Six Continents Preliminary Results

Financial Highlights: - Operating profit—Six Continents Hotels down 38.6% to £262m*—Six Continents Retail up 5.1% to £288m**—Britvic Soft Drinks up 10.5% to £63m—Profit before tax and exceptional items down 23.7% to £558m—Adjusted earnings per share before major exceptional items were 42.4p compared to 56.2p*** in 2001—Earnings per share were 53.0p compared to 51.3p*** in 2001—Total dividend up 2.9% to 35.3p per share (* before major operating exceptional // **  ongoing estate // ***  restated for FRS 19)

Business Highlights:
Hotels: - Impacted by both the effects of 11 September 2001 and the downturn in economies across the globe. Continued to invest in the business to position it for the upturn—Results cover one of the toughest trading periods after the tragedy of 11 September 2001—RevPAR improvement in second half against first half.—Demonstrates relative resilience of our managed/ franchise, largely midscale business—1,600 Holiday Inn UK rooms renovated; Chicago, New York, Madrid InterContinental renovations completed—Future growth through strong pipeline of 479 hotels with 64,362 rooms

Retail: - strong performance, with successful brand conversion strategy—Ongoing sales up 5.7% EBITDA up 7.5% - reinforced position as UK’s leading operator of managed pubs, bars and restaurants—Average weekly sales per outlet up 2.2% to £14,200: nearly three times the industry average—Focusing capex on the resilient suburban market (75% of conversions in the year)—Margins maintained despite regulatory cost increases—198 conversions to brands and formats opened during the year - further pipeline of 500 outlets for conversion fuelling future growth


Soft Drinks: - record performance—Britvic continued to grow market share and operating profit—Strong cost controls drive growth in operating profit of 10.5% to £63m—Robinsons and Pepsi made strong progress with volumes up 13% and 9% respectively


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

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

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

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

Britvic has begun the year well with volumes in the first eight weeks of the year up 4%. Across the business, we are taking the appropriate actions to drive profitable sales, service and productivity in order to mitigate the pressure from these economic conditions.

We expect the indicative timetable for the separation of the business will remain as outlined on 1 October 2002. On that basis, in February 2003 the circular and the listing particulars will be posted to shareholders in preparation for the EGM in March. Also in February 2003 the final dividend will be paid for the year to September 30th 2002, a sum of 24.6p per share making a total of 35.3p per share for the year.
In April the dividend for the period prior to the separation will be paid to shareholders, a sum of 6.6p per share. Court sanction will be requested for the reduction of share capital. Assuming no material change in the trading environment or capital markets, once approval is granted the two companies will then be listed separately and shareholders will receive shares in both companies and 81p in cash for each share they hold.

COMMENTS (for full details see
Sir Ian Prosser, Chairman, commented: “These results were against a backdrop of tough market conditions. Our managed and franchised US hotel business showed relative resilience in this environment while our retail business showed a strong performance and Britvic continued its highly successful profit growth.
Our plan to separate the businesses and, absent a material change in circumstances in the trading environment or capital markets, return £700 million of capital, announced on 1 October, represents the next phase in our strategy to deliver value to shareholders. Over the last five years Six Continents has undergone a massive transformation selling off our leisure and brewing operations and will have returned £1.55 billion in capital together with £1.45 billion in dividends to the date of separation whilst creating two businesses which have powerful market positions. The separation will create two excellent standalone businesses which will have greater flexibility to pursue their own strategies, will be able to pursue consolidation opportunities that are more difficult within a single Group, and which will have clear market valuations and efficient balance sheets.”