REG - Whitbread PLC - Whitbread Interim Results
25/10/2022 07:00
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RNS Number : 9448D Whitbread PLC 25 October 2022
H1 profits exceed pre-pandemic levels and we remain significantly ahead of the
UK market
Increased structural opportunities for growth underpinned by a strong balance
sheet
Throughout this release all percentage growth comparisons are made on a
three-year basis, comparing the current year (FY23) performance for the 26
weeks to 1 September 2022 to the same period in FY20 (26 weeks to 29 August
2019), with FY20 being the last financial period before the onset of the
pandemic.
H1 FY23 Group Financial Summary
£m H1 FY23 H1 FY22 H1 FY20 vs H1 FY22 vs H1 FY20
Statutory revenue(1) 1,350.4 661.6 1,084.0 104% 25%
Adjusted EBITDAR(†) 511.7 178.3 426.7 187% 20%
Adjusted profit / (loss) before tax(† 2) 271.9 (56.6) 235.6 580% 15%
Statutory profit / (loss) before tax 307.4 (19.3) 219.9 >1,000% 40%
Statutory profit / (loss) after tax 233.9 (37.8) 172.2 719% 36%
Adjusted basic EPS(†) 107.0p (26.4)p 97.1p 505% 10%
Statutory basic EPS 115.7p (18.7)p 89.6p 719% 29%
Dividend per share 24.4p 0.0p 32.7p n/a (25)%
Cash and cash equivalents 1,174.8 1,144.7 804.9 30.1 369.9
Net cash / (debt)(†) 182.1 60.2 (77.5) 121.9 259.6
Net cash / (debt) and lease liabilities(†) (3,566.7) (3,253.4) (2,575.1) (313.3) (991.6)
Overview
• Our sustained programme of investment is delivering significant market
outperformance
• Statutory profit before tax above pre-pandemic levels and ahead of
expectations
• A declining independent sector is increasing our growth potential in
the UK and Ireland to 125,000 rooms
• In Germany, demand has recovered, we are seeing good trading momentum
and are confident in reaching our long-term return on capital target of 10-14%
• Our strong balance sheet with significant asset backing is integral to
the success of our operating model
• We are continuing to regularly and actively manage our capital
allocation priorities to drive long-term value for our shareholders and will
provide a further update at the FY23 results
• With strong current trading and positive lead indicators we remain
confident in the full year outlook
Financial highlights
• Premier Inn UK: continued outperformance with total accommodation
sales 25.9pp ahead of the midscale and economy ('M&E') market in H1,
driven by our scale, the strength of our brand, direct distribution model,
operational excellence and our winning customer proposition
• Total UK accommodation sales were 101% ahead of H1 FY22 and 35% ahead
of H1 FY20
• F&B sales were 95% ahead of H1 FY22 but 5% behind pre-pandemic
levels
• Premier Inn Germany: continued market recovery following the easing of
restrictions in April, with our more established hotels being profitable(3)
for the first time in Q2 FY23
• Statutory revenue of £1,350.4m was 104% ahead of H1 FY22 and 25%
ahead of H1 FY20. Adjusted profit before tax was £271.9m, which included
£24.9m of adjusted losses before tax in Germany
• Statutory profit before tax of £307.4m benefited from adjusting
items, including £33.5m of net property impairment reversals (H1 FY22: £nil)
and £2.0m profit from property disposals (H1 FY22: £28.6m)
• Strong balance sheet: lease adjusted leverage(†) reduced to 2.8x and
net cash increased to £182.1m (FY22: £140.5m); pension fund surplus of
£429.2m at the end of the period (FY22: £522.6m)
• Interim dividend of £49m (24.4p per share) in line with our policy,
payable on 16 December 2022
1: H1 FY20 revenue includes £6.0m relating to the Costa disposal transitional
service agreement.
2: H1 FY22 includes £60.0m received from the UK Coronavirus Job Retention
Scheme, £28.6m of Germany Government COVID-related grants, £47.7m of UK
business rates relief and £5.3m of other COVID-related support grants.
3: Adjusted profit before tax excluding non-hotel specific central costs for
hotels that have been open and trading for a full 12 months as at 4 March
2022.
† signifies an alternative performance measure ('APM') - further information
can be found in the glossary and reconciliation of APMs at the end of this
document.
Segment highlights
Premier Inn UK
`
£m H1 FY23 H1 FY22 H1 FY20 vs H1 FY22 vs H1 FY20
Statutory Revenue 1,298.0 650.6 1,074.3 100% 21%
Adjusted profit / (loss) before tax(†) 317.1 (17.8) 261.2 >1,000% 21%
Revenue per available room (£)(†) 62.39 32.13 50.19 94% 24%
Premier Inn Germany
`
£m H1 FY23 H1 FY22 H1 FY20 vs H1 FY22 vs H1 FY20
Statutory Revenue 52.4 11.0 3.7 376% >1,000%
Adjusted loss before tax(†) (24.9) (4.3) (5.8) (479)% (329)%
Revenue per available room (£)(†) 35.06 11.69 38.61 200% (9)%
Current trading and outlook
• Premier Inn UK: despite macroeconomic uncertainty, market demand
remains robust and our strong trading performance has continued; we have a
positive forward booked position and the momentum into Q3 FY23 has been in
line with our YTD trend
• F&B: the UK value pub restaurant sector remains challenging and
F&B sales continue to lag H1 FY20; we have launched a series of
initiatives to return sales to pre-pandemic levels, although this is unlikely
to be achieved in the current financial year
• Premier Inn Germany: strong trading has continued, led by our more
established hotels; we now expect a reduced adjusted loss before tax of
between £40m and £50m in FY23 versus £60m-£70m guided at the full year
results; with c.£1bn of capital invested, we remain on course to reach
break-even on a run-rate basis on the current estate during 2024 with a
long-term target return on capital of 10-14%
• The combination of additional inflation in areas such as labour,
utilities and F&B, together with brought forward investments in IT and
marketing, will result in increased costs of £60m in FY23
• Interest on cash and pension surplus expected to reduce total interest
costs by £25m in FY23
• UK margins in H2 FY23 are expected to be lower than H1 FY23 due to
normal seasonality and the phasing of investment and inflationary pressures
• Network plan: following a contraction of total supply in the UK and
Ireland we have increased the size of our long-term target from 110,000 to
125,000 rooms
• We remain on course to add 1,500-2,000 rooms in the UK and 2,000-2,500
rooms in Germany in FY23
• With strong current trading, a declining independent sector, and the
proven resilience of our business model, we remain confident in the full year
outlook
Commenting on today's results, Alison Brittain, Whitbread Chief Executive
Officer, said:
"We remain focused on maintaining our position as the UK's number one hotel
chain and are well on the way to replicating that success in the German
market. We delivered an outstanding trading performance in the first half of
the year, with revenues and profit before tax above pre-pandemic levels. Our
UK hotels traded well-ahead of the market, benefiting from our 'investing to
win' commercial and operational initiatives that are continuing to drive
growth. We are making good progress in Germany and remain focused on realising
our full potential in this large and exciting market. I am incredibly proud of
the dedication of our team members who continue to deliver a fantastic service
for our guests.
"The strength of our balance sheet underpins our success and has given us the
confidence to continue to invest, even through the periods of great
uncertainty that we have seen over the past few years. Our investment in
growing our estate, our customer proposition, commercial initiatives, IT
systems and Force for Good sustainability programme has meant we have been
able to take advantage of improved market conditions and extend our market
leading position.
"Despite macroeconomic uncertainties, our current trading performance is
strong and our business has proven its resilience in previous downturns. With
a robust balance sheet and significant growth potential in both the UK and
Germany, we remain confident in the full year outlook and our ability to
deliver long-term value for all our stakeholders."
For more information please contact:
Investor Relations - Whitbread
investorrelations@whitbread.com
(mailto:investorrelations@whitbread.com)
Peter Reynolds, Director of Investor Relations
peter.reynolds@whitbread.com
Abigail Cammack, Investor Relations Manager
abigail.cammack@whitbread.com (mailto:abigail.cammack@whitbread.com)
Sophie Nottage, Investor Relations Manager
sophie.nottage@whitbread.com
Media -
Tulchan
whitbread@tulchangroup.com
Jessica Reid +44 (0) 20 7353 4200
A webcast for investors and analysts will be made available at 8:15am on 25
October 2022 and will be followed by a live Q&A teleconference at 9:15am.
Details of both can be found on Whitbread's website
(www.whitbread.co.uk/investors
(https://whitbread.sharepoint.com/sites/InvestorRelations753/Shared%20Documents/General/2.%20Results%20Announcements/FY23/H1%20FY23/2.%20RNS/www.whitbread.co.uk/investors)
).
( )
(†)Alternative performance measures
We use a range of measures to monitor the financial performance of the Group.
These measures include both statutory measures in accordance with IFRS and
alternative performance measures ('APMs') which are consistent with the way
that the business performance is measured internally. We report adjusted
measures because we believe they provide both management and investors with
useful additional information about the financial performance of the Group's
businesses.
Adjusted measures of profitability represent the equivalent IFRS measures
adjusted for specific items that we consider relevant for comparison of the
financial performance of the Group's businesses either from one period to
another or with other similar businesses.
APMs are not defined by IFRS and therefore may not be directly comparable with
similarly titled measures reported by other companies. APMs should be
considered in addition to, and are not intended to be a substitute for, or
superior to, IFRS measures. Further information can be found in the glossary
and reconciliation of APMs at the end of this document.
Business Review
The strength of our performance in the first half reflects the continued
execution of our stated business strategy. Our longstanding programme of
investment meant that the Group was well-placed to capitalise on a strong
market recovery in both the UK and Germany during H1 FY23.
In the UK, consumer demand picked up significantly at the start of the year,
driven by strong leisure demand and the return of business travel to
pre-pandemic levels. This recovery in revenue was experienced across both the
regions and London and the combination of high levels of demand, our
commercial and operational initiatives, and a favourable supply backdrop,
provided increased opportunities to drive RevPAR across the estate. Whilst the
recovery in the hotel market provided a boost to our food and beverage
('F&B') sales, the trading conditions in the value end of the pub
restaurant market remain challenging.
In Germany, COVID-related restrictions were more extensive and had remained in
place for longer than many other European countries. Once restrictions were
removed at the end of April 2022, the German hotel market saw strong
month-on-month growth, with rising occupancy and room rates as domestic
leisure and business demand increased.
Against this favourable backdrop, we continued to execute the three pillars of
our business strategy, namely:
· to grow and innovate in the UK;
· to grow our presence in Germany; and
· to enhance our capabilities to support long-term growth.
Our strong balance sheet underpinned our confidence in continuing to invest
throughout the pandemic and meant we were able to take full advantage of the
favourable market conditions outlined above. We remain well-placed for the
longer-term, maintaining our market leading position in the UK, progressing
our plans to unlock significant future value in Germany and ensuring we
deliver against our ambitious commitments set out in our Force for Good
sustainability programme.
Group Results
The first half results were better than expected and total statutory revenues
increased by 25% versus H1 FY20 to £1,350.4m and adjusted operating profit
increased by 16% to £343.2m. This uplift reflected both the high operational
leverage inherent in our business model and some timing differences on cost
increases that were delayed until the second half of the year. An interest
credit from the pension fund that remains in surplus (see note 13), together
with higher interest rates on our cash balance, meant that adjusted profit
before tax increased to £271.9m. Statutory profit before tax was £307.4m,
including adjusting items of £35.5m (H1 FY22: £37.3m). No COVID-related
Government support was recognised in H1 FY23 in the UK or in Germany (H1 FY22:
£141.6m). Tax expense of £73.5m resulted in a statutory profit after tax of
£233.9m and basic earnings per share increased by 29% versus H1 FY20 to
115.7p (H1 FY20: 89.6p).
The strong trading performance fed through into increased operational cashflow
and while our continued programme of expansion and high levels of occupancy
meant that total capital expenditure in the first half increased to £304.2m,
total net cash increased to £182.1m, up from £140.5m at the year end.
Further details regarding the Group's strong first half performance, both in
the UK and Germany, are set out below.
Premier Inn UK - continuing to outperform the market
The strong recovery in UK accommodation sales continued during the first half,
and while F&B sales remained challenging and 5% behind pre-pandemic
levels, total UK revenue almost doubled to £1,298.0m
(H1 FY22: £650.6m). The growth in accommodation sales was strong across
London and the Regions that were both 35% ahead of H1 FY20, driven by
increases in estate growth, occupancy and average room rate ('ARR'). While
leisure demand remained strong during the period, as highlighted below, our
efforts to attract more business customers meant that the revenue mix of
leisure and business customers returned to broadly equal shares in the period.
Inflationary pressures and volume growth meant that operating costs increased
in the period, however the phasing of a number of these increases towards the
second half meant that profit margins recovered strongly in the first half and
were broadly in line with pre-pandemic levels at 24.4% (H1 FY20: 24.3%).
Throughout the period, Premier Inn UK continued to outperform the wider
M&E market with accommodation sales 25.9pp ahead of the market in H1 FY23,
an increase of 13.4pp compared with the level of outperformance during the
first half of FY22. This degree of outperformance was driven by our 'investing
to win' strategy in combination with external factors that meant we were
particularly well-positioned. Further details are provided below:
Increased scale and national coverage - We added 819 more new rooms during the
period, whilst 332 rooms were closed. As at H1 FY23 there were 844 hotels and
82,773 rooms open across the UK and Ireland, meaning that we are better placed
than ever to service the needs of our guests, wherever they might need to
stay.
Market effects - The decline of the independent hotel sector is accelerating
and having now completed our network planning exercise and our assessment of
the UK market, we believe that the total volume of room supply is currently
some 4% lower than it was pre-pandemic, creating a favourable market backdrop
and providing increased opportunity for Premier Inn to grow market share.
Best in class operations - Premier Inn is the UK's number one hotel brand and
is synonymous with high quality and good value. This market leading position
is thanks to our 37,000 team members who are at the heart of our operations
and we are continuing to invest in recruitment, training and also rewards for
our people. Having revamped our recruitment process, we reduced the number of
vacancies across our operations versus the previous year, improving our
operational efficiency and helping to mitigate disruption from team shortages
in what remains a tight labour market. Acutely aware of the challenging
macroeconomic conditions and in recognition of the huge contribution made in
the first half, we announced earlier this month an increase in pay rates for
our hourly paid team members to a minimum of £10 per hour with effect from 4
November 2022. Alongside the increase in base pay, we are also providing a
one-off payment of up to £300 for all eligible hourly paid and customer
contact centre team members, with over 34,000 of the total UK workforce
eligible for this one-off payment. These investments in our teams will result
in approximately £15m of additional cost in the second half of the current
financial year.
Highly effective marketing - Despite the fact that approximately 75% of all
bookings made are by consumers that have stayed at Premier Inn at least once
before, it is essential that we continue to drive traffic to our website
through brand and digital marketing. This includes our latest 'Rest Easy'
campaign (launched in September 2022) and the extension of our relationships
with travel management companies ('TMCs') that are an increasing source of
higher value business customers. The net result of these marketing initiatives
is that we continue to drive large customer volumes directly to our website
without having to give any of our inventory to online travel agents, thereby
avoiding high commission costs and retaining a direct relationship with the
customer.
Dynamic and proprietary pricing platform - We have continued to make excellent
progress in developing and improving the performance of our proprietary and
fully automated trading engine that manages all of our pricing across both the
UK and Germany. Drawing upon our significant bank of historic trading and
performance data, we are continuing to evolve and develop our trading
strategies, introducing new capabilities to increase yield, whilst still
maintaining a healthy mix of business versus leisure and short versus long
lead sales.
Extended consumer choice with new pricing options and product innovation - By
providing more flexible pricing options, for a modest premium to our standard
room rate, our guests can secure the flexibility they might need and the
majority of our guests choose flexible options. Separately, we are at an
advanced stage of testing the latest iteration of our standard Premier Inn
room that is achieving higher guest scores and is expected to deliver
operational savings when it is rolled out during FY24. Our Premier Plus room
concept is also proving popular with our guests and is able to deliver a
meaningful uplift to RevPAR versus a standard room in the same hotel. As a
result, we have increased the number of Premier Plus rooms across our UK
estate to over 3,000 in H1 FY23 and plan to add a further 1,000 rooms by the
end of the year.
Improved proposition for our business customers - As well as boosting our
availability to business customers through TMCs, we have also enhanced our
appeal to corporate customers through our Business Account and Business Booker
portal. Business Booker provides business customers with a guaranteed discount
off our headline Flex rate, thereby offering an attractive price point as well
as access to a number of other tools to help them manage their employees'
accommodation needs. Having revamped our sales organisation, we now have over
76,000 active Business Booker accounts in the UK and Germany. As a result of
these efforts and despite strong leisure demand during the peak summer season,
Business Booker customers represented approximately 8% of total accommodation
sales in H1 FY23, up from 6% in H1 FY22.
Each of these factors contributed to our continued outperformance versus the
wider market and our total UK accommodation sales were ahead of the rest of
the M&E market by 25.9pp in the first half. As we look forward, we believe
that each of these elements can and will continue to help us to remain ahead
of the wider market.
UK F&B - sales remain behind pre-pandemic levels
Our F&B offer remains central to the Premier Inn guest experience and
while increased occupancy fed through into increased F&B volumes from
hotel guests, the value end of the UK pub and restaurant sector remains
challenging as many customer segments have still not returned to their
pre-pandemic spending levels. Several initiatives were launched during the
first half to help boost the numbers of covers as well as spend per head in
our restaurants. These included an expanded drinks offering, upgrades to a
number of our gardens, enhancing the appeal of our venues with outdoor space
during the summer months, as well as a number of targeted promotions. These
initiatives helped to drive a marked recovery versus H1 FY22, however total
F&B sales remained 5% behind H1 FY20.
Premier Inn Germany - strong market recovery and room expansion driving
improved performance
Since the end of COVID-related restrictions at the end of April 2022, the
M&E market in Germany has rebounded strongly with increasing occupancy and
ARR driving market RevPAR back to above pre-pandemic levels. This market
recovery, coupled with our commercial and operational initiatives, delivered a
significant uplift in financial performance. An increase in the number of
leisure events, trade fairs and business conferences, together with the growth
in our estate, meant that total revenue increased significantly versus H1
FY20.
Given our pace of room openings over the past two years, the majority of our
hotels have only traded restriction-free for a few months and still have some
way to go before reaching maturity in terms of revenue and profit performance.
However, we are achieving encouraging guest scores and reached an important
milestone during the period as our cohort of 18 hotels that have been trading
for more than one year turned profitable (before overheads) during the second
quarter, with average occupancy of 79%, ARR of £62.02 and RevPAR of £49.07.
The delayed opening of the market and our continued investment in new openings
meant that Germany as a whole delivered an adjusted loss before tax of £24.9m
(H1 FY22: loss of £4.3m). We are continuing to drive top line growth through
our marketing and improved pricing, as well as by seeking to drive business
volumes through greater use of TMCs and our Business Booker portal. The strong
trading performance since April, particularly by our more established hotels,
tells us we have a product that can compete effectively in the German market.
Having invested approximately £1bn to date, we remain confident that we will
reach break-even at an adjusted profit before tax level on the current estate
sometime during 2024, and that our long-term target return on capital of
between 10-14% is achievable.
Strong balance sheet supports strategic capital allocation
At the heart of our strategy is a significant structural growth opportunity to
increase the number of Premier Inn rooms in the UK, Ireland and in Germany.
Our capital expenditure programme is focused on investing in new rooms,
driving revenue growth initiatives and sustaining the quality of our customer
proposition. Maintaining a strong balance sheet means we can continue to
invest with confidence whilst also seizing opportunities which meet our strict
investment return requirements.
The strong first half performance resulted in an increase in net cash to
£182.1m after total capital expenditure of £304.2m (H1 FY22: £109.1m), that
included the purchase of two freehold properties. Lease liabilities at the end
of the period were £3.7bn. As a result, our ratio of funds from operations
('FFO') to lease adjusted net debt reduced to 2.8x, which is within our policy
of managing to investment grade metrics of FFO to lease adjusted net debt of
less than 3.7x.
Our performance during the first half demonstrates the significant benefits of
capital strength in times of macroeconomic uncertainty. Having reconfirmed our
investment grade status during the first half, we are focused on managing an
efficient balance sheet whilst maintaining our capital discipline and driving
long-term returns for our shareholders. Our capital allocation framework sets
out our key priorities for the next few years, based upon future profit and
cash generation under a range of potential scenarios. The key priorities
include:
· maintaining our investment grade status by operating within our
leverage target;
· continuing to fund our ongoing capital expenditure requirements
and investing through the cycle;
· selective freehold acquisitions and M&A opportunities that
meet our return thresholds;
· growing dividends in line with earnings; and
· returning excess capital to shareholders dependent on outlook and
market conditions.
We remain focused on actively managing an appropriate balance of each of these
priorities and continue to review them on a regular basis, taking into account
each of factors outlined above. We will provide a further update at the time
of the FY23 results.
Business strategy
Our strong balance sheet and vertically integrated business model, in
conjunction with the careful execution of our business strategy, has delivered
strong growth both in the UK and Germany, whilst also continuing to deliver a
consistent and superior customer experience. The result has been an impressive
track record, outside the pandemic, of consistent returns for our shareholders
and additional benefits for our other key stakeholders.
Our strategy comprises three key pillars:
1. Continuing to grow and innovate in the UK
We are determined to maintain our leading position in the UK M&E hotel
market, a position we have secured after many years of investment and diligent
execution of our business strategy. With over 82,700 rooms, Premier Inn is the
UK's largest hotel chain with extensive national coverage. This helps to
ensure that our customer base is highly diversified between leisure (c.50%) /
tradespeople (c.25%) / office workers (c.25%). However, our scale does not
mean that we compromise on excellence and Premier Inn is regularly voted as
the UK's best value hotel brand with a reputation for high quality, great
value and excellent customer service.
The strength of the Premier Inn brand is attributable to our vertically
integrated operating model. By controlling all elements of the customer
experience, we can ensure that our customer proposition is delivered
consistently and to a high standard. With less than 1% of bookings delivered
through third party online travel agents, our direct distribution model also
provides complete ownership of the customer relationship, driving
substantially lower acquisition and retention costs.
To drive revenue growth, we are continuing to invest in the development of our
core hotel product, offering even greater choice to our guests. Recent product
developments include: the roll-out of hotel concepts such as hub by Premier
Inn that has a smaller room layout and is ideally suited to city centre
locations; and the conversion of more standard rooms into our popular Premier
Plus format, offering additional room features such as a complimentary coffee
machine and our Ultimate Wi-fi as standard. Such developments are in addition
to our continuous programme of upgrades and improvements to our hotel estate,
including: the roll out of our latest standard Premier Inn room that is
achieving outstanding guest scores as well as the upgrade of 65,000 beds, that
will both raise the overall quality of our proposition and allow us to offer
interlocking units for more flexible room formats.
The M&E segment in which we operate remains highly attractive:
· The budget branded model is structurally advantaged: Our sector
has a long history of being the highest growth segment in the hotel market. It
has also proved more resilient in previous downturns and since the end of the
pandemic has continued to outperform the rest of the hotel market;
· Significant opportunities for growth: Following completion of our
latest detailed network planning exercise, we have identified an increased
opportunity to develop our network in the UK and Ireland to 125,000 rooms (up
from 110,000 rooms previously). In addition to our current open UK estate of
over 82,700 rooms, we have a committed pipeline of 8,875 rooms and we expect
to open between 2,000-3,000 new rooms each year.
· Enhanced structural opportunities: The independent sector has
continued to decline in the aftermath of the pandemic but still represents
approximately 44% of the UK market. The decline in the independent market is
contributing to the overall reduction in market supply and we believe that
operational challenges created by labour shortages and cost inflation may
accelerate this decline further, creating additional opportunities for Premier
Inn across the UK and Ireland.
2. Growing at scale in Germany
Whilst the German hotel market is approximately one third larger than the UK
in terms of numbers of rooms, it is highly fragmented, with the independent
hotel sector representing approximately 72% of the market in 2019. With just
six hotels in March 2020, our German business has grown rapidly and now has 42
hotels, with 7,608 rooms open and a further 7,080 rooms in the pipeline. Our
open and committed pipeline signals our confidence in the potential for
significant growth in the German market.
As well as seeking to increase our brand awareness among consumers, we have
made good progress in attracting corporate customers, further expanding our
reach. With a presence in over 20 major towns and cities, our hotels are
building customer loyalty and achieving good customer scores, a combination
that is broadening our appeal to landlords as we seek to expand our portfolio
further. Having grown our estate rapidly through both organic growth as well
as acquisitions, we have invested over £1bn to-date and now have over 1,000
team members in Germany providing us with a solid platform from which we
intend to grow further.
3. Enhancing our capabilities to support long term growth
Our commercial and operational focus is key to the execution of our plans and
in driving our long-term success. Additional capabilities and attributes
that are drivers of long-term value include:
Financial strength: With a strong first half performance and positive net
cashflow, the Group's balance sheet remained in a robust position with net
cash of £182.1m at the end of H1 FY23.The Group's investment grade status(1)
enables access to the debt markets and ensures that the Group's cost of
funding remains competitive. With a strong financial covenant, we are
recognised as a highly attractive partner when being considered for leasehold
and/or other transactions, both in the UK and in Germany, opening up
opportunities that might otherwise be unavailable and creating a competitive
advantage for the Group. Our strong balance sheet also means we can continue
with our 'investing to win' programme that includes growing our estate,
developing new pricing options and room products, enhancing our IT platforms
and driving our marketing initiatives, all of which help to grow revenues in
both the UK and Germany. Financial flexibility also allows us to complete
attractive M&A deals, underpinning our planned future growth. All of these
investments are subject to our rigorous capital appraisal process, one that
provides strict discipline and helps us to sustain our strong track record of
high returns on capital.
1 Fitch Ratings - 26 August 2022
Asset backed balance sheet: Approximately 55% of the Group's hotels are
freehold with the remaining 45% operated as leasehold. Whilst this
differentiates the Group from many of its competitors, such a significant
freehold estate also provides the Group with:
o total control over the initial development of the hotel as well as all
maintenance and redevelopment;
o access to development profits through sale and leasebacks;
o a strong financial covenant, helping to secure more favourable lease terms
with landlords and attractive financing terms with lenders;
o protection from increasing property costs and therefore lower earnings
volatility during economic downturns; and
o an additional and flexible source of funding, one that can often be
available at more attractive rates than other sources of finance.
Being flexible between freehold or leasehold when approaching new property
opportunities materially improves our prospects of securing the best sites in
the best locations. It also makes it easier for us to optimise the size and
format of our assets in order to maximise returns.
Lean and agile cost model: The scale and breadth of our estate means that we
have a sizeable cost base. However, our teams are continuing to find new and
alternative ways of working to improve our processes and procedures in ways
that can help to reduce our costs and drive out operational efficiencies. With
heightened inflationary pressures and a tight labour market, these initiatives
are more important than ever and, having delivered £40m of savings in FY22,
we remain on track to deliver an additional £100m of planned savings over the
next three years.
Operating responsibly and sustainably: Our scale and national coverage means
we have a meaningful presence across both the UK and now Germany. Recognising
our responsibilities in those communities where we have a physical presence,
our long-established Force for Good sustainability programme continues to
drive our social and environmental agenda. Our stretching targets are embedded
within our overall business strategy and hold us accountable for the change we
seek to implement, whether that is reducing our environmental footprint,
supporting our team members or contributing to our communities.
The execution of each of these three elements of our business strategy lies at
the heart of our success and underpins our strong financial performance which
has continued in the current trading period.
Current Trading - seven weeks to 20 October
Trading has remained well ahead of last year and versus FY20. Total UK sales
were 23% ahead of the same period in FY20, with total accommodation sales up
by 37% and representing a continued outperformance versus the wider M&E
market of 24.5pp. Occupancy in the period was 85.8% (FY22: 81.3%) and average
room rate was £78.15 (FY22: £66.47).
The value pub restaurant sector remains challenging and total UK food and
beverage sales continue to lag pre-pandemic levels at (7.1)% vs H1 FY20.
Whilst we have launched a series of initiatives to help increase sales, it is
not expected that a full recovery will be achieved in the current financial
year.
In Germany, our ongoing commercial initiatives coupled with a continued market
recovery helped to deliver a further improvement in financial performance, led
by our more established hotels. Total sales were 820% ahead of the same period
in FY20 and RevPAR was £51.00 with occupancy at 65.3%.
Outlook
As evidenced by our strong current trading performance, the levels of UK
demand experienced during the first half have continued into the third
quarter. We still expect the seasonal reduction in leisure demand over the
coming weeks and while we remain vigilant for any signs of a slowdown in
demand given the heightened level of macroeconomic uncertainty, overall
volumes remain strong. The early signs are that the launch of our latest 'Rest
Easy' marketing campaign is proving successful and, supported by our other
commercial initiatives, the early momentum into Q3 FY23 has been in line with
our year-to-date trend.
Overall business demand remains robust thanks in large part to our continued
investment in improving our proposition for business customers. As well as
enhancing our relationships with an increasing number of TMCs, we continue to
grow the number of accounts on our Business Booker portal, through which an
increasing number of corporates can secure discounts to our standard rates and
benefit from a range of operational tools to help them manage their corporate
travel needs. Within the business segment, the split between tradespeople and
white-collar workers remains broadly unchanged at approximately 25%:25%.
Despite some ongoing supply chain issues, a tight labour market and
inflationary pressures across large parts of our cost base, our operating
performance remains at a high level thanks to the dedication and hard work of
our operational team members and those working in our support centre. We
remain committed to the wellbeing of all our team members and pride ourselves
on remaining an attractive employer and recognise the macroeconomic pressures
facing our team and especially those on lower rates of pay. As a result, we
were pleased to announce a £15m increase in pay for our team members,
effective from November 2022.
In addition to labour costs, the global energy crisis and conflict in Ukraine
has triggered inflationary pressures across a range cost lines that we expect
will incur incremental operational expenditure in FY23 of approximately £30m.
Having announced £20-30m of additional investment at the time of the Q1
results, the second half of FY23 will also be impacted by a further £15m
spend on IT and marketing to help drive revenue growth in the current
financial year and into FY24. The net impact of these cost increases, coupled
with the usual seasonal pattern of demand in the second half, is that UK
profit margins in H2 FY23 are expected to be lower than in
H1 FY23. As part of our rolling programme of hedging our utility costs, for
FY24 we have increased our hedged utility position from 40% to 70%, adding
£20m of cost in that year.
In Germany, with further recovery in market demand and as we seek to increase
our brand presence with both leisure and business customers, we expect the
performance of our open hotels to improve further. Despite ongoing
macroeconomic uncertainties and inflationary pressures, we now expect an
adjusted loss before tax of between £40m and £50m (versus an expected loss
of between £60m-£70m previously) and remain on course to reach break-even
for our current estate on a run-rate basis during 2024 with a long-term target
return of
10-14%.
'Investing to win' lies at the heart of our significant capital expenditure
programme and given our long-term targets, we are committed to growing our
estate in both the UK and Germany through a combination of organic growth as
well as acquisition. Following completion of our network plan, we now expect
an even greater opportunity in the UK and Ireland and have increased the size
of our long-term target from 110,000 to 125,000 rooms.
Other initiatives to drive additional revenue growth include upgrades to both
our IT infrastructure and reservation system that we expect will be rolled out
by the end of calendar year 2023. Once complete, these investments will start
to release substantial value through the delivery of additional revenue growth
and cost savings. Maintaining our reputation for quality and value is a key
driver of our long-term success and we remain committed to a regular programme
of refurbishments, upgrades and repairs and maintenance. As a result, we
expect capex spend, including the purchase of freehold properties, to be
£500-£550m in FY23. In the UK, we remain on course to add 1,500-2,000 rooms
this year while in Germany we expect to add 2,000-2,500 rooms. We will
continue to optimise our existing estate by rationalising those sub-scale
locations where returns can be improved and where opportunities allow.
With strong current trading, a continued opportunity to grow in the UK and
Germany and the proven resilience of our business model in previous downturns,
we remain confident in the full year outlook.
Summary of Additional Guidance FY23 and FY24
FY23 guidance was set out in our FY22 full year results and our Q1 FY23
trading update. While sales sensitivities remain unchanged, our cost guidance
is updated to include the following:
UK
· Investment to drive further revenue growth: additional £15m in
marketing and IT spend
· Inflation: year-on-year inflation now expected to be 10-11%, a
further 1-2% increase vs FY22, equal to £30m in FY23
· Utility cost inflation: fully hedged for FY23, now 70% hedged for
FY24 - additional utility inflation of £20m in FY24
· Increased pay for hourly paid team members and a one-off bonus
totalling £9m plus £6m of brought forward pay rise from FY24
Germany
· FY23 loss before tax now expected to be £40m-£50m (versus
£60m-70m guided previously)
· Expected cost inflation of 10-11%
Balance sheet
· Capex: £500-£550m including acquisitions already announced
· Interest on cash and pension surplus expected to reduce total
interest costs by £25m in FY23
We are focused on mitigating the impact of many of these sector-wide cost
headwinds through our scale, our long-standing efficiency programme, our
proprietary pricing model and the benefits of both organic and inorganic
growth.
A Force for Good
Whitbread's sustainability programme, Force for Good, is embedded across all
business functions, ensuring that being a responsible business is integrated
across our operations. It is an ambitious programme, with the overarching
objective to enable everyone to live and work well. Following an incredibly
difficult year in FY22, keeping our Force for Good commitments has remained
central to our response and how we rebuild after the global pandemic is of
great importance to us.
Following our decision to bring forward our net zero carbon target from 2050
to 2040 and a commitment to the Science Based Targets Initiative, we have
progressed our validation process and are aiming for full accreditation of our
carbon targets before the end of the current financial year. In line with the
requirements coming out of COP26, we are in the process of creating our
Transition Plan to net zero and outlining the activity and the necessary
changes and timeframes for delivery in order to meet our carbon reduction
commitments. This is largely focused on removing gas from our hotels and we
now have electric alternatives to gas boilers in over 40 of our sites. We have
begun construction of our first gasless hotel in Swindon and continue to build
our hotels to the BREEAM Excellent standard and are implementing our energy
efficiency programme across our estate. Our carbon reduction strategy is not
limited to Scope 1 and 2 and we have also started to roll out our scope 3
target with our suppliers, gathering information on their own reduction
targets and progress.
We are making good progress towards our target of cutting food waste in half
by 2030 and continue our partnership with FareShare, adding to the half a
million meals already donated to charity partners in support of those in need.
After meeting our fundraising target of £20m for Great Ormond Street
Hospital, we ran a companywide review for our next phase of charity
partnership. During this period of review, we continued our fundraising
activity but diverted our focus to the DEC humanitarian appeal for Ukraine,
raising over £650,000 in total and supporting this by donating bedding from
our hotels. Following the results of a companywide vote, GOSH were reinstated
as our charity partner in 2022.
Since publishing of our first full report under the Taskforce for
Climate-related Financial Disclosures ('TCFD'), we have been working on the
mitigating actions and on improving our understanding and quantification of
the associated climate change risks and opportunities. We have also carried
out a peer review to identify best practice for our planned reporting in line
with the next Annual Report.
We have continued to make good progress on bringing to life our eight
Diversity and Inclusion commitments across Whitbread. We have already met our
female representation target, with 41% of senior leadership positions held by
women. Our four inclusion networks, enAble (disability), Gender Equality, GLOW
(LGBTQ+) and Race, Religion and Cultural Heritage are now all
well-established, and, alongside providing a community for our teams, are
taking an active role consulting with our business on initiatives such as:
listening with our Black colleagues to further understand their experience of
working for Whitbread; consulting on our new concept accessible rooms
(supported by the Business Disability Forum); and launching a new workplace
adjustments policy and process.
We have celebrated many cultural events during H1 FY23 to support our
communities and provide education to our teams. Our Pride celebrations were a
particular highlight, where our sites got involved and GLOW participated in
the Manchester Pride march in August with participation from our teams from
across the UK and Germany. Representation continues to be important to us and
we continue to be guided by our 2023 and 2026 representation targets on gender
and ethnicity. Our recently released 2022 Gender and Ethnicity Pay Gap report
demonstrates the action we are continuing to take as an organisation.
This year we are aiming to improve how we communicate our sustainability
credentials as we believe there is a real opportunity to be recognised as a
leader in our industry and we believe sustainability is becoming more
important to our guests and customers. We actively engage with our
stakeholders and have maintained our leading sustainability ratings with MSCI
(AA) and Sustainalytics (low risk). We have started to embed ESG messages into
our brand and marketing strategies through in-site activations and through our
'Rest Easy' marketing campaign. It is through these activities that we are
able to drive meaningful change with the overall aim of enabling people to
live and work well.
For futher information on our Force for Good programme, please visit:
https://www.whitbread.co.uk/sustainability/our-strategy-targets/
(https://www.whitbread.co.uk/sustainability/our-strategy-targets/) .
2022 Annual General Meeting
At the Annual General Meeting on 15 June 2022, 61.56% of votes were cast in
favour of the resolution to approve the 2022/23 Remuneration Report. We
actively engaged with a number of our larger investors in advance of that vote
and have also held a number of meetings since then to ensure we have a good
understanding of investor sentiment regarding the votes cast against, as well
as regarding any other governance-related issues. From our engagement, the
main reasons behind the votes which were cast against were largely related to
the payment of a bonus in a year when the Group received Government support.
The Remuneration Committee has noted and discussed that feedback and will take
it into account in the future. We are continuing to engage constructively with
investors on this and other governance-related topics throughout the rest of
the financial year. There has been no further government support recognised in
H1 FY23 and we are not expecting to make any such claims in H2 FY23.
Business Review | Strong outperformance driving margin recovery
Premier Inn UK(1)
£m H1 FY23 H1 FY22 H1 FY20 vs H1 FY22 vs H1 FY20
Statutory Revenue 1,298.0 650.6 1,074.3 100% 21%
Other income (excl rental income)² 0.0 65.3 6.6 (100)% (100)%
Operating costs before depreciation, amortisation & rent
(770.5) (533.2) (633.0) (45)% (22)%
Adjusted EBITDAR(†) 527.5 182.7 447.9 189% 18%
Net turnover rent and rental income 0.6 1.9 0.5 (68)% 20%
Depreciation: Right-of-use asset (65.8) (59.8) (50.2) (10)% (31)%
Depreciation and amortisation: Other (82.8) (82.2) (80.0) (1)% (4)%
Adjusted operating profit/ (loss)(†) 379.5 42.6 318.2 791% 19%
Interest: Lease liability (62.4) (60.4) (57.0) (3)% (10)%
Adjusted profit / (loss) before tax(†) 317.1 (17.8) 261.2 >1,000% 21%
ROCE(†) 11.0% n/a 12.1% n/a (110)bps
PBT Margins(†) 24.4% (2.7)% 24.3% >1,000% 10bps
Premier Inn UK(1) key performance indicators
H1 FY23 H1 FY22 H1 FY20 vs H1 FY22 vs H1 FY20
Number of hotels 844 830 810 2% 4%
Number of rooms 82,773 80,810 76,837 2% 8%
Committed pipeline (rooms) 8,875 9,814 12,928 (10)% (31)%
Direct booking 99% 99% 98% 0bps 100bps
Occupancy 84.8% 61.0% 78.3% >1,000bps 650bps
Average room rate(†) £73.54 £52.63 £64.07 40% 15%
Revenue per available room(†) £62.39 £32.13 £50.19 94% 24%
Sales growth(3):
Accommodation 35%
Food & beverage (5)%
Total 21%
Like-for-like(†) sales(3) growth:
Accommodation 24%
Food & beverage (9)%
Total 13%
1: Includes one site in each of: Guernsey and the Isle of Man and two sites in
each of: Jersey and Ireland
2: Includes UK and German Government support - see note 6 of the accompanying
financial statements for further details
3: Total and like-for-like on a three-year basis versus FY20
Total statutory revenue was significantly ahead of H1 FY22 and up 21% compared
to H1 FY20, with total accommodation sales up 35%. Increased leisure stays and
the return of business demand helped to drive high levels of occupancy that
reached 85%, a 650bps increase versus H1 FY20. The combination of strong
consumer demand and a favourable supply backdrop, coupled with the benefit of
our dynamic pricing model, saw ARR increase by 15% ahead of pre-pandemic
levels with RevPAR increasing to £62.39 in H1 FY23.
Premier Inn remained ahead of the M&E market throughout the period,
consolidating our strong market position and demonstrating the strengths of
our scale, brand, direct distribution model and our winning customer
proposition. With our continued programme of 'investing to win' we remain
confident of being able to sustain our outperformance versus the rest of the
market.
UK performance vs M&E market
Q1 FY22 Q2 Q3 Q4 FY22 Q1 Q2 Q3 to Date
FY22 FY22 FY23 FY23
PI accommodation sales performance (vs FY20)(1) +10.0pp +14.7pp +16.1pp +19.0pp +26.6pp +25.4pp +24.5.pp
PI occupancy performance (vs FY20)(2) 10.0% 11.7% 8.6% 9.8% 11.5% 11.4% 9.0%
PI ARR performance (vs FY20)(3) (0.9)% (4.6)% (3.6)% (3.5)% (2.7)% (3.8%) (1.1)%
PI market share(4) 13.9% 10.5% 13.9.% 9.4% 9.5% 8.9% 8.7%
PI market share gains pp (vs FY20)(4) 6.4pp 3.4pp 6.4pp 2.2pp 2.0pp 1.8pp 1.6pp
1: STR data, full inventory basis, Premier Inn accommodation revenue, 26
February 2021 to 13 October 2022, M&E excludes Premier Inn
2: STR data, full inventory basis, Premier Inn occupancy, 26 February 2021 to
13 October 2022, M&E excludes Premier Inn
3: STR data, full inventory basis, Premier Inn ARR, 26 February 2021 to 13
October 2022, M&E excludes Premier Inn
4: STR data, revenue share of total UK market, 26 February 2021 to 13 October
2022
Total F&B sales were well ahead of H1 FY22 but 5% behind H1 FY20
demonstrating the challenges faced by the UK value pub restaurant sector.
Whilst we have launched a series of initiatives to help return sales to
pre-pandemic levels, it is not expected that this will be achieved in the
current financial year.
Other income in H1 FY23 was £nil with no income being recognised for
COVID-related Government support in the UK in the period. In H1 FY22, other
income of £65.3m reflected £60.0m benefit from the Coronavirus Job Retention
Scheme.
Operating costs of £770.5m were 45% higher than H1 FY22 driven by
revenue-related variable costs, inflation (especially in the areas of labour,
F&B and utilities), estate growth and the absence of any benefit received
in relation to the Government's business rates holiday (H1 FY22: £47.7m).
Right-of-use asset depreciation was £65.8m and lease liability interest was
£62.4m. Five new hotels and an extension were opened during the half,
totalling 819 rooms and two hotels were closed, totalling 332 rooms, as the
Group continues to optimise its estate when suitable opportunities arise. At
the end of the period, the total estate stood at 844 hotels with a total of
82,773 rooms. With a committed pipeline of 8,875 rooms, we remain confident in
our ability to take further market share over the medium to long-term.
Adjusted profit before tax in the UK was £317.1m reflecting the significant
increase in statutory revenues versus H1 FY22 and a delay to some cost
increases that are now expected to fall into the second half. As a result,
pre-tax profit margins increased to 24.4%, in line with the 24.3% level
achieved in H1 FY20.
Premier Inn Germany
£m H1 FY23 H1 FY22 H1 FY20 vs H1 FY22 vs H1 FY20
Statutory revenue 52.4 11.0 3.7 376% >1,000%
Other income (excl. rental income)(1) 0.0 28.2 0.0 (100)% 0%
Operating costs before depreciation, amortisation and rent
(50.6) (28.0) (8.9) (81)% (469)%
Adjusted EBITDAR(†) 1.8 11.2 (5.2) (84)% 135%
Net turnover rent and rental income 0.0 2.3 0.0 (100)% 0%
Depreciation: Right-of-use asset (15.1) (10.4) (0.1) (45)% (>1,000)%
Depreciation and amortisation: Other (5.4) (3.6) (0.5) (50)% (980)%
Adjusted operating loss(†) (18.7) (0.5) (5.8) (>1,000)% (222)%
Interest: Lease liability (6.2) (3.8) 0.0 (63)% n/a
Adjusted loss before tax(†) (24.9) (4.3) (5.8) (479)% (329)%
Premier Inn Germany key performance indicators
H1 FY23 H1 FY22 H1 FY20 vs H1 FY22 vs H1 FY20
Number of hotels 42 30 3 40% >1,000%
Number of rooms 7,608 4,927 589 54% >1,000%
Committed pipeline (rooms) 7,080 8,578 7,280 (18)% (3)%
Direct bookings 94% 97% 100% (300)bps (600)bps
Occupancy 63.4% 32.0% 60.2% 980bps 320bps
Average room rate(†) £55.27 £36.49 £64.15 52% (14)%
Revenue per available room(†) £35.06 £11.69 £38.61 200% (9)%
Sales growth(2):
Accommodation >1,000%
Food & beverage >1,000%
Total >1,000%
Like-for-like(†) sales(2) growth:
Accommodation 46%
Food & beverage 18%
Total 41%
1: Includes UK and German Government support - see note 6 of the accompanying
financial statements for further details
2: Total and like-for-like on a three-year basis versus FY20
Total statutory revenue in Germany was significantly ahead of H1 FY20,
reflecting the material growth in our hotel estate and a strong market
recovery. During the half we opened seven hotels including hotels in Berlin
and Stuttgart, ending the period with 42 hotels and 7,608 rooms open (H1 FY20:
three hotels open and 589 rooms). The removal of COVID-related restrictions at
the end of April 2022 prompted a significant uplift in demand and in the
second quarter (Jun-Aug), total sales were 376% ahead of the comparable period
in H1 FY22, reflecting strong growth in both leisure and business demand and
the increased size of our estate.
Other income in H1 FY23 was £nil with no income being recognised for
COVID-related Government support in Germany in the period. In H1 FY22 other
income of £28.2m reflected £28.0m benefit from COVID-related grants from the
German Government.
Operating costs increased by £22.6m versus H1 FY22 driven by the ongoing
expansion of our hotel estate and our continued investment in a range of
commercial initiatives. We are continuing to seek ways to refine our operating
model with a view to reducing costs without compromising our ability to
capture significant revenue growth. Right-of-use asset depreciation costs
increased by £4.7m to £15.1m, reflecting the fact that the majority of new
opened properties are leasehold. Other depreciation and amortisation costs
were £5.4m and lease liability interest costs were £6.2m.
While the net result was that Germany produced an adjusted loss before tax of
£24.9m for the period, this reflects estate growth and continued
COVID-related restrictions until the end of April and masks a particularly
strong performance from our more established hotels that, taken together,
became profitable (before overheads) in Q2 FY23.
Central and other costs
£m H1 FY23 H1 FY22 H1 FY20 vs H1 FY22 vs H1 FY20
Operating costs before depreciation, amortisation and rent
(17.3) (14.6) (13.7) (19)% (26)%
Share of loss from joint ventures (0.3) (1.0) (2.3) 70% 87%
Adjusted operating loss(†) (17.6) (15.6) (16.0) (13)% (10)%
Net finance costs (2.7) (18.9) (3.8) 86% 29%
Adjusted loss before tax(†) (20.3) (34.5) (19.8) 41% (3)%
Central operating costs of £17.3m were £2.7m higher than H1 FY22 primarily
driven by consultancy-related costs. Net finance costs decreased by £16.2m to
£2.7m versus H1 FY22 reflecting £6.1m interest receivable on the Group's
cash balance (H1 FY22: £0.1m) and £6.8m of IAS 19 pension finance income (H1
FY22: £1.8m).
Financial review
Financial highlights
£m H1 FY23 H1 FY22 H1 FY20 vs H1 FY22 vs H1 FY20
Statutory revenue 1,350.4 661.6 1,084.0 104% 25%
Transitional service agreement revenue 0.0 0.0 6.0 0% (100)%
Adjusted revenue(†) 1,350.4 661.6 1,078.0 104% 25%
Other income (excl rental income)(1) 0.0 93.5 6.6 (100)% (100)%
Operating costs before depreciation, amortisation and rent
(838.7) (576.8) (657.9) (45)% (28)%
Adjusted EBITDAR(†) 511.7 178.3 426.7 187% 20%
Net turnover rent and rental income 0.6 4.2 0.5 (86)% 20%
Depreciation: Right-of-use asset (80.9) (70.2) (50.3) (15)% (61)%
Depreciation and amortisation: Other (88.2) (85.8) (80.5) (3)% (10)%
Adjusted operating profit / (loss)(†) 343.2 26.5 296.4 >1,000% 16%
Net finance costs (excl. lease liability interest)
(2.7) (18.9) (3.8) 86% 29%
Interest: Lease liability (68.6) (64.2) (57.0) (7)% (20)%
Adjusted profit / (loss) before tax(†) 271.9 (56.6) 235.6 580% 15%
Adjusting items 35.5 37.3 (15.7) (5)% 326%
Statutory profit / (loss) before tax 307.4 (19.3) 219.9 >1,000% 40%
Tax expense (73.5) (18.5) (47.7) (297)% (54)%
Statutory profit / (loss) after tax 233.9 (37.8) 172.2 719% 36%
1: Includes UK and German Government support - see note 6 of the accompanying
financial statements for further details
Statutory revenue
Statutory revenues were up 25% compared to H1 FY20, driven by estate growth
and the business continuing to trade ahead of the M&E market in the UK.
Adjusted EBITDAR
Other income was £nil in H1 FY23 (H1 FY22: £93.5m) as the Group made no
further claims for COVID-related Government support in the UK or in Germany
(H1 FY22: £93.3m). Operating costs of £838.7m were £261.9m higher than H1
FY22, driven by an increase in revenue related variable costs, estate growth,
cost inflation and the fact that no benefit was received in relation to the UK
Government's business rates holiday (H1 FY22: £47.7m). Adjusted EBITDAR of
£511.7m was up £333.4m versus H1 FY22 reflecting strong trading and the
absence of COVID-related restrictions in the UK.
Adjusted operating profit
The leasehold estate in the UK grew by net four hotels and by six hotels in
Germany compared to the same period in FY22. This resulted in a £10.7m
increase in right-of-use depreciation charges to £80.9m. Other depreciation
and amortisation charges increased by £2.4m to £88.2m, driven by new hotel
openings. The strong trading performance meant that, even after increased
losses in Germany totalling £18.7m, adjusted operating profit increased to
£343.2m compared to profit of £26.5m in H1 FY22 and a profit of £296.4m in
H1 FY20.
Net finance costs
Net finance costs (excluding lease liability interest) were £2.7m compared to
£18.9m in H1 FY22. This decrease of £16.2m was driven by increased interest
receivable of £6.1m on the Group's cash balances reflecting higher interest
rates and an interest credit of £6.8m from the pension fund that remains in
surplus.
Lease liability interest of £68.6m was £4.4m above H1 FY22 primarily driven
by the opening of four leasehold hotels in the UK and six in Germany.
Adjusting items
Total adjusting items were £35.5m and include a £10.6m impairment charge
relating to standalone restaurants and other charges totalling £2.3m that
together were offset by an impairment reversal of £47.8m. The original
impairment to which the reversal relates was made in FY21 and comprised a
£109.2m charge to property, plant and equipment and right of use assets, as a
result of the pandemic. Subsequent impairment reviews, reflecting the improved
outlook for the Group, have resulted in a proportion of the FY21 charge being
reversed. A net £42.0m impairment reversal was recognised in FY22.
On 7 March 2022, the Group disposed of a property in Marylebone as part of a
property transaction, receiving gross proceeds of £46.4m. A profit on
disposal of £1.4m was recognised on disposal of the property. During the
period, the Group has recorded profits on three other property disposals of
£0.6m.
H1 FY22 adjusting items included the disposal of a hotel in Putney as part of
a sale and leaseback transaction for gross proceeds of £40.0m. A profit on
disposal of £27.5m was recognised on disposal of the property. During the
same period, the Group recognised profits on other property disposals of
£1.1m.
Taxation
The tax charge on the profit before adjusting items of £55.5m (H1 FY22:
£3.2m tax credit) represents an effective tax rate on the profit before
adjusting items of 20% (H1 FY22: 6%). This is higher than the UK statutory
corporate tax rate of 19%, primarily due to the impact of overseas tax losses
for which no deferred tax has been recognised.
The statutory tax charge for the period of £73.5m (H1 FY22: £18.5m tax
charge) represents an effective tax rate of 24% (H1 FY22: (96%). This
effective tax rate is driven by the impact of overseas losses not recognised
as well as the tax impact of certain adjusting items, primarily relating to
the effect of the in-year UK rate differential and gains on property
disposals.
Statutory profit after tax
Statutory profit after tax for the period was £233.9m in H1 FY23, compared to
a loss of £37.8m in H1 FY22, which was impacted by COVID-related
restrictions.
Earnings per share
H1 FY23 H1 FY22 H1 FY20¹ vs H1 FY22 vs H1 FY20
Adjusted basic profit / earnings per share(†) 107.0p (26.4)p 97.1p 505% 10%
Statutory basic profit / earnings per share 115.7p (18.7)p 89.6p 719% 29%
1: Restated to include the impact of the Rights Issue completed in June 2020
Adjusted basic profit per share of 107.0p and statutory basic profit per share
of 115.7p reflect the adjusted and statutory profits reported in the period.
Dividend
The Board has declared an interim dividend of 24.4 pence per share, reflecting
the Group's performance in the first half, its strong balance sheet,
encouraging current trading and confidence in the full year outlook. This will
result in a total interim dividend payment of £49m. The interim dividend will
be paid on 16 December 2022 to all shareholders on the register at the close
of business on 11 November 2022. Shareholders will again be offered the option
to participate in a dividend re-investment plan. The Group's dividend policy
is to grow the dividend broadly in line with earnings across the cycle. Full
details are set out in note 9 to the accompanying financial statements.
Cashflow
£m H1 FY23 H1 FY22
Adjusted EBITDAR(†) 511.7 178.3
Change in working capital 29.2 112.5
Net turnover rent and rental income 0.6 4.2
IFRS 16 interest and principal lease payments (132.0) (134.8)
Operating cashflow(†) 409.5 160.2
Interest (excl. IFRS 16) (16.0) (4.3)
Corporate taxes (6.5) (0.1)
Pension (2.4) (2.3)
Capital expenditure: maintenance (81.8) (42.7)
Capital expenditure: expansionary(1) (222.4) (66.4)
Disposal Proceeds 55.5 47.8
Non-cash other 12.7 23.3
Other (4.4) (8.8)
Cashflow before shareholder returns / receipts and debt repayments 144.2 106.7
Dividend (70.1) 0.0
Shares purchased for Employee Share Ownership Trust ('ESOT') (32.5) (0.0)
Repayment of long-term borrowings (0.0) (220.4)
Net cashflow 41.6 (113.7)
Opening net cash/(debt)(†) 140.5 (46.5)
Repayment of long-term borrowings 0.0 220.4
Closing net cash(†) 182.1 60.2
1: H1 FY23 includes £nil loans advanced to joint ventures, £6.4m payment of
contingent consideration and £nil capital contributions to joint ventures;
(H1 FY22 includes £0.8m loans advanced to joint ventures, £0.5m payment of
contingent consideration and £1.4m capital contributions to joint ventures)
The strong trading performance delivered a 187% increase in adjusted EBITDAR
to £511.7m
(H1 FY22: £178.3m) and operating cashflow more than doubled to £409.5m. This
funded an increase in expansionary and maintenance capital expenditure with
the result that total net cashflow before shareholder returns and debt
repayments was an inflow of £144.2m, compared to an inflow of £106.7m in the
same period last year.
The £29.2m working capital inflow was driven by an increase in trade
creditors, accruals and customer deposits as a result of the strong trading
performance as well as cash received in relation to German Government
COVID-related Government support payments for costs incurred from July 2021 to
January 2022.
Corporation taxes outflow of £6.5m reflects the Group's return to
profitability and a £6.4m payment on account for the FY23 UK corporation tax
liability. It also includes £0.1m in respect of taxes in Germany.
Maintenance capital expenditure was £81.0m and expansionary capital
expenditure was £223.2m which included the purchase of two freehold
properties. Full year spend is expected to be between c.£500-£550m, which is
in line with previous guidance, but adjusting for the acquisition of the two
freehold sites. Lease liability interest and lease repayments decreased by
£2.8m to £132.0m as H1 FY22 included the deferral of the December 2021
quarterly rent payment.
The £12.7m of other non-cash items includes inflows relating to share-based
payments of £7.4m (H1 FY22: £6.3m), £2.7m as a result of net provision
movements (H1 FY22: £5.0m) and £2.0m (H1 FY22: £1.4m) representing non-cash
pension scheme administration costs. Disposal proceeds of £55.5m include
£46.4m relating to a property transaction in Marylebone and the disposal of
three hotels as the Group continues to optimise its estate when suitable
opportunities arise.
Following the recommencement of dividend payments at the full year, the Board
recommended a final dividend of 34.7 pence per share on 27 April 2022. This
resulted in a dividend payment of £70.1m paid on 1 July 2022. During the
period, 0.5m shares were purchased by the Group's independently managed
Employee Share Ownership Trust ('ESOT') for consideration of £12.3m.
Subsequent to the year end, a further 0.8m shares were purchased. The total
anticipated consideration for these shares of £32.5m and is included within
the cashflow statement for the period. Post the balance sheet date, £0.8m was
returned to the Group leaving a final consideration of £31.7m.
Net cash at the end of the period was £182.1m.
Debt funding facilities & liquidity
£m Facility Utilised Maturity
Revolving Credit Facility (775.0) - 2027
Bond (450.0) (450.0) 2025
Green Bond (300.0) (300.0) 2027
Green Bond (250.0) (250.0) 2031
(1,775.0) (1,000.0)
Cash and cash equivalents 1,174.8
Total facilities utilised, net of cash(1) 174.8
Net cash(†) 182.1
Net cash and lease liabilities(†) (3,566.7)
1: Excludes unamortised fees associated with debt instrument
The Group received confirmation of its investment grade status on 26 August
2022 and aims to manage to investment grade metrics of lease adjusted net debt
of less than 3.7x(1) funds from operations(†) over the medium term. During
the first half, the Group returned to below this level and as at the end of H1
FY23 the ratio
was 2.8x.
1: This measure has been changed to align to Fitch methodology post IFRS 16
and has reset the leverage target to 3.7x lease adjusted net debt : FFO
(previously 3.5x)
Revolving Credit Facility
During the first half, the Group entered into a new £775m revolving credit
facility ('RCF'), replacing the previous £850m facility that was due to
expire in September 2023. The new five-year facility, with two one-year
extension options, is a multi-currency revolving credit facility and is
provided by a syndicate of seven banks led by Banco Santander, Barclays,
NatWest and Bank of China. The RCF has variable interest rates with GBP linked
to SONIA and EUR being linked to EURIBOR.
Capital investment
£m H1 FY23 H1 FY22
UK maintenance and product improvement 81.0 41.9
New / extended UK hotels(1) 181.5 37.3
Germany and Middle East(2) 41.7 29.9
Total 304.2 109.1
1: H1 FY23 includes £nil, H1 FY22 includes £0.8m capital contributions to
joint ventures
2: H1 FY23 includes £6.4m payment of contingent consideration, H1 FY22
includes £0.5m payment of contingent consideration and £1.4m capital
contributions to joint ventures
Total capital expenditure in H1 FY23 was £304.2m. UK expenditure included
£181.5m on developing new sites and the purchase of two freehold properties.
Maintenance and product improvement spend was focused on the scale-up of the
FY23 refurbishment programme with further refurbishments planned for the
quieter trading period during H2 FY23. In Germany, spend was driven by the
development of our committed pipeline including sites in Berlin Airport and
Duisburg. As a result, total capital expenditure in FY23 is expected to be
between £500m and £550m.
Property, plant and equipment of £4,466m was ahead of H1 FY22 (£4,240m),
with an increase in capital expenditure partially offset by depreciation
charges.
Property backed balance sheet
Freehold / leasehold mix Open estate Total estate(1)
Premier Inn UK 58%:42% 55%:45%
Premier Inn Germany 24%:76% 22%:78%
Group 55%:45% 50%:50%
1: Open plus committed pipeline
The current UK estate is 58% freehold and 42% leasehold, a mix that will
change to 55% freehold and 45% leasehold as the existing pipeline is brought
on stream. The higher leasehold mix in Germany reflects the greater proportion
of city centre locations.
The new site openings in Germany and continued expansion in the UK resulted in
right-of-use assets increasing to £3,310m (H1 FY22: £2,819m) and lease
liabilities increasing to £3,749m (H1 FY22: £3,314m).
Return on Capital - Premier Inn UK
Returns H1 FY23 H1 FY22 H1 FY20
UK ROCE(†) 11.0% n/a 12.1%
We remain confident in being able to deliver long-term sustainable returns on
incremental investment. We believe our ability to capitalise on the
significant structural opportunities in both the UK and Germany, given our
competitive advantage and ongoing commercial initiatives, mean we are
well-placed to take market share. Sector-wide cost headwinds can be mitigated
by the combination of our long-standing efficiency programme, our dynamic
pricing model and the benefits of both organic and inorganic growth.
Events After the Balance Sheet Date
On 19 October 2022 the Group signed an agreement, subject to various
conditions, to acquire a portfolio of six hotels, including five leasehold
operations in Germany and one freehold hotel in Austria. The purchase price is
€32.6m including real estate transfer tax. The deal is due to complete
before the end of the year. On completion the impact of IFRS 16 on the leases
acquired will be assessed.
Pension
The Group's defined benefit pension scheme, the Whitbread Group Pension Fund
(the 'Pension Fund'), had an IAS19 Employee Benefits surplus of £429.2m at
the end of the period (H1 FY22: £275.5m). The improved funding position was
primarily driven by an increase in corporate bond yields resulting in an
increase in the discount rate. Aligning the discount rate methodology to
reflect common market practice has also contributed to the improved position.
This was partially offset by asset performance being lower than the discount
rate and higher than expected inflation over the year. During the period, the
Pension Fund became fully funded on the Secondary Funding Target basis,
following which the Trustee has reduced the investment risk which was in line
with the de-risking journey agreed between the Trustee and Whitbread. There
has been further risk reduction as a result of the Trustee entering into a
£660m buy-in with Standard Life. There are currently no deficit reduction
contributions being paid to the Pension Fund, however annual contributions of
approximately £10m continue to paid to the Fund through the Scottish
Partnership arrangements. The Trustee holds security over £531.5m of
Whitbread's freehold property which will remain at this level until no further
obligations are due under the Scottish Partnership arrangements, which is
expected to be in 2025. Following that, the security held by the Trustee will
be the lower of: £500m; and 120% of the buy-out deficit and will remain in
place until there is no longer a buy-out deficit.
Going concern
The directors have concluded that it is appropriate for the consolidated
financial statements to be prepared on the going concern basis. Full details
are set out in note 1 of the attached financial statements.
Risks and uncertainties
The directors have reconsidered the principal risks and uncertainties of the
Group and have determined that those reported in the Annual Report and
Accounts 2021/22 remain relevant for the remaining half of the financial year,
when read together with the information provided below.
The overall risk environment continues to be uncertain with global economic,
political and environmental events making it increasingly challenging to
monitor and identify emerging risks ahead of time. The Group's risks have a
high degree of inter-connectivity which amplifies any movements in specific
areas such as supply chain issues or labour challenges resulting in
inflationary pressures. The most significant risk currently is the economic
outlook, including geopolitical risks and the resulting impact on inflation
across key costs and also on consumer confidence. The pandemic continues to be
a significant risk due to the uncertainty of how any future restrictions might
impact the hospitality industry. We also remain vigilant surrounding cyber
risk with recent incidents in the hospitality sector highlighting the need to
maintain its importance.
We recognise the increasing risk to our supply chain and third-party
resilience due to macroeconomic pressures and the increase in risk from our
technology-led business change. In contrast, we are more positive about the
structural shifts and potential impacts on consumer demand from business
related travel supported by our current trading performance and the strength
of forward bookings.
The following summarises the risks and uncertainties set out in the annual
report including current emerging themes:
· Uncertain economic outlook - threat of a recession which is deep
and prolonged, wider macroeconomic trends and current geopolitical conflicts,
resulting in changeable demand, weak public and consumer confidence; reduced
international travel; structural and significant inflation; leading to an
inability to meet customer demand;
· Pandemic - uncertainty as to how future variants and outbreaks,
vaccine efficacy and resulting restrictions will continue to impact the
hospitality sector;
· Cyber and data security - reduces the effectiveness of systems or
results in loss of data;
· Germany growth - the inability to successfully execute our
strategy in Germany;
· Change delivery and interdependencies - ability to execute the
significant volume of change under time bound pressures, for example, the
replacement of legacy systems;
· Leadership, succession and talent retention - decline in
desirability of careers in the hospitality industry with functional specific
challenges, a reduction in our talent pools and low levels of senior
diversity;
· Third party arrangements and supply chain - business interruption
as a result of the withdrawal of services below acceptable standards or
reputational damage as a result of unethical supplier practices;
· Structural shifts impacting demand - changes to working
practices, reduced international travel and demand-led occasions for hotel
stays along with potential new disruptors entering the market driving a
decline in brand strength and loss of market share;
· Health and safety - death or serious injury as a result of
company negligence or a significant incident resulting from food, fire or
another safety failure; and
· ESG - uncertainty as to how these collective risks, including
climate change, will evolve and our ability to deliver on our commitments.
Our management team continue to review and monitor our risk profile and
emerging trends arising externally or internally, our risk management
arrangements and internal control measures.
The detail of our principal risks can be found on pages 58 to 60 of the
2021/22 Annual Report and Accounts which is available on the website:
www.whitbread.co.uk (http://www.whitbread.co.uk) .
American Depositary Receipts
Whitbread has established a sponsored Level 1 American Depositary Receipt
('ADR') programme for which Deutsche Bank perform the role of depositary bank.
The Level 1 ADR programme trades on the U.S. over-the-counter ('OTC') markets
under the symbol WTBDY (it is not listed on a U.S. stock exchange).
Notes
†The Group uses certain APMs to help evaluate the Group's financial
performance, position and cashflows, and believes that such measures provide
an enhanced understanding of the Group's results and related trends and allow
for comparisons of the financial performance of the Group's businesses either
from one period to another or with other similar businesses. However, APMs are
not defined by IFRS and therefore may not be directly comparable with
similarly titled measures reported by other companies. APMs should be
considered in addition to, and are not intended to be a substitute for, or
superior to, IFRS measures. APMs used in this announcement include adjusted
revenue, like-for-like sales, revenue per available room ('RevPAR'), average
room rate, direct bookings/ distribution, adjusted operating (loss)/ profit,
return on capital employed ('ROCE'), profit margin, adjusted (loss)/ profit
before tax, adjusted basic earnings per share, net debt, net debt and lease
liabilities, operating cashflow, adjusted EBITDA (pre IFRS 16) and adjusted
EBITDAR. Further information can be found in the glossary and reconciliation
of APMs at the end of this document.
Responsibility statement
We confirm that to the best of our knowledge:
a) The condensed set of financial statements, which has been prepared in
accordance with IAS 34 Interim Financial Reporting, gives a true and fair view
of the assets, liabilities, financial position and profit or loss of the
issuer, or the undertakings included in the consolidation as a whole;
b) The interim management report includes a fair review of the information
required by the Financial Statements Disclosure and Transparency Rules (DTR)
4.2.7R - indication of important events during the first six months and their
impact on the financial statements and description of principal risks and
uncertainties for the remaining six months of the year; and
c) The interim management report includes a fair review of the information
required by DTR 4.2.8R - disclosure of related party transactions and changes
therein.
By order of the Board
Alison Brittain Hemant Patel
Chief Executive Chief Financial Officer
Interim consolidated income statement
(Reviewed) (Reviewed)
6 months to 1 September 2022 6 months to 26 August 2021
Before adjusting items Adjusting items Statutory Before adjusting items Adjusting items Statutory
(Note 4) (Note 4)
Notes £m £m £m £m £m £m
Revenue 2 1,350.4 - 1,350.4 661.6 - 661.6
Other income 3 1.7 - 1.7 97.8 8.7 106.5
Operating costs (1,008.6) 35.5 (973.1) (731.1) 28.6 (702.5)
Impairment of loans to joint ventures - - - (0.8) - (0.8)
Operating profit before joint ventures 343.5 35.5 379.0 27.5 37.3 64.8
Share of loss from joint ventures (0.3) - (0.3) (1.0) - (1.0)
Operating profit 343.2 35.5 378.7 26.5 37.3 63.8
Finance costs 5 (84.2) - (84.2) (85.1) - (85.1)
Finance income 5 12.9 - 12.9 2.0 - 2.0
Profit/(loss) before tax 271.9 35.5 307.4 (56.6) 37.3 (19.3)
Tax (expense)/credit 7 (55.5) (18.0) (73.5) 3.2 (21.7) (18.5)
Profit/(loss) for the period attributable to parent shareholders 216.4 17.5 233.9 (53.4) 15.6 (37.8)
Earnings per share (Note 8)
Basic (pence) 107.0 8.7 115.7 (26.4) 7.7 (18.7)
Diluted (pence) 106.4 8.6 115.0 (26.4) 7.7 (18.7)
All of the results shown above relate to continuing operations.
Interim consolidated statement of comprehensive income
Notes (Reviewed) (Reviewed)
6 months to 6 months to
1 September 2022 26 August 2021
£m £m
Profit/(loss) for the period 233.9 (37.8)
Items that will not be reclassified to the income statement:
Remeasurement (loss)/gain on defined benefit pension scheme 13 (100.6) 84.8
Current tax on defined benefit pension scheme 0.3 (1.9)
Deferred tax on defined benefit pension scheme 24.8 (29.5)
(75.5) 53.4
Items that may be reclassified subsequently to the income statement:
Net gain on cash flow hedges - 1.2
Deferred tax on cash flow hedges - (0.3)
Net (loss)/gain on hedge of a net investment (21.4) 0.7
Deferred tax on net (loss)/gain on hedge of a net investment 2.5 (0.1)
Cost of hedging 0.5 2.8
(18.4) 4.3
Exchange differences on translation of foreign operations 24.6 (2.8)
Deferred tax on exchange differences on translation of foreign operations (2.1) 0.7
22.5 (2.1)
Other comprehensive (loss)/income for the period, net of tax (71.4) 55.6
Total comprehensive income for the period, net of tax 162.5 17.8
Interim consolidated statement of changes in equity
6 months to 1 September 2022 (Reviewed)
Share Share Capital Retained Currency Other Total
capital premium redemption earnings translation reserves equity
£m £m reserve £m reserve £m £m
£m £m
At 3 March 2022 164.8 1,024.7 50.2 5,225.3 24.3 (2,370.3) 4,119.0
Profit for the period - - - 233.9 - - 233.9
Other comprehensive (loss)/income - - - (75.5) 4.1 - (71.4)
Total comprehensive income - - - 158.4 4.1 - 162.5
Ordinary shares issued on exercise of employee share options - 0.3 - - - - 0.3
Loss on ESOT shares issued - - - (1.9) - 1.9 -
Accrued share-based payments - - - 7.4 - - 7.4
Equity dividends paid - - - (70.1) - - (70.1)
Purchase of ESOT shares (Note 15) - - - - - (12.3) (12.3)
At 1 September 2022 164.8 1,025.0 50.2 5,319.1 28.4 (2,380.7) 4,206.8
6 months to 26 August 2021 (Reviewed)
Share Share Capital Retained Currency Other Total
capital premium redemption earnings translation reserves equity
£m £m reserve £m reserve £m £m
£m £m
At 25 February 2021 164.7 1,022.9 50.2 4,944.8 28.7 (2,377.2) 3,834.1
Loss for the period - - - (37.8) - - (37.8)
Other comprehensive income/(loss) - - - 53.4 (1.5) 3.7 55.6
Total comprehensive income/(loss) - - - 15.6 (1.5) 3.7 17.8
Ordinary shares issued on exercise of employee share options 0.1 1.6 - - - - 1.7
Loss on ESOT shares issued - - - (2.5) - 2.5 -
Accrued share-based payments - - - 6.3 - - 6.3
Tax on share-based payments - - - (0.2) - - (0.2)
At 26 August 2021 164.8 1,024.5 50.2 4,964.0 27.2 (2,371.0) 3,859.7
Interim consolidated balance sheet
(Reviewed) (Reviewed) (Audited)
1 September 2022 26 August 2021 3 March 2022
£m £m £m
Notes
Non-current assets
Goodwill and other intangible assets 165.9 154.7 159.3
Right-of-use assets - property, plant and equipment 3,310.1 2,818.5 3,267.6
Right-of-use assets - investment property - 62.6 -
Property, plant and equipment 4,465.8 4,239.7 4,227.1
Investment in joint ventures 47.2 38.7 41.1
Derivative financial instruments 12 - 11.0 15.8
Defined benefit pension surplus 13 429.2 275.5 522.6
8,418.2 7,600.7 8,233.5
Current assets
Inventories 20.8 14.8 19.4
Derivative financial instruments 12 - 9.9 -
Current tax asset - 0.4 -
Trade and other receivables 138.2 120.4 116.4
Cash and cash equivalents 1,174.8 1,144.7 1,132.4
1,333.8 1,290.2 1,268.2
Assets classified as held for sale 5.8 11.8 64.8
Total assets 9,757.8 8,902.7 9,566.5
Current liabilities
Borrowings 10 - 93.3 -
Lease liabilities 138.8 122.4 129.3
Provisions 24.6 23.5 19.6
Derivative financial instruments 12 - 1.2 -
Current tax liabilities 13.9 - -
Trade and other payables 578.5 482.9 570.7
755.8 723.3 719.6
Non-current liabilities
Borrowings 10 992.7 991.2 991.9
Lease liabilities 3,610.0 3,191.2 3,572.5
Provisions 10.1 15.7 11.7
Derivative financial instruments 12 2.8 - -
Deferred tax liabilities 7 178.3 96.5 150.6
Trade and other payables 1.3 25.1 1.2
4,795.2 4,319.7 4,727.9
Total liabilities 5,551.0 5,043.0 5,447.5
Net assets 4,206.8 3,859.7 4,119.0
Equity
Share capital 164.8 164.8 164.8
Share premium 1,025.0 1,024.5 1,024.7
Capital redemption reserve 50.2 50.2 50.2
Retained earnings 5,319.1 4,964.0 5,225.3
Currency translation reserve 28.4 27.2 24.3
Other reserves (2,380.7) (2,371.0) (2,370.3)
Total equity 4,206.8 3,859.7 4,119.0
( )
Interim consolidated cash flow statement
Notes (Reviewed) (Reviewed)
6 months to 6 months to
1 September 2022 26 August 2021
£m £m
Cash generated from operations 14 554.2 318.3
Payments against provisions (1.0) (8.0)
Pension payments 13 (2.4) (2.3)
Interest paid - lease liabilities (68.6) (64.2)
Interest paid - other (21.4) (5.8)
Interest received 5.4 1.5
Corporation taxes paid (6.5) (0.1)
Net cash flows generated from operating activities 459.7 239.4
Cash flows used in investing activities
Purchase of property, plant and equipment and investment property (282.6) (100.2)
Proceeds from disposal of property, plant and equipment 55.5 47.8
Investment in intangible assets (15.2) (6.2)
Payment of deferred and contingent consideration 12 (6.4) (0.5)
Capital contributions to joint ventures - (1.4)
Loans advanced to joint ventures - (0.8)
Net cash flows used in investing activities (248.7) (61.3)
Cash flows used in financing activities
Proceeds from issue of shares on exercise of employee share options 0.3 1.7
Drawdowns of long-term borrowings - 50.0
Repayments of long-term borrowings - (270.4)
Payment of facility fees (4.0) -
Lease incentives received 2.0 -
Payment of principal of lease liabilities (65.4) (70.6)
Purchase of own shares for ESOT 15 (32.5) -
Dividends paid (70.1) -
Net cash flows used in financing activities (169.7) (289.3)
Net increase/(decrease) in cash and cash equivalents 41.3 (111.2)
Opening cash and cash equivalents 1,132.4 1,256.0
Foreign exchange differences 1.1 (0.1)
Closing cash and cash equivalents 1,174.8 1,144.7
Notes to the accounts
1. Basis of accounting and preparation
The interim condensed consolidated financial statements were authorised for
issue in accordance with a resolution of the Board of Directors on 24 October
2022.
The financial information for the year ended 3 March 2022 is extracted from
the statutory accounts of the Group for that year and does not constitute
statutory accounts as defined in Section 434 of the Companies Act 2006. A copy
of the statutory accounts for that year has been delivered to the Registrar of
Companies. These published accounts were reported on by the auditor without
qualification, did not draw attention to any matters by way of emphasis and
did not contain a statement under Sections 498(2) or (3) of the Companies Act
2006.
The interim condensed consolidated financial statements are prepared in
accordance with UK listing rules and with United Kingdom adopted IAS 34
Interim Financial Reporting.
The interim condensed consolidated financial statements for the six months
ended 1 September 2022 and the comparatives to 26 August 2021 are unaudited
but have been reviewed by the auditor; a copy of their review report is
included at the end of this report.
Going concern
A combination of the strong cash flows generated by the business, and the
significant available headroom on its credit facilities, support the
directors' view that the Group has sufficient funds available for it to meet
its foreseeable working capital requirements. The directors have concluded
therefore that the going concern basis of preparation remains appropriate.
Accounting policies
The accounting policies adopted in the preparation of the interim condensed
consolidated financial statements are consistent with those followed in the
preparation of the Group's annual financial statements for the year ended 3
March 2022.
As a result of the adjusting items recorded in the period, the accounting
policy used in determining adjusting items is set out below.
Adjusting items and use of alternative performance measures
We use a range of measures to monitor the financial performance of the Group.
These measures include both statutory measures in accordance with IFRS and
alternative performance measures (APMs) which are consistent with the way the
business performance is measured internally by the Board and Executive
Committee. A glossary of APMs and reconciliations to statutory measures is
given at the end of this report.
The term adjusted profit is not defined under IFRS and may not be directly
comparable with adjusted profit measures used by other companies. It is not
intended to be a substitute for, or superior to, statutory measures of profit.
Adjusted measures of profitability are non-IFRS because they exclude amounts
that are included in, or include amounts that are excluded from, the most
directly comparable measure calculated and presented in accordance with IFRS.
The Group makes certain adjustments to the statutory profit measures in order
to derive many of its APMs. The Group's policy is to exclude items that are
considered to be significant in nature and quantum, not in the normal course
of business or are consistent with items that were treated as adjusting in
prior periods or that span multiple financial periods. Treatment as an
adjusting item provides users of the accounts with additional useful
information to assess the year-on-year trading performance of the Group.
On this basis, the following are examples of items that may be classified as
adjusting items:
· gross costs and income associated with the strategic programme in
relation to the review of the Whitbread estate;
· significant restructuring costs and other associated costs
arising from strategy changes that are not considered by the Group to be part
of the normal operating costs of the business;
· significant pension charges arising as a result of changes to UK
defined benefit scheme practices;
· net impairment and related charges for sites which are or were
underperforming that are considered to be significant in nature and/or value
to the trading performance of the business;
· costs in relation to non-trading legacy sites which are deemed to
be significant and not reflective of the Group's ongoing trading results;
· profit or loss on the sale of a business or investment and the
associated cost impact on the continuing business from the sale of the
business or investment;
· acquisition costs incurred as part of a business combination or
other strategic asset acquisitions;
· amortisation of intangible assets recognised as part of a
business combination or other transaction outside of the ordinary course of
business; and
· tax settlements in respect of prior years, including the related
interest and the impact of changes in the statutory tax rate, the inclusion of
which would distort year-on-year comparability, as well as the tax impact of
the adjusting items identified above.
The directors believe that the adjusted profit and earnings per share measures
provide additional useful information to shareholders on the performance of
the business. These measures are consistent with how business performance is
measured internally by the Board and Executive Committee.
Sale and leaseback
A sale and leaseback transaction occurs when the Group sells an asset and
immediately reacquires the use of that asset by entering into a lease with the
counterparty. A sale occurs when control of the underlying asset passes to the
counterparty. A lease liability is recognised, the associated property, plant
and equipment asset is derecognised, and a right-of-use asset is recognised at
the proportion of the carrying value relating to the right retained. The
resulting gain or loss arising therefore relates to the rights transferred to
the counterparty and development of the underlying asset.
Seasonality
The Group operates hotels and restaurants, located in the UK and
internationally. The Group generally earns higher profits during the first
half of the financial year because of lower demand in the final quarter of the
financial year.
Critical accounting judgements and key sources of estimation uncertainty
The preparation of financial statements requires management to make
judgements, estimates and assumptions that affect the amounts reported as
assets and liabilities at the balance sheet date and the amounts reported as
revenues and expenses during the period. Although these amounts are based on
management's best estimates, events or actions may mean that actual results
ultimately differ from those estimates, and these differences may be material.
These judgements and estimates and the underlying assumptions are reviewed
regularly.
With the exception of the performance of impairment reviews of the Group's
goodwill, property, plant and equipment and right-of-use assets, in preparing
these condensed consolidated financial statements the critical judgements made
by management in applying the Group's accounting policies and the key sources
of estimation uncertainty were principally the same as those applied to the
Group's consolidated financial statements for the year ended 3 March 2022.
Critical accounting judgement
Adjusting items
Judgement is applied as to whether adjusting items meet the necessary criteria
as per the accounting policy disclosed earlier in this note. Note 4 describes
the items identified and separately disclosed as adjusting items.
Impairment review - property, plant and equipment and right-of-use assets(1)
Where there are indicators of impairment or impairment reversals, management
performs an impairment assessment.
Further details on the indicators of impairment and impairment reversals are
disclosed in Note 11.
Inputs used to estimate value in use
The estimate of value in use is most sensitive to the following inputs:
· Five-year business plan
· Discount rate
· Long-term growth rate
Methodology used to estimate fair value
Fair value is determined using a range of methods, including present value
techniques using assumptions consistent with the value in use calculations and
market multiple techniques using externally available data.
Further details on key assumptions, estimates and sensitivities are disclosed
in Note 11.
Property transaction including sale and leaseback of land
During the period the Group entered into a sale and lease transaction of a
single property, comprising land and a hotel currently under construction.
Under the agreement, the Group is acting as the developer of the site. As a
part of the transaction, the property is being developed into a completed
hotel asset via a forward funding agreement with a counterparty. The
transaction's sale, development and subsequent lease contracts were all
negotiated together as one commercial transaction, with the transaction prices
allocated based on the negotiated position rather than stand-alone contracts.
In relation to the land portion of the site sold, management has reviewed the
criteria within IFRS 15 Revenue from Contracts with Customers and IFRS 16
Leases, concluding that a sale and leaseback for the land has occurred to the
counterparty.
In relation to the hotel under construction asset, management has reviewed
IFRS 15, concluding that a sale for this asset has occurred to the
counterparty and the building leased back in the future will be the completed
hotel, not the same asset that was sold. Therefore, management have concluded
that the current year sale and future lease of the completed hotel does not
represent a sale and leaseback under IFRS 16.
Treatment of sale and leaseback of land
The land on which the hotel is being developed has been sold with Whitbread
holding no rights to re-obtain the legal title. The performance obligation for
the sale of land has been satisfied as defined under IFRS 15. A gain of £3.1m
is recognised on the sale of the land which represents the proportion of the
land assessed as having been sold and subject to leaseback at practical
completion of the site sold. In assessing the gain to be recognised on the
sale and leaseback transaction, Management have considered the fair value of
the land at the sale date against the consideration allocated for the sale of
the land.
Treatment for sale of hotel under construction
During the period, the performance obligation associated with the sale of the
hotel under construction was assessed as being satisfied such that the asset
has been derecognised, nil gain was recognised as allocated proceeds were
substantially similar to the carrying value of the building.
The Group is exposed to cost overruns on the development of the hotel. Due to
the allocation of the transaction's proceeds to the land, net costs of £1.7m
have been recognised, reducing the overall transaction's gain in the reporting
period as the commercial terms were negotiated together.
The net gain recognised on this transaction of £1.4m has been based on an
assessment of the obligations completed under the terms of the agreement.
Key sources of estimation uncertainty
Defined benefit pension
The Group makes significant estimates in relation to the discount rates,
inflation rates and mortality rates used to calculate the present value of the
defined benefit obligation. Note 13 describes the sensitivity of the defined
benefit pension obligation to changes in key assumptions.
( )
(1) The Group's impairment testing referred to above is deemed to include the
review of potential impairment charge as well as potential reversals of any
previous impairments as at the reporting period end date.
2. Segmental analysis
The Group provides services in relation to accommodation, food and beverage
('F&B') both in the UK and internationally. Management monitors the
operating results of its operating segments separately for the purpose of
making decisions about allocating resources and assessing performance. Segment
performance is measured based on adjusted operating profit before joint
ventures. Included within central and other in the following tables are the
costs of running the public company, other central overhead costs and share of
losses from joint ventures.
During the six months ended 1 September 2022, the Group submitted its German
Bridge Aid III Plus and IV claims, for which it received net cash of £17.3m.
These amounts were recognised in the prior year for costs the Group incurred
from July 2021 - January 2022. No further claims for COVID-related Government
support were made in the UK or in Germany, and hence the Group has not
recognised COVID-related Government support during the six months ended 1
September 2022.
The following tables present revenue and profit information regarding business
operating segments for the six months to 1 September 2022 and 26 August 2021.
6 months to 1 September 2022 6 months to 26 August 2021
Revenue UK and Ireland Germany Central and other Total UK and Ireland Germany Central and other Total
£m £m £m £m £m £m £m £m
Accommodation 940.0 44.5 - 984.5 466.8 9.2 - 476.0
Food, beverage and other items 358.0 7.9 - 365.9 183.8 1.8 - 185.6
Revenue 1,298.0 52.4 - 1,350.4 650.6 11.0 - 661.6
6 months to 1 September 2022 6 months to 26 August 2021
Profit/(loss) UK and Ireland Germany Central and other Total UK and Ireland Germany Central and other Total
£m £m £m £m £m £m £m £m
Adjusted operating profit/(loss) before joint ventures(1) 379.5 (18.7) (17.3) 343.5 42.6 (0.5) (14.6) 27.5
Share of loss from joint ventures - - (0.3) (0.3) - - (1.0) (1.0)
Adjusted operating profit/(loss) 379.5 (18.7) (17.6) 343.2 42.6 (0.5) (15.6) 26.5
Net finance costs (62.4) (6.2) (2.7) (71.3) (60.4) (3.8) (18.9) (83.1)
Adjusted profit/(loss) before tax 317.1 (24.9) (20.3) 271.9 (17.8) (4.3) (34.5) (56.6)
Adjusting items (Note 4) 35.5 37.3
Profit/(loss) before tax 307.4 (19.3)
6 months to 1 September 2022 6 months to 26 August 2021
Other segment information UK and Ireland Germany Total UK and Ireland Germany Total
£m £m £m £m £m £m
Capital expenditure:
Property, plant and equipment - cash basis 247.3 35.3 282.6 72.3 27.9 100.2
Property, plant and equipment - accruals basis 241.8 33.2 275.0 63.7 29.0 92.7
Intangible assets 15.2 - 15.2 6.1 0.1 6.2
Cash outflows from lease interest and payment of principal of lease 116.5 17.5 134.0 122.7 12.1 134.8
liabilities
Depreciation - property, plant and equipment 74.2 5.3 79.5 71.7 3.5 75.2
Depreciation - right-of-use assets 65.8 15.1 80.9 59.8 10.4 70.2
Amortisation 8.6 0.1 8.7 10.5 0.1 10.6
Segment assets and liabilities are not disclosed because they are not reported
to, or reviewed by, the Chief Operating Decision Maker.
(1 ) During the comparative half-year period adjusted operating
profit/(loss) for the UK and Ireland segment included the impact of Business
Rates Relief provided by the UK Government of £47.7m and income from the job
retention schemes in the UK and Ireland of £60.0m. Adjusted loss for the
Germany segment included income of £28.6m from government grants.
3. Other income
6 months to 6 months to
1 September 2022 26 August 2021
£m £m
Rental income 1.7 4.3
Government grants (Note 6) - 93.3
Other - 0.2
Other income before adjusting items 1.7 97.8
VAT settlement - 8.7
Other income 1.7 106.5
4. Adjusting items
As set out in the policy in Note 1, we use a range of measures to monitor the
financial performance of the Group. These measures include both statutory
measures in accordance with IFRS and APMs which are consistent with the way
that the business performance is measured internally. We report adjusted
measures because we believe they provide both management and investors with
useful additional information about the financial performance of the Group's
businesses. Adjusted measures of profitability represent the equivalent IFRS
measures adjusted for specific items that we consider hinder the comparison of
the financial performance of the Group's businesses either from one period to
another or with other similar businesses.
6 months to 6 months to
1 September 2022 26 August 2021
£m £m
Adjusting items were as follows:
Other income:
VAT settlement(1) - 8.7
Adjusting other income - 8.7
Operating costs:
Net impairment reversals - property, plant and equipment, right-of-use assets 33.5 -
and other intangible assets(2)
Gains on disposals and property provisions(3) 2.0 28.6
Adjusting operating costs 35.5 28.6
Adjusting items before tax 35.5 37.3
Tax adjustments included in reported loss after tax, but excluded in arriving
at adjusted loss after tax:
Tax on adjusting items (10.5) (6.7)
Effect of in-year rate differential/change in tax rates(4) (7.5) (15.0)
Adjusting tax expense (18.0) (21.7)
(1 ) During the comparative period, in August 2021, HMRC confirmed it would
not appeal the ruling of the First-tier Tribunal in the case of Rank Group plc
that VAT was incorrectly applied to revenues earned from certain gaming
machines from 2005 to 2013. The Group has submitted claims which are
substantially similar and has recognised £8.7m.
(2 ) The Group has identified further cash-generating unit ('CGU') specific
indicators of impairment and an indicator of reversal of previously recognised
impairment losses relating to assets held by the Group. An impairment review
of those assets was undertaken, resulting in a total net impairment reversal
of £35.9m (HY22: £nil). This net impairment reversal is comprised of £23.4m
relating to property, plant and equipment (HY22: £nil) and £12.5m relating
to right-of-use assets (HY22: £nil). In addition, an impairment charge of
£2.4m (HY22: £nil) was recorded in relation to assets classified as held for
sale.
(3 ) During the period, the Group entered into a sale and lease transaction
of land and a hotel currently under construction. As a result of this
transaction, the Group received proceeds of £46.4m and recognised a net gain
of £1.4m, the completed hotel and land will be leased back at practical
completion to the Group. During the period, the Group has recorded profits on
other property disposals of £0.6m (H1 FY22: £1.1m).
During the comparative period, in June 2021, the Group disposed of a single
property as part of a sale and leaseback transaction receiving proceeds of
£40.0m. The Group will continue to rent the property for a period of five
years. A profit of £27.5m was recognised on disposal of the property.
(4 ) During the comparative period, the UK Budget 2021 announcements on 3
March 2021 included an increase to the UK's main corporation tax rate to 25%,
effective from 1 April 2023. The change resulted in the remeasurement of those
UK deferred tax assets and liabilities which were forecast to be utilised or
to crystalise after that effective date, using the higher tax rate and, as a
result, an expense of £15.0m was recorded in the income statement. The
current year expense of £7.5m relates to the in-year rate differential,
noting that current tax is booked at 19% and deferred tax is booked at a
higher rate.
5. Finance (costs)/income
6 months to 6 months to
1 September 2022 26 August 2021
£m £m
Finance costs
Interest on bank loans and overdrafts (2.9) (3.6)
Interest on other loans (12.1) (15.1)
Interest on lease liabilities (68.6) (64.2)
Interest capitalised 0.1 0.3
Unwinding of discount on contingent consideration (0.2) (0.5)
Cost of hedging (0.5) (2.0)
(84.2) (85.1)
Finance income
Bank interest receivable 6.1 0.1
Other interest receivable - 0.1
IAS 19 pension finance income (Note 13) 6.8 1.8
12.9 2.0
Total net finance costs (71.3) (83.1)
6. COVID-related Government grants and assistance
In prior years, the Group claimed government support designed to mitigate the
impact of COVID-19.
During the six months ended 1 September 2022, the Group submitted its German
Bridge Aid III Plus and IV claims, for which it received net cash of £17.3m.
These amounts were recognised in the prior year for costs the Group incurred
from July 2021 - January 2022. No further claims for COVID-related Government
support were made in the UK or in Germany, and hence the Group has not
recognised COVID-related Government support during the six months ended 1
September 2022.
7. Taxation
The Group effective tax rate applied to the profit before tax before adjusting
items for the six-month period ended 1 September 2022 is 20.4% (H1 FY22:
5.7%).
The tax charge for the 26 weeks to 1 September 2022 has been calculated in
line with IAS 34 by applying the effective rate of tax which is expected to
apply in each jurisdiction in which the Group operates for the year ending 2
March 2023.
A UK current tax rate of 19% and a blended UK deferred tax rate ranging
between 19% and 25% has been applied to discrete and adjusting items.
In addition, a forecast effective tax rate of 0% has been applied to the
German pre-tax loss on the basis that we do not currently have sufficient
certainty to recognise a deferred tax asset for German losses carried forward
for offset in a future year.
The Group effective tax rate applied to the profit before tax before adjusting
items of 20.4% is higher than the UK statutory corporate tax rate of 19%
primarily due to the impact of overseas tax losses for which no tax has been
recognised.
The overall group effective tax rate on statutory profit for the six-month
period ended 1 September 2022 of 23.9% (H1 FY22: negative 95.9%) is due to the
impact of overseas losses not recognised and the tax impact of certain
adjusting items, primarily relating to the effect of rate change and gains on
disposals of property.
Consolidated income statement 6 months to 6 months to
1 September 2022 26 August 2021
£m £m
Current tax:
Current tax expense 20.9 -
Adjustments in respect of previous periods - (2.1)
20.9 (2.1)
Deferred tax:
Origination and reversal of temporary differences 45.2 0.4
Effect of in-year rate differential/change in tax rates(1) 7.5 15.0
Adjustments in respect of previous periods (0.1) 5.2
52.6 20.6
Tax reported in the consolidated income statement 73.5 18.5
(1 ) The current year expense of £7.5m relates to the in-year rate
differential, noting that current tax is booked at 19% and deferred tax is
booked at a higher rate.
Deferred tax
The major deferred tax assets/(liabilities) recognised by the Group and
movements during the period are as follows:
Accelerated capital allowances Rolled over gains and property revaluations Pensions Leases Losses Other Total
£m £m £m £m £m £m £m
At 3 March 2022 (72.5) (92.5) (165.9) 48.7 139.3 (7.7) (150.6)
Charge to consolidated income statement (14.2) (11.2) (1.4) (1.9) (21.7) (2.2) (52.6)
Credit to statement of comprehensive income - - 24.8 - - 0.4 25.2
Credit/(charge) to statement of changes in equity - - - - - - -
Foreign exchange and other movements - - - - - (0.3) (0.3)
At 1 September 2022 (86.7) (103.7) (142.5) 46.8 117.6 (9.8) (178.3)
The UK Budget 2021 announcement on 3 March 2021 included an increase to the
UK's main corporation tax rate to 25%, effective from 1 April 2023. This was
substantively enacted in May 2021 and remains the position at the signing of
these financial statements. As such, the Group continues to estimate that all
UK deferred tax balances expected to be utilised or crystallise after 1 April
2023 should be recognised at the rate of 25%.
The Group has unrecognised German tax losses of £158.1m (March 2022:
£128.2m) which can be carried forward indefinitely and offset against future
taxable profits in the same tax group. The Group carries out an assessment of
the recoverability of these losses for each reporting period and, to the
extent that they exceed deferred tax liabilities within the same tax group,
the Group does not think it is currently appropriate to recognise any deferred
tax asset. Recognition of these unrecognised assets in their entirety would
result in an increase in the reported deferred tax asset of £50.5m (March
2022: £40.9m).
8. Earnings per share
The basic earnings per share (EPS) figures are calculated by dividing the net
profit/(loss) for the period attributable to parent shareholders by the
weighted average number of ordinary shares in issue during the period after
deducting treasury shares and shares held by an independently managed employee
share ownership trust (ESOT).
The diluted earnings per share figures allow for the dilutive effect of the
conversion into ordinary shares of the weighted average number of options
outstanding during the period. Where the average share price for the period is
lower than the option price or the Group is loss making, the options become
anti-dilutive and are excluded from the calculation. There are 1.1m (H1 FY22:
2.1m) share options excluded from the diluted earnings per share calculation
because they would be anti-dilutive.
The number of shares used for the earnings per share calculations are as
follows:
6 months to 6 months to
1 September 2022 26 August 2021
million million
Basic weighted average number of ordinary shares 202.1 201.9
Effect of dilution - share options 1.2 -
Diluted weighted average number of ordinary shares 203.3 201.9
The profits/(losses) used for the earnings per share calculations are as
follows:
6 months to 6 months to
1 September 2022 26 August 2021
£m £m
Profit/(loss) for the period attributable to parent shareholders 233.9 (37.8)
Adjusting items before tax (Note 4) (35.5) (37.3)
Adjusting tax expense (Note 4) 18.0 21.7
Adjusted profit/(loss) for the period attributable to parent shareholders 216.4 (53.4)
6 months to
6 months to 26 August 2021
pence
1 September 2022
pence
Basic EPS on profit/(loss) for the period 115.7 (18.7)
Adjusting items before tax (Note 4) (17.6) (18.5)
Adjusting tax expense (Note 4) 8.9 10.8
Basic EPS on adjusted profit/(loss) for the period 107.0 (26.4)
Diluted EPS on profit/(loss) for the period 115.0 (18.7)
Diluted EPS on adjusted profit/(loss) for the period 106.4 (26.4)
9. Dividends
6 months to 1 September 2022 6 months to 26 August 2021
pence per share £m pence per share £m
Equity dividends on ordinary shares:
Final dividend for prior year 34.70 70.1 - -
Dividends on other shares:
B share dividend 0.10 - 0.30 -
Total dividends paid 70.1 -
An interim dividend of 24.4p per ordinary share (2022:nil p) amounting to a
total dividend of £49.0m (2022: £nil) was declared by the directors on 24
October 2022. A dividend reinvestment plan (DRIP) alternative will be offered.
These consolidated financial statements do not reflect this dividend payable.
B shareholders are entitled to an annual non-cumulative preference dividend
paid in arrears. There are 2.0m (H1 FY22: 2.0m) B shares in issue. The Group
paid a dividend of 0.1p per share (H1 FY22: 0.3p per share) during the period.
10. Borrowings and net debt
Amounts drawn down on the Group's borrowing facilities are as follows:
Current Non-current
1 September 2022 1 September 2022
£m 3 March 2022 £m 3 March 2022
£m £m
Revolving credit facility (£775.0m) - - - -
Senior unsecured bonds - - 992.7 991.9
- - 992.7 991.9
Revolving credit facility
The revolving credit facility which at 3 March 2022 was £850.0m, was replaced
on 25 May 2022 with a new 5 year £775.0m multicurrency revolving credit
facility agreement.
The new revolving credit facility agreement contains one financial covenant
ratio, being:
Net Debt/Adjusted EBITDA <3.5x
Senior unsecured bonds
The Group has senior unsecured bonds with coupons and maturities as shown in
the following table.
Title Year issued Principal value Maturity Coupon
2025 senior unsecured bonds 2015 £450.0m 16 October 2025 3.375%
2027 senior unsecured green use of proceeds bonds 2021 £300.0m 31 May 2027 2.375%
2031 senior unsecured green use of proceeds bonds 2021 £250.0m 31 May 2031 3.000%
Movement in cash and net debt
3 March Cash flow Net new lease liabilities Foreign exchange Fair value adjustments Amortisation of premiums and discounts 1 September 2022
2022
£m £m £m £m £m £m £m
Cash and cash equivalents 1,132.4 41.3 - 1.1 - - 1,174.8
Liabilities from financing activities
Borrowings (991.9) - - - - (0.8) (992.7)
Lease liabilities (3,701.8) 65.4 (87.7) (24.7) - - (3,748.8)
Total liabilities from financing activities (4,693.7) 65.4 (87.7) (24.7) - (0.8) (4,741.5)
Less: lease liabilities 3,701.8 (65.4) 87.7 24.7 - - 3,748.8
Net cash 140.5 41.3 - 1.1 - (0.8) 182.1
Liquidity Risk
The tables below summarise the maturity profile of the Group's financial
liabilities at 1 September 2022 and 3 March 2022 based on contractual
undiscounted payments, including interest:
1 September 2022 On demand Less than 3 months 3 to 12 months 1 to 5 years More than 5 years Total
£m £m £m £m £m £m
Non-derivative financial liabilities:
Interest-bearing loans and borrowings - 15.2 14.6 854.1 280.0 1,163.9
Lease liabilities(1) - 70.2 209.6 1,123.9 4,921.9 6,325.6
Trade and other payables - 173.8 - 1.3 - 175.1
- 259.2 224.2 1,979.3 5,201.9 7,664.6
Derivative financial assets/liabilities:
Cross currency swaps:
Derivative contracts - receipts - (15.2) - (495.6) - (510.8)
Derivative contracts - payments - 9.5 - 477.5 - 487.0
- (5.7) - (18.1) - (23.8)
Total - 253.5 224.2 1,961.2 5,201.9 7,640.8
3 March 2022 On demand Less than 3 months 3 to 12 months 1 to 5 years More than 5 years Total
£m £m £m £m £m £m
Non-derivative financial liabilities:
Interest-bearing loans and borrowings - 19.0 15.2 554.1 594.6 1,182.9
Lease liabilities(1) - 67.3 206.5 1,116.5 4,918.3 6,308.6
Trade and other payables - 163.6 12.4 1.2 - 177.2
- 249.9 234.1 1,671.8 5,512.9 7,668.7
Derivative financial assets/liabilities:
Cross currency swaps:
Derivative contracts - receipts - - (15.2) (495.6) - (510.8)
Derivative contracts - payments - - 9.1 459.1 - 468.2
- - (6.1) (36.5) - (42.6)
Total - 249.9 228.0 1,635.3 5,512.9 7,626.1
( 1) Contractual undiscounted payments relating to lease liabilities due in
more than 5 years includes £1,367.2m (March 2022: £1,324.5m) due between 5
and 10 years, £2,061.5m (March 2022: £1,925.3m) due between 10 and 20 years
and £1,493.2m (March 2022: £1,668.5m) due in more than 20 years.
11. Impairment
During the year, net impairment reversals of £33.5m (HY22: £nil) were
recognised within operating costs. These impairment reversals are primarily
driven by an increase in anticipated cash flows. The losses/(reversals) were
recognised on the following classes of assets:
6 months to 1 September 2022 Net impairment loss/(reversal)
£m
Property, plant and equipment
Impairment losses 9.6
Impairment reversals (33.0)
Transfer to assets held for sale 0.3
Right-of-use assets
Impairment losses 1.0
Impairment reversals (13.5)
Assets held for sale
Impairment losses 2.1
(33.5)
Property, plant and equipment and right-of-use assets
The Group has identified CGU-specific indicators of impairment and an
indicator of reversal of previously recognised impairment losses relating to
assets held by the Group. A review of those assets was undertaken, resulting
in a total net impairment reversal of £35.9m (HY22: £nil). This net
impairment reversal is comprised of £23.4m relating to property, plant and
equipment (HY22: nil) and £12.5m relating to right-of-use assets (HY22:
£nil). In addition, an impairment charge of £2.4m (HY22: £nil) was recorded
in relation to assets classified as held for sale.
The Group considers each trading site to be a CGU. Where indicators of
impairment are identified, an impairment assessment is undertaken. In
assessing whether an asset has been impaired, the carrying amount of the site
is compared to its recoverable amount. The recoverable amount is the higher of
its value in use and its fair value less costs of disposal.
The Group calculates a value in use (VIU) for each site. Where the VIU is
lower than the carrying value of the CGU, the Group uses a range of methods
for estimating the fair value less costs of disposal (FVLCD). These include
applying a market multiple to the CGU EBITDAR and, for leasehold sites,
present value techniques using a discounted cash flow method. Both FVLCD
methods rely on inputs not normally observable by market participants and are
therefore level 3 measurements in the fair value hierarchy.
The key assumptions used by management in estimating value in use were:
Approved budget period
Forecast cashflow for the initial five-year period are based on actual cash
flows for HY23 and applying management's assumptions of the performance of the
Group over the next five years.
The key assumptions used by management in setting the Board approved financial
budgets for the initial five-year period were as follows:
· Recovery of trading: Actual results from HY23 have been used as a
basis for the 5-year business plan as this year represents the first showing
signs of recovery of the Group since the end of COVID-related restrictions.
· Forecast growth rates: Forecast growth rates are based on the
Group business plan which includes assumptions around the UK and German
economies over the next five years.
· Operating profits are forecast based on historical experience of
operating margins, adjusted for the impact of inflation and cost-saving
initiatives.
· Local factors impacting the site in the current year or expected
to impact the site in future years. Key assumptions include the maturity
profile of individual sites, the future potential of immature sites and the
impact of increasing or reducing market supply in the local area.
Discount rates
The discount rate is based on the Weighted Average Cost of Capital (WACC) of a
typical market participant, taking into account specific country and currency
risks associated with the Group. The average pre-tax discount rate used is
10.2% in the UK, and 9.0% in Germany (March 2022: 8.7% UK and 7.3% Germany).
The discount rate has increased since the year end reflecting market
volatility in the spot risk free rate inputs used in the Group's WACC
calculation.
Long-term growth rates
A long-term growth rate of 2.0% was used for cash flows subsequent to the
5-year approved budget/plan period. This long-term growth rate is a
conservative rate and is considered to be lower than the long-term historical
growth rates of the underlying territories in which the CGUs operate and the
long-term growth rate prospects of the sectors in which the CGUs operate.
The key assumptions used by management in estimating the FVLCD on a market
multiple were:
EBITDAR multiple
An EBITDAR multiple is estimated based on a normalised trading basis and
market data obtained from external sources. This resulted in a multiple in the
range of 9 to 11 times.
Discounted cash flows
The key assumptions used by management in estimating the FVLCD on a discounted
cashflow method were similar to those used in the value in use assessment,
modified to reflect estimated cost of disposal and lease payments. The
inclusion of lease payments is reflected in the discount rate, increasing UK
WACC for the specific asset class from 10.2% to 11.2%.
Sensitivity to changes in assumptions
The level of impairment is predominantly dependent upon judgements used in
arriving at future growth rates and the discount rates applied to cash flow
projections. The impact on the impairment charge of applying a reasonably
possible change in assumptions to the growth rates used in the 5-year business
plans, long-term growth rates, pre-tax discount rates and EBITDAR multiple
would be an incremental impairment charge in the period to 1 September 2022
of:
Property, plant and
equipment and
right-of use assets
£m
Reduction in net impairment reversal if year one and succeeding years' 13.7
cashflows reduced by 20%
Reduction in net impairment reversal if discount rate increased by 2% 9.0
Reduction in net impairment reversal if long-term growth rates reduced by 1% 4.6
Reduction in net impairment reversal if EBITDAR multiple reduced by 10% 2.6
The above sensitivity analyses are based on a change in an assumption whilst
holding all other assumptions constant. In practice, this is unlikely to occur
and changes in some of the assumptions may be correlated.
12. Financial instruments
IFRS 13 Fair Value Measurement requires that the classification of financial
instruments measured at fair value be determined by reference to the source of
inputs used to derive the fair value. The classification uses the following
three-level hierarchy:
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or
liabilities;
Level 2 - Other techniques for which all inputs, which have a significant
effect on the recorded fair value, are observable, either directly or
indirectly; and
Level 3 - Techniques which use inputs, which have a significant effect on the
recorded fair value, that are not based on observable market data.
The following financial instruments are measured at fair value:
Derivative financial instruments
The Group has in place a net investment hedge in relation to the investment
made in Germany.
The fair value of derivative instruments classified as level 2 is calculated
by discounting all future cash flows by the relevant market discount rate at
the balance sheet date.
Contingent Consideration
The Group has recorded contingent consideration in relation to acquisitions
within trade and other payables.
6 months to 6 months to
1 September 2022 26 August 2021
£m £m
Opening contingent consideration 25.1 62.8
Unwinding of discount (Note 5) 0.2 0.5
Paid during the period (6.4) (0.5)
Foreign exchange movements 1.0 (0.7)
Closing contingent consideration 19.9 62.1
The consideration will become payable upon the handover of hotel sites which
are currently being developed. The fair value of contingent consideration is
classified as level 3 and the fair value is calculated by discounting the
future payments from their expected handover date using a risk adjusted
discount rate. There have been no remeasurements recorded during the period.
1 September 26 August 3 March
2022 2021 2022
£m £m £m
Financial assets
Derivative financial instruments - level 2 - 20.9 15.8
Financial liabilities
Derivative financial instruments - level 2 (2.8) (1.2) -
Contingent consideration - level 3 (19.9) (62.1) (25.1)
There were no transfers between levels during any period disclosed.
13. Defined benefit pension surplus
During the six-month period to 1 September 2022, the defined benefit pension
scheme has moved from a surplus of £522.6m to £429.2m. The main movements in
the surplus are as follows:
£m
Pension surplus as at 3 March 2022 522.6
Remeasurement due to:
Changes in financial assumptions 631.3
Return on plan assets greater/(lower) than discount rate (731.9)
(100.6)
Contributions from employer 2.4
Net interest on pension liability and assets 6.8
Administrative expenses (2.0)
Pension surplus as at 1 September 2022 429.2
The surplus has been recognised as, under the governing documentation of the
Whitbread Group Pension Fund, the Group has an unconditional right to receive
a refund, assuming the gradual settlement of the scheme liabilities over time
until all members and their dependants have either died or left the scheme, in
accordance with the provisions of IFRIC 14 IAS 19 - The Limit on a Defined
Benefit Asset, Minimum Funding Requirements and their Interaction.
The defined benefit scheme entered into a £660.7m buy-in transaction covering
50% of pensioners on 23 June 2022 whereby the assets of the plan were invested
in a bulk purchase annuity policy with the insurer, Standard Life, under which
the benefits payable to defined benefit members covered under the policy
became fully insured. The difference between the cost of the insurance policy
and the accounting value of the liabilities secured was £68.7m and has been
recorded within actuarial losses in the statement of other comprehensive
income.
The principal assumptions used by the independent qualified actuaries in
updating the most recent valuation carried out as at 31 March 2020 of the UK
scheme to 1 September 2022 for IAS 19 Employee Benefits purposes were:
1 September 3 March
2022 2022
% %
Pre-April 2006 rate of increase in pensions in payment 3.3 3.4
Post-April 2006 rate of increase in pensions in payment 2.2 2.3
Pension increases in deferment 3.3 3.4
Discount rate 4.4 2.6
Inflation assumption 3.4 3.6
The mortality assumptions are based on standard mortality tables which allow
for future mortality improvements. The assumptions are that a member currently
aged 65 will live on average for a further 20.0 years (March 2022: 20.0 years)
if they are male and for a further 22.6 years (March 2022: 22.6 years) if they
are female. For a member who retires in 2042 at age 65, the assumptions are
that they will live on average for a further 21.1 years (March 2022: 21.1
years) after retirement if they are male and for a further 23.8 years (March
2022: 23.8 years) after retirement if they are female.
The assumptions in relation to discount rate, mortality and inflation have a
significant effect on the measurement of scheme liabilities. The following
table shows the sensitivity of the valuation of gross liabilities to changes
in these assumptions:
(Increase)/decrease in gross
defined benefit liability
1 September 3 March
2022 2022
Discount rate
2.00% increase to discount rate 407.0
2.00% decrease to discount rate (632.0)
1.00% increase to discount rate 359.0
1.00% decrease to discount rate (458.0)
Inflation
0.25% increase to inflation rate (40.0) (73.0)
0.25% decrease to inflation rate 39.0 72.0
Life expectancy
One-year increase to life expectancy (94.0) (126.0)
The above sensitivity analyses are based on a change in an assumption whilst
holding all other assumptions constant. In practice, this is unlikely to occur
and changes in some of the assumptions may be correlated. Where the discount
rate is changed this will have an impact on the valuation of scheme assets in
the opposing direction. The above sensitivities table shows only the expected
changes to the gross defined benefit obligation (liability). When calculating
the sensitivity of the defined benefit obligation to significant actuarial
assumptions, the same method (projected unit credit method) has been applied
as when calculating the pension surplus recognised within the consolidated
balance sheet. The methods and types of assumptions did not change.
14. Analysis of cash flows given in the cash flow statement
6 months to 6 months to
1 September 2022 26 August 2021
£m £m
Cash generated from/(used in) operations
Profit/(loss) for the period 233.9 (37.8)
Adjustments for:
Tax expense 73.5 18.5
Net finance costs (Note 5) 71.3 83.1
Share of loss from joint ventures 0.3 1.0
Depreciation and amortisation 169.1 156.0
Share-based payments 7.4 6.3
Net impairment reversals (33.5) -
Impairment of loans to joint ventures - 0.8
Gains on disposals, property and other provisions (Note 4) (2.0) (28.6)
Other non-cash items 5.0 6.5
Cash generated from/(used in) operations before working capital changes 525.0 205.8
Increase in inventories (1.4) (2.8)
Decrease/(increase) in trade and other receivables 8.7 (46.7)
Increase in trade and other payables 21.9 162.0
Cash generated from operations 554.2 318.3
Other non-cash items include an inflow of £2.7m (H1 FY22: £5.0m) as a result
of net provision movements and an inflow of £2.0m (H1 FY22: £1.4m)
representing non-cash pension scheme administration costs.
15. Share capital and reserves
During the period, 0.5m shares were purchased by the Group's independently
managed Employee Share Ownership Trust (ESOT) for consideration of £12.3m.
Subsequent to the year end, a further 0.8m shares were purchased. The total
anticipated consideration for the 1.3m shares was £32.5m and is included in
the consolidated statement of cash flows. Post the balance sheet date £0.8m
was returned to the Group leaving a final consideration of £31.7m.
16. Related party disclosure
In Note 33 to the Annual Report and Accounts for the year ended 3 March 2022,
the Group identified its related parties as its key management personnel
(including directors), the Group pension schemes and its joint ventures for
the purpose of IAS 24 Related Party Disclosures. There have been no
significant changes in those related parties identified at the year end and
there have been no transactions with those related parties during the six
months to 1 September 2022 that have materially affected, or are expected to
materially affect, the financial position or performance of the Group during
this period. Details of the relevant relationships with those related parties
will be disclosed in the Annual Report and Accounts for the year ending 2
March 2023. All transactions with subsidiaries are eliminated on
consolidation.
17. Capital expenditure commitments
Capital expenditure commitments for which no provision has been made are set
out in the table below:
1 September 26 August 3 March
2022 2021 2022
£m £m £m
Property, plant and equipment 85.1 132.8 106.4
Intangible assets 11.0 2.6 7.3
18. Events after the balance sheet date
On 19 October 2022 the Group signed an agreement, subject to various
conditions, to acquire a portfolio of six hotels, including five leasehold
operations in Germany and one freehold hotel in Austria. The purchase price is
€32.6m including real estate transfer tax. The deal is due to complete
before the end of the year. On completion the impact of IFRS 16 on the leases
acquired will be assessed.
INDEPENDENT REVIEW REPORT TO WHITBREAD PLC
Conclusion
We have been engaged by the company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 1st
September 2022 which comprises the income statement, the balance sheet, the
statement of comprehensive income, statement of changes of equity, the cash
flow statement and related notes 1 to 18.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 1st September 2022 is not prepared,
in all material respects, in accordance with United Kingdom adopted
International Accounting Standard 34 and the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" issued by the Financial Reporting
Council for use in the United Kingdom (ISRE (UK) 2410). A review of interim
financial information consists of making inquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and
other review procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.
As disclosed in note 1, the annual financial statements of the group are
prepared in accordance with United Kingdom adopted international accounting
standards. The condensed set of financial statements included in this
half-yearly financial report has been prepared in accordance with United
Kingdom adopted International Accounting Standard 34, "Interim Financial
Reporting".
Conclusion Relating to Going Concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for Conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This Conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410; however future events or conditions may cause the entity to
cease to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the directors are responsible
for assessing the group's ability to continue as a going concern, disclosing
as applicable, matters related to going concern and using the going concern
basis of accounting unless the directors either intend to liquidate the
company or to cease operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial information
In reviewing the half-yearly financial report, we are responsible for
expressing to the company a conclusion on the condensed set of financial
statements in the half-yearly financial report. Our Conclusion, including our
Conclusion Relating to Going Concern, are based on procedures that are less
extensive than audit procedures, as described in the Basis for Conclusion
paragraph of this report.
Use of our report
This report is made solely to the company in accordance with ISRE (UK) 2410.
Our work has been undertaken so that we might state to the company those
matters we are required to state to it in an independent review report and for
no other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the company, for our review work,
for this report, or for the conclusions we have formed.
Deloitte LLP
Statutory Auditor
London, United Kingdom
24(th) October 2022
Glossary
Adjusted property rent
Total property rent less a proportion of contingent rent.
Basic earnings per share (Basic EPS)
Profit attributable to the parent shareholders divided by the basic weighted
average number of ordinary shares in issue during the year after deducting
treasury shares and shares held by an independently managed share ownership
trust ('ESOT').
Committed pipeline
Sites where we have a legal interest in a property (that may be subject to
planning/other conditions) with the intention of opening a hotel in the
future.
Direct bookings/distribution
Based on stayed bookings in the financial year made direct to the Premier Inn
website, Premier Inn app, Premier Inn customer contact centre or hotel front
desks.
Food and beverage (F&B) sales
Food and beverage revenue from all Whitbread owned pub restaurants and
integrated hotel restaurants.
GOSH Charity
Great Ormond Street Hospital Children's Charity
IFRS
International Financial Reporting Standards.
Lease debt
Eight times adjusted property rent.
Occupancy
Number of hotel bedrooms occupied by guests expressed as a percentage of the
number of bedrooms available in the period.
OTAs
Online Travel Agents
Operating profit
Profit before net finance costs and tax.
Property rent
IFRS 16 property lease interest and depreciation plus variable lease payments,
adjusted for deferred rental amounts. This is used as a proxy for rent expense
as recorded under IAS 17 in arriving at funds from operations.
Rent expense
Rental costs recognised in the income statement prior to the adoption of IFRS
16.
†Alternative Performance Measures
We use a range of measures to monitor the financial performance of the Group.
These measures include both statutory measures in accordance with IFRS and
alternative performance measures (APMs) which are consistent with the way that
the business performance is measured internally.
APMs are not defined by IFRS and therefore may not be directly comparable with
similarly titled measures reported by other companies. APMs should be
considered in addition to, and are not intended to be a substitute for, or
superior to, IFRS measures.
APM Closest equivalent IFRS Adjustments to reconcile to IFRS measure Definition and purpose
REVENUE MEASURES
Accommodation sales Revenue Exclude non-room revenue such as food and beverage Premier Inn accommodation revenue excluding non-room income such as
food and beverage. The growth in accommodation sales on a year-on-year basis
is a good indicator of the performance of the business.
Reconciliation: Note 2
Adjusted* revenue Revenue Adjusting items Revenue adjusted to exclude TSA income.
Average room rate (ARR) No direct equivalent Refer to definition Accommodation sales divided by the number of rooms occupied
by guests. The directors consider this to be a useful measure as this is a
commonly used industry metric which facilitates comparison between companies.
Reconciliation 6 months to 1 September 2022 6 months to 26 August 2021
UK Accommodation sales (£m) 940.0 466.8
Number of rooms occupied by guests ('000) 12,783 8,869
UK average room rate (£) 73.54 52.63
Germany Accommodation sales (£m) 44.5 9.2
Number of rooms occupied by guests ('000) 805 252
Germany average room rate (£) 55.27 36.49
UK like-for-like revenue growth Movement in accommodation sales per segment information (Note 2) Accommodation sales from non like-for-like Year over year change in revenue for outlets open for at least one year. The
directors consider this to be a useful measure as it is a commonly used
performance metric and provides an indication of underlying revenue trends.
Reconciliation 6 months to 1 September 2022 6 months to 26 August 2021
UK like-for-like revenue growth 93.4% 194.3%
Contribution from net new hotels 8.0% 6.1%
UK Accommodation sales growth 101.4% 200.4%
Three-year UK like-for-like revenue growth Movement in accommodation sales per segment information Accommodation sales from non like-for-like Change in revenue for outlets open for at least three years. This is a
temporary measure introduced to provide a comparison between the current year
and the comparative period before the impact of the COVID-19 pandemic being
2020.
Reconciliation 6 months to 1 September 2022
UK like-for-like revenue growth 24.4%
Contribution from net new hotels 10.4%
UK Accommodation sales growth 34.8%
Revenue per available room (RevPAR) No direct equivalent Refer to definition Revenue per available room is also known as 'yield'. This hotel measure is
achieved by dividing accommodation sales by the number of rooms available. The
directors consider this to be a useful measure as it is a commonly used
performance measure in the hotel industry.
Reconciliation 6 months to 1 September 2022 6 months to 26 August 2021
UK Accommodation sales (£m) 940.0 466.8
Available rooms ('000) 15,067 14,528
UK RevPAR (£) 62.39 32.13
Germany Accommodation sales (£m) 44.5 9.2
Available rooms ('000) 1,268 787
Germany RevPAR (£) 35.06 11.69
APM Closest equivalent IFRS Adjustments to reconcile to IFRS measure Definition and purpose
INCOME STATEMENT MEASURES
Adjusted* operating profit/loss Profit/loss before tax Adjusting items Profit/loss before tax, finance costs/income and adjusting items
(Note 4) Reconciliation: Consolidated income statement
Adjusted* tax Tax charge/credit Adjusting items Tax charge/credit before adjusting items.
(Note 4) Reconciliation: Consolidated income statement
Adjusted* profit/loss before tax Profit/loss before tax Adjusting items Profit/loss before tax and adjusting items.
(Note 4) Reconciliation: Consolidated income statement
Adjusted* basic EPS Basic EPS Adjusting items Adjusted profit/loss attributable to the parent shareholders divided by the
basic weighted average number of ordinary shares in issue during the year
(Note 4) after deducting treasury shares and shares held by an independently managed
share ownership trust (ESOT).
Reconciliation: Note 8
Profit margin No direct equivalent Refer to definition Segmental adjusted profit before tax divided by segmental adjusted revenue, to
demonstrate profitability margins of the segmental operations.
Reconciliation: Business review
APM Closest equivalent IFRS Adjustments to reconcile to IFRS measure Definition and purpose
BALANCE SHEET MEASURES
Net debt/cash Total liabilities from financing activities Exclude lease liabilities and derivatives held to hedge financing activities Cash and cash equivalents after deducting total borrowings. The directors
consider this to be a useful measure of the financing position of the Group.
Reconciliation: Note 10
Adjusted net debt/cash Total liabilities from financing activities Exclude lease liabilities and derivatives held to hedge financing activities. Net debt/cash adjusted for cash, assumed by ratings agencies to not be readily
Includes an adjustment for cash assumed by ratings agencies to not be readily available. The directors consider this to be a useful measure as it is aligned
available with the method used by ratings agencies to assess the financing position of
the Group.
Reconciliation As at As at
1 September 2022 26 August 2021
£m £m
Net cash (182.1) (60.2)
Restricted cash adjustment 10.0 10.0
Adjusted net cash (172.1) (50.2)
Lease adjusted net debt Cash and cash equivalents less total liabilities from financing activities Exclude lease liabilities and derivatives held to hedge financing activities. Adjusted net debt/cash plus lease debt. The directors consider this to be a
Includes an adjustment for cash assumed by ratings agencies to not be readily useful measure as it forms the basis of the Group's leverage targets.
available
Reconciliation As at As at
1 September 2022 26 August 2021
£m £m
Adjusted net (cash)/debt (172.1) (50.2)
Lease debt 2,371.1 2,095.0
Lease adjusted net (cash)/debt 2,199.0 2,045.0
Net debt/cash and lease liabilities Cash and cash equivalents less total liabilities from financing activities Refer to definition Net debt/cash plus lease liabilities. The directors consider this to be a
useful measure of the financing position of the Group.
Reconciliation As at 1 September As at 26 August 2021
2022 £m
£m
Net cash (182.1) (60.2)
Lease liabilities 3,748.8 3,313.6
Net debt and lease liabilities 3,566.7 3,253.4
APM Closest equivalent IFRS Adjustments to reconcile to IFRS measure Definition and purpose
CASH FLOW MEASURES
Funds from operations (FFO) Net cash flows from operating activities Refer to definition This measure has been changed to align to Fitch methodology post IFRS16.
Net cash flows from operating activities after adding back changes in working
capital, interest on lease liabilities and cash interest. A comparative is not
disclosed as this measure was not utilised during those financial periods
heavily impacted by COVID-19.
Reconciliation 12 months to 1 September
2022
£m
Net cash flow from operations 729.0
Working capital movements (99.2)
Cash interest 29.7
Interest on lease liabilities 137.6
Funds from operations 797.1
Lease adjusted net debt to FFO No direct equivalent Refer to definition This measure has been changed to align to Fitch methodology post IFRS16. Ratio
of lease-adjusted net debt/cash compared to funds from operations (FFO A
comparative is not disclosed as this measure was not utilised during those
financial periods heavily impacted by COVID-19.
Reconciliation 12 months to 1 September
2022
£m
Lease adjusted net debt 2,199.0
Funds from operations 797.1
Lease adjusted net debt to FFO 2.8
Operating cash flow Cash generated from/used in operations Refer to definition Adjusted operating profit/loss adding back depreciation and amortisation and
after IFRS 16 interest and lease repayments and working capital movement.
The directors consider this a useful measure as it is a good indicator of the
cash generated which is used to fund future growth and shareholder returns,
tax, pension and interest payments.
Reconciliation 6 months to 1 September 2022 6 months to 26 August 2021
£m £m
Adjusted operating profit 343.2 26.5
Depreciation - right-of-use assets 80.9 70.2
Depreciation - property, plant and equipment 79.5 75.2
Amortisation 8.7 10.6
Interest paid - lease liabilities (68.6) (64.2)
Payment of principal of lease liabilities (65.4) (70.6)
Lease incentives received 2.0 -
Movement in working capital 29.2 112.5
Operating cash flow 409.5 160.2
Cash capital expenditure No direct equivalent Refer to definition Cash flows on property, plant and equipment and investment property and
investment in intangible assets, adding net cash proceeds on acquisitions and
(cash capex) loans and capital contributions to joint ventures.
APM Closest equivalent IFRS Adjustments to reconcile to IFRS measure Definition and purpose
OTHER MEASURES
Adjusted* EBITDA (post-IFRS 16), Operating profit/loss Refer to definition Adjusted EBITDA (post-IFRS 16) is profit before tax, adjusting items,
interest, depreciation and amortisation.
Adjusted* EBITDA (pre-IFRS 16) and
Adjusted EBITDA (pre-IFRS 16) is further adjusted to remove rent expense.
Adjusted* EBITDAR
Adjusted EBITDAR is profit before tax, adjusting items, interest,
depreciation, amortisation, variable lease payments and rental income.
The directors consider this measure to be useful as it is a commonly used
industry metric which facilitate comparison between companies. The Group's RCF
covenants include measures based on Adjusted EBITDA (pre-IFRS 16).
Reconciliation 6 months to 1 September 2022 6 months to 26 August 2021
£m £m
Adjusted operating profit 343.2 26.5
Depreciation - right-of-use assets 80.9 70.2
Depreciation - property, plant and equipment 79.5 75.2
Amortisation 8.7 10.6
Adjusted EBITDA (post-IFRS 16) 512.3 182.5
Variable lease payment expense 1.1 0.1
Rental income (1.7) (4.3)
Adjusted EBITDAR 511.7 178.3
Rental expense, variable lease payments and rental income (131.2) (112.3)
Adjusted EBITDA (pre-IFRS 16) 380.5 66.0
Return on capital employed (ROCE) No direct equivalent Refer to definition Adjusted operating profit/loss (pre-IFRS 16) for the year divided by net
assets at the balance sheet date, adding back net debt/(cash), right-of-use
assets, lease liabilities, taxation assets/liabilities, the pension
surplus/deficit and derivative financial assets/liabilities, other financial
liabilities and IFRS 16 working capital adjustments.
The directors consider this to be a useful measure as it expresses the
underlying operating efficiency of the Group and is used as the basis for
remuneration targets.
A comparative is not disclosed as this measure was not utilised during those
financial periods heavily impacted by COVID-19.
Reconciliation 12 months to
1 September 2022
Total UK & Ireland
£m £m
Adjusted operating profit 470.0
Depreciation - right-of-use assets 158.8
Rent expense (253.6)
Adjusted operating profit pre-IFRS 16 375.2 410.5
Net assets 4,206.8
Net cash (182.1)
Current tax (assets)/ liabilities 13.9
Deferred tax liabilities 178.3
Pension surplus (429.2)
Derivative financial assets -
Derivative financial liabilities 2.8
Lease liabilities 3,748.8
Right-of-use assets (3,310.1)
IAS 17 rent adjustments (65.0)
Adjusted net assets 4,164.2 3,722.1
Return on capital employed 9.0% 11.0%
* Adjusted measures of profitability represent the equivalent IFRS measures
adjusted for specific items that we consider relevant for comparison of the
Group's business either from one period to another or with similar businesses.
We report adjusted measures because we believe they provide both management
and investors with useful additional information about the financial
performance of the Group's businesses.
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