounting records which disclose with reasonable accuracy the financial position of the Group and which enable them to ensure that the Group financial statements comply with the Companies Act 1985 and Article 4 of the IAS Regulation. The Directors have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

46 IHG Annual Report and Financial Statements 2007 GROUP FINANCIAL GROUPSTATEMENTS FINANCIAL STATEMENTS 47 in accordance with IFRS as adopted by the European Union, by the European with IFRS as adopted in accordance as at 31 affairs of the Group’s of the state 2007 December then ended; the year for and of its profit 4 of with the Companies Act 1985 and Article in accordance the IAS Regulation; and financial statements. with the Group We are not required to consider whether the Board’s statements Board’s whether the consider to not required are We opinion an or form all risks and controls, cover control on internal governance corporate of the Group’s on the effectiveness procedures. risk and control or its procedures in the Annual Report and contained other information read We financial Group audited with the is consistent whether it consider the Highlights, only comprises other information The statements. Business and Chief Executive, the Chairman from Message Statement, Governance Report, Corporate Directors’ Review, Report. We Report and the Remuneration Audit Committee of aware become if we our report for the implications consider apparent any with inconsistencies material or misstatements not extend do responsibilities Our financial statements. the Group information. any other to Opinion In our opinion: • view, a true and fair give financial statements the Group • prepared been properly have financial statements the Group • Report is consistent in the Directors’ given the information LLP, & Young Ernst London. auditor, Registered 2008 18 February Basis of audit opinion with International our audit in accordance conducted We by the Auditing issued on Auditing (UK and Ireland) Standards basis, test on a examination, An audit includes Board. Practices in the Group the amounts and disclosures to relevant of evidence of the an assessment It also includes financial statements. and judgements made by the Directors estimates significant and of financial statements, of the Group in the preparation the Group’s to appropriate policies are whether the accounting disclosed. applied and adequately consistently circumstances, all the obtain audit so as to our and performed planned We necessary considered which we and explanations information reasonable give to with sufficient evidence us provide to in order from free are financial statements that the Group assurance or other by fraud caused whether misstatement, material also evaluated our opinion we In forming or error. irregularity in the of information adequacy of the presentation the overall financial statements. Group Statement of Directors’ responsibilities and responsibilities of Directors’ report Statement Independent auditor’s Respective responsibilities of Directors of Directors responsibilities Respective and auditors Report the Annual preparing for responsibilities The Directors’ with applicable in accordance financial statements and the Group Financial Reporting law and International Kingdom United set Union are by the European (IFRS) as adopted Standards Responsibilities. of Directors’ out in the Statement financial statements Group audit the is to Our responsibility requirements and regulatory legal with relevant in accordance on Auditing (UK and Ireland). Standards and International financial whether the Group our opinion as to you to report We and whether the Group view a true and fair give statements in accordance prepared been properly have financial statements Regulation. 4 of the IAS with the Companies Act 1985 and Article whether in our opinion the information you to also report We with the financial Report is consistent given in the Directors’ statements. Report in the Directors’ given The information from referred that is cross includes that specific information sections of the and Employees Directors review, the Business Report. Directors’ not received have if, in our opinion we you to report In addition we our audit, or for require we and explanations all the information remuneration directors’ law regarding specified by if information is not disclosed. and other transactions reflects Statement Governance whether the Corporate review We of the 2006 with the nine provisions compliance the Company’s of Rules by the Listing our review Combined Code specified for if it does not. report Authority, and we the Financial Services Independent auditor’s report to the members the members to report auditor’s Independent PLC Group Hotels of InterContinental financial statements Group the to In relation of InterContinental financial statements Group the audited have We 2007 which ended 31 December the year for PLC Group Hotels of statement Group statement, income the Group comprise statement, flow cash Group and expense, income recognised and accounting information sheet, corporate balance Group financial These Group 35. 1 to notes policies and the related policies under the accounting been prepared have statements set out therein. financial company parent on the separately reported have We year the for PLC Group Hotels InterContinental of statements in the Directors’ 2007 and on the information ended 31 December as having been audited. Report that is described Remuneration as a members, the Company’s to is made solely This report Act 1985. with Section 235 of the Companies body, in accordance might state so that we has been undertaken Our audit work to required are we those matters members the Company’s to no other purpose. and for report them in an auditor’s to state or do not accept we by law, permitted extent the fullest To other than the Company and anyone to responsibility assume for our audit work, as a body, for members the Company’s formed. have the opinions we or for this report, Group financial statements

GROUP INCOME STATEMENT

2007 2006 Before Exceptional Before Exceptional exceptional items exceptional items items (note 5) Total items (note 5) Total For the year ended 31 December 2007 Note £m £m £m £m £m £m Revenue 2 883 – 883 786 – 786 Cost of sales (411) – (411) (355) – (355) Administrative expenses (188) (7) (195) (180) – (180) Other operating income and expenses 83846 42731 292 31 323 255 27 282 Depreciation and amortisation 2 (55) (1) (56) (55) – (55) Operating profit 2 237 30 267 200 27 227 Financial income 6 9–926 – 26 Financial expenses 6 (54) – (54) (37) – (37) Profit before tax 192 30 222 189 27 216 Tax 7 (42) 30 (12) (41) 94 53 Profit for the year from continuing operations 150 60 210 148 121 269 Profit for the year from discontinued operations 11 5162119 117 136 Profit for the year attributable to the equity holders of the parent 155 76 231 167 238 405

Earnings per ordinary share 9 Continuing operations: Basic 65.6p 69.1p Diluted 63.8p 67.4p Adjusted 46.9p 38.0p Adjusted diluted 45.6p 37.1p Total operations: Basic 72.2p 104.1p Diluted 70.2p 101.5p Adjusted 48.4p 42.9p Adjusted diluted 47.1p 41.8p Notes on pages 52 to 88 form an integral part of these financial statements.

48 IHG Annual Report and Financial Statements 2007 GROUP FINANCIAL GROUPSTATEMENTS FINANCIAL STATEMENTS 49 1 4 4 4 (1) (2) 26 16 30 £m (30) (14) (11) (15) 405 409 2006 – 9 4 (1) (1) (3) (2) (5) 10 12 25 £m (10) (11) 231 240 2007 Group income statement and Group statement of recognised income and expense income of recognised statement and Group statement income Group Tax related to share schemes recognised directly in equity directly schemes recognised share to related Tax in equity directly recognised Net income the year for Profit of the parent the equity holders to Transfers to the income statement the income to Transfers payable hedges: interest flow On cash gain on disposal of assets operations: On disposal of foreign and expenses income other operating assets: On disposal of available-for-sale Tax equity from or transferred to directly taken above on items Tax Income and expense recognised directly in equity directly recognised expense and Income assets of available-for-sale Gains on valuation hedges flow on cash (Losses)/gains operations of foreign on retranslation differences Exchange defined benefit pension plans on Actuarial gains/(losses) GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE INCOME OF RECOGNISED GROUP STATEMENT 2007 ended 31 December the year For Total recognised income and expense for the year attributable attributable the year for and expense income recognised Total part of these financial statements. an integral 88 form 52 to on pages Notes Group financial statements continued

GROUP CASH FLOW STATEMENT

2007 2006 For the year ended 31 December 2007 £m £m Profit for the year 231 405 Adjustments for: Net financial expense 45 11 Income tax charge/(credit) 15 (41) Exceptional operating items before depreciation (31) (27) Gain on disposal of assets, net of tax (16) (117) Depreciation and amortisation 58 64 Equity-settled share-based cost, net of payments 24 14 Other non-cash items (2) – Operating cash flow before movements in working capital 324 309 Increase in trade and other receivables (15) (31) Increase in trade and other payables 26 10 Retirement benefit contributions, net of charge (33) – Cash flow from operations 302 288 Interest paid (42) (33) Interest received 9 24 Tax paid on operating activities (37) (43) Net cash from operating activities 232 236 Cash flow from investing activities Purchases of property, plant and equipment (57) (87) Purchases of intangible assets (20) (23) Purchases of associates and other financial assets (16) (8) Acquisition of subsidiary, net of cash acquired – (6) Disposal of assets, net of costs and cash disposed of 49 620 Proceeds from associates and other financial assets 57 124 Tax paid on disposals (32) (6) Net cash from investing activities (19) 614 Cash flow from financing activities Proceeds from the issue of share capital 16 20 Purchase of own shares (81) (260) Purchase of own shares by employee share trusts (69) (47) Proceeds on release of own shares by employee share trusts 10 19 Dividends paid to shareholders (773) (561) Dividends paid to minority interests – (1) Increase/(decrease) in borrowings 553 (172) Net cash from financing activities (344) (1,002) Net movement in cash and cash equivalents in the year (131) (152) Cash and cash equivalents at beginning of the year 179 324 Exchange rate effects 4 7 Cash and cash equivalents at end of the year 52 179 Notes on pages 52 to 88 form an integral part of these financial statements.

50 IHG Annual Report and Financial Statements 2007 GROUP FINANCIAL GROUPSTATEMENTS FINANCIAL STATEMENTS 51 – 3 4 8 (2) (3) 23 66 27 32 96 50 13 £m (71) (79) (17) (10) 455 686 678 686 997 109 154 237 179 2006 (231) (643) (562) (402) (303) (109) 1,388 2,129 1,893 (1,207) (1,528) 5 6 3 3 9 (8) (3) 46 49 54 49 81 19 33 32 93 52 57 £m (55) (82) (41) 353 962 110 167 235 2007 (212) (610) (390) (869) (139) 1,397 1,504 1,807 (1,145) (1,758) (1,528) 2 2 20 19 20 24 19 26 11 28 28 28 28 28 28 28 29 10 12 13 14 24 15 16 17 18 15 11 Note Group cash flow statement and Group balance sheet balance and Group statement flow cash Group IHG shareholders’ equity IHG shareholders’ Minority equity interest equity Total Capital redemption reserve redemption Capital trusts share held by employee Shares Other reserves reserve gains and losses Unrealised reserve translation Currency earnings Retained Total non-current liabilities non-current Total sale as held for Liabilities classified liabilities Total Net assets EQUITY capital Equity share Current tax payable tax Current liabilities current Total Loans and other borrowings benefit obligations Retirement and other payables Trade payable tax Deferred Total current assets current Total sale as held for classified assets Non-current assets Total LIABILITIES Loans and other borrowings and other payables Trade Other financial assets assets non-current Total Inventories and other receivables Trade receivable tax Current equivalents Cash and cash Other financial assets ASSETS plant and equipment Property, Goodwill assets Intangible in associates Investment benefit assets Retirement GROUP BALANCE SHEET GROUP BALANCE 2007 31 December Signed on behalf of the Board Solomons Richard 2008 18 February part of these financial statements. an integral form 88 on pages 52 to Notes Corporate information and accounting policies

Corporate information Foreign currencies The consolidated financial statements of InterContinental Hotels Transactions in foreign currencies are translated to the Group PLC (the Group or IHG) for the year ended 31 December functional currency at the exchange rates ruling on the dates of 2007 were authorised for issue in accordance with a resolution of the transactions. Monetary assets and liabilities denominated the Directors on 18 February 2008. InterContinental Hotels Group in foreign currencies are retranslated to the functional currency PLC (the Company) is incorporated in Great Britain and registered at the relevant rates of exchange ruling at the balance sheet in England and Wales. date. All foreign exchange differences arising on translation are recognised in the income statement except on foreign currency Summary of significant accounting policies borrowings that provide a hedge against a net investment in a foreign operation. These are taken directly to the currency Basis of preparation translation reserve until the disposal of the net investment, at The consolidated financial statements are presented in sterling which time they are recycled against the gain or loss on disposal. and all values are rounded to the nearest million (£m) except where otherwise indicated. The assets and liabilities of foreign operations, including goodwill, are translated into sterling at the relevant rates of exchange ruling Statement of compliance at the balance sheet date. The revenues and expenses of foreign The consolidated financial statements of IHG have been prepared operations are translated into sterling at weighted average rates in accordance with International Financial Reporting Standards of exchange for the period. The exchange differences arising on (IFRS) as adopted by the European Union and as applied in the retranslation are taken directly to the currency translation accordance with the provisions of the Companies Act 1985. reserve. On disposal of a foreign operation, the cumulative The Group has early adopted International Financial Reporting amount recognised in the currency translation reserve relating Interpretations Committee 14 ‘IAS 19 – The Limit on a Defined to that particular foreign operation is recycled against the gain Benefit Asset, Minimum Funding Requirements and their or loss on disposal. Interaction’ (IFRIC 14). IFRIC 14 provides guidance on assessing Derivative financial instruments and hedging the limit in International Accounting Standard 19 ‘Employee Derivatives designated as hedging instruments are accounted Benefits’ (IAS 19) on the amount of the surplus that can be for in line with the nature of the hedging arrangement. The recognised as an asset. It also explains how the pension asset Group’s detailed accounting policies with respect to hedging or liability may be affected by a statutory or contractual minimum instruments are set out in note 21. Documentation outlining the funding requirement. Under IFRIC 14, the Group has recognised measurement and effectiveness of the hedging arrangement is retirement benefit assets of £32m on the balance sheet at maintained throughout the life of the hedge relationship. Any 31 December 2007. ineffective element of a hedge arrangement is recognised in The Group has also adopted International Financial Reporting financial income or expense. Standard 7 ‘Financial Instruments: Disclosures’ (IFRS 7) for Interest arising from currency swap agreements is taken to the first time in these financial statements. This is a disclosure financial income or expense on a gross basis over the term of standard only which has had no impact on the Group’s results the relevant agreements. Interest arising from other currency or net assets. The new disclosures are included throughout derivatives and interest rate swaps is taken to financial income the financial statements. or expense on a net basis over the term of the agreement. Other new accounting standards and interpretations issued Foreign exchange gains and losses on currency instruments are by the International Accounting Standards Board (IASB) and the recognised in financial income and expense unless they form International Financial Reporting Interpretations Committee part of effective hedge relationships. (IFRIC), becoming effective during the year, have not had a material impact on the Group’s financial statements. The fair value of derivatives is calculated by discounting the expected future cash flows at prevailing interest rates. The principal accounting policies of the Group are set out below. Property, plant and equipment Basis of consolidation Property, plant and equipment are stated at cost less depreciation The Group financial statements comprise the financial statements and any impairment. of the parent company and entities controlled by the Company. All inter-company balances and transactions have been eliminated. Borrowing costs are not capitalised. Repairs and maintenance costs are expensed as incurred. The results of those businesses acquired or disposed of are consolidated for the period during which they were under the Land is not depreciated. All other property, plant and equipment Group’s control. are depreciated to a residual value over their estimated useful lives, namely: buildings – lesser of 50 years and unexpired term of lease; and fixtures, fittings and equipment – 3 to 25 years. All depreciation is charged on a straight-line basis. Residual value is reassessed annually.

52 IHG Annual Report and Financial Statements 2007 GROUP FINANCIAL GROUPSTATEMENTS FINANCIAL STATEMENTS 53 Corporate information and accounting policies and accounting information Corporate Associates the ability to has which the Group is an entity over An associate participation through but not control, influence, significant exercise decisions of the entity. policy in the financial and operating the using the equity method unless for accounted are Associates Under the equity method, sale. as held for is classified associate by the Group’s adjusted at cost is recorded investment the Group’s When the Group’s and losses. acquisition profits of post share the Group’s in an associate, its interest exceeds of losses share of further £nil and recognition to reduced amount is carrying has that the Group extent the to except is discontinued losses obligations or made payments or constructive legal incurred on behalf of an associate. Financial assets one of the two into its financial assets classifies The Group or available-for-sale and receivables loans categories: following on the classification Management determines financial assets. held at amortised subsequently are and they initial recognition (available-for-sale value or fair and receivables) (loans cost is calculated and receivables on loans Interest financial assets). in the method and is recognised rate interest using the effective of values Changes in fair income. as interest statement income in equity directly recorded are financial assets available-for-sale On disposal, the reserve. gains and losses within the unrealised in equity are recognised adjustments value fair accumulated available-for- from Dividends statement. the income to recycled as statement in the income recognised are assets financial sale and expenses. income other operating sheet impairment at each balance for tested are Financial assets the impaired, is financial asset If an available-for-sale date. from is transferred value and fair cost original between difference cumulative of any the extent to statement income the equity to the to directly charged in equity, with any excess recorded loss statement. income Financial liabilities using the at amortised cost measured Financial liabilities are method. A financial liability is derecognised rate interest effective is discharged when the obligation under the liability expires, or cancelled. Inventories value. and net realisable of cost at the lower stated are Inventories receivables Trade less at their original amount recorded are receivables Trade for provide policy to impairment. It is the Group’s for provision which balances aged receivables month’s 100% of the previous the policy may to due. Adjustments than 180 days past more are when circumstances specific or exceptional be made due to amount The carrying probable. considered is no longer collection account the use of a provision through is reduced of the receivable income in the recognised are in the provision and movements trade provided When a previously of sales. within cost statement the provision. off against it is written is uncollectable, receivable Property, plant and equipment are reviewed for impairment impairment for reviewed are plant and equipment Property, that the indicate changes in circumstances or when events that do not Assets may not be recoverable. value carrying cash- into combined are flows independent cash generate recoverable estimated exceed values units. If carrying generating down written units are or cash-generating amount, the assets is the greater amount amount. Recoverable their recoverable to in use is in use. Value and value sell to cost less value of fair to discounted flows cash future based on estimated assessed that reflects rate discount using a pre-tax value their present and of money of the time value assessments market current the asset. the risks specific to revaluations previous retained Group On adoption of IFRS, the as permitted plant and equipment at deemed cost of property, Financial Adoption of International by IFRS 1 ‘First-time Reporting Standards’. Goodwill being at cost, and is recorded Goodwill arises on consolidation at the date value the fair of acquisition over of the cost the excess liabilities assets, of identifiable share of acquisition of the Group’s goodwill is initial recognition, liabilities. Following and contingent impairment losses. any accumulated less at cost measured by comparing annually impairment at least for Goodwill is tested units with their recoverable of cash-generating values carrying amounts. assets Intangible Software are in-house developed and software licences software Acquired and bring acquire to incurred on the basis of the costs capitalised estimated amortised over are Costs software. use the specific to basis. on a straight-line years five to three of useful lives Management contracts a management into enters sold and a purchaser are When assets as part capitalises the Group with the Group, contract or franchise of the value of the fair on disposal an estimate of the gain or loss is of management contracts The value into. entered contract six to from which ranges of the contract the life amortised over basis. on a straight-line 50 years assets Other intangible management contracts secure to owners hotel Amounts paid to and amortised over capitalised are agreements and franchise on a straight- period and 10 years of the contracted the shorter line basis. unless expensed are costs development generated Internally costs, development forecast attributable exceed revenues forecast of the life and amortised over capitalised are at which time they the asset. or impairment when events for reviewed are assets Intangible may value that the carrying indicate changes in circumstances not be recoverable. Corporate information and accounting policies continued

Cash and cash equivalents Borrowings are classified as non-current when the repayment Cash comprises cash in hand and demand deposits. date is more than 12 months from the balance sheet date or where they are drawn on a facility with more than 12 months to expiry. Cash equivalents are short-term highly liquid investments with an original maturity of three months or less that are readily Retirement benefits convertible to known amounts of cash and subject to insignificant Defined contribution plans risk of changes in value. Payments to defined contribution schemes are charged to the income statement as they fall due. In the cash flow statement cash and cash equivalents are shown net of short-term overdrafts which are repayable on demand and Defined benefit plans form an integral part of the Group’s cash management. Plan assets are measured at fair value and plan liabilities are measured on an actuarial basis, using the projected unit credit Assets held for sale method and discounting at an interest rate equivalent to the Non-current assets and associated liabilities are classified current rate of return on a high quality corporate bond of as held for sale when their carrying amount will be recovered equivalent currency and term to the plan liabilities. The difference principally through a sale transaction rather than continuing between the value of plan assets and liabilities at the balance use and a sale is highly probable. sheet date is the amount of surplus or deficit recorded on the Assets designated as held for sale are held at the lower of balance sheet as an asset or liability. An asset is recognised in full carrying amount at designation and sales value less cost to sell. when the employer has an unconditional right to use the surplus at some point during the life of the plan or on its wind up. Depreciation is not charged against property, plant and equipment classified as held for sale. The service cost of providing pension benefits to employees for the year is charged to the income statement. The cost of making Trade payables improvements to pensions is recognised in the income statement Trade payables are non interest bearing and are stated at their on a straight-line basis over the period during which any increase nominal value. in benefits vests. To the extent that improvements in benefits vest Loyalty programme immediately, the cost is recognised immediately as an expense. The hotel loyalty programme, Priority Club Rewards, enables Actuarial gains and losses may result from: differences members to earn points, funded through hotel assessments, between the expected return and the actual return on plan during each stay at an IHG hotel and redeem the points at a assets; differences between the actuarial assumptions underlying later date for free accommodation or other benefits. The future the plan liabilities and actual experience during the year; or redemption liability is included in trade and other payables and changes in the actuarial assumptions used in the valuation is estimated using eventual redemption rates determined by of the plan liabilities. Actuarial gains and losses, and taxation actuarial methods and points values. thereon, are recognised in the Group statement of recognised The Group pays interest to the loyalty programme on the income and expense. accumulated cash received in advance of redemption of the Actuarial valuations are normally carried out every three years points awarded. and are updated for material transactions and other material Self insurance changes in circumstances (including changes in market prices The Group is self insured for various insurable risks including and interest rates) up to the balance sheet date. general liability, workers’ compensation and employee medical Taxes and dental coverage. Insurance reserves include projected Current tax settlements for known and incurred but not reported claims. Current income tax assets and liabilities for the current and prior Projected settlements are estimated based on historical trends periods are measured at the amount expected to be recovered and actuarial data. from or paid to the tax authorities including interest. The tax rates Provisions and tax laws used to compute the amount are those that are Provisions are recognised when the Group has a present enacted or substantively enacted by the balance sheet date. obligation as a result of a past event, it is probable that a payment Deferred tax will be made and a reliable estimate of the amount payable can Deferred tax assets and liabilities are recognised in respect of be made. If the effect of the time value of money is material, temporary differences between the tax base and carrying value the provision is discounted. of assets and liabilities, including accelerated capital allowances, Bank and other borrowings unrelieved tax losses, unremitted profits from overseas where Bank and other borrowings are initially recognised at the fair the Group does not control remittance, gains rolled over into value of the consideration received less directly attributable replacement assets, gains on previously revalued properties transaction costs. They are subsequently measured at amortised and other short-term temporary differences. cost. Finance charges, including issue costs, are charged to the income statement using an effective interest rate method.

54 IHG Annual Report and Financial Statements 2007 GROUP FINANCIAL GROUPSTATEMENTS FINANCIAL STATEMENTS 55 Corporate information and accounting policies and accounting information Corporate associated with asset ownership; with asset associated and ownership; with asset The Group has taken advantage of the transitional provisions of provisions the transitional of advantage has taken The Group awards of equity-settled in respect Payments’ IFRS 2 ‘Share-based after granted awards equity-settled to 2 only and has applied IFRS 1 January 2005. before 2002 that had not vested 7 November Leases statement income the to charged are rentals lease Operating the lease. of the term basis over on a straight-line Group the to which transfer leases, held under finance Assets ownership to benefits incidental all the risks and substantially of the lease, at the inception capitalised are item, of the leased value the fair for liability being recognised with a corresponding of the minimum value the present or, if lower, asset of the leased the between apportioned Lease payments are payments. lease in the income charges and finance liability of the lease reduction on the of interest rate constant a achieve so as to statement held under finance Assets of the liability. balance remaining useful of the estimated the shorter over depreciated are leases term. and the lease of the asset life assets Disposal of non-current gain or loss and related proceeds the sales recognises The Group In determining process. of the sales on disposal on completion considers the Group should be recorded, whether the gain or loss whether it: • the degree to managerial involvement a continuing has • associated risks and rewards the significant transferred has • the proceeds. receive and will actually measure reliably can operations Discontinued sold or those hotels to relating those are operations Discontinued a separate to relate when the results sale as held for classified there or where of operations, area geographical line of business, line of business dispose of a separate plan to is a co-ordinated of operations. area or geographical items Exceptional both including financial information certain discloses The Group of information The presentation items. exceptional and excluding of understanding a better allows items exceptional excluding and provides of the Group performance trading the underlying management reporting. internal with the Group’s consistency identified by virtue of either their size or are items Exceptional with prior periods and to comparison facilitate so as to nature Exceptional in financial performance. trends underlying assess gains and losses to, not restricted include, but are can items and reversals, impairment charges on the disposal of assets, provisions. of tax and the release costs restructuring as special items been disclosed previously Amounts that have with in accordance items exceptional been called now have the Group’s to has been no change There practice. market identifying these items. policy for accounting – primarily derived from hotel operations, hotel from derived – primarily – earned from hotels managed by the managed by hotels – earned from – received in connection with the license of the the license with in connection – received Group’s brand names, usually under long-term contracts with contracts under long-term usually names, brand Group’s as a fees royalty franchise charges The Group owner. the hotel when earned is recognised Revenue revenue. of room percentage of the agreement. under the terms or realisable and realised payments Share-based is with employees transactions of equity-settled The cost at which the at the date value fair to by reference measured external by an is determined value Fair granted. are shares using option pricing models. valuer together is recognised, transactions of equity-settled The cost the period in which over in equity, increase with a corresponding on ending on the date fulfilled, are conditions any performance the award to entitled fully become employees which the relevant date). (vesting the a period represents for charge statement The income at the beginning and recognised expense in cumulative movement that do awards for is recognised end of that period. No expense is conditional vesting where awards for except vest, not ultimately irrespective as vesting treated which are condition, upon a market that is satisfied, provided condition of whether or not the market satisfied. are conditions all other performance Deferred tax assets are recognised to the extent that it is regarded the extent to recognised are assets tax Deferred be can differences temporary deductible that the as probable is reassessed assets tax of all deferred The recoverability realised. date. sheet at each balance to expected are that rates at the tax is calculated tax Deferred or liability will be settled, in the periods in which the asset apply at the balance enacted or substantively enacted based on rates sheet date. recognition Revenue and leased owned sources: the following from is derived Revenue and other revenues fees franchise management fees; properties; operations. the Group’s ancillary to which are similar and VAT (excluding sales represents revenue Generally, in the provided of discounts, net of goods and services, taxes) have services when and recognised of business normal course is a description of the composition The following been rendered. of the Group. of revenues Owned and leased owner. the hotel with contracts under long-term usually Group, a which is generally include a base fee, Management fees which is fee, and an incentive revenue, of hotel percentage Revenue flows. or cash profitability based on the hotel’s generally under or realisable when earned and realised is recognised the contract. of the terms fees Franchise including the rental of rooms and food and beverage sales from sales and beverage and food of rooms including the rental brand under the Group’s operated hotels and leased owned and occupied are when rooms is recognised names. Revenue sold. are and beverages food Management fees Corporate information and accounting policies continued

Use of accounting estimates and judgements New standards and interpretations The preparation of financial statements requires management The IASB and IFRIC have issued the following standards and to make estimates and assumptions that affect the reported interpretations with an effective date after the date of these amounts of assets and liabilities, disclosure of contingent assets financial statements. They have not been adopted early by the and liabilities at the date of the financial statements and the Group and the Directors do not anticipate that the adoption of reported amounts of revenues and expenses during the reporting these standards and interpretations will have a material impact period. Actual results may differ from these estimates under on the Group’s reported income or net assets in the period different assumptions and conditions. of adoption. The estimates and assumptions that have the most significant IFRS 3R Business Combinations effect on the amounts recognised in the financial statements are: Effective from 1 July 2009 IFRS 8 Operating Segments Impairment – the Group determines whether goodwill is impaired Effective from 1 January 2009 on an annual basis or more frequently if there are indicators of impairment. Other non-current assets, including property, plant IAS 23 Borrowing Costs (Amendment) and equipment, are tested for impairment if there are indicators Effective from 1 January 2009 of impairment. Impairment testing requires an estimate of future IAS 27R Consolidated and Separate Financial Statements cash flows and the choice of a suitable discount rate and, in the Effective from 1 July 2009 case of hotels, an assessment of recoverable amount based on IFRIC 11 Group and Treasury Share Transactions comparable market transactions. Effective from 1 March 2007 Retirement and other post-employment benefits – the cost IFRIC 13 Customer Loyalty Programmes of defined benefit pension plans and other post-employment Effective from 1 July 2008 benefits is determined using actuarial valuations. The actuarial Note: the effective dates are in respect of accounting periods valuation involves making assumptions about discount rates, beginning on or after the date. expected rates of return on assets, future salary increases, mortality rates and future pension increases. Tax – provisions for tax accruals require judgements on the interpretation of tax legislation, developments in tax case law and the potential outcomes of tax audits and appeals. In addition, deferred tax assets are recognised for unused tax attributes to the extent that it is probable that taxable profit will be available against which they can be utilised. Judgement is required as to the amount that can be recognised based on the likely amount and timing of future taxable profits, taking into account expected tax planning. Loyalty programme – the future redemption liability included in trade and other payables is estimated using actuarial methods based on statistical formulae that project the timing of future point redemptions based on historical levels to give eventual redemption rates and points values. Trade receivables – a provision for impairment of trade receivables is made on the basis of historical experience and other factors considered relevant by management. Other – the Group also makes estimates and judgements in the valuation of management and franchise agreements acquired on asset disposals, the valuation of financial assets classified as available-for-sale, the outcome of legal proceedings and claims and in the valuation of share-based payment costs.

56 IHG Annual Report and Financial Statements 2007 GROUP FINANCIAL GROUPSTATEMENTS FINANCIAL STATEMENTS 57 2 SEGMENTAL INFORMATION 2 SEGMENTAL be to is determined format reporting The primary segmental regions: main geographical three Americas; (EMEA); and and Africa East Middle Europe, Asia Pacific. the principal functions, form with Central These, together and makes by which management is organised format decisions. operational three into region each geographical further breaks The Group return, growth, different models which offer business distinct opportunities: risk and reward Franchised nor manage the hotel, neither own companies Group Where to access and provide brand the use of a Group but license The Group schemes and know-how. loyalty systems, reservation based fee, or licensing royalty a brand from revenues derives revenue. of room on a percentage Managed a Group brand, the use of a Group licensing in addition to Where, The Group party owners. third for manages the hotel company and management fees base and incentive from revenues derives to the hotel for necessary infrastructure the system provides a percentage generally are fees Management contract operate. linked fee an additional incentive and may have revenue of hotel vary, of these agreements The terms flow. or cash profitability to The or more). years 10 example, (for term long often but are under the management agreement responsibilities Group’s and supervising the managers include hiring, training typically under the relevant hotels the that operate and employees reservation central to gain access to In order standards. brand and brand marketing brand and regional global systems, required typically are owners and procedures, standards a further contribution. make to Owned and leased the and operates (or leases) both owns company a Group Where all the benefits and takes of ownership, and, in the case hotel with ownership. risks associated directly and liabilities include items assets results, Segmental be allocated as those that can a segment as well to attributable basis. on a reasonable Corporate information and accounting policies and and accounting information Corporate financial statements the Group to Notes 1.47). 1.49). € € 1.46 (2006 £1= 1.36 (2006 £1= Notes to the Group financial statements financial the Group to Notes RATES 1 EXCHANGE into been translated have operations of foreign The results the for of exchange rates average at the weighted sterling is rate of the US dollar, the translation period. In the case the translation of the euro, In the case £1=$2.01 (2006 £1=$1.84). is £1=€ rate Foreign currency denominated assets and liabilities have been and liabilities have assets denominated currency Foreign on the balance of exchange at the rates sterling into translated is rate dollar, the translation of the US In the case sheet date. the translation of the euro, In the case £1=$2.01 (2006 £1=$1.96). is £1=€ rate Notes to the Group financial statements continued

2 SEGMENTAL INFORMATION (CONTINUED)

Americas EMEA Asia Pacific Central Group Year ended 31 December 2007 £m £m £m £m £m Revenue Owned and leased 128 121 73 – 322 Managed 78 84 49 – 211 Franchised 244 40 8 – 292 Central – – – 58 58 Continuing operations 450 245 130 58 883 Discontinued operations – owned and leased 31 9 – – 40 481 254 130 58 923

Americas EMEA Asia Pacific Central Group £m £m £m £m £m Segmental result Owned and leased 20 17 18 – 55 Managed 21 43 23 – 87 Franchised 212 29 3 – 244 Regional and central (33) (22) (13) (81) (149) Continuing operations 220 67 31 (81) 237 Discontinued operations – owned and leased 8 – – – 8 228 67 31 (81) 245 Exceptional operating items 9 10 8 3 30 Operating profit 237 77 39 (78) 275

Continuing Discontinued Group £m £m £m Operating profit 267 8 275 Net finance costs (45) – (45) Profit before tax 222 8 230 Tax (12) (3) (15) Profit after tax 210 5 215 Gain on disposal of assets, net of tax – 16 16 Profit for the year 210 21 231

58 IHG Annual Report and Financial Statements 2007 GROUP FINANCIAL GROUPSTATEMENTS FINANCIAL STATEMENTS 59 (3) 57 54 92 56 54 52 25 £m (82) (212) (877) Group Group 1,807 (1,758) – – – (584) – (587) 10 83 1,701 23 11 83 1,644 13 £m Central Central – – 3 14 20 11 £m (67) (67) 334 334 Notes to the Group financial statements the Group to Notes – – –3–3 5 14 20 18 £m 613 613 EMEA Asia Pacific EMEA Asia Pacific 1–––1 11––2 – 4 (3) 57 16 29 16 £m £m £m £m £m £m 671 614 (280) (237) (283) (237) Americas Americas (CONTINUED) b b a a Property, plant and equipment Property, assets Intangible cash flow statement. flow cash Reversal of previously recorded impairment recorded of previously Reversal expenditure Capital and amortisation Depreciation Capital expenditure Capital Additions to: and amortisation Depreciation Current tax payable tax Current payable tax Deferred Loans and other borrowings Cash and cash equivalents Cash and cash Current tax receivable tax Current b of sales. cost to and £38m relating expenses administrative to and amortisation is £20m relating Included in the £58m of depreciation Discontinued operations: Discontinued a as included in the Group and acquisitions of subsidiaries and other financial assets assets plant and equipment, intangible of property, Comprises purchases Other segmental information Other segmental Continuing operations: Total liabilities Total Total assets Total Segment liabilities sale as held for Liabilities classified liabilities: Unallocated Assets and liabilities Assets Segment assets sale as held for classified assets Non-current assets: Unallocated 2 SEGMENTAL INFORMATION INFORMATION 2 SEGMENTAL 2007 ended 31 December Year Notes to the Group financial statements continued

2 SEGMENTAL INFORMATION (CONTINUED)

Americas EMEA Asia Pacific Central Group Year ended 31 December 2006 £m £m £m £m £m Revenue Owned and leased 104 92 71 – 267 Managed 77 71 36 – 184 Franchised 241 35 4 – 280 Central – – – 55 55 Continuing operations 422 198 111 55 786 Discontinued operations – owned and leased 41 133 – – 174 463 331 111 55 960

Americas EMEA Asia Pacific Central Group £m £m £m £m £m Segmental result Owned and leased 12 (4) 17 – 25 Managed 27 37 21 – 85 Franchised 208 24 3 – 235 Regional and central (32) (20) (12) (81) (145) Continuing operations 215 37 29 (81) 200 Discontinued operations – owned and leased 6 25 – – 31 221 62 29 (81) 231 Exceptional operating items 25 2 – – 27 Operating profit 246 64 29 (81) 258

Continuing Discontinued Group £m £m £m Operating profit 227 31 258 Net finance costs (11) – (11) Profit before tax 216 31 247 Tax 53 (12) 41 Profit after tax 269 19 288 Gain on disposal of assets, net of tax – 117 117 Profit for the year 269 136 405

60 IHG Annual Report and Financial Statements 2007 GROUP FINANCIAL GROUPSTATEMENTS FINANCIAL STATEMENTS 61 (2) 50 53 55 23 £m (79) 182 115 179 (231) (313) Group Group 1,893 (1,207) – – 4 – (582) – (584) 11 73 1,691 15 13 73 1,641 £m Central Central – – 9 1 17 10 £m (53) (53) 338 338 Notes to the Group financial statements the Group to Notes – 4––4 2––2 –––3 10 53 31 49 17 £m 593 583 EMEA Asia Pacific EMEA Asia Pacific – 18––9 45––9 – 3 (2) 40 10 34 15 £m £m £m £m £m £m 116 687 647 (295) (234) (297) (234) Americas Americas (CONTINUED) b b a a Property, plant and equipment Property, assets Intangible cash flow statement. flow cash Reversal of previously recorded impairment recorded of previously Reversal expenditure Capital equipment plant and property, Additions to and amortisation Depreciation sale for held Impairment of assets Capital expenditure Capital Additions to: and amortisation Depreciation Current tax payable tax Current payable tax Deferred Loans and other borrowings Cash and cash equivalents Cash and cash Current tax receivable tax Current a as included in the Group and acquisitions of subsidiaries and other financial assets assets plant and equipment, intangible of property, Comprises purchases b of sales. cost to and £43m relating expenses administrative to and amortisation is £21m relating Included in the £64m of depreciation Discontinued operations: Discontinued Other segmental information Other segmental Continuing operations: Total liabilities Total Total assets Total Segment liabilities sale as held for Liabilities classified liabilities: Unallocated Year ended 31 December 2006 ended 31 December Year and liabilities Assets Segment assets sale as held for classified assets Non-current assets: Unallocated 2 SEGMENTAL INFORMATION INFORMATION 2 SEGMENTAL Notes to the Group financial statements continued

3 STAFF COSTS AND DIRECTORS’ EMOLUMENTS

2007 2006 £m £m Staff Costs: Wages and salaries 292 301 Social security costs 31 38 Pension and other post-retirement benefits: Defined benefit plans (note 24) 4 6 Defined contribution plans 12 11 339 356

2007 2006 Average number of employees, including part-time employees: Americas 3,761 3,771 EMEA 2,739 4,437 Asia Pacific 2,716 2,225 Central 1,150 1,023 10,366 11,456

2007 2006 £m £m Directors’ emoluments Base salaries, fees, performance payments and benefits 4.4 4.5 Gains on exercise of share options – 6.7 More detailed information on the emoluments, pensions, option holdings and shareholdings for each Director is shown in the Remuneration Report on pages 36 to 44.

4 AUDITOR’S REMUNERATION PAID TO ERNST & YOUNG LLP

2007 2006 £m £m Group audit fees 0.8 0.9 Audit fees in respect of subsidiaries 1.3 1.4 Tax fees 0.4 0.7 Fees in respect of reporting under Sarbanes Oxley Act 0.6 1.0 Interim review fees 0.2 0.2 Other services pursuant to legislation 0.1 0.1 Corporate finance fees – 0.1 Other 1.2 0.8 4.6 5.2 Audit fees in respect of the pension scheme were not material. The Audit Committee has a process to ensure that any non-audit services do not compromise the independence and objectivity of the external auditor and that relevant UK and US professional and regulatory requirements are met. A number of criteria are applied when deciding whether pre-approval for such services should be given. These include the nature of the service, the level of fees and the practicality of appointing an alternative provider, having regard to the skills and experience required to supply the service effectively. Cumulative fees for audit and non-audit services are presented to the Audit Committee on a quarterly basis for review. The Audit Committee is responsible for monitoring adherence to the pre-approval policy.

62 IHG Annual Report and Financial Statements 2007 GROUP FINANCIAL GROUPSTATEMENTS FINANCIAL STATEMENTS 63 – – 5 4 2 – (6) (6) 21 33 25 37 27 94 26 £m £m 123 100 117 2006 2006 8 1 9 – – 3 9 (4) (2) 45 11 18 20 54 30 30 30 16 £m £m 2007 2007 a b Note Notes to the Group financial statements the Group to Notes (note 11) (note to be incurred during the first half of 2008. Costs of £7m are included in administrative expenses and £1m in depreciation and amortisation. Income of £6m is amortisation. Income and and £1m in depreciation expenses included in administrative of £7m are half of 2008. Costs during the first be incurred to and expenses. income included in other operating losses. unrecognised of previously respect in with, in 2006, a credit together period has expired, limitation statutory of which the relevant or in respect settled Interest expense leases under finance payable charge Finance Financial income income Interest gains value Fair Financial expenses b been which have matters tax to relating of their size or nature by reason exceptional which are of provisions the release to relates credit tax The exceptional COSTS 6 FINANCE Tax charge Tax * operations. continuing to Relates ** and expenses. income Included within other operating of their size or nature. by reason as exceptional treated are items The above a will continue Costs facility. Aylesbury of the Group’s and closure move on the office date to incurred costs less head office of new and leaseback on sale Profit Tax* items operating on exceptional charge Tax credit tax Exceptional Gain on disposal of assets Gain on disposal of assets Exceptional operating items* operating Exceptional investments** of associate Gain on sale Inc.** Lodging Trust, in FelCor of investment Gain of sale assets** of other financial Gain on sale impairment** recorded of previously Reversal reorganisations Office 5 EXCEPTIONAL ITEMS 5 EXCEPTIONAL Interest income and expense relate to financial assets and liabilities held at amortised cost, calculated using the effective interest interest using the effective calculated and liabilities held at amortised cost, financial assets to relate and expense income Interest rate method. on the accumulated interest to relating programme loyalty the Group’s to is £10m (2006 £10m) payable expense Included within interest of points awarded. of the redemption in advance received of cash balance Notes to the Group financial statements continued

7 TAX

2007 2006 £m £m Income tax UK corporation tax at 30% (2006 30%): Current period 23 16 Benefit of tax reliefs on which no deferred tax previously recognised (1) (10) Adjustments in respect of prior periods (16) (4) 6 2 Foreign tax: Current period 100 72 Benefit of tax reliefs on which no deferred tax previously recognised (8) (1) Adjustments in respect of prior periods (50) (94) 42 (23) Total current tax 48 (21) Deferred tax: Origination and reversal of temporary differences (34) 27 Changes in tax rates (2) (4) Adjustments to estimated recoverable deferred tax assets 3 (13) Adjustments in respect of prior periods 4 (24) Total deferred tax (29) (14) Total income tax charge/(credit) on profit for the year 19 (35) Further analysed as tax relating to: Profit before exceptional items 45 53 Exceptional items (note 5): Exceptional operating items – 6 Exceptional tax credit* (30) (100) Gain on disposal of assets 4 6 19 (35) The total tax charge/(credit) can be further analysed as relating to: Profit on continuing operations 12 (53) Profit on discontinued operations 3 12 Gain on disposal of assets 4 6 19 (35) * Represents the release of provisions which are exceptional by reason of their size or nature relating to tax matters which have been settled or in respect of which the relevant statutory limitation period has expired, together with, in 2006, a credit in respect of previously unrecognised losses.

2007 2006 % % Reconciliation of tax charge/(credit) on total profit, including gain on disposal of assets UK corporation tax at standard rate 30.0 30.0 Permanent differences 5.6 3.7 Net effect of different rates of tax in overseas businesses 1.8 3.5 Effect of changes in tax rates (1.0) (1.0) Benefit of tax reliefs on which no deferred tax previously recognised (3.3) (3.0) Effect of adjustments to estimated recoverable deferred tax assets 1.3 (0.2) Adjustment to tax charge in respect of prior periods (11.0) (6.9) Other 0.4 0.4 Exceptional items and gain on disposal of assets (16.3) (36.1) 7.5 (9.6) Tax paid Total tax paid during the year of £69m (2006 £49m) comprises £37m (2006 £43m) in respect of operating activities and £32m (2006 £6m) in respect of investing activities.

64 IHG Annual Report and Financial Statements 2007 GROUP FINANCIAL GROUPSTATEMENTS FINANCIAL STATEMENTS 65 10 47 46 18 £m 497 561 389 399 2006 2006 2006 Total millions g s that 44 47 17 £m 399 399 269389 405 269 389 405 709 773 2007 69.1 104.1 67.4 101.5 operations Continuing 9 5.1 2006 320 329 2007 2007 Total 13.3 10.7 share 118.0 133.8 millions pence per pence Notes to the Group financial statements the Group to Notes 5.7 329 329 210320 231 210 320 231 2007 65.6 72.2 63.8 70.2 14.9 13.3 share 200.0 219.0 pence per pence operations Continuing Dilutive potential ordinary shares – employee share options share – employee shares ordinary potential Dilutive Basic weighted average number of ordinary shares number of ordinary average Basic weighted Final Final (declared in previous year) in previous Final (declared Interim Special interim Proposed for approval at the Annual General Meeting (not recognised as Meeting (not recognised the Annual General at approval for Proposed ordinary shares, together with a special dividend of 200p per existing ordinary share. The overall effect of the transaction wa of the transaction effect The overall share. ordinary 200p per existing with a special dividend of together shares, ordinary data. comparative has been made to no adjustment therefore value, at fair repurchase of a share a more give to items, by exceptional undistorted performance show to in order is disclosed share earnings per ordinary Adjusted performance. of the Group’s meaningful comparison Diluted weighted average number of ordinary shares (millions) shares number of ordinary average weighted Diluted (pence) earnings per share Diluted as: is calculated shares number of ordinary average weighted Diluted Basic earnings per share (£m) holders equity for available Profit (millions) shares number of ordinary average Basic weighted (pence) Basic earnings per share earnings per share Diluted (£m) equity holders for available Profit Basic earnings per ordinary share is calculated by dividing the profit for the year available for IHG equity holders by the weighted average by the weighted IHG equity holders for available the year for by dividing the profit is calculated share Basic earnings per ordinary during the year. in issue shares, in own investment excluding shares, number of ordinary of the exercise the notional reflect to share basic earnings per ordinary by adjusting is calculated share per ordinary earnings Diluted during the year. options outstanding share ordinary number of dilutive average weighted 56 existin every for shares ordinary on the basis of 47 new consolidation capital a share approved On 1 June 2007, shareholders a liability at 31 December): 9 SHARE EARNINGS PER ORDINARY Paid during the year: Paid 8 AND PROPOSED DIVIDENDS PAID The proposed final dividend is payable on the shares in issue at 28 March 2008. at 28 March in issue on the shares final dividend is payable The proposed Notes to the Group financial statements continued

9 EARNINGS PER ORDINARY SHARE (CONTINUED)

2007 2006 Continuing Continuing operations Total operations Total Adjusted earnings per share Profit available for equity holders (£m) 210 231 269 405 Less adjusting items (note 5): Exceptional operating items (£m) (30) (30) (27) (27) Tax on exceptional operating items (£m) ––66 Exceptional tax credit (£m) (30) (30) (100) (100) Gain on disposal of assets, net of tax (£m) – (16) – (117) Adjusted earnings (£m) 150 155 148 167 Basic weighted average number of ordinary shares (millions) 320 320 389 389 Adjusted earnings per share (pence) 46.9 48.4 38.0 42.9 Adjusted earnings (£m) 150 155 148 167 Diluted weighted average number of ordinary shares (millions) 329 329 399 399 Adjusted diluted earnings per share (pence) 45.6 47.1 37.1 41.8

10 PROPERTY, PLANT AND EQUIPMENT

Land and Fixtures, fittings buildings and equipment Total £m £m £m Cost At 1 January 2006 1,155 615 1,770 Additions 104 82 186 Transfers to non-current assets classified as held for sale (363) (118) (481) Disposals (2) (31) (33) Exchange and other adjustments (73) (42) (115) At 31 December 2006 821 506 1,327 Additions 54954 Reclassifications 15 (20) (5) Net transfers to non-current assets classified as held for sale (38) (44) (82) Disposals (7) (19) (26) Exchange and other adjustments 3 3 6 At 31 December 2007 799 475 1,274 Depreciation At 1 January 2006 (101) (313) (414) Provided (7) (41) (48) Transfers to non-current assets classified as held for sale 17 55 72 On disposals 22830 Exchange and other adjustments 7 23 30 At 31 December 2006 (82) (248) (330) Provided (6) (33) (39) Net transfers to non-current assets classified as held for sale 17 15 32 Reversal of impairment –33 On disposals 71825 Exchange and other adjustments – (3) (3) At 31 December 2007 (64) (248) (312) Net book value At 31 December 2007 735 227 962 At 31 December 2006 739 258 997 At 1 January 2006 1,054 302 1,356 At 31 December 2007, a previously recorded impairment charge of £3m was reversed following an impairment review of hotel assets based on current market conditions. No impairment charge, or subsequent reversal, was required at 31 December 2006. The carrying value of land and buildings held under finance leases at 31 December 2007 was £104m (2006 £93m).

66 IHG Annual Report and Financial Statements 2007 GROUP FINANCIAL GROUPSTATEMENTS FINANCIAL STATEMENTS 67 (4) (6) (2) 31 23 40 10 10 30 50 £m (22) (10) (13) (10) (14) (31) r 648 517 117 628 628 654 620 2006 (117) (517) tatement in tatement – 2 1 – – – – – – 3 – – (6) (4) (3) 35 30 16 47 57 47 50 49 57 £m (30) 2007 Notes to the Group financial statements the Group to Notes Property, plant and equipment Property, Associates tax Deferred Cash consideration, net of costs paid net of costs Cash consideration, Cash disposed of Cash consideration, net of costs paid net of costs Cash consideration, consideration Deferred value Management contract Other Liabilities classified as held for sale: held for as Liabilities classified * operations. within discontinued Reported Prior year disposals Prior year sale and liabilities held for Assets sale: as held for classified assets Non-current Other, including impairment of held for sale asset sale Other, including impairment of held for Tax net of tax* Gain on disposal of assets, inflow Net cash disposals: year Current Net assets disposed of Net assets consideration deferred against Provision Loans and other borrowings tax Deferred Minority equity interest disposed of of net assets share Group’s Consideration disposals: year Current Net assets of hotels sold of hotels Net assets plant and equipment Property, capital Net working equivalents Cash and cash 11 OPERATIONS DISCONTINUED SALE AND HELD FOR the continuing (2006 nil), associates and two (2006 32 hotels) hotels sold three 2007, the Group ended 31 December During the year one whilst during the year, sale as held for classified were hotels in 2003. An additional three commenced disposal programme asset (2006 hotels 2007, three equipment. At 31 December plant and property, as was reclassified sale held for as classified previously hotel sale. as held for classified were associates) two and hotels four held fo as that was classified of a property on the remeasurement of £3m was recognised an impairment loss 2006, At 31 December sale. The loss, which reduced the carrying amount of the asset to fair value less costs to sell, was recognised in the income s in the income sell, was recognised to costs less value fair to of the asset amount the carrying which reduced The loss, sale. recognised been have losses No impairment valuation. property by an independent was determined value Fair gain on disposal of assets. 2007. at 31 December Notes to the Group financial statements continued

11 HELD FOR SALE AND DISCONTINUED OPERATIONS (CONTINUED)

2007 2006 £m £m Results of discontinued operations Revenue 40 174 Cost of sales (30) (134) 10 40 Depreciation and amortisation (2) (9) Operating profit 8 31 Tax (3) (12) Profit after tax 5 19 Gain on disposal of assets, net of tax (note 5) 16 117 Profit for the year from discontinued operations 21 136

2007 2006 pence pence per share per share Earnings per share from discontinued operations Basic 6.6 35.0 Diluted 6.4 34.1

2007 2006 £m £m Cash flows attributable to discontinued operations Operating profit before interest, depreciation and amortisation 10 40 Investing activities (1) (9) Financing activities – (25) The effect of discontinued operations on segmental results is shown in note 2.

12 GOODWILL

2007 2006 £m £m At 1 January 109 118 Acquisition of subsidiary (note 34) – 2 Exchange and other adjustments 1 (11) At 31 December 110 109 Goodwill arising on business combinations that occurred before 1 January 2005 was not restated on adoption of IFRS as permitted by IFRS 1. Goodwill has been allocated to cash-generating units (CGUs) for impairment testing as follows:

2007 2006 £m £m Americas managed operations 70 72 Asia Pacific managed and franchised operations 40 37 110 109 The Group tests goodwill for impairment annually, or more frequently if there are any indications that an impairment may have arisen. The recoverable amounts of the CGUs are determined from value in use calculations. The key assumptions for the value in use calculations are those regarding discount rates and growth rates. Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the CGUs. Growth rates are based on management expectations and industry growth forecasts. The growth rates used to determine cash flows beyond five years do not exceed the average long-term growth rate for the relevant markets.

68 IHG Annual Report and Financial Statements 2007 GROUP FINANCIAL GROUPSTATEMENTS FINANCIAL STATEMENTS 69 1 £m (13) (30) (16) (42) (19) 154 150 196 120 Total 167 226 – (4) (3) (3) 24 36 18 28 27 42 £m (10) (12) Other 2 (6) (4) (3) (4) (7) 81 84 £m 110 117 111 124 Notes to the Group financial statements the Group to Notes Management 1––1 3–14 ––11 17–8 –5––5 –– (2) – (2) (1) (1) (9) (6) (1) (9) 20 21 38 10 3043 135725 13 53 29 60 £m (17) (23) (31) (13) (15) (59) Software contracts intangibles s s t t n n e e m m t t s s u u j j d d a a r r (CONTINUED) e e h h t t o o d d n n a a e e g g n n a a h h c c x x The weighted average remaining amortisation period for management contracts is 24 years (2006 24 years). is 24 years contracts management amortisation period for remaining average The weighted At 31 December 2006 At 31 December At 1 January 2006 Provided Disposals E 2007 At 31 December Net book value 2007 At 31 December Exchange and other adjustments Exchange 2007 At 31 December Amortisation At 1 January 2006 Provided E 2006 At 31 December Disposals and other adjustments Exchange 2006 At 31 December Additions Reclassification Disposals Cost At 1 January 2006 Additions Acquisition of subsidiary 13 INTANGIBLE ASSETS 13 INTANGIBLE 12 GOODWILL 12 GOODWILL managed operations Americas year the next by management for budgets approved financial recent the most from derived forecasts flow cash prepares The Group this period, the 4.0%). After of 4.0% (2006 rate growth based on an estimated years four the following for flows cash and extrapolates used 3.0%). The rate 2.7% (2006 of approximately rate based on a perpetual growth is calculated flows cash of future value terminal 10.5%). is 10.0% (2006 flows cash the forecast discount to operations managed and franchised Asia Pacific year the next by management for budgets approved financial recent the most from derived forecasts flow cash prepares The Group this period, 15.0%). After of 15.0% (2006 rate growth based on an estimated years four the following for flows cash and extrapolates 4.0%). The rate 4.0% (2006 of approximately rate based on a perpetual growth is calculated flows cash of future value the terminal (2006 11.0%). is 11.0% flows cash the forecast discount used to their exceed only of the CGUs would values the carrying that believe in use, management of value the assessment to With regard assumptions. changes in the key unlikely of highly amounts in the event recoverable Notes to the Group financial statements continued

14 INVESTMENTS IN ASSOCIATES The Group holds seven investments (2006 six) accounted for as associates. The following table summarises the financial information of the associates. 2007 2006 £m £m Share of associates’ balance sheet Current assets 3 2 Non-current assets 52 50 Current liabilities (8) (5) Non-current liabilities (14) (15) Net assets 33 32

Share of associates’ revenue and profit Revenue 16 22 Net profit 1 2

Related party transactions Revenue from related parties 3 4 Amounts owed by related parties 1 1

15 OTHER FINANCIAL ASSETS

2007 2006 £m £m Non-current Equity securities available-for-sale 46 48 Other 47 48 93 96

Current Equity securities available-for-sale – 9 Derivatives – 4 Other 9 – 9 13 Available-for-sale financial assets, which are held on the balance sheet at fair value, consist of equity investments in listed and unlisted shares. Of the total amount of equity investments at 31 December 2007, £2m (2006 £nil) were listed securities and £44m (2006 £57m) unlisted; £28m (2006 £27m) were denominated in US dollars, £8m (2006 £11m) in Hong Kong dollars and £10m (2006 £19m) in other currencies. Unlisted equity shares are mainly investments in entities that own hotels which the Group manages. The fair value of unlisted equity shares has been estimated using valuation guidelines issued by the British Venture Capital Association and is based on assumptions regarding expected future earnings. Listed equity share valuation is based on observable market prices. Dividend income from available-for-sale equity securities of £8m (2006 £4m) is reported as other operating income and expenses in the Group income statement. Other financial assets consist of trade deposits, restricted cash and deferred consideration on asset disposals. These amounts have been designated as ‘loans and receivables’ and are held at amortised cost. Restricted cash of £27m (2006 £25m) relates to cash held in bank accounts which is pledged as collateral to insurance companies for risks retained by the Group. Derivatives, including those within trade and other payables, are held on the balance sheet at fair value. Fair value is estimated using discounted future cash flows taking into consideration interest and exchange rates prevailing at the balance sheet date.

70 IHG Annual Report and Financial Statements 2007 GROUP FINANCIAL GROUPSTATEMENTS FINANCIAL STATEMENTS 71 2 1 1 1 2 3 – 3 61 33 51 23 78 31 £m £m £m £m £m Net (21) (16) (10) 118 163 105 237 214 2006 2006 2006 2006 2006 – – 1 2 – 2 3 3 (1) (4) 70 24 12 29 26 £m £m £m £m £m (26) (16) (43) 214 (21) 115 180 235 209 2007 2007 2007 2007 28 62 49 £m 118 257 Gross Provision Notes to the Group financial statements the Group to Notes 2 31 36 £m Net 2007 (1)(8) 140 (1) £m (38) (48) 209 39 40 37 £m 141 257 Gross Provision Past due 31 to 180 days due 31 to Past than 180 days More The provision is used to record impairment losses unless the Group is satisfied that no recovery of the amount is possible; at that point of the amount is possible; that no recovery is satisfied the Group unless impairment losses record is used to The provision statement. with no impact on the income directly financial asset the off against is written irrecoverable the amount considered due Not past 30 days due 1 to Past Americas and Africa East Middle Europe, Asia Pacific Prepayments is: region by geographic sheet date at the balance prepayments, excluding and other receivables, trade risk for credit to The maximum exposure 17 RECEIVABLES TRADE AND OTHER receivables Trade Other receivables 16 INVENTORIES Finished goods stores Consumable Exchange and other adjustments Exchange At 31 December At 1 January assets gain on disposal of to charged and Provided Recoveries Disposals the financial asset off against Amounts written 15 (CONTINUED) ASSETS FINANCIAL OTHER is as follows: year during the assets impairment of other financial for in the provision The movement Trade and other receivables are designated as ‘loans and receivables’ and are held at amortised cost. held at amortised are and and receivables’ as ‘loans designated are and other receivables Trade and other of trade value 30 days. The fair up to of on payment terms generally bearing and are non-interest are receivables Trade value. their carrying approximates receivables is: sheet date at the balance prepayments, excluding and other receivables, The aging of trade Notes to the Group financial statements continued

17 TRADE AND OTHER RECEIVABLES (CONTINUED) The movement in the provision for impairment of trade and other receivables during the year is as follows: 2007 2006 £m £m At 1 January (43) (47) Provided (12) (16) Amounts written off 6 15 Exchange and other adjustments 1 5 At 31 December (48) (43)

18 CASH AND CASH EQUIVALENTS

2007 2006 £m £m Cash at bank and in hand 26 30 Short-term deposits 26 149 52 179 Short-term deposits are highly liquid investments with an original maturity of three months or less, in various currencies.

19 TRADE AND OTHER PAYABLES

2007 2006 £m £m Current Trade payables 49 47 Other tax and social security payable 19 26 Other payables 172 190 Accruals 148 139 Derivatives 2 – 390 402

Non-current Other payables 139 109 Trade payables are non-interest bearing and are normally settled within 45 days. Other payables include £212m (2006 £180m) relating to the future redemption liability of the Group’s loyalty programme, of which £84m (2006 £83m) is classified as current and £128m (2006 £97m) as non-current.

20 LOANS AND OTHER BORROWINGS

2007 2006 Current Non-current Total Current Non-current Total £m £m £m £m £m £m Secured bank loans –33437 Finance leases 8 92 100 39497 Unsecured bank loans – 774 774 3 206 209 Total borrowings 8 869 877 10 303 313 Denominated in the following currencies: Pounds sterling – 275 275 – 102 102 US dollars 8 425 433 10 145 155 Euro – 121 121 –5454 Other –4848 –22 8 869 877 10 303 313

72 IHG Annual Report and Financial Statements 2007 GROUP FINANCIAL GROUPSTATEMENTS FINANCIAL STATEMENTS 73 9 – 97 86 97 70 £m £m £m 894 980 2006 2006 2006 Total value of value Present l 63 33 – 97 33 24 75 £m £m £m 944 1,157 980 1,196 327 402 2007 lease 1,781 1,745 (1,684) – Minimum payments payments 33 68 £m £m 213 216 100 100 2007 Utilised Unutilised value of value Present Notes to the Group financial statements the Group to Notes 5 88 32 24 £m £m 100 2007 Total lease 1,729 1,689 (1,629) – Minimum payments payments 52 Market risk exposure Market of the Group’s currency The US dollar is the predominant rates, exchange in foreign Movements flows. and cash revenue the Group’s affect can and euro, the US dollar particularly hedge this To cover. and interest net assets profit, reported of its the currency matches the Group exposure translation net of its the currency to or via derivatives) debt (either directly borrowed. maximising the amount of US dollars whilst assets, by the is managed exposure transaction exchange Foreign or the use of currencies of foreign or sale purchase forward of the Group exposures significant options. Most currency convertible. freely that are in currencies are £m 377 1,154 402 1,179 –2 £m 777 777 Utilised Unutilised After two years two After Within one year years two one but before After The Group has the option to extend the term of the lease for two additional 20 year terms. Payments under the lease step up at regular step under the lease Payments terms. additional 20 year two for of the lease the term extend has the option to The Group term. the lease over intervals bank loans Unsecured facilities. loan bilateral and its short-term Facility 2009 £1.1bn Syndicated under the Group’s borrowings are bank loans Unsecured financia contain These facilities expiry. than 12 months to more have when the facilities as non-current classified Amounts are occurred or defaults nor had any breaches of these covenants, was not in breach the Group sheet date and as at the balance covenants during the year. 21 POLICIES FINANCIAL RISK MANAGEMENT Overview manage financial risks that policy is to treasury The Group’s needs. The activities business underlying to arise in relation with Board in accordance out carried function are of the treasury audit. The treasury regular subject to policies and are approved centre. as a profit function does not operate the financial risk of the reduce function seeks to The treasury needs. cash meet all foreseeable and manages liquidity to Group spot investments, market activities include money Treasury options, currency instruments, exchange foreign and forward swaps and options and forward rate swaps, interest currency of the Group’s One of the primary objectives agreements. rate impact the adverse mitigate risk management policy is to treasury rates. exchange and foreign rates in interest of movements Unutilised facilities expire: Unutilised facilities Facilities provided by banks provided Facilities Committed Uncommitted Less than one year Less years one and five Between years than five More charges finance amount representing Less: 20 (CONTINUED) BORROWINGS AND OTHER LOANS bank loans Secured vary. of these loans and currencies of interest The rates relate. they which to properties on the hotel secured These mortgages are leases Finance as follows: payable are Boston, on the InterContinental lease the 99 year to which relate obligations, lease Finance Notes to the Group financial statements continued

21 FINANCIAL RISK MANAGEMENT POLICIES (CONTINUED) Market risk exposure (continued) to shareholders and to service debt obligations, whilst Interest rate exposure is managed within parameters that maintaining maximum operational flexibility. Surplus cash is stipulate that fixed rate borrowings should normally account either reinvested in the business, used to repay debt or returned for no less than 25% and no more than 75% of net borrowings to shareholders. The Group maintains a conservative level of debt. for each major currency. This is achieved through the use of The level of debt is monitored on the basis of a cash flow leverage interest rate swaps and options and forward rate agreements. ratio, which is net debt divided by EBITDA. Net debt is calculated as total borrowings less cash and cash equivalents. EBITDA is Based on the year end net debt position and given the earnings before interest, tax, depreciation and amortisation. underlying maturity profile of investments, borrowings and hedging instruments at that date, a one percentage point rise in Hedging US dollar interest rates would increase the annual net interest Interest rate risk charge by approximately £2.9m (2006 £1.4m). A similar rise in The Group hedges its interest rate risk by taking out interest rate euro and sterling interest rates would increase the annual net swaps to fix the interest flows on between 25% and 75% of its net interest charge by approximately £0.6m (2006 £0.4m) and borrowings in major currencies. At 31 December 2007, the Group £1.6m (2006 £1.0m) respectively. held interest rate swaps with notional principals of USD100m, GBP150m and EUR75m (2006 USD100m and EUR80m). The interest A general weakening of the US dollar (specifically a five cent rate swaps are designated as cash flow hedges of borrowings rise in the sterling:US dollar rate) would reduce the Group’s profit under the syndicated loan facility and they are held on the balance before tax by an estimated £4.2m (2006 £4.9m) and increase net sheet at fair value in other financial assets and other payables. assets by an estimated £4.4m (2006 £2.6m). Similarly, a general weakening of the euro (specifically a five cent rise in the sterling: Changes in the fair value of cash flow hedges are recognised in euro rate) would reduce the Group’s profit before tax by an the unrealised gains and losses reserve to the extent that the estimated £0.8m (2006 £0.9m) and decrease net assets by hedges are effective. When the hedged item is recognised, the an estimated £3.0m (2006 £4.0m). cumulative gains and losses on the hedging instrument are recycled to the income statement. No ineffectiveness was Liquidity risk exposure recognised during the current or prior year. The treasury function ensures that the Group has access to sufficient funds to allow the implementation of the strategy set Foreign currency risk by the Board. At the year end, the Group had access to £377m of The Group is exposed to foreign currency risk on income streams undrawn committed facilities. Medium and long-term borrowing denominated in foreign currencies. When appropriate, the Group requirements are met through the £1.1bn Syndicated Facility and hedges a portion of forecast foreign currency income by taking short-term borrowing requirements are met from drawings under out forward exchange contracts. The designated risk is the spot bilateral bank facilities. The Group is in compliance with all of foreign exchange risk. Forward contracts are held at fair value on the financial covenants in its loan documents, none of which is the balance sheet as other financial assets and other payables. expected to present a material restriction on funding or investment During the year, a £nil (2006 £3m) foreign exchange gain was policy in the near future. recognised in financial income, relating to gains on forward At the year end, the Group had surplus cash of £52m which is contracts that were not classified as hedging instruments held in short-term deposits and cash funds which allow daily under IAS 39. withdrawals of cash. Most of the Group’s surplus funds are held in Hedge of net investment in foreign operations the UK or US and there are no material funds where repatriation The Group designates its foreign currency bank borrowings and is restricted as a result of foreign exchange regulations. currency derivatives as net investment hedges of foreign operations. Credit risk exposure The designated risk is the spot foreign exchange risk; the interest Credit risk on treasury transactions is minimised by operating a on these financial instruments is taken through financial income policy on the investment of surplus cash that generally restricts or expense and the derivatives are held on the balance sheet at counterparties to those with an A credit rating or better or those fair value in other financial assets and other payables. providing adequate security. Hedge effectiveness is measured at calendar quarter ends. The Group trades only with recognised, creditworthy third parties. Variations in fair value due to changes in the underlying exchange It is the Group’s policy that all customers who wish to trade on rates are taken to the currency translation reserve until an operation credit terms are subject to credit verification procedures. is sold, at which point the cumulative currency gains and losses are recycled against the gain or loss on sale. No ineffectiveness In respect of credit risk arising from financial assets, the Group’s was recognised on net investment hedges during the current or exposure to credit risk arises from default of the counterparty, prior year. with a maximum exposure equal to the carrying amount of these instruments. At 31 December 2007, the Group held foreign exchange derivatives with a principal of £6m (2006 £220m) and a fair value Capital risk management of £nil (2006 £3.5m). The maximum amount of foreign exchange The Group manages its capital to ensure that it will be able to derivatives held during the year as net investment hedges and continue as a going concern. The capital structure consists of net measured at calendar quarter ends had a principal of £272m debt, issued share capital and reserves. The structure is managed (2006 £220m) and a fair value of £1.6m (2006 £3.5m). to minimise the Group’s cost of capital, to provide ongoing returns

74 IHG Annual Report and Financial Statements 2007 GROUP FINANCIAL GROUPSTATEMENTS FINANCIAL STATEMENTS 75 4 – – – – – – m 10 57 57 48 £m £m £m 538 214 179 214 502 2006 100 781 557 5 years Repricing analysis rates effective at effective rates – – – – – – – – – m£ 53 55 46 52 56 55 75 £m £m £m 130 209 363 2007 2 years 5 – – – – – – – – m£ 2536 1,745 1,781 50 50 50 24 1,689 1,729 £m £m Between Notes to the Group financial statements the Group to Notes 1 8 – – – 5 – – – 8 m£ 47 64 £m £m (50) (55) (75) 545 121 333 275 4 3 – 54 114–6 8 6–––6 – – m£ 57 £m £m 214 402 825 781 388 121 333 275 Total 1 year 2 years 5 years 5 years Total 1 year years 2 5 years 5 years Total amount 6 months and 1 year carrying than Less 6 months 1 and Between than More Less than Less 1 and Between 2 and Between than More Less than Less 1 and Between 2 and Between than More 54 %£ . 8.233––– 9.7 100 – – – 100 5.3 5.5 6.9 0.0 4 rate (0.6) (0.4) interest Effective 0.0-5.9 (52) (52) – – – – effect of US dollar interest rate swaps* rate of US dollar interest – effect rate floating Sterling – swaps rate interest of sterling effect rate HK dollar floating Euro floating rate rate floating Euro swaps* rate interest of euro – effect rate US dollar floating Cash and cash equivalents Cash and cash Other financial assets prepayments excluding and other receivables, Trade Cash flows relating to unsecured bank loans are classified according to the maturity date of the loan drawdown rather than the facility rather drawdown of the loan the maturity date to according classified are bank loans unsecured to relating Cash flows maturity date. risk Credit risk. credit to the maximum exposure represents amount of financial assets The carrying Net debt * rate. at a fixed bear interest These items Cash and cash equivalents Cash and cash bank loans Secured obligations* lease Finance bank loans: Unsecured 31 December 2007 31 December Derivatives Equity securities available-for-sale Loans and receivables: Secured bank loans bank loans Secured obligations lease Finance bank loans Unsecured and other payables Trade Derivatives Unsecured bank loans Unsecured and other payables Trade Derivatives 2006 31 December 31 December 2007 31 December bank loans Secured obligations lease Finance 22 FINANCIAL INSTRUMENTS 22 FINANCIAL Liquidity risk payments. of financial liabilities, including interest flows cash contractual the undiscounted are The following Interest rate risk rate Interest of interest the range indicates table and financial liability, the following financial asset bearing of interest each class For if earlier than the maturity date. reprice, sheet and the periods in which they amount on the balance the carrying sheet date, the balance Notes to the Group financial statements continued

22 FINANCIAL INSTRUMENTS (CONTINUED) Interest rate risk (continued) Repricing analysis Effective Total Between interest carrying Less than 6 months Between 1 and More than rate amount 6 months and 1 year 2 years 5 years %£m£m£m£m£m 31 December 2006 Cash and cash equivalents 0.0 – 5.2 (179) (179) – – – Secured bank loans 8.5 7 7 – – – Finance lease obligations* 9.7 97 – – – 97 Unsecured bank loans: Euro floating rate 4.0 54 54 – – – – effect of euro interest rate swaps* (1.0) – (54) – 54 – US dollar floating rate 5.7 53 53 – – – – effect of US dollar interest rate swaps* (1.2) – (51) – 51 – Sterling floating rate 5.6 102 102 – – – Net debt 134 (68) – 105 97 Foreign exchange contracts (4) (4) – – – 130 (72) – 105 97 * These items bear interest at a fixed rate. Interest rate swaps are included in the above tables to the extent that they affect the Group’s interest rate repricing risk. The swaps hedge the floating rate debt by fixing the interest rate. The effect shown above is their impact on the debt’s floating rate, for an amount equal to their notional principal (principal and maturity of swap is shown in repricing analysis). The fair values of derivatives are recorded in other financial assets and other payables. Trade and other receivables and trade and other payables are not included above as they are not interest bearing. Fair values The table below compares carrying amounts and fair values of the Group’s financial assets and liabilities.

2007 2006 Carrying Carrying value Fair value value Fair value Note £m £m £m £m Financial assets Equity securities available-for-sale 15 46 46 57 57 Loans and receivables: Cash and cash equivalents 18 52 52 179 179 Other financial assets 15 56 56 48 48 Trade and other receivables, excluding prepayments 17 209 209 214 214 Derivatives 15 ––44

Financial liabilities Borrowings, excluding finance lease obligations 20 (777) (777) (216) (216) Finance lease obligations 20 (100) (126) (97) (97) Trade and other payables 19 (527) (527) (511) (511) Derivatives 19 (2) (2) –– The fair value of cash and cash equivalents approximates book value due to the short maturity of the investments and deposits. Equity securities available-for-sale and derivatives are held on the balance sheet at fair value as set out in note 15. The fair value of other financial assets approximates book value based on prevailing market rates. The fair value of borrowings, excluding finance lease obligations, approximates book value as interest rates reset to market rates on a frequent basis. The fair value of the finance lease obligation is calculated by discounting future cash flows at prevailing interest rates. The fair value of trade and other receivables and trade and other payables approximates to their carrying value, including the future redemption liability of the Group’s loyalty programme.

76 IHG Annual Report and Financial Statements 2007 GROUP FINANCIAL GROUPSTATEMENTS FINANCIAL STATEMENTS 77 9 6 5 (2) 20 37 19 27 £m £m £m (10) (46) (88) (11) (18) (18) 179 172 2006 2006 2006 Total Total (134) (152) (134) (103) (303) tal 4 5 (3) 12 15 21 19 £m £m (22) (22) 2007 2007 2 (8) (9) 52 £m 2007 (825) (131) (684) (691) (134) (825) (553) (869) – 1 1 – 1 – 1 – – £m £m 2006 2006 benefits benefits – – 1 – – – 1 – – Post-employment Post-employment £m £m 2007 2007 Notes to the Group financial statements the Group to Notes 2 2 1 – – 5 6 (4) (4) £m £m 2006 2006 US and other US and other Pension plans Pension plans Pension – – – – – 5 5 (5) (5) £m £m 2007 2007 self-administered trust funds separate from the Group’s assets. assets. the Group’s from funds separate trust self-administered 7 4 5 (5) UK UK 13 21 £m £m (14) (12) (14) 2006 2006 ich provides pensions based on final salaries and 240 (2006 190) are in the final salaries and 240 (2006 190) are pensions based on ich provides 3 5 (3) 12 14 15 15 £m £m (17) (17) 2007 2007 – non-current (Increase)/decrease in borrowings (Increase)/decrease liability lease Finance and other adjustments Exchange Actual return on plan assets Actual return on plan assets return expected Less: Other actuarial gains and losses Hotels non-qualified pension plans and post-employment benefits schemes. These plans are now closed to new members. The Group members. new to closed now schemes. These plans are benefits pension plans and post-employment non-qualified Hotels scheme in of which is a defined contribution significant the most a number of minor pension schemes outside the UK, also operates these schemes. to, of, and contributions the pension costs between difference is no material the US; there plans are: of the defined benefit in respect statement income in the Group The amounts recognised Actuarial gains and losses Recognised in administrative expenses in administrative Recognised cost service Current on benefit obligation cost Interest on plan assets return Expected defined contribution section. The defined benefit section of section. The defined defined contribution with provided members during 2002 with new entrants new to the plan closed of the plan The assets arrangements. defined contribution held in are also The Group allowance. the lifetime by affected members certain for unfunded UK pension arrangements are In addition, there Plan, unfunded InterContinen Pension Hotels US-based defined benefit plans; the funded InterContinental following the maintains Retirement and death in service benefits are provided for eligible Group employees in the UK principally by the InterContinental Hotels Hotels by the InterContinental in the UK principally employees Group eligible for provided benefits are and death in service Retirement 440 (2006 410) employees, approximately covers registered, & Customs Plan. The plan, which is funded and HM Revenue UK Pension in the defined benefit section wh of which 200 (2006 220) are Increase in net debt Increase Net debt at beginning of the year Net debt at end of the year BENEFITS 24 RETIREMENT Add back cash flows in respect of other components of net debt: of other components in respect flows Add back cash flows cash in net debt arising from (Increase)/decrease movements: Non-cash Cash and cash equivalents Cash and cash Loans and other borrowings – current Net debt in net debt Movement equivalents and cash in cash Net decrease 23 NET DEBT 23 NET The amounts recognised in the Group statement of recognised income and expense are: and expense income of recognised statement in the Group The amounts recognised Notes to the Group financial statements continued

24 RETIREMENT BENEFITS (CONTINUED) The assets and liabilities of the schemes and the amounts recognised in the Group balance sheet are:

Pension plans Post-employment UK US and other benefits Total 2007 2006 2007 2006 2007 2006 2007 2006 £m £m £m £m £m £m £m £m Schemes in surplus Fair value of plan assets 304 – 7 – – – 311 – Present value of benefit obligations (274) – (5) – – – (279) – Retirement benefit assets 30 – 2 – – – 32 – Schemes in deficit Fair value of plan assets – 269 65 56 – – 65 325 Present value of benefit obligations (23) (298) (87) (89) (10) (9) (120) (396) Retirement benefit obligations (23) (29) (22) (33) (10) (9) (55) (71) Total fair value of plan assets 304 269 72 56 – – 376 325 Total present value of benefit obligations (297) (298) (92) (89) (10) (9) (399) (396) The ‘US and other’ surplus of £2m relates to a defined benefit pension scheme in Hong Kong. Assumptions The principal financial assumptions used by the actuaries to determine the benefit obligation are:

Pension plans Post-employment UK US benefits 2007 2006 2007 2006 2007 2006 % % % % % % Wages and salaries increases 4.9 4.6 – – 4.0 4.0 Pensions increases 3.4 3.1 – – – – Discount rate 5.5 5.0 5.8 5.8 5.8 5.8 Inflation rate 3.4 3.1 – – – – Healthcare cost trend rate assumed for next year 10.0 10.0 Ultimate rate that the cost trend rate trends to 5.0 5.0 Mortality is the most significant demographic assumption. In respect of the UK plans, the specific mortality rates used are in line with the PA92 medium cohort tables, with age rated down by one year, implying the following life expectancies at retirement. In the US, life expectancy is determined by reference to the RP-2000 healthy tables.

Pension plans UK US 2007 2006 2007 2006 Years Years Years Years Current pensioners at 65a – male 23 23 18 18 – female 26 26 20 20 Future pensioners at 65b – male 24 24 18 18 – female 27 27 20 20 a Relates to assumptions based on longevity (in years) following retirement at the balance sheet date. b Relates to assumptions based on longevity (in years) relating to an employee retiring in 2027. The assumptions allow for expected increases in longevity.

78 IHG Annual Report and Financial Statements 2007 GROUP FINANCIAL GROUPSTATEMENTS FINANCIAL STATEMENTS 79 – – 6 9 5 1 – 1 – (7) US 19 18 11 56 £m £m £m 7 2.7 2.4 (14) (14) (14) 388 396 396 312 325 340 2006 2006 (2.3) Total Total Increase/ te 5 1 5 1 7 (1) (3) (1) 21 38 22 55 £m £m (13) (13) (15) 396 399 399 325 376 344 2007 2007 – – – – – £m 9 9 1 – 1 – – – – – – – – – 9 – (1) (1) (1) (1) 11 £m £m 2006 2006 benefits benefits UK £m 6.8 9 1 – 1 – – – – – – – – – – 1 – (1) (1) Post-employment Post-employment 10 10 10 £m £m Increase/ 2007 2007 Notes to the Group financial statements the Group to Notes 5 1 – – 4 2 – – – – (6) (6) (7) 89 89 62 56 65 24 £m £m £m 0.40.9 15.6 0.6 14.6 (13) 103 2006 2006 (0.4)(0.9) (14.7) (13.8) pension cost in liabilities pension cost in liabilities US and other US and other Higher/(lower) (decrease) Higher/(lower) (decrease) Pension plans Pension plans Pension 5 – 7 5 – – – 5 – (5) (5) (1) (2) 92 72 89 92 56 10 22 70 £m £m 2007 2007 4 1 – 7 – 5 1 – – (7) (7) UK UK 13 14 12 23 £m £m 298 269 274 298 250 275 2006 2006 1 – – 5 1 – – (7) (7) (3) 15 27 17 23 £m £m (15) 297 304 269 298 297 274 2007 2007 (CONTINUED) – 0.25% increase – 0.25% decrease Unfunded plans Funded plans Funded In 2018 the healthcare cost trend rate reaches the assumed ultimate rate. A one percentage point increase/(decrease) in assumed point increase/(decrease) A one percentage rate. ultimate the assumed reaches rate trend cost In 2018 the healthcare 200 benefit obligations as of 31 December post-employment the accumulated increase/(decrease) would rate trend costs healthcare of net post- components cost and interest of the service the total increase/(decrease) £1m and would and 2006 by approximately £nil. then ended by approximately the period for cost healthcare employment Exchange adjustments Exchange at end of year assets of plan value Fair * and obligations of the Hong Kong pension scheme. assets of the gross the recognition to Relates pay further special contributions to has agreed be £8m in 2008. In addition, the Group to expected are contributions Normal company the UK pension plan; £10m in 2008 and £10m in 2009. of £20m to Fair value of plan assets at beginning of year assets of plan value Fair Company contributions contributions Members’ Benefits paid Reclassification* on plan assets return Expected arising in the year Actuarial (loss)/gain Movement in plan assets Movement Reclassification* arising in the year Actuarial (gain)/loss adjustments Exchange Benefit obligation at end of year Comprising: Movement in benefit obligation Movement Benefit obligation at beginning of year cost service Current contributions Members’ Interest expense Benefits paid Discount rateDiscount – 0.25% decrease Inflation rate – 0.25% increase rateMortality – increase one year 24 RETIREMENT BENEFITS 24 RETIREMENT Sensitivities determining used for Changes in assumptions equity values. particularly conditions, market to is sensitive of plan assets The value main sheet. The and the balance statement impact on the income a material obligations may have and benefit costs retirement an estima provides table The following rate. mortality of inflation and the assumed the rate rate, the discount are assumptions of the potential impact of each of these variables on the principal pension plans. on the these variables impact of each of of the potential Notes to the Group financial statements continued

24 RETIREMENTS BENEFITS (CONTINUED) The combined assets of the principal plans and expected rate of return are:

2007 2006 Long-term Long-term rate of rate of return return expected Value expected Value %£m %£m UK pension plans Equities 7.9 109 7.9 128 Bonds 4.8 179 4.6 123 Other 7.9 16 7.9 18 Total market value of assets 304 269

US pension plans Equities 9.5 39 9.5 34 Fixed income 5.5 26 5.5 22 Total market value of assets 65 56 The expected rate of return on assets has been determined following advice from the plans’ independent actuaries and is based on the expected return on each asset class together with consideration of the long-term asset strategy. History of experience gains and losses 2007 2006 2005 2004 2003 £m £m £m £m £m UK pension plans Fair value of plan assets 304 269 250 470 353 Present value of benefit obligations (297) (298) (274) (600) (477) Surplus/(deficit) in the plans 7 (29) (24) (130) (124) Experience adjustments arising on plan liabilities 15 (12) (67) (60) Experience adjustments arising on plan assets (3) 74714

2007 2006 2005 2004 2003 £m £m £m £m £m US pension plans Fair value of plan assets 65 56 62 56 48 Present value of benefit obligations (87) (89) (103) (88) (91) Deficit in the plans (22) (33) (41) (32) (43) Experience adjustments arising on plan liabilities – – (3) (5) Experience adjustments arising on plan assets – 2 (1) 1

2007 2006 2005 2004 2003 £m £m £m £m £m US post-employment benefits Present value of benefit obligations (10) (9) (11) (11) (11) Experience adjustments arising on plan liabilities – 1 1 (1) The cumulative amount of actuarial gains and losses recognised since 1 January 2004 in the Group statement of recognised income and expense is £64m (2006 £76m). The Group is unable to determine how much of the pension scheme deficit recognised on transition to IFRS of £178m and taken directly to total equity is attributable to actuarial gains and losses since inception of the schemes. Therefore, the Group is unable to determine the amount of actuarial gains and losses that would have been recognised in the Group statement of recognised income and expense before 1 January 2004.

80 IHG Annual Report and Financial Statements 2007 GROUP FINANCIAL GROUPSTATEMENTS FINANCIAL STATEMENTS 81 Notes to the Group financial statements the Group to Notes Sharesave Plan Sharesave contract employees Plan is a savings plan whereby The Sharesave for month with a savings institution amount each a fixed save to are employees savings term, At the end of the years. or five three savings set before at a price shares purchase the option to given UK employees all to Plan is available began. The Sharesave by participating Group employed Directors) (including Executive one at least for been employed have that they provided companies subscribe for of options to the grant for plan provides The year. than and not less higher of nominal value at the shares ordinary on the shares of the ordinary quotations market 80% of the middle The date. the invitation preceding dealing days immediately three granted during 2007 and no options were plan was not operated that any options may date the plan. The latest under in the year 2008 and plan is 29 February under the three-year be exercised 2010. plan is 28 February under the five-year Plan Purchase Stock US Employee eligible Plan will allow Purchase Stock The US Employee Company acquire US an opportunity to in the resident employees The terms. (ADSs) on advantageous Shares Depositary American with Section 423 of the US will comply plan, when operational, ADSs may purchase option to Code of 1986. The Revenue Internal subsidiary companies. of designated employees to only be offered of either 85% than the lesser may not be less The option price or 85% of of grant of an ADS on the date value market of the fair Options of exercise. of an ADS on the date value market the fair within 27 be exercised generally under the plan must granted during The plan was not operated of grant. the date months from 2007 and at 31 2007 no options had been granted December under the plan. Schemes Six Continents Share Former in of Six Continents PLC of the separation Under the terms Share of options under the Six Continents Executive 2003, holders their exchange the opportunity to given Option Schemes were new options value equivalent options for Six Continents PLC 23,195,482 shares of this exchange, As a result IHG shares. over 593.3p. 308.5p to from ranging put under option at prices were and are exercisable immediately options were The exchanged During 2007, 1,358,791 conditions. performance not subject to of a total leaving exercised, (2006 3,678,239) such options were at prices 2,696,883 (2006 4,055,674) such options outstanding that any options date 593.3p. The latest 308.5p to from ranging 2012. is October may be exercised 25 SHARE-BASED PAYMENTS 25 SHARE-BASED Plan Incentive Deferred Short Term called (STDIP), now Plan Incentive Deferred The IHG Short Term including employees, eligible enables the Annual Bonus Plan, the all or part of their bonus in receive to Directors, Executive award a matching cases, with, in certain together of shares form amount. The bonus and half the deferred up to shares of free and deferred in the 2004 and 2005 plans are shares matching and third second first, on the equal tranches in three released shares bonus and matching The date. of the award anniversaries anniversary on the third released are in the 2006 and 2007 plans Under the 2006 and 2007 plans a percentage date. of the award 100% (2006 80%); other eligible – members (Board of the award and deferred. in shares be taken – 50%) must employees amount on the same the remaining may defer Participants are in all of the plans awards The it in cash. or take terms in the employment on the participants remaining conditional is at the in the STDIP Participation of a participating company. The number of Committee. of the Remuneration discretion of the by dividing a specific percentage is calculated shares bonus by the middle related annual performance participant’s dealing days consecutive on the three prices quoted market A number of executives of grant. the date preceding immediately rights and conditional in the plan during the year participated participants. to awarded were 675,515 (2006 606,573) shares over Plan Incentive Long Term the called previously Plan (LTIP), Incentive The Long Term Executive Plan (PRSP), allows Share Restricted Performance awards, share receive to employees and eligible Directors set by the condition, of a performance satisfaction the subject to a over measured which is normally Committee, Remuneration and, except made annually normally are period. Awards year three times salary three will not exceed circumstances, in exceptional of other in the case times salary and four Directors Executive for rights over conditional During the year, employees. eligible employees to awarded were 3,538,535 (2006 4,277,550) shares options’ of ‘nil cost the grant for under the plan. The plan provides awards. share conditional to participants as an alternative to Option Plan Share Executive market than the is not less the option price options granted, For The if higher. or the nominal value share, of an ordinary value the day preceding on the business price is the quoted value market prices quoted market of the middle or the average of grant, date preceding dealing days immediately consecutive on the three be met before has to condition A performance of grant. the date is set by condition The performance be exercised. options can during The plan was not operated Committee. the Remuneration under the plan. in the year granted 2007 and no options were is April 2015. that any options may be exercised date The latest Notes to the Group financial statements continued

25 SHARE-BASED PAYMENTS (CONTINUED) The Group recognised a cost of £30m (2006 £18m) in operating profit related to equity-settled share-based payment transactions during the year. The aggregate consideration in respect of ordinary shares issued under option schemes during the year was £16m (2006 £20m). The following table sets forth awards and options granted during 2007. No awards were granted under the Executive Share Option Plan, Sharesave Plan or US Employee Stock Purchase Plan during the year.

Short Term Deferred Long Term Incentive Plan Incentive Plan Number of shares awarded in 2007 675,515 3,538,535 In 2007 and 2006, the Group used separate option pricing models and assumptions for each plan. The following tables set forth information about how the fair value of each option grant is calculated:

Short Term Deferred Long Term Incentive Plan Incentive Plan 2007 Valuation model Binomial Monte Carlo Simulation and Binomial Weighted average share price 1252.0p 1262.0p Expected dividend yield 2.13% 2.13% Risk-free interest rate 5.40% Volatility* 19% Term (years) 3.0 3.0

Short Term Deferred Long Term Incentive Plan Incentive Plan 2006 Valuation model Binomial Monte Carlo Simulation and Binomial Weighted average share price 831.0p 946.0p Expected dividend yield 2.32% Risk-free interest rate 4.90% Volatility* 20% Term (years) 2.0 3.0 * The expected volatility was determined by calculating the historical volatility of the Company’s share price corresponding to the expected life of the option or share award.

82 IHG Annual Report and Financial Statements 2007 GROUP FINANCIAL GROUPSTATEMENTS FINANCIAL STATEMENTS 83 – – 1.3 pence average (2,191) (1,707) (1,395) (1,694) 10,634 11,325 11,463 Weighted thousands Long Term Incentive Plan Incentive Number of shares pence Executive Share Option Plan Share Executive 1.0 (50) (57) (68) (86) 1.5 1.1 829 607675 4,277 3,539 (328) (418) 1,001 1,104 Number Range of 894.5p 287.0p thousands 1190.6p 453.8p Notes to the Group financial statements the Group to Notes Incentive Plan Incentive Number of shares Short Term Deferred Deferred Short Term – 6,002 308.5-619.8 430.2 – 6,583 308.5-619.8 455.0 pence thousands average Weighted Sharesave Plan Sharesave – – pence – – (7) 420.5 420.5 (317) 438.0-619.8 526.8 864 420.5 420.5 22,619 308.5-619.8 465.4 (389)(310) 420.5(101) 420.5 420.5 420.5 420.5 (8,365) 420.5 308.5-619.8 (175) 345.6-619.8 (5,568) 308.5-619.8 438.7 404.6 471.9 Number Range of of shares option prices option price of shares option prices option price thousands (CONTINUED) The weighted average share price at the date of exercise for share options vested during the year was 1259.0p. The closing share price price share was 1259.0p. The closing during the year options vested share for of exercise date at the price share average The weighted on 31 1413.0p per share. was 873.5p to during the year 884.0p and the range 2007 was December Lapsed or cancelled 2007 at 31 December Options outstanding Options exercisable 2007 At 31 December 57 2006 At 31 December not been that have shares 2,696,883 (2006 4,055,674; 2005 7,909,002) options over Option Plan are Share of the Executive Included within the options outstanding schemes, Six Continents share former to 2002. These options, relating 7 November on or before granted options were with IFRS 2 as the in accordance recognised with IFRS 2. in accordance for be accounted do not need to modified and therefore not been subsequently have 420.5 420.5 8,194 308.5-619.8 487.4 Options outstanding at 1 January 2006 Options outstanding Exercised Lapsed or cancelled 2006 at 31 December Options outstanding Exercised 165 420.5 420.5 14,079 308.5-619.8 482.2 At 31 December 2007 At 31 December 2006 At 31 December Outstanding at 31 December 2007 at 31 December Outstanding during the year granted of awards value Fair 2007 2006 (years) life contract remaining average Weighted Share capital consolidation capital Share Lapsed or cancelled 2006 at 31 December Outstanding Granted Vested consolidation capital Share Lapsed or cancelled Outstanding at 1 January 2006 Outstanding Granted Vested 25 SHARE-BASED PAYMENTS PAYMENTS 25 SHARE-BASED as follows: under the schemes are and options outstanding in the awards Movements The above awards do not vest until the performance conditions have been met. have conditions until the performance do not vest awards The above Notes to the Group financial statements continued

25 SHARE-BASED PAYMENTS (CONTINUED) Summarised information about options outstanding at 31 December 2007 under the share option schemes is as follows:

Options outstanding Options exercisable Weighted average Weighted Weighted Number remaining average Number average outstanding contract life option price exercisable option price Range of exercise prices (pence) thousands years pence thousands pence Sharesave Plan 420.5 57 1.0 420.5 – –

Executive Share Option Plan 308.5 to 349.1 565 2.3 347.7 565 347.7 349.2 to 498.0 5,905 5.3 462.6 5,905 462.6 498.1 to 619.8 1,724 6.8 618.1 113 593.7 8,194 5.4 487.4 6,583 455.0

26 DEFERRED TAX PAYABLE

Other Property, Deferred short-term plant and gains on Employee Intangible temporary equipment loan notes Losses benefits assets differences* Total £m £m £m £m £m £m £m At 1 January 2006 256 122 (123) (16) (1) 6 244 Disposals (126) –2––7(117) Income statement (2) (26) 31 (1) 16 (32) (14) Statement of recognised income and expense–––1–(27) (26) Acquisition of subsidiary (note 34) ––––1–1 Exchange and other adjustments (9)(4)1212(7) At 31 December 2006 119 92 (89) (14) 17 (44) 81 Income statement 1 (4) (2) 3 3 (30) (29) Statement of recognised income and expense–––3–2730 Exchange and other adjustments 3(1)(3)–133 At 31 December 2007 123 87 (94) (8) 21 (44) 85 * Other short-term temporary differences relate primarily to provisions and accruals and share-based payments.

2007 2006 £m £m Analysed as: Deferred tax payable 82 79 Liabilities classified as held for sale 3 2 At 31 December 85 81 The deferred tax asset of £94m (2006 £89m) recognised in respect of losses includes £60m (2006 £64m) of capital losses available to be utilised against the realisation of capital gains which are recognised as a deferred tax liability and £34m (2006 £25m) in respect of revenue tax losses. Revenue losses include £3m (2006 £1m) in respect of losses which arose during a period of hotel refurbishment and which are expected to be utilised against future operating profit.

84 IHG Annual Report and Financial Statements 2007 GROUP FINANCIAL GROUPSTATEMENTS FINANCIAL STATEMENTS 85 – – (3) (1) 43 41 £m ire after ire ces are p shares p shares 7 ⁄ 3 p each and one p each. The share 7 ⁄ 47 ⁄ 3 41 4– (8) 29 (53) (28) (57) p each. The share p each. The share 433 356 295 40 47 ⁄ shares millions 29 Number of c a b b Note Notes to the Group financial statements the Group to Notes p each (whether issued or unissued) to be consolidated into new ordinary shares of 13 shares ordinary new into be consolidated to or unissued) p each (whether issued 7 ⁄ 3 (CONTINUED) p shares. 47 ⁄ 29 for all the authorised ordinary shares of 11 shares all the authorised ordinary for capital consolidation became effective on 12 June 2006. effective became consolidation capital During commenced. programme repurchase half of 2007. In June 2007, a further £150m share in the first of which was completed the third programmes, at an Extraordinary by shareholders under the authorities granted and cancelled repurchased were shares 7,724,844 (2006 28,409,753) ordinary the year, 11 were Meetings held on 1 June 2007. Of these, 2,237,264 General Meeting held on 1 June 2006 and at the Annual and Extraordinary General provided for all the authorised ordinary shares of 10p each (whether issued or unissued) to be consolidated into new ordinary shares of 11 shares ordinary new into be consolidated to or unissued) of 10p each (whether issued shares ordinary all the authorised for provided and 5,487,580 were 13 and 5,487,580 were capital consolidation became effective on 4 June 2007. effective became consolidation capital has not been re-issued. share preference c This provided shares. ordinary 56 existing every for shares ordinary on the basis of 47 new consolidation capital a share approved On 1 June 2007, shareholders b repurchase £250m share consecutive by way of three shareholders £750m to funds of up to return to During 2004 and 2005, the Company undertook The authority given to the Company at the Annual General Meeting on 1 June 2007 to purchase its own shares was still valid at valid was still shares its own purchase to Meeting on 1 June 2007 Company at the Annual General the to The authority given 31 Meeting on 30 May 2008. at the Annual General shareholders the authority will be put to renew to 2007. A resolution December Issued under option schemes Issued programmes under repurchase and cancelled Repurchased 2007 At 31 December a This shares. ordinary existing eight every for shares ordinary new of seven on the basis consolidation capital a share approved On 1 June 2006, shareholders At 1 January 2006 consolidation capital Share under option schemes Issued programmes under repurchase and cancelled Repurchased 2006 At 31 December consolidation capital Share Authorised (ordinary shares and redeemable preference share) preference and redeemable shares Authorised (ordinary of 13 shares 1,175,000,000 ordinary was £160,050,000, comprising capital 2007, the authorised share At 31 December shares) paid (ordinary up and fully called Allotted, 27 SHARE CAPITAL AUTHORISED AND ISSUED 26 PAYABLE DEFERRED TAX not been recognised of £109m (2006 £87m), have with a value losses including capital of £191m (2006 £192m), with a value losses Tax of £1m (2006 with the exception indefinitely forward may be carried These losses anticipated. currently or not as their use is uncertain 15 years. after (2006 £1m) which expires and £nil years seven after £nil (2006 £1m) which expires years, five after £nil) which expires and £13m benefits of employee payments, £7m (2006 £7m) in respect of share-based of £4m (2006 £6m) in respect assets tax Deferred or not use is uncertain consequent and realisation as the timing of their not been recognised have of other items (2006 £17m) in respect exp include £nil (2006 £7m) which Other items law. of EU case dependent upon the outcome and, in part, is anticipated currently nine years. with undistributed associated differences temporary to in relation tax deferred provided has not the Group 2007, At 31 December and on law the basis enacted based on current However, is not practical. differences Quantifying the temporary earnings of subsidiaries. consequen tax no material differences, of these temporary the timing and realisation control is in a position to that the Group expected to arise. to expected redeemable preference share of £50,000. share preference redeemable d 2005, this redeemable in September its redemption of £50,000, following share preference one redeemable comprises capital share the authorised Whilst Notes to the Group financial statements continued

28 IHG SHAREHOLDERS’ EQUITY

Shares Unrealised Equity Capital held by gains and Currency IHG share redemption employee Other losses translation Retained shareholders’ capital reserve share trusts reserves reserve reserve earnings equity £m £m £m £m £m £m £m £m At 1 January 2006 49 1 (22) (1,528) 23 19 2,542 1,084 Total recognised income and expense for the year ––––4(22) 427 409 Issue of ordinary shares 20––––––20 Repurchase of shares (3)–––––(257) (260) Transfer to capital redemption reserve–3––––(3)– Purchase of own shares by employee share trusts – – (47) ––––(47) Release of own shares by employee share trusts ––52–––(37) 15 Equity-settled share-based cost ––––––1818 Equity dividends paid ––––––(561) (561) At 31 December 2006 66 4 (17) (1,528) 27 (3) 2,129 678 Total recognised income and expense for the year ––––(8)9239240 Issue of ordinary shares 16––––––16 Repurchase of shares (1)–––––(80) (81) Transfer to capital redemption reserve–1––––(1)– Purchase of own shares by employee share trusts – – (69) ––––(69) Release of own shares by employee share trusts ––45–––(40) 5 Equity-settled share-based cost ––––––3030 Equity dividends paid ––––––(773) (773) At 31 December 2007 81 5 (41) (1,528) 19 6 1,504 46 Equity share capital The balance classified as share capital includes the total net proceeds (both nominal value and share premium) on issue of the Company’s equity share capital, comprising 13 29⁄47p shares. Shares held by employee share trusts Comprises £41.1m (2006 £16.8m) in respect of 3.4m (2006 1.7m) InterContinental Hotels Group PLC ordinary shares held by employee share trusts, with a market value at 31 December 2007 of £30m (2006 £21m). Other reserves Comprises the revaluation reserve previously recognised under UK GAAP and the merger reserve. Unrealised gains and losses reserve This reserve records movements for available-for-sale financial assets to fair value and the effective portion of the cumulative net change in the fair value of the cash flow hedging instruments related to hedged transactions that have not yet occurred. The fair value of cash flow hedging instruments outstanding at 31 December 2007 was a £2m liability (2006 £1m asset). Currency translation reserve This reserve records the movement in exchange differences arising from the translation of the financial statements of foreign operations and exchange differences on foreign currency borrowings and derivative instruments that provide a hedge against net investments in foreign operations. On adoption of IFRS, cumulative exchange differences were deemed to be £nil as permitted by IFRS 1. During the year ended 31 December 2007, the impact of hedging net investments in foreign operations was to reduce the amount recorded in the currency translation reserve by £7m (2006 £32m). The fair value of derivative instruments designated as hedges of net investments in foreign operations outstanding at 31 December 2007 was £nil (2006 £3m net asset).

86 IHG Annual Report and Financial Statements 2007 GROUP FINANCIAL GROUPSTATEMENTS FINANCIAL STATEMENTS m 87 9 3 8 (1) (1) 27 21 19 14 24 11 20 £m £m £m £m (13) 100 190 2006 2006 2006 2006 5 8 – – 1 3 (6) 28 19 16 14 11 10 £m £m £m £m 108 196 2007 2007 2007 2007 Notes to the Group financial statements the Group to Notes On 24 October 2007, the Group announced a worldwide relaunch of its Holiday Inn brand family. In support of this relaunch, IHG will In support of this relaunch, family. of its Holiday Inn brand relaunch a worldwide announced 2007, the Group On 24 October as an statement the income to will be charged £30m which it is anticipated of up to investment revenue a non-recurring make during 2008. item exceptional guarantees to relating in the financial statements for Contingent liabilities not provided The maximu management contracts. secure to owners third-party to guarantees performance may provide the Group cases, In limited 32 CONTINGENCIES 31 COMMITMENTS AND OTHER CAPITAL in the for plant and equipment not provided on property, expenditure for placed Contracts financial statements More than five years than five More Due within one year years two One to years three to Two years four to Three Four to five years have that liabilities the extent that, other than to is £121m (2006 £142m). It is the view of the Directors under such guarantees exposure the Group. to in financial loss result to not expected are such guarantees in these financial statements, for been provided of the Directors It is the view subsidiaries and hotels. of its former of the disposal of certain in respect warranties has given The Group to not expected are such warranties in these financial statements, for been provided that liabilities have the extent that, other than to the Group. to in financial loss result 30 OPERATING LEASES 30 OPERATING in respect statement in the income as an expense 2007, £32m (2006 £39m) was recognised ended 31 December During the year leases. of operating as follows: are leases operating under non-cancellable commitments Total At 1 January minority interests Dividends paid to 11) (note Disposal of hotels 34) (note Acquisition of subsidiary and other adjustments Exchange At 31 December 29 INTEREST MINORITY EQUITY The average remaining term of these leases, which generally contain renewal options, is approximately 17 years. No material 17 years. options, is approximately renewal contain which generally of these leases, term remaining The average obligations. lease in the Group’s exist or guarantees restrictions Notes to the Group financial statements continued

33 RELATED PARTY DISCLOSURES Key management personnel comprises the Board and Executive Committee.

2007 2006 Total compensation of key management personnel £m £m Short-term employment benefits 9.4 9.5 Post-employment benefits 0.5 0.5 Equity compensation benefits 9.1 7.9 19.0 17.9 There were no transactions with key management personnel during the year ended 31 December 2007 or the previous year.

34 ACQUISITION OF SUBSIDIARY On 1 December 2006, the Group acquired a 75% interest in ANA Hotels & Resorts Co., Ltd (subsequently renamed IHG ANA Hotels Group Japan LLC), a hotel management company based in Japan.

Carrying values Fair pre-acquisition value £m £m Intangible assets 18 Current assets (excluding cash and cash equivalents) 4 4 Cash and cash equivalents 44 Trade and other payables (3) (3) Current tax payable (1) (1) Deferred tax payable – (1) 511 Minority interest (3) Net assets acquired 8 Goodwill on acquisition 2 Consideration, satisfied in cash (including costs of £2m) 10 Cash and cash equivalents acquired (4) Net cash outflow 6 Management contracts acquired were recognised as intangible assets at their fair value. The residual excess over the net assets acquired was recognised as goodwill.

35 PRINCIPAL OPERATING SUBSIDIARY UNDERTAKINGS InterContinental Hotels Group PLC was the beneficial owner of all (unless specified) of the equity share capital, either itself or through subsidiary undertakings, of the following companies during the year: Six Continents Limiteda Hotel Inter-Continental London Limiteda Six Continents Hotels, Inc.b InterContinental Hotels Corporationb Barclay Operating Corporationb IHG Resources Inc.b InterContinental Hong Kong Limitedc Société Nouvelle du-Grand Hotel, SAd The companies listed above include those which principally affect the amount of profit and assets of the Group. a Incorporated in Great Britain and registered in England and Wales. b Incorporated in the United States. c Incorporated in Hong Kong. d Incorporated in France.

88 IHG Annual Report and Financial Statements 2007 PARENT COMPANY FINANCIALPARENT COMPANY STATEMENTS FINANCIAL STATEMENTS 89 Notes to the Group financial statements and Parent company financial statements company and Parent financial statements the Group to Notes 1 policies Accounting 2 and Directors Employees 3 Investments 4 Debtors 5 due within one year amounts falling Creditors: 6 than one year more due after amounts falling Creditors: 7 capital Share 8 in reserves Movements 9 and dividends Profit Parent company financial statements company Parent responsibilities of Directors’ Statement the members to report Independent auditor’s sheet balance company Parent financial statements company the parent to Notes 10 Contingencies 90 91 92 93 93 93 93 93 93 94 94 94 94 Parent company financial statements financial company Parent parent sheet of our balance the present we In this section and the related PLC, Group Hotels InterContinental company, 2007. sheet for balance company parent supporting the notes Statement of Directors’ responsibilities

In relation to the parent company financial statements The following statement, which should be read in conjunction with the independent auditor’s report, is made with a view to distinguishing for shareholders the respective responsibilities of the Directors and of the auditor in relation to the Company financial statements. The Directors are responsible for preparing the parent company financial statements and Remuneration Report in accordance with applicable United Kingdom law and United Kingdom Generally Accepted Accounting Practice (UK GAAP). The Directors are required to prepare Company financial statements for each financial year which present fairly the financial position of the Company and the financial performance of the Company for that period. The Directors consider that, in preparing the Company financial statements, the Company has used appropriate accounting policies, consistently applied and supported by reasonable and prudent judgements and estimates, and that all applicable accounting standards have been followed. The Company financial statements have been prepared on a going concern basis as the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. The Directors have responsibility for ensuring that the Company keeps accounting records which disclose with reasonable accuracy the financial position of the Company and which enable them to ensure that the Company financial statements comply with the Companies Act 1985. The Directors have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

90 IHG Annual Report and Financial Statements 2007 PARENT COMPANY FINANCIALPARENT COMPANY STATEMENTS FINANCIAL STATEMENTS 91 view, in accordance with United Kingdom Generally Accepted Kingdom Generally with United view, in accordance affairs Company’s of the of the state Practice, Accounting 2007; as at 31 December been have be audited Report to Remuneration the Directors’ with the Companies Act in accordance prepared properly 1985; and financial statements. company with the parent We read other information contained in the Annual Report and in the Annual contained information other read We company parent with the audited whether it is consistent consider the only comprises The other information financial statements. the Chairman and Chief Executive, from Highlights, Message Governance Report, Corporate Directors’ Review, Business part of the Report and the unaudited Audit Committee Statement, our report for the implications consider Report. We Remuneration or material misstatements any apparent of aware become if we financial statements. company with the parent inconsistencies information. any other to do not extend Our responsibilities Opinion In our opinion: • a true and fair give financial statements company the parent • and the part of financial statements company the parent • Report is consistent in the Directors’ given the information LLP, & Young Ernst London. auditor, Registered 2008 18 February Basis of audit opinion with International our audit in accordance conducted We by the Auditing issued on Auditing (UK and Ireland) Standards basis, test on a examination, An audit includes Board. Practices in the the amounts and disclosures to relevant of evidence the and the part of financial statements company parent It also includes be audited. Report to Remuneration Directors’ and judgements estimates of the significant an assessment company of the parent in the preparation made by the Directors policies are the accounting and of whether financial statements, applied consistently circumstances, the Company’s to appropriate disclosed. and adequately all the obtain audit so as to our and performed planned We necessary considered which we and explanations information reasonable give to with sufficient evidence us provide to in order and financial statements company that the parent assurance be audited to Report Remuneration the part of the Directors’ by fraud whether caused misstatement, material from free are also our opinion we In forming or error. or other irregularity of information of the presentation adequacy the overall evaluated part of the and the financial statements company in the parent be audited. Report to Remuneration Directors’ Statement of Directors’ responsibilities and responsibilities of Directors’ report Statement Independent auditor’s The Directors’ responsibilities for preparing the Annual Report, the Annual preparing for responsibilities The Directors’ company parent Report and the Remuneration the Directors’ United with applicable in accordance financial statements Kingdom (United Standards Kingdom law and Accounting set out in the are Practice) Accounting Accepted Generally Responsibilities. of Directors’ Statement financial company parent audit the is to Our responsibility Report Remuneration and the part of the Directors’ statements and regulatory legal with relevant in accordance be audited to on Auditing Standards and International requirements (UK and Ireland). company whether the parent our opinion as to you to report We and whether view a true and fair give financial statements and the part of financial statements company the parent been properly have be audited Report to the Remuneration also We with the Companies Act 1985. in accordance prepared in the given whether, in our opinion, the information you to report The with the financial statements. Report is consistent Directors’ Report includes that specific in the Directors’ given information review, the Business from referred that is cross information Report. sections of the Directors’ and Employees Directors if, in our opinion, the Company has you to report In addition we all not received have if we records, accounting proper not kept our audit, or if for require we and explanations the information remuneration Directors’ law regarding specified by information is not disclosed. and other transactions Respective responsibilities of Directors of Directors responsibilities Respective and auditors Independent auditor’s report to the members the members to report auditor’s Independent PLC Group Hotels of InterContinental company financial parent the to In relation statements financial statements company the parent audited have We ended the year for PLC Group Hotels of InterContinental sheet the Company balance which comprise 2007 31 December financial company 10. These parent 1 to notes and related policies under the accounting been prepared have statements in the the information also audited have We set out therein. as having been audited. Report that is described Remuneration financial statements Group on the separately reported have We ended the year for PLC Group Hotels of InterContinental 2007. 31 December as a members, the Company’s to is made solely This report Act 1985. with Section 235 of the Companies body, in accordance to might state so that we has been undertaken Our audit work state to required are we those matters members the Company’s the no other purpose. To and for report auditor’s them in an to or assume do not accept law, we by permitted extent fullest other than the Company and the anyone to responsibility this for our audit work, as a body, for members Company’s formed. have the opinions we or for report, Parent company financial statements

PARENT COMPANY BALANCE SHEET

2007 2006 31 December 2007 Note £m £m Fixed assets Investments 3 2,767 2,767 Current assets Debtors 4 207 29 Creditors: amounts falling due within one year 5 (2,631) (1,624) Net current liabilities (2,424) (1,595) Creditors: amounts due after more than one year 6 – (102) Net assets 343 1,070

Capital and reserves Called up share capital 7 40 41 Share premium account 8 41 25 Capital redemption reserve 8 5 4 Profit and loss account 8 257 1,000 Equity shareholders’ funds 343 1,070

Signed on behalf of the Board

Richard Solomons 18 February 2008 No profit and loss account is presented for InterContinental Hotels Group PLC as permitted by Section 230 of the Companies Act 1985. Profit on ordinary activities after taxation amounts to £111m (2006 £53m). Notes on pages 93 to 94 form an integral part of these financial statements.

92 IHG Annual Report and Financial Statements 2007 PARENT COMPANY PARENTFINANCIAL COMPANY STATEMENTS FINANCIAL STATEMENTS 93 8 1 8 21 29 £m £m £m £m £m 102 2006 2006 2006 2006 2006 2,767 1,624 e – 7 1 41 £m £m £m £m 166 207 2007 2007 2007 2007 2007 2,631 Notes to the parent company financial statements company the parent to Notes Parent company balance sheet and balance company Parent Detailed information on the emoluments, pensions, option holdings and shareholdings for each Director is shown in the Remuneration is shown each Director for on the emoluments, pensions, option holdings and shareholdings information Detailed 44. Report on pages 36 to The Company is the beneficial owner of all of the equity share capital of InterContinental Hotels Limited. The principal operating Limited. Hotels of InterContinental capital of all of the equity share The Company is the beneficial owner financial statements. 35 of the Group note in listed are of that company subsidiary undertakings 6 DUE AFTER MORE THAN ONE YEAR AMOUNTS FALLING CREDITORS: bank loan Unsecured and as at th on this facility exist Covenants Facility. under a 2009 £1.1bn Syndicated drawn were bank borrowings The unsecured 5 DUE WITHIN ONE YEAR AMOUNTS FALLING CREDITORS: subsidiary undertakings Amounts due to 4 DEBTORS subsidiary undertakings Amounts due from taxation Corporate 3 INVESTMENTS 2007 At 1 January 2007 and 31 December Average number of employees (Non-Executive Directors) (Non-Executive number of employees Average costs Staff of these covenants. not in breach and the Company were the Group sheet date balance 2 AND DIRECTORS EMPLOYEES Notes to the parent company financial statements financial company the parent to Notes POLICIES 1 ACCOUNTING Basis of accounting with applicable comply up to been drawn have They convention. cost under the historical prepared are The financial statements financial not consolidated the Company and are for are These accounts Kingdom (UK GAAP). in the United standards accounting statements. investments asset Fixed impairment. for any provision less at cost stated are investments asset Fixed Bank and other borrowings transaction attributable directly less received of the consideration value at the fair recognised initially are Bank and other borrowings method. rate interest using the effective account and loss the profit to charged are costs Finance costs. sheet the balance than 12 months from is more date when the repayment than one year more due after as classified are Borrowings expiry. 12 months to than with more on a facility drawn are they or where date Notes to the parent company financial statements continued

7 SHARE CAPITAL Number of shares Note millions £m Authorised (ordinary shares) At 31 December 2006 (1,400,000,000 shares of 11 3⁄7p each) 1,400 160 Share capital consolidation a (225) – At 31 December 2007 (1,175,000,000 shares of 13 29⁄47p each) 1,175 160 Authorised (preference shares) One redeemable preference share (£50,000) – – Allotted, called up and fully paid (ordinary shares) At 31 December 2006 (11 3⁄7p each) 356 41 Share capital consolidation a (57) – Issued under option schemes 4– Repurchase of shares b (8) (1) At 31 December 2007 (13 29⁄47p each) 295 40 a On 1 June 2007, shareholders approved a share capital consolidation on the basis of 47 new ordinary shares for every 56 existing ordinary shares. This provided for all the authorised ordinary shares of 11 3⁄7p each (whether issued or unissued) to be consolidated into new ordinary shares of 13 29⁄47p each. The share capital consolidation became effective on 4 June 2007. b During the year, 7,724,844 (2006 28,409,753) ordinary shares were repurchased and cancelled under the authorities granted by shareholders at an Extraordinary General Meeting held on 1 June 2006 and at the Annual and Extraordinary General Meetings held on 1 June 2007. Of these, 2,237,264 were 11 3⁄7p shares and 5,487,580 were 13 29⁄47p shares. The aggregate consideration in respect of ordinary shares issued under option schemes during the year was £16m (2006 £20m). Thousands Options to subscribe for ordinary shares At 31 December 2006 14,244 Exercised (5,669) Lapsed or cancelled (324) At 31 December 2007 8,251 Option exercise price per ordinary share (pence) 308.5-619.8 Final exercise date 4 April 2015 The authority given to the Company at the Annual General Meeting on 1 June 2007 to purchase its own shares was still valid at 31 December 2007. A resolution to renew the authority will be put to shareholders at the Annual General Meeting on 30 May 2008. 8 MOVEMENTS IN RESERVES Share Capital Profit and premium account redemption reserve loss account £m £m £m At 31 December 2006 25 4 1,000 Premium on allotment of ordinary shares 16 – – Repurchase of shares – – (80) Transfer to capital redemption reserve – 1 (1) Profit after tax – – 111 Dividends – – (773) At 31 December 2007 41 5 257

9 PROFIT AND DIVIDENDS Profit on ordinary activities after tax amounts to £111m (2006 £53m). A final dividend, declared in the previous year, of 13.3p (2006 10.7p) per share was paid during the year, amounting to £47m (2006 £46m). A special interim dividend of 200.0p (2006 118.0p) per share was paid during the year, amounting to £709m (2006 £497m). An interim dividend of 5.7p (2006 5.1p) per share was paid during the year, amounting to £17m (2006 £18m). A final dividend of 14.9p (2006 13.3p) per share, amounting to £44m (2006 £47m), is proposed for approval at the Annual General Meeting. The proposed final dividend is payable on shares in issue at 28 March 2008. The audit fee for both years was borne by a subsidiary undertaking. 10 CONTINGENCIES Contingent liabilities of £840m (2006 £169m) in respect of guarantees of the liabilities of subsidiaries have not been provided for in the financial statements.

94 IHG Annual Report and Financial Statements 2007 USEFUL INFORMATION USEFUL INFORMATION 95 Notes to the parent company financial statements and Useful information financial statements company the parent to Notes Glossary profiles Shareholder information Investor Financial calendar Contacts statements Forward-looking Useful information Useful in used of terms glossary a present we In this section and 2007 Financial Statements Report and the Annual end of 2007. at the ownership of our share some analyses designed to of information a range provide also We for details and contact shareholders, be helpful to providers. of service a number for the Company and 96 97 98 99 100 101 Glossary

Adjusted excluding the effect of exceptional items, IFRS International Financial Reporting gain/loss on disposal of assets and any Standards. relevant tax. Interest rate swap an agreement to exchange fixed for Average daily rate room revenue divided by the number of floating interest rate streams (or vice room nights sold. Also known as average versa) on a notional principal. room rate. Management contract a contract to operate a hotel on behalf Basic earnings per share profit available for IHG equity holders of the hotel owner. divided by the weighted average number Market capitalisation the value attributed to a listed company of ordinary shares in issue during the year. by multiplying its share price by the Capital expenditure cash expended on purchases of property, number of shares in issue. plant and equipment and purchases of Midscale hotel a hotel in the three/four star category intangible assets, associates and other (eg Holiday Inn, Holiday Inn Express). financial assets. Net debt borrowings less cash and cash equivalents. Cash-generating unit a portfolio of similar assets that are subject to the same economic and Occupancy rate rooms occupied by hotel guests, commercial influences. expressed as a percentage of rooms that are available. Comparable RevPAR a comparison for a grouping of hotels that have traded in all months in both financial Operating profit margin operating profit before exceptional years being compared. Principally operating items expressed as a excludes new hotels, hotels closed for percentage of revenue. major refurbishment and hotels sold in either of the two years. Pipeline signed/executed agreements, including franchises and management contracts, Contingent liability a liability that is contingent upon the for hotels which will enter the Group’s occurrence of one or more uncertain system at a future date. future events. Revenue per room revenue divided by the number of Continuing operations operations not classified as discontinued available room room nights that are available (can be and including acquisitions made during (RevPAR) mathematically derived from occupancy the year. rate multiplied by average daily rate). Currency swap an exchange of a deposit and a borrowing, Room count number of rooms owned, managed each denominated in a different currency, or franchised by IHG. for an agreed period of time. Room revenue revenue generated from the sale of Derivatives a financial instrument used to reduce risk, room nights. the price of which is derived from an underlying asset, index or rate. Royalty rate the percentage of room revenue that a franchisee pays to the brand owner for Discontinued operations operations that have been sold and assets use of the brand name. classified as held for sale when the results relate to a separate line of business, Subsidiary undertaking a company in which the Group holds an geographical area of operations, or where equity stake and over which it exercises there is a coordinated plan to dispose control. of a separate line of business or System size the number of hotels/rooms owned, geographical area of operations. managed or franchised by IHG. Exceptional items items which are disclosed separately Total gross revenue total room revenue from franchised hotels because of their size or nature. and total hotel revenue from managed, Extended-stay hotel a hotel designed for guests staying for owned and leased hotels. periods of time longer than a few nights Total Shareholder the theoretical growth in value of a and tending to have a higher proportion of Return (TSR) shareholding over a period, by reference to suites than normal hotels (eg Staybridge the beginning and ending share price, and Suites, Candlewood Suites). assuming that gross dividends, including Franchisee operator who uses a brand under licence special dividends, are reinvested to from the brand owner (eg IHG). purchase additional units of the equity. Franchisor brand owner (eg IHG) who licenses brands Upscale hotel a four/five star full-service hotel for use by operators. characterised by superior service (eg InterContinental, Crowne Plaza). Goodwill the difference between the consideration given for a business and the total of the UK GAAP United Kingdom generally accepted fair values of the separable assets and accounting practice. liabilities comprising that business. Weighted average the average of the monthly exchange Hedging the reduction of risk, normally in relation exchange rate rates, weighted by reference to monthly to foreign currency or interest rate operating profit. movements, by making offsetting Working capital the sum of inventories, receivables and commitments. payables of a trading nature, excluding Holidex fees charges to hotels under management financing items such as corporate taxation. and franchise agreements for the use of Holidex, IHG’s proprietory reservation system.

96 IHG Annual Report and Financial Statements 2007 USEFUL INFORMATION USEFUL INFORMATION 1 97 100 100 100 3.72 6.66 0.48 2.79 6.99 0.70 0.53 1.83 8.85 0.86 0.84 1.44 1.56 2.86 0.66 2.53 65.12 21.23 90.92 12.69 66.74 Percentage of Percentage issued share capital share issued shares capital share issued shares capital share issued Ordinary of Percentage Ordinary of Percentage Glossary andGlossary profiles Shareholder 100 294,623,308 100 294,623,308 0.00 2,076,237 0.56 1,551,687 0.120.06 5,402,215 0.08 26,086,281 196,606,129 6.240.28 267,864,281 2,546,987 7.340.460.53 8,392,813 1,953,592 0.25 7,457,794 37,385,619 92.92 20,584,116 59.4121.2010.55 2,481,005 4,248,148 4,609,712 19 76 40 50 345 176 287 330 157 3,887 6,584 4,580 57,992 37,081 13,234 62,419 62,419 Number of of Percentage Number of of Percentage shareholders shareholders total shareholders shareholders total These holdings account for 76.97% of total issued share capital. share issued 76.97% of total for These holdings account Rest of Europe Rest USA (including ADRs) Japan of World Rest Total 1 is known. ownership geographical where of 150,000 or above of shareholdings is based on an analysis presented distribution The geographical Shareholder profile as at 31 December 2007 by geographical location by geographical as at 31 December 2007 profile Shareholder Country/Jurisdiction England and Wales Scotland 50,000 – 99,999 100,000 – 499,999 500,000 – 999,999 1,000,000 – highest Total 1 – 199 200 – 499 500 – 999 1,000 – 4,999 5,000 – 9,999 10,000 – 49,999 Total 31 December 2007 by size as at profile Shareholder Range of holdings Category of holdings Category individuals Private Nominee companies companies and public limited Limited bodies Other corporate and banks companies funds, insurance Pension Shareholder profiles Shareholder 2007 by type as at 31 December profile Shareholder Investor information

Registrar Special dividend and share consolidation 2007 Following a change in its ownership, approved by the Financial On 15 June 2007, the Company paid a special dividend of 200p Services Authority in 2007, the Company’s Registrar is now called per ordinary share to shareholders on the Register at the close of Equiniti. Shareholders have access to the full range of services business on 1 June 2007. The special dividend was accompanied previously provided. For information on these services, and for by a consolidation of the Company’s share capital, effective from enquiries concerning individual shareholdings, please contact 4 June 2007, whereby shareholders received 47 new ordinary the Company’s Registrar, Equiniti (details shown on page 100). shares of 13 29⁄47p each for every 56 existing ordinary shares of 11 3⁄7p each held on 1 June 2007. Electronic communication The Company has given email notification, to those shareholders Changes to the base cost of IHG shares who have requested it, of the availability of this Annual Report Details of all the changes to the base cost of IHG shares held and Financial Statements, the Annual Review and Summary since April 2003 up to September 2007, for UK Capital Gains Financial Statement, and the Notice of Annual General Meeting, Tax purposes, may be found on the Company’s website at on the Company’s website at www.ihg.com/investors under www.ihg.com/cgt financial library. These cover changes associated with: Shareholders may appoint electronically a proxy to vote on their • the separation of Six Continents PLC in April 2003; behalf on any poll that may be held at the forthcoming Annual • the share consolidation associated with the special General Meeting. Shareholders who hold their shares through dividend paid in December 2004; CREST may appoint proxies through the CREST electronic proxy appointment service, by using the procedures described in the • the capital reorganisation of the Group completed CREST manual. in June 2005; • the share consolidation associated with the special Dividend Reinvestment Plan dividend paid in June 2006; and The Company offers a Dividend Reinvestment Plan (DRIP). • the share consolidation associated with the special This provides the opportunity for shareholders to use their cash dividend paid in June 2007. dividends to buy more IHG shares. For further information about the DRIP, please contact our Registrar, Equiniti (details shown on page 100).

Share price information Share price 2006 and 2007: InterContinental Hotels Group PLC v FTSE 100

1,500

1,400

1,300

1,200

(pence) 1,100

1,000

900

800 Jan 06 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan 07 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

InterContinental Hotels Group PLC – Share price FTSE 100 – Index Source: Datastream

Further details of IHG’s share price may be found on the Company’s website at www.ihg.com/investors under share price.

98 IHG Annual Report and Financial Statements 2007 USEFUL INFORMATION USEFUL INFORMATION 99 Investor information and Financial calendar information Investor 2007 2008 2009 7 May 30 May 15 June February 5 October 12 August 19 February 11 November 31 December 31 December 31 December Record dateRecord 28 March Payment datePayment datePayment 6 June October Ex-dividend date 26 March For further investor information visit information further investor For www.ihg.com/investors Announcement of interim results results of interim Announcement dividend Interim results quarter of third Announcement end Financial year of annual results announcement Preliminary Preliminary announcement of annual results announcement Preliminary Final dividend of 14.9p per share results quarter of first Announcement Meeting Annual General Final dividend of 14.9p per share Financial calendar dividend of 200p per share special interim of Payment dividend of 5.7p per share interim of Payment end Financial year Form 20-F Form Exchange of the Securities and requirements the reporting The Company is subject to 20-F. with the SEC an Annual Report on Form (SEC) in the US and files Commission under www.ihg.com/investors website on the Company’s be found 20-F can The Form at www.sec.gov/edgar.shtml website or by visiting the SEC’s services/adr shareholder American Depositary Receipts (ADRs) American Depositary of in the form Exchange Stock on the New York listed are shares The Company’s symbol ‘IHG’. under the by ADRs and traded evidenced Shares, Depositary American ADR holder accounts All enquiries regarding share. one ordinary Each ADR represents the authorised depositary JPMorgan, to and payment of dividends should be directed on page 100). shown bank (details Corporate Responsibility Report Responsibility Corporate on a progress Responsibility Report covering online Corporate first IHG has published its on our corporate This is available issues. social and community of environmental, range at www.ihg.com/responsibility directly be downloaded and can website Interim results Interim interim The copy. in hard results interim future publish to does not intend The Company under financial library. online at www.ihg.com/investors will be available results Contacts

Registered office ADR depositary 67 Alma Road JPMorgan Windsor JPMorgan Service Center Berkshire PO Box 3408 SL4 3HD South Hackensack Telephone +44 (0)1753 410 100 NJ 07606-3408 Fax +44 (0)1753 410 101 USA Telephone 1 800 990 1135 For general information about the Group’s business please (US callers – toll free) contact the Corporate Affairs department and for all other +1 201 680 6630 (non-US callers) enquiries please contact the Company Secretary – both at Email [email protected] the above address. www.adr.com Registrar Stockbrokers Equiniti JPMorgan Cazenove Limited Aspect House Merrill Lynch International Spencer Road Lancing Auditors West Sussex BN99 6DA Ernst & Young LLP Telephone 0871 384 2132*† (UK callers) +44 121 415 7034 (non-UK callers) Investment bankers www.shareview.co.uk Citi * For those with hearing difficulties Solicitors a text phone is available on 0871 384 2255† for UK callers Linklaters with compatible equipment. † Telephone calls to these numbers are currently charged at 8p per minute if using a BT landline. Other telephone service providers may charge different rates.

100 IHG Annual Report and Financial Statements 2007 USEFUL INFORMATION USEFUL INFORMATION 101 Contacts andContacts statements Forward-looking or implied by, such forward-looking statements, including, but including, statements, by, such forward-looking or implied on the reliance with the Group’s the risks involved to: not limited property of its intellectual and protection of its brands reputation identifying, securing and retaining to rights; the risks relating of political the effect agreements; management and franchise key and retain recruit the ability to developments; and economic or international impact domestic that adversely events personnel; in the incidents; the risks involved including terrorist travel, and system reservation upon its proprietary reliance Group’s the risks infrastructure; in reservation competition increased and systems; on technologies reliance with the Group’s involved the and demand cycle; supply industry the risks of the hotel opportunities; the risks development of selected lack possible the risk of litigation; the responsibility; corporate to related adequate maintain ability to with the Group’s risks associated and satisfy debt covenants; borrow ability to the Group’s insurance; and the risks associated regulations; privacy with data compliance pension plans. with funding the defined benefits under its financial and the business affect that could The main factors of the Annual Report Review described in the Business are results 2007 and also in any Annual Report and Financial Statements 2007 20-F for on Form PLC Group Hotels of InterContinental any subsequent year. and for Corporate Edge www.corporateedge.com Corporate VisualMedia Royle Print Royle Design and production Photography Print 50:50 silk, which is made up of 25% on Revive This Report is printed fibre. and 50% virgin waste 25% pre-consumer waste, post-consumer management with environmental certified are Both mill and printer Print is Council. Royle Stewardship ISO 14001 and the Forest system Company’. also a ‘Carbon Neutral Forward-looking statements statements Forward-looking 2007 and Statements Report and Financial Both the Annual 2007 Financial Statement and Summary Review the Annual as defined under statements forward-looking certain contain Act of 1934) Securities Exchange (Section 21E of the US legislation and of operations results the financial condition, to with respect plans and and certain Group Hotels of InterContinental business Hotels of InterContinental of Directors of the Board objectives include, but Such statements thereto. with respect PLC Group the from made in the Message statements to, not limited are statements These forward-looking Chairman and Chief Executive. to only do not relate that they the fact be identified by can use often statements Forward-looking facts. or current historical ‘intend’, ‘estimate’, ‘expect’, ‘target’, such as ‘anticipate’, words of similar meaning. These words or other ‘believe’, ‘plan’, ‘goal’, made and assessments based on assumptions are statements in light of their management Group’s Hotels by InterContinental current trends, of historical and their perception experience and other factors developments future expected conditions, be appropriate. to believe they inherently are statements forward-looking By their nature, There risk and uncertainty. and involve speculative predictive, and actual results cause could that a number of factors are in, those expressed from materially differ to developments InterContinental Hotels Group PLC 67 Alma Road, Windsor, Berkshire SL4 3HD Telephone +44 (0) 1753 410 100 Fax +44 (0) 1753 410 101

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