REG - Whitbread PLC - Whitbread Interim Results
18/10/2023 07:00
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RNS Number : 4447Q Whitbread PLC 18 October 2023
Strong H1 performance driven by our differentiated business model
Positive outlook based on current trading and favourable supply backdrop
Increased dividend and further £300m capital return
H1 FY24 Group Financial Summary
£m H1 FY24 H1 FY23 vs H1 FY23
Statutory revenue 1,574 1,350 17%
Adjusted EBITDAR(†) 628 512 23%
Adjusted profit before tax(†) 391 272 44%
Statutory profit before tax 395 307 29%
Statutory profit after tax 293 234 25%
Adjusted basic EPS(†) 146.1p 107.0p 37%
Statutory basic EPS 147.6p 115.7p 28%
Dividend per share 34.1p 24.4p 40%
Group ROCE(†) 12.6% 9.0% 360bps
Net cash(†) 67 182 (115)
Net cash and lease liabilities(†) (3,882) (3,567) (315)
Overview
• Group adjusted profit before tax up 44% which was ahead of our
expectations, driven by our strong brand, clear strategy and powerful business
model
• UK hotel demand is strong and with supply not now expected to return
to pre-pandemic levels for at least five years. We are therefore seeking
opportunities to grow our pipeline towards our long-term potential of 125,000
rooms across the UK and Ireland, whilst continuing to maintain our financial
discipline
• UK adjusted pre-tax margins increased to 27.5% (H1 FY23: 24.4%), and
UK ROCE was 14.9% (H1 FY23: 11.0%), well ahead of pre-pandemic levels
• In Germany, we continue to make good progress and reconfirm our
previous guidance for FY24. We remain on course to achieve our long-term
ambition of reaching 10-14% return on capital
• The Group's strong revenue performance, focus on cost efficiencies and
vertically integrated business model has generated significant cash flow in
the period
• £300m share buy-back completed on 3 October 2023, in accordance with
our capital allocation framework; further £300m buy-back to be completed by
the time of the FY24 preliminary results
• Current trading and outlook: recent trends continuing with forward
booked revenue position ahead of last year and no change to cost guidance;
visibility on UK supply underpins our confidence in the outlook for FY24 and
beyond
Financial highlights
• Premier Inn UK: total UK accommodation sales were 15% ahead of H1 FY23
and 55% above H1 FY20, with strong RevPAR growth in both London and the
Regions
• F&B sales increased by 10% vs H1 FY23, driven by a return to
year-on-year growth in covers and spend per head
• Premier Inn Germany: total accommodation sales were up 82% vs H1 FY23
reflecting further room openings and the progressive maturity of the existing
estate
• Group statutory revenue increased by 17% vs H1 FY23 to £1,574m
• Despite ongoing inflationary pressures, adjusted profit before tax
increased by 44% to £391m, including reduced adjusted losses before tax in
Germany of £14m; £4m of adjusting items meant that statutory profit before
tax increased by 29% to £395m
• Strong cashflow generation: adjusted operating cash flow increased by
£73m to £483m funding further investment in the UK and Germany as well as
£364m paid to shareholders during the first half
• Strong balance sheet: lease-adjusted net debt: adjusted EBITDAR(†)
of 2.5x
• Interim dividend per share increased by 40% to 34.1p per share (H1
FY23: 24.4p) reflecting the strong H1 performance and our confidence in the
outlook. The dividend will be paid on 8 December 2023
Segment highlights
Premier Inn UK
£m H1 FY24 H1 FY23 vs H1 FY23
Statutory revenue 1,479 1,298 14%
Adjusted profit before tax(†) 407 317 28%
Revenue per available room (£)(†) 71.02 62.39 14%
Premier Inn Germany
£m H1 FY24 H1 FY23 vs H1 FY23
Statutory revenue 95 52 81%
Adjusted loss before tax(†) (14) (25) 44%
Revenue per available room (£)(†) 45.79 35.06 31%
Current trading (six weeks to 12 October 2023)
• The positive drivers seen during the first half have continued into Q3
FY24 with sustained strong levels of demand across both leisure and business
and in London and the Regions
• Premier Inn UK: total UK accommodation sales were up 13% versus the
same period in FY23, with a RevPAR premium of £6.64 versus the M&E
market(1)
• Premier Inn UK: forward booked occupancy is broadly in-line with last
year but at higher ARRs, with the result that booked revenue for Q3 and Q4 is
well-ahead of last year
• F&B: total sales were 8% ahead of FY23
• Premier Inn Germany: Total accommodation sales were 44% ahead of the
same period in FY23 and overall RevPAR was €65 while in aggregate the cohort
of more established hotels had RevPAR of €71
Outlook and FY24 guidance
• We remain optimistic about the outlook; leisure and business demand
remains strong as evidenced by our forward booked position; favourable supply
dynamics are set to continue for some time with the continued decline of
independent hotels and constrained UK room supply growth
• There are no changes to our previous FY24 guidance other than the
following amendment to gross capex and disposals:
o Having taken advantage of a number of high returning freehold purchases in
the UK, Ireland and Germany, we are increasing our FY24 gross capex guidance
to £500-£550m (up from £400-£450m previously), partially funded by
expected disposal proceeds relating to property transactions of between £50m
and £100m
† signifies an alternative performance measure ('APM') - further information
can be found in the glossary and reconciliation of APMs at the end of this
document.
1: STR UK data, standard basis, 1 September 2023 to 5 October 2023, Midscale
& Economy ('M&E') market excludes Premier Inn
Commenting on today's results, Dominic Paul, Whitbread Chief Executive
Officer, said:
"This is an impressive first half performance. In the UK, we maintained high
levels of occupancy whilst continuing to attract excellent guest scores and
offering great value for our customers. The strengths of our operating model
and our continued focus on driving cost efficiencies across the business
resulted in UK margins exceeding pre-pandemic levels. In Germany, we are
making good progress and are continuing to refine our strategy based on our
learnings to-date and whilst there is much work to do as we continue to grow,
we remain on course to achieve our long-term ambition of 10-14% return on
capital.
"We are generating significant operating cash flow that we are redeploying
into future profit growth as well as returning value to shareholders through
increased dividends and share buy-backs. Given the structural shift in hotel
supply and by continuing to invest in our assets, our brand and our teams, we
remain confident that we can both extend our market leading position in the UK
and replicate that success in Germany.
"The Group is in excellent shape, trading well and has significant growth
potential, both in the UK and Germany. Based on our strong performance to-date
and an encouraging forward booked position, we remain optimistic about the
full year outlook and look forward with confidence as reflected by our
increased interim dividend and further planned share buy-back."
For more information please contact:
Investor Relations - Whitbread
investorrelations@whitbread.com
(mailto:investorrelations@whitbread.com)
Peter Reynolds, Director of Investor Relations
peter.reynolds@whitbread (mailto:peter.reynolds@whitbread)
.com
Sophie Nottage, Investor Relations Manager
sophie.nottage@whitbread.com
(mailto:sophie.nottage@whitbread.com)
Media - Teneo
whitbread@teneo.com
Jessica Reid +44 (0) 20 7353 4200
A webcast for investors and analysts will be made available at 8:00am on 18
October 2023 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 Group has delivered another impressive first half performance. This is
thanks to the inherent strengths of our vertically integrated business model,
the continued execution of our strategy and the structural shift in hotel
supply, with a significant reduction in the number of independent hotels
following the pandemic and a marked reduction in new hotel construction. Our
continued programme of investment has delivered further room growth and helped
to ensure the consistent delivery of a quality guest experience.
The UK market remained buoyant during the period with strong levels of
consumer demand from both leisure and business customers. London was
particularly strong, boosted both by domestic and international inbound
demand, as well as by a year-on-year increase in office-based business travel
that had remained constrained until the second quarter of FY23. High levels of
occupancy in our hotels helped to drive food and beverage ('F&B') sales,
especially in our integrated restaurants, while a series of commercial
initiatives meant that we also saw good revenue growth in our branded
restaurants, with both covers and spend per head increasing versus the prior
year.
In Germany, we continued to make good progress with a further 1,200 rooms and
six hotels opened in the first half. Revenues were up strongly year-on-year,
driven by new openings and the increasing maturity of our open hotels. The
impact of some changes as we continued to test and tailor our UK model for the
German market, together with some market softness over the summer months, were
partially offset by a better-than-expected contribution from the portfolio of
recently acquired hotels that joined the Group at the end of FY23. Reflecting
our increasing scale in Germany, we have strengthened our German management
team to accelerate our pathway to becoming the country's number one hotel
brand.
Group Results
The strong trading performance resulted in total statutory revenues of
£1,574m, a 17% increase versus H1 FY23. The high operating leverage inherent
in our business model and a continued focus on driving cost efficiencies meant
that, despite inflationary pressures, adjusted operating profit increased by
30% to £445m. The phasing of certain cost inflation in the UK meant that the
first half performance was particularly strong with a substantial increase in
operating profit margins and cashflow. A further interest credit from the
pension fund of £8m (see note 11), together with a full period benefiting
from higher interest rates on our cash balances, meant that adjusted profit
before tax increased by 44% to £391m and adjusted pre-tax profit margins
increased to 24.9%. Adjusting items of £4m (H1 FY23: £36m) meant that
statutory profit before tax increased to £395m (H1 FY23: £307m). Tax
expenses of £102m resulted in a 25% increase in statutory profit after tax to
£293m. The strong growth in post-tax earnings, together with a lower number
of shares in issue as a result of the share buy-back, meant that statutory
basic earnings per share increased by 28% versus H1 FY23 to 147.6p (H1 FY23:
115.7p).
The strong trading performance delivered an 18% increase in adjusted operating
cashflow that reached £483m in the period (H1 FY23: £410m). The phasing of
our ongoing programme of investment in both expansionary (£91m) and
non-expansionary capex (£122m), together with an increased final dividend and
cash returns to shareholders meant that net cash outflow increased to £104m.
However, given the strong operating performance, we ended the period with
total cash balances of £1,061m and a net cash balance of £67m.
Further details regarding the Group's first half performance, both in the UK
and Germany, are set out below.
Premier Inn UK - sustained strong performance
Strong demand for our hotel rooms coupled with a weak supply backdrop helped
drive UK accommodation sales up 15% vs H1 FY23. After a very strong first
quarter, the year-on-year growth rate softened during the second quarter,
reflecting the pace of recovery in the previous year. Versus FY20, our ongoing
estate expansion and RevPAR growth of 42% meant that UK accommodation sales
were up 55%. F&B sales were up 10% versus H1 FY23, helped by a number of
commercial initiatives introduced during the second half of FY23. As a result,
total UK revenue grew by 14% to £1,479m (H1 FY23: £1,298m).
The growth in accommodation sales was particularly strong in London (+24% vs
H1 FY23 and +68% vs H1 FY20), boosted by a combination of strong leisure and
business demand as well as an uptick in inbound volumes that drove both
occupancy and average room rate ('ARR'). The fact that London took a little
longer to recover from the pandemic in the prior year also provided a further
boost to year-on-year growth. The Regions also delivered an impressive
performance, with accommodation sales up 13% versus the prior year and 52% up
versus H1 FY20. With occupancy already at high levels, the main driver of
revenue growth in the Regions was ARR. Overall, we maintained a well-balanced
mix of leisure and business customers, thereby maximising the chances that we
can reach the optimal level of occupancy to maximise revenue and profit.
The strength of our brand in conjunction with our proprietary, automated
trading engine ('ATE'), helped Premier Inn UK increase its RevPAR premium
versus the wider M&E market to £6.73, up from £5.58 in H1 FY23 and
£2.28 in H1 FY20. As a result, the growth in our total accommodation sales
was 2.6pp ahead of the market. Several external and internal factors are
contributing to this continued outperformance, a summary of which is outlined
below:
Differentiated business model - Our approach is different from many other
large hotel groups - being vertically integrated, we have a large capital base
and are able to capture a significant proportion of the value chain. Our model
also provides greater control over the customer journey, enabling us to offer
a consistent and high-quality customer experience at scale - a combination
that has proven its ability to attract large numbers of customers, generate
significant cashflow and a high return on capital.
Strong market position - Premier Inn is the UK's largest hotel group. Having
added 430 new rooms and closed 72 rooms during the first half, as at 31 August
2023 we had 849 hotels and 83,934 rooms open across the UK and Ireland, with
the result that, for most of our guests, wherever they might need to stay,
there is always a Premier Inn nearby.
Market supply remains below pre-pandemic levels - The breadth of our coverage
has meant that we have been able to capture the demand left by the marked
contraction of the independent sector over the last four years. Subsequent
internal analysis has shown that up to 70% of those hotels identified as
having closed following the pandemic, have already been converted to
alternative use. New hotel and leisure construction starts are also
constrained, with the three-month average value of new starts in July 2023
some 40% lower than a year earlier(1).
1: Glenigan Construction Industry Forecast 2023-2025, June 2023 and company
estimates
Brand strength supported by effective marketing - Thanks to many years of
investment, the quality of our offer and customer service, Premier Inn is
widely recognised as one of the UK's favourite brands. It is why we are able
to continue to drive large volumes of traffic to our website and why we
continue to attract large numbers of repeat guests - in H1 FY24, approximately
86% of the five million bookings made were by consumers that have booked with
us before. A shift towards a more regular frequency of brand marketing in H1
FY24 has been rewarded with further growth in the percentage of consumers that
would consider booking at Premier Inn and higher ad awareness scores.
Dynamic and proprietary automated trading engine ('ATE') - Strong yield
management is a core requirement for any successful hotel business and our
in-house trading team is committed to a continuous process of improvement,
seeking ways that we can increase and maximise revenue. Given the scale of our
historic database, ATE is particularly well-placed to improve our performance
by optimising the trade-off between ARR, occupancy and marketing spend in
order to maximise revenue and profit. Through improvements to our pricing
strategies, we have been able to reduce the proportion of rooms sold at £80
or less from 51% last year to 37% in H1 FY24, increasing ARR and RevPAR.
Further improvements to our proposition for business customers - As business
customers travel more frequently, are more likely to book one of our flexible
rates and are easier to serve, we have continued to broaden our appeal through
several different channels. Our Business Booker portal, that is free to join
and enables corporates to receive a discount of up to 15% off our fully
flexible rates, is continuing to prove popular with SMEs. At the end of H1
FY24 Business Booker represented approximately 10% of total accommodation
sales, up from 8% the previous year. Having deepened our relationships with a
number of Travel Management Companies ('TMCs') over the past few years, we
have also increased the proportion of revenues coming through this channel to
10% (H1 FY23: 8%). Our Premier Inn Business Account provides SMEs with a
free-to-use tool to help manage travel-related expenses and payments and also
offers interest-free payment terms for up to six weeks, enhancing our appeal
to small businesses.
A focus on operational excellence - Our position as the UK's number one hotel
brand is not something we take for granted. It is the result of years of
investment, strategic planning and most importantly, the dedicated commitment
and support of our 39,000 team members that deliver for our guests every day.
Their performance has been particularly impressive during H1 FY24 where,
despite high levels of occupancy in our hotels and strong year-on-year growth
in F&B, we continued to see improvements in our guest scores. When
operating at close to full capacity, ensuring that all of our teams are
appropriately rewarded, well-trained and able to progress in their careers,
safeguards their individual wellbeing and allows them to focus on delivering a
great experience for our guests. As a result of these efforts, we have seen a
strong stabilisation of our teams with retention rates improving by 5pp
relative to last year and 69% of our team members now have more than one
year's service.
Continuing to deliver a quality guest experience - The scale and breadth of
our business means we receive almost continuous and immediate feedback from
our guests across a broad variety of metrics. This is invaluable in enabling
us to both track our performance and identify new ways we can improve our
service. Recent additions to our customer offer have included an ability to
opt for early check-in/late check-out and an option to pre-book a made-up twin
room rather than having a room with a double bed and a sofa bed. As part of
our regular refurbishment programme, we have started to replace some of our
older format rooms with our new ID5 format and are also well-advanced with our
bed-replacement programme - as at 31 August 2023, we had replaced 48,500 beds
out of 65,000 beds in total. Our Premier Plus rooms continue to achieve high
levels of occupancy and at a £15 - £20 premium to the standard room rate,
are providing a healthy RevPAR uplift versus a standard room in the same
hotel. We have increased the number of Premier Plus rooms across our UK estate
to over 4,400 in H1 FY24 and plan to open another 200 rooms in the second half
of the year.
Whilst difficult to apportion the impact of these factors on our overall
performance, we believe each is and will continue to help us sustain a RevPAR
premium to the rest of the M&E market.
High levels of occupancy in our hotels and a steady proportion of hotel guests
taking breakfast and dinner, provided a year-on-year boost to F&B sales
that were up 10% versus the prior year. Food and beverage is important to our
hotel guests and drives a RevPAR uplift in our hotels. Whilst our branded
restaurants enjoyed an uplift in sales versus the prior year, with increases
in both numbers of covers and spend-per-head thanks to a number of commercial
initiatives, revenues have only just returned back to pre-pandemic levels.
Given the impact of inflation, we are continuing to look at a range of options
to help improve the performance and returns of our F&B business whilst
ensuring that we safeguard the quality experience for our hotel guests and
will provide further updates as we make progress.
While cost inflation, together with high occupancy, meant that our operating
costs increased significantly in the period, the inherent operating leverage
of our business model and the benefit of our ongoing cost savings programme
meant that adjusted pre-tax profit grew by 28% to £407m (H1 FY23: £317m) and
margins increased to 27.5% (H1 FY23: 24.4%), which is well ahead of the 24.3%
achieved in H1 FY20.
Premier Inn Germany - still on-track despite softer summer trading
With a total of 57 hotels and over 10,000 rooms open at the half year, plus a
further 6,000 rooms in the pipeline, we remain on course to become the number
one hotel chain in Germany. Whilst we effectively lost two years of progress
during the pandemic, in aggregate our cohort of more established hotels(1) are
continuing to lead the way from a performance perspective. They are also
providing invaluable insights that we are using to both tailor our customer
offer and refine our operating model so that we can drive revenue growth and
efficiencies, as we head towards achieving 10-14% return on capital.
After a strong first quarter performance, we were impacted in the second
quarter by some changes as we continued to test and tailor our UK model for
the German market and by some softness in market demand over the summer
months. Having still been subject to travel restrictions until May the
previous year, German holidaymakers returned to overseas markets for their
summer holiday, resulting in a return to a more normalised level of domestic
leisure demand. While these factors together softened our revenue performance
in Q2 FY24, our cohort of more established hotels(1) delivered a robust
performance in the first half with RevPAR of €60 in aggregate (H1 FY23:
€51), which was in line with the wider M&E market. Despite having opened
another six hotels and 1,200 rooms during the first half, total estate RevPAR
increased to €53, reflecting the progressive maturity of the estate as well
as a positive contribution from the six hotels acquired just before the end of
FY23 and that will start to be refurbished during H2 FY24. We continue to be
encouraged by the performance of our cohort of more established hotels which
achieved a profit(2) of £6m for the 12 months to the end of H1 FY24 (12
months to H1 FY23: loss of £1m). The net result was that that Germany as a
whole delivered a reduced adjusted loss before tax of £14m (H1 FY23: loss of
£25m).
1: Cohort of 17 more established German hotels that were open and trading
under the Premier Inn brand for 12 consecutive months as at
4 March 2022
2: In aggregate adjusted profit before tax excluding non-site related
administration and overhead costs
Having improved our pricing strategies during the period, we have started to
see a positive impact on performance, however we also recognise the need to
continue to refine our commercial strategy as we progress towards our target
levels of return. Key areas of focus include: continuing to evolve our pricing
strategy, particularly around events; the introduction of additional rate
classes and taking advantage of the enhanced capabilities of our upgraded
hotel reservation system that is now in place across Germany. We are also
conducting a trial on Booking.com in order to test whether an indirect
distribution channel can help accelerate incremental sales and profit growth,
whilst also increasing the awareness of our brand among both domestic and
international guests.
With a recovery in market demand and the benefit of the pricing changes
outlined above, we have an encouraging forward booked position and remain on
course to achieve an adjusted loss before tax of between £30m and £40m in
the current financial year, in line with our previous guidance. Looking
further ahead, while macroeconomic uncertainties remain and while we still
have much work to do in order to reach break-even in 2024 and to then progress
towards the 10-14% return on capital that we expect to achieve over the
long-term, we remain on-track.
Capital allocation - increased dividend and further £300m share buy-back
Having set out our capital allocation framework in October 2022, we sought to
provide investors with a clear view of our approach and confirmed a £100m
final dividend together with an initial £300m share buy-back at the time of
FY23 results. Our thinking around capital allocation has not changed and we
remain focused on the following key priorities:
· maintaining our investment grade status by operating within our
leverage threshold;
· continuing to fund our ongoing capital expenditure requirements
and investing through the cycle;
· selective freehold acquisitions and M&A opportunities that
meet our returns thresholds;
· growing dividends in line with earnings; and
· returning excess capital to shareholders dependent on outlook and
market conditions.
The strength of our first half performance meant that, even after capital
expenditure of £213m (H1 FY23: £304m), and £364m on shareholder returns, we
retained a strong balance sheet and were pleased to receive an upgrade to our
credit rating to BBB (previously BBB-)(1).
Fitch Ratings ('Fitch') have recently amended their methodology used to assess
the Group's credit rating by switching to a lease-adjusted net debt: adjusted
EBITDAR multiple, aligning the approach with that of other hotel groups. Lease
liabilities at the end of the period were £3.9bn (H1 FY23: £3.7bn) and as a
result, our ratio of EBITDAR(1) to lease-adjusted net debt was 2.5x, which is
within our policy of managing to our internal threshold of less than 3.5x.
Having completed the previous £300m share buy-back on 3 October 2023 as
planned, the Board has reapplied the capital allocation framework outlined
above. Given the strength of our financial performance, our confidence in the
outlook and the headroom available against our investment grade metrics, the
Board has declared an increased interim dividend totalling £66m and intends
to conduct an additional £300m share buy-back, to be completed by the time of
the FY24 preliminary results.
( )
1: Fitch Ratings, 17 August 2023
Business strategy
Our vertically integrated business model and strong balance sheet, in
conjunction with our business strategy and a clear focus on operational
excellence, are combining to deliver impressive financial results. While the
three pillars of our strategy remain unchanged, the following sections outline
some of our future plans and initiatives that we believe will continue to
drive the business forward and create additional value for our shareholders
and other key stakeholders.
1. Continuing to grow and innovate in the UK
The Group is a focused hospitality group, providing our guests with a quality
night's sleep and great F&B, all at an affordable price. With our
differentiated business model and a determination to continue to invest
through the cycle, Premier Inn has become the clear market leader in the UK
M&E market, a segment that remains highly attractive:
· The budget branded model is structurally advantaged: The M&E
segment remains one of the highest growth segments of the UK hotel market and
has also demonstrated its resilience during previous downturns as leisure and
business customers alike look to 'trade down' in search of greater value;
· Significant opportunities for growth: our latest network planning
exercise highlighted the significant and structural decline in the independent
hotel sector following the pandemic. This increased the potential opportunity
for Premier Inn in the UK and Ireland to 125,000 rooms (up from 110,000 rooms
previously). This compares with our total open and committed pipeline of over
91,000 rooms today.
· Enhanced structural opportunities: Since completing our network
planning exercise in the summer of 2022, inflation and interest rates have
increased substantially. As a result, based on our latest view of UK pipelines
and new construction projects, we have revised our previous view and do not
now expect the market level of supply to return to pre-pandemic levels for at
least five years. This favourable market backdrop underpins our prospects for
further room growth and an increased opportunity for Premier Inn to grow
market share.
Given this market context, extending our market leading position is a key
priority for the Group. Our scale and vertically integrated approach mean we
can offer both quality and value to the millions of guests that stay with us
each year. Our guest appeal is universal as evidenced by our well-balanced mix
between leisure and business, that itself is broadly balanced between
tradespeople and office workers. Our direct distribution model, with less than
1% of accommodation sales going through online travel agents, ensures we have
complete control of the customer relationship. Our distribution model also
helps minimise customer acquisition and retention costs and allows us to
integrate our digital marketing into our pricing decisions, reducing
acquisition costs and enhancing our ability to maximise RevPAR.
Ongoing commercial initiatives
We are continuing to drive a number of commercial initiatives that are focused
on delivering further revenue growth and increased returns. These include the
ongoing evolution of ATE in response to changes in consumer behaviour as well
as the competitive landscape. Developed over many years, our ability to price
dynamically remains a substantial source of value for the Group and ensures
that we optimise the balance between occupancy and ARR in order to maximise
revenues and profits. The scale of our operations requires that we continue to
drive millions of visitors directly to our website each week and so we will
continue to sustain high levels of brand awareness through a combination of
both national brand advertising as well as more targeted offline and digital
marketing campaigns. We will also continue to invest in developing and
improving our customer journey and online experience so that we can maximise
the conversion of visits into bookings. Efforts to broaden our appeal through
further product development and segmentation are another area of focus: we now
have 16 hub hotels and over 4,400 Premier Plus rooms across our UK estate with
a plan to increase both over the coming years. We will also continue to
progress our bed replacement programme, with 48,500 of the 65,000 beds now
left to replace over the coming months. In F&B, we are continuing to
pursue a number of options to help improve performance and will provide
further updates as we make progress.
Each of these investments and developments are in addition to our regular
programme of room upgrades and refurbishments, all of which help to ensure
that our guests always enjoy their stay with us and want to come back again in
the future.
2. Growing at scale in Germany
Germany represents a significant opportunity for the Group. As well as being
approximately 40% larger than the UK in terms of numbers of rooms, no brand
has more than a 2% share of the German market and there is a very large
independent hotel sector (67% of the market in 2022) that has declined
significantly since the pandemic. In contrast, Premier Inn Germany has grown
from having just six hotels with around 1,000 rooms in FY20 to having 57
hotels and over 10,000 rooms open with a further 6,000 rooms in the pipeline.
Whilst we have expanded our coverage and network significantly over the past
few years, the time it takes for new hotels to mature and the fact that we
lost two years of progress during the pandemic have delayed our delivery of
profitability in Germany. Whilst we remain on course to reduce losses this
financial year, we are on-track but still have work to do in order to reach
break-even in 2024 and to then progress towards the 10-14% return on capital
that we expect to achieve over the long-term.
Key tasks include increasing our brand awareness among domestic and
international consumers - while we continue to make good progress, we need to
accelerate this through effective marketing and brand promotion, as well as by
continuing to increase the appeal of our proposition to corporate customers.
We are testing the efficacy of Booking.com as an additional distribution
channel to help drive incremental revenue and profit growth whilst increasing
the visibility of our brand. Taking the learnings from all of our hotel
openings to-date, we are continuing to refine our operating model and improve
both our dynamic pricing as well as our customer offer so that they are better
suited to the German market.
To help ensure these initiatives are implemented effectively, we have recently
strengthened our German management team with the appointment of Erik Friemuth
who will become CEO of Premier Inn Germany on
1 January 2024 and will report directly to Dominic Paul, Group CEO. Erik joins
from TUI AG where he is Group Chief Marketing Officer and also Managing
Director of TUI Hotels & Resorts. Erik brings a wealth of experience from
his time spent in the German hospitality and leisure sector having been at TUI
since April 2014 and where he is responsible for around 400 hotels with €2bn
of revenues and around 15,000 employees.
3. Enhancing our capabilities to support long term growth
Our 'investing to win' approach of continuing to invest in our business, our
teams and our brands, through the cycle, is only possible thanks to the
following key drivers:
Financial strength: Our adjusted operating cashflow in the six months to 31
August 2023 was £483m. Even after having invested £213m in expansionary and
non-expansionary capex and having rewarded shareholders with £364m in
dividends and share buy-backs in the first half, the Group's balance sheet
remains robust with net cash of £67m (H1 FY23: £182m). The improvement in
the Group's credit rating to BBB(1) (previously
BBB-) ensures access to the debt markets and helps to minimise the Group's
cost of funding. When entering into leasehold or other transactions, the
strength of our covenant means we are viewed as a highly attractive partner,
thus creating a competitive advantage for the Group. Our financial strength
also means we can continue to add more rooms, improve our customer offer,
invest in our teams and enhance our systems infrastructure, all of which help
drive revenues and reduce costs. Financial flexibility also allows us to
complete strategic M&A deals, subject to our rigorous capital appraisal
process, underpinning our planned future growth.
1 Fitch Ratings - 17 August 2023
Asset-backed balance sheet: Our large freehold estate provides us with a
number of commercial and financial advantages when compared with alternative,
more 'asset-lite' models:
o total control over the location and 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 periods of high or persistent inflation; and
o an additional and flexible source of funding, one that can often be
available at more attractive rates than other sources of finance.
As we are flexible between taking on freehold or leasehold opportunities, we
have a much better prospect of securing the sites that we want and in the best
locations. It also means we are better able to optimise the size and format of
our assets in order to maximise returns. Since the period end, we completed a
number of property transactions including the purchase of a freehold site in
Fenchurch Street, London for £57m and the sale of an office building that we
built as part of a hotel development in Clerkenwell for £39m.
Lean and agile cost model: As the largest vertically integrated hospitality
group in the UK and with a growing presence in Germany, we have a sizeable
cost base. With the sharp rise in inflation over the past 18 months and our
positioning as a low-cost operator, our focus on driving cost efficiencies has
become even more important. We have a long history and culture of continuously
seeking out new and improved ways of working to deliver operational
efficiencies and reduce costs. We remain on course to deliver a total of
£140m of cost savings in the four years to FY25.
Operating responsibly and sustainably: As a major employer in the UK and with
a growing presence in Germany, we recognise our responsibilities in those
communities where we have a physical presence - to our teams, customers and
other key stakeholders. Through our Force for Good sustainability programme,
we seek to drive our social and environmental agenda that has stretching
targets in areas such as employee diversity and wellbeing, climate change and
community, each of which are embedded within our overall business strategy.
The execution of each of these three elements of our business strategy remain
central to our long-term success and underpin our strong financial performance
which has continued in the current trading period.
Current Trading - six weeks to 12 October 2023
The positive trading performance enjoyed during the first six months has
continued into the third quarter. Total UK sales were 12% ahead of the same
period in FY23 and total accommodation sales were up by 13% and a RevPAR
premium versus the wider M&E market of £6.64(1). Occupancy in the period
was 86.5% versus 85.8% last year and average room rate was £86.35 up from
£78.56 last year.
UK food and beverage sales were 8% ahead of the same period last year.
In Germany, we saw an uplift in performance helped by strong demand during
September which benefited from a number of events and trade fairs taking place
in key cities. Total accommodation sales were 44% ahead of the same period in
FY23 and overall RevPAR was €65 (FY23: €60) while in aggregate the cohort
of more established hotels had RevPAR of €71 (FY23: €68).
1: STR UK data, standard basis, 1 September 2023 to 5 October 2023, Midscale
& Economy ('M&E') market excludes Premier Inn
Outlook
We remain confident about the Group's prospects for the full year, led by a
continued strong performance in the UK, reduced losses in Germany and the
benefit of having a strong balance sheet.
Current trading in the UK remains strong and our forward booked revenue
position is well ahead of the same period last year. Our view on UK market
supply has also improved with continued pressures on the independent hotel
sector from rising interest rates and inflation and a lack of developer
funding contributing to a 40% reduction in the value of new hotel and leisure
construction versus a year ago. As a result, we now expect that UK supply will
remain constrained and is unlikely to return to pre-pandemic levels for at
least five years. Given the timescales required for new hotel development,
this backdrop gives us confidence beyond FY24 and while we continue to monitor
consumer demand trends closely, Premier Inn represents excellent value
relative to its peers as well as the upscale segments, that have seen room
rates increase significantly versus FY20.
In Germany, having overcome a few short-term challenges over the summer
months, we remain on course. We have a clear plan for replicating our UK
success in this large and exciting market and whilst not immune from
macroeconomic pressures and concerns, we remain encouraged by our performance
to-date. Our more established hotels are continuing to improve and are
providing invaluable learnings for our more recent openings. With a
strengthened management team and a committed pipeline taking us to over 16,000
rooms, we remain confident in becoming the number one hotel chain in Germany.
We are on-track to reach break-even with the current estate on a run-rate
basis during 2024 and thereafter to achieve our long-term goal of 10-14%
return on capital.
Summary of Additional Guidance FY24
FY24 guidance was set out in our FY23 full year results and our Q1 FY24
trading update. While sales sensitivities remain unchanged, our cost guidance
is updated to include the following:
UK
· Inflation: no change to previous guidance of 7-8%
Germany
· No change to previous guidance: FY24 loss before tax expected to
be £30m-£40m
Balance sheet
· Gross capex: now expected to be £500-£550m reflecting a number
of recent freehold purchases in the UK, Ireland and Germany
· Disposal proceeds: expected to be between £50m and £100m
· Interest on cash: no change to previous guidance, in line with
Bank of England rates
A Force for Good
Being a Force for Good is vital to the sustainable and long-term growth of our
business. This is why our sustainability programme is embedded across all
business functions, ensuring that responsible business practices are
integrated into our operations. Our programme comprises three core pillars:
opportunity, responsibility and community and revolves around stretching
targets based on robust materiality analysis that focuses on our commitment to
enable everyone to live and work well and to look after the environment and
resources upon which we, and our business depend.
Opportunity
Our commitment is to give everyone at Whitbread the opportunity to grow and
develop, with no barriers to entry and no limits to ambition. Our investment
in opportunity is centred around three themes - diversity & inclusion
('D&I'), wellbeing, and training.
We have eight D&I commitments that underpin opportunity at Whitbread. At
the end of H1 FY24 we are tracking well against stretching targets set for
leadership representation, of 40% female representation and 8% ethnic
representation by the end of 2023. Our four employee networks - enAble
(disability inclusion), GEN (gender equality), GLOW (LGBTQIA+) and RRCH
Network (race, religion, and cultural heritage) have matured in H1 FY24,
increasing their reach and engagement through a greater number of events than
were ever held before. Our work on education, awareness and allyship has been
recognised and we were proud to have been awarded 'Exemplary Employer' status
by the Investing in Ethnicity Awards, the only hospitality company in the top
25 employers ranking.
As well as D&I - mental, financial, and physical wellbeing is central to
creating an environment that creates opportunity. In H1 FY24 we increased the
number of Mental Health First Aiders and Champions from 121 to 172. We also
launched a financial education programme so everyone who works for us has
access to live, and recorded, webinars providing excellent support. In the
physical well-being space, we launched a new digital platform that gives
employees greater access to a range of services to allow them to self-support
their physical and mental wellbeing.
Training and development is also integral to our approach for creating
opportunity for our people. This year we have made a significant investment in
developing over 500 Hotel Managers and General Managers, giving our site
leaders the chance to develop first class technical skills and management
capability and to re-establish and refresh our standards and expectations.
All our new joiners have a mandated training journey when they join us. In H1
FY24 we launched a new, simplified, induction journey, which has been
positively received by new joiners and site managers. We are particularly
proud of our award-winning apprenticeship programmes. Over 2,000 people,
across a range of levels, are currently on a programme and we are delighted to
have been rated #1 by the apprentices themselves in 'Rate My Apprenticeship'.
At our Support Centres, we have new development opportunities to support
colleagues in developing and growing their careers. In addition, we now offer
internship positions, designed to get members of our local Luton and Dunstable
communities onto the Whitbread career ladder. In September 2023, we were also
delighted to welcome our 2023 cohort from our long-standing partnership with
Derwen and Hereward Colleges, providing supported internships for young adults
with special educational needs to find employment at Premier Inn.
Responsibility
Within our responsibility pillar and noting the fast-evolving regulatory
environment in which we operate, during H1 FY24 we have reviewed carefully the
upcoming requirements, identifying any gaps that may exist between our current
position and where we need to be. In the short term, our efforts will be
focused on the upcoming German Supply Chain Act ('GSCA)' and over the
medium-term, on compliance with the EU Deforestation Regulation ('EUDR'), and
the upcoming Corporate Sustainability Reporting Directive ('CSRD') as well as
the requirements set by the International Sustainability Standards Board
('ISSB'). We are also undertaking an estate-wide biodiversity baseline
assessment as the first step under the new reporting requirements and are
working on our next disclosure under the Taskforce on Climate-related
Financial Disclosures ('TCFD'). As we outlined in our last TCFD report
(https://cdn.whitbread.co.uk/media/2023/05/Whitbread-TCFD-report-2022-23_230517_HR42-1.pdf)
, we undertake a full review of our climate-related risks and opportunities
every other year. Having been working through this process during H1 FY24, we
are now looking forward to taking the most material risks and opportunities
through the scenario analysis and quantification process.
In our ESG report
(https://cdn.whitbread.co.uk/media/2023/05/Whitbread_ESG_Report_FY22_23-1.pdf)
at the end of last year, we outlined that our carbon targets were going
through the Science-Based Targets Initiative ('SBTi') validation process. We
are delighted to report that this validation was confirmed during H1 FY24.
Under this validation, we have committed to reach net-zero greenhouse gas
('GHG') emissions across the value chain by FY50. We have committed to a
near-term target of reducing scope 1 and 2 GHG emissions by 84.1% per square
meter by FY30 from a FY16 base year and a scope 3 GHG emissions reduction of
58.1% per square meter by FY30 from a FY18 base year. Our long-term targets
are to reduce scope 1 and 2 GHG emissions by 99.6% by FY40 from a FY16 base
year and to reduce scope 3 GHG emissions by 90% by FY50 from a FY18 base year.
To achieve our SBTi validated targets, we have published our first full
Transition Plan to Net Zero
(https://cdn.whitbread.co.uk/media/2023/05/23818_Whitbread-Net-Zero-Transition_230516.pdf)
. This was created in line with the Transition Plan Taskforce's guidance and
outlines the steps we will take in order to meet our net zero carbon goals. It
sets out the priority steps for our Scope 1 and 2 emissions reduction and we
have been progressing well with these over the first half of the year. Our
site refurbishment to net zero plans are developing and with some encouraging
early results, we look forward to reporting the final outcome and impact at
the end of the year. We are also progressing our estate-wide net zero
'readiness' audit and look forward to reporting the results of this at the
year end. This audit will feed into the transition plan and enable a site
level refurbishment roll-out plan that aligns both our commercial and our
environmental ambitions.
We are delighted to have opened our first all-electric Premier Inn hotel,
powered by renewables, in Swindon during October 2023. This site paves the way
for the construction of future Premier Inn hotels, demonstrating the
feasibility of a site run purely on renewable energy. We look forward to
sharing more news about this hugely innovative milestone and the impact it
will have once the site is launched.
As part of our progress towards reaching our Scope 3 carbon target, we are in
the process of completing an analysis of our sustainable soy footprint and
starting work to analyse our menus to identify the opportunities for
reduction, recognising that F&B is one of our most significant categories
for carbon emissions in our value chain.
At the end of FY23, we announced a new water reduction target, focused on
reducing water usage across our estate by 20% per sleeper by 2030. We have
been rolling out the interventions involved in driving this reduction over the
past few months and early indications show that we are tracking ahead of where
we thought we would be at this stage in the roll out plan, with a greater than
expected reduction in water usage. We are pleased with these results and are
now looking at how best we can roll out the interventions across the remainder
of the estate.
Our commitment to cut food waste in half by 2030 and to eliminate single-use
plastics by 2025 remain challenging but we are working hard on both these
projects to enable a positive end of year progress report.
Community
Under our community pillar, our commitment to our charity partner Great Ormond
Street Hospital Charity ('GOSH') continues and we have raised £1m in the
first half of the year, bringing our total since 2012 to £23m. Our
partnership achieved Highly Commended recognition at the Corporate Engagement
Awards for Most Effective Long-term commitment and won the Best Partnership
with a Children's Charity at the Better Society Awards.
We also look to support those in need on an ad hoc basis. Following on from
our donations to the Ukraine through DEC ('Disaster Emergency Committee') and
as part of our new bedding roll out last year, we have in the first half of
FY24, begun donating mattresses coming out of our hotels as we roll out our
new version across our estate with our charity partner Hope and Aid Direct.
Our charity work is also important to our Inclusion Networks, and this year
the sale of a Pride cocktail across our estate helped to raise funds for
LGBTQ+ charity 'akt' who support LGBTQ+ young people aged 16-25 in the UK who
are facing or experiencing homelessness or living in a hostile environment, as
part of our ongoing commitment to LGBTQIA+ inclusion.
For further information on our Force for Good programme, please see our most
recent ESG Report:
https://www.whitbread.co.uk/sustainability/our-strategy-targets/
(https://www.whitbread.co.uk/sustainability/our-strategy-targets/) .
Business Review
Premier Inn UK(1)
£m H1 FY24 H1 FY23 vs H1 FY23
Statutory Revenue 1,479 1,298 14%
Other income (excl rental income) - - n/a
Operating costs before depreciation, amortisation & rent (852) (771) (11)%
Adjusted EBITDAR(†) 627 528 19%
Net turnover rent and rental income (1) 1 (183)%
Depreciation: Right-of-use asset (70) (66) (6)%
Depreciation and amortisation: Other (86) (83) (3)%
Adjusted operating profit(†) 472 380 24%
Interest: Lease liability (65) (62) (4)%
Adjusted profit before tax(†) 407 317 28%
ROCE(†) 14.9% 11.0% 390bps
PBT Margins(†) 27.5% 24.4% 310bps
Premier Inn UK(1) key performance indicators
H1 FY24 H1 FY23 vs H1 FY23
Number of hotels 849 844 1%
Number of rooms 83,934 82,773 1%
Committed pipeline (rooms) 7,291 8,875 (18)%
Occupancy 84.4% 84.8% (40)bps
Average room rate(†) £84.13 £73.54 14%
Revenue per available room(†) £71.02 £62.39 14%
Sales growth(2):
Accommodation 15%
Food & beverage 10%
Total 14%
Like-for-like(†) sales(2) growth:
Accommodation 13%
Food & beverage 10%
Total 12%
1: Includes one site in each of: Guernsey and the Isle of Man, two sites in
Jersey and three sites in Ireland
2: Total and like-for-like versus H1 FY23
Total statutory revenue was 14% ahead of H1 FY23, led by the performance of
our UK hotels that delivered a very strong performance. Total accommodation
sales were up 15% in the period, with occupancy broadly flat at 84% and
average room rates increasing by 14% to £84.13. The strength of performance
in the period was underpinned by the favourable supply environment in the UK
hotel market, continued strong business and leisure demand and our continued
focus on operational and commercial excellence.
Premier Inn extended its RevPAR premium versus the wider M&E market
throughout the period, consolidating our strong market position and
demonstrating the strengths of our scale, brand, direct distribution,
proprietary automated trading engine and vertically integrated operating
model.
UK performance vs M&E market
Q1 Q2 H1
FY24 FY24 FY24
PI accommodation sales growth performance (vs FY23)(1) +1.1pp +3.8pp +2.6pp
PI occupancy growth performance (vs FY23)(1) (0.4)pp (0.8)pp (0.6)pp
PI ARR growth performance (vs FY23)(1) (0.3)pp 2.9pp 1.5pp
PI RevPAR premium (absolute)(1) +£6.27 +£7.20 +£6.73
PI market share(2) 8.9% 8.6% 8.8%
PI market share gains pp (vs FY23)(2) (0.1)pp 0.2pp 0.1pp
1: STR data, standard basis, Premier Inn accommodation revenue, occupancy, ARR
and RevPAR 3 March 2023 to 31 August 2023, M&E market excludes Premier Inn
2: STR data, revenue share of total UK market, 3 March 2023 to 31 August 2023
Total F&B sales were 10% ahead of H1 FY23 assisted by the high levels of
occupancy in our hotels and the success of a number of commercial initiatives
which were put in place during the second half of FY23.
Operating costs of £852m were 11% higher than the same period last year (H1
FY23: £771m) reflecting cost inflation and estate growth, partially offset by
savings from our ongoing cost efficiency programme. EBITDAR margins increased
to 42.4% (H1 FY23: 40.6%) and total EBITDAR was £627m, an increase of £100m.
Right-of-use asset depreciation was £70m and lease liability interest was
£65m. We opened three new hotels during the half, totalling 430 rooms and we
closed 72 rooms, as we continue to optimise our estate when suitable
opportunities arise. At the end of the period, the total estate stood at 849
hotels with 83,934 rooms open.
Adjusted profit before tax in the UK increased by 28% to £407m (H1 FY23:
£317m), driven by the strength of our UK hotel performance. As a result,
pre-tax profit margins increased to 27.5%, 310bps ahead of H1 FY23 and 320bps
ahead of FY20.
Premier Inn Germany
£m H1 FY24 H1 FY23 vs H1 FY23
Statutory revenue 95 52 81%
Other income (excl. rental income) 3 - n/a
Operating costs before depreciation, amortisation and rent (75) (51) (47)%
Adjusted EBITDAR(†) 23 2 >1,000%
Net turnover rent and rental income - - 0%
Depreciation: Right-of-use asset (20) (15) (31)%
Depreciation and amortisation: Other (7) (5) (33)%
Adjusted operating loss(†) (4) (19) 80%
Interest: Lease liability (10) (6) (65)%
Adjusted loss before tax(†) (14) (25) 44%
Premier Inn Germany(1) key performance indicators
H1 FY24 H1 FY23 vs H1 FY23
Number of hotels 57 42 36%
Number of rooms 10,251 7,608 35%
Committed pipeline (rooms) 5,830 7,080 (18)%
Occupancy 64.1% 63.4% 70bps
Average room rate(†) £71.44 £55.27 29%
Revenue per available room(†) £45.79 £35.06 31%
Sales growth(2):
Accommodation 82%
Food & beverage 74%
Total 81%
Like-for-like(†) sales(2) growth:
Accommodation 34%
Food & beverage 30%
Total 33%
1: Includes one site in Austria
2: Total and like-for-like versus H1 FY23
Total statutory revenue in Germany was 81% ahead of H1 FY23, reflecting the
increased size of our estate and the progressive maturity of our hotels.
During the half we opened six new hotels including our second hotel in Dresden
and our first in Darmstadt, taking our open estate to 57 hotels with a total
of 10,251 rooms open and a further 5,830 rooms in the committed pipeline (H1
FY23: 7,608 rooms open; committed pipeline of 7,080 rooms). With the lifting
of all pandemic-related restrictions in April 2022, our first quarter
performance in FY24 reflected the strong market recovery versus a much weaker
comparator period. Our performance in the second quarter was softer than
expected. This reflected some changes as we continued to test and tailor our
UK model for the German market and also by the fact that many German consumers
returned to international travel for their summer holiday with the result that
the market returned to a more normalised level of domestic leisure travel.
Overall, total estate RevPAR increased to £45.79, with further growth in both
occupancy and ARR.
Other income includes the release of a £3m provision relating to a prior
period claim for Government support which has now been finalised (H1 FY23:
£nil).
Operating costs in the period increased by £24m to £75m reflecting the
continued growth in our estate as well as high levels of cost inflation,
particularly in labour and F&B. Drawing upon our growing trading
experience across each of our hotels, we are continuing to tailor our
proposition for the German consumer as well as refine our operating model,
thereby reducing costs whilst continuing to deliver a quality guest
experience. We are also exploring ways in which we might accelerate our
revenue growth further and have commenced a trial on Booking.com to understand
whether it can help drive incremental RevPAR and profitability whilst at the
same time, increasing our brand awareness.
Right-of-use asset depreciation costs increased by £5m to £20m as we opened
five new leasehold hotels in the period. Other depreciation and amortisation
costs increased to £7m and lease liability interest costs were £10m,
reflecting the material estate growth over the last year.
Despite ongoing macroeconomic uncertainties, adjusted operating losses in the
period reduced to £14m
(H1 FY23: £25m), reflecting the progressive maturity of our existing hotels,
together with a continued focus on costs. We maintain our previous guidance of
delivering a loss before tax of between £30m and £40m in FY24, including the
refurbishment of hotels acquired at the end of FY23 which commenced during the
second half of the year.
Central and other costs
£m H1 FY24 H1 FY23 vs H1 FY23
Operating costs before depreciation, amortisation and rent (22) (17) (28)%
Share of loss from joint ventures (0) (0) 0%
Adjusted operating loss(†) (23) (18) (28)%
Net finance income / (costs) 21 (3) 885%
Adjusted loss before tax(†) (1) (20) 94%
Central operating costs of £22m were £5m higher than H1 FY23, primarily
driven by consultancy and systems upgrade-related costs. Net finance costs
decreased by £24m to a £21m credit reflecting interest receivable on the
Group's cash balances following the increases in interest rates to £26m (H1
FY23: £6m) and £8m of IAS 19 pension finance income (H1 FY23: £7m).
Financial review
Financial highlights
£m H1 FY24 H1 FY23 vs H1 FY23
Statutory revenue 1,574 1,350 17%
Other income (excl rental income)(1) 3 - n/a
Operating costs before depreciation, amortisation and rent (949) (839) (13)%
Adjusted EBITDAR(†) 628 512 23%
Net turnover rent and rental income (1) 1 (183)%
Depreciation: Right-of-use asset (89) (81) (11)%
Depreciation and amortisation: Other (93) (88) (5)%
Adjusted operating profit(†) 445 343 30%
Net finance income / (costs) (excl. lease liability interest) 21 (3) 885%
Interest: Lease liability (75) (69) (9)%
Adjusted profit before tax(†) 391 272 44%
Adjusting items 4 36 (90)%
Statutory profit before tax 395 307 29%
Tax expense (102) (74) (39)%
Statutory profit after tax 293 234 25%
Statutory revenue
Statutory revenues were up 17% versus last year, driven by the combination of
a robust demand environment coupled with reduced level of supply in the UK
hotel market, an improved performance from F&B and continued growth of our
hotel estate in Germany.
Adjusted EBITDAR
Other income includes a £3m provision release relating to a prior period
claim for Government support which has now been finalised (H1 FY23: £nil).
Operating costs of £949m were 13% higher than H1 FY23, driven by cost
inflation and estate growth in both the UK and Germany, partially offset by
further savings from our cost efficiency programme. As a result, adjusted
EBITDAR was £628m, 23% ahead of last year and demonstrating the operational
leverage of our business model.
Adjusted operating profit
The leasehold estate in the UK grew by net two hotels and by five hotels in
Germany with the result that right-of-use depreciation increased by £8m to
£89m. Our continued programme of investment and new hotel openings resulted
in other depreciation and amortisation charges increasing by £5m to £93m.
Given the strong growth in adjusted EBITDAR, adjusted operating profit
increased by 30% from £343m in H1 FY23 to £445m in the first half of the
year.
Net finance costs
Strong cashflow and a marked increase in interest rates resulted in higher
interest receivable on the Group's cash balances. An interest credit from the
pension fund of £8m resulted in a net finance credit (excluding lease
liability interest) for the period of £21m compared to a £3m charge in H1
FY23. Lease liability interest of £75m was £6m higher than the same period
last year, primarily driven by the opening of two leasehold hotels in the UK
and five leaseholds in Germany.
Adjusting items
Total adjusting items before tax were a credit of £4m for the period compared
to a £36m credit in H1 FY23.
During the period, the Group received a settlement of £3m in relation to a
legal claim made against a payment card scheme provider and received
reimbursements for the costs of remedial works on cladding material from
property developers totalling £2m.
In addition, the Group made a profit on six property disposals totalling £2m
(H1 FY23: £1m) as we continue to optimise the estate, as and when suitable
opportunities arise. The Group also released provisions of £4m (HY23 £nil)
relating to historic indirect tax matters.
The Group has assessed the presentation of costs incurred in relation to the
implementation of both current and future strategic IT programmes. The
programmes currently scheduled include the upgrade to both the Group's Hotel
Management System as well as its HR & Payroll System. These represent
significant business change costs for the Group rather than replacements of IT
systems with the system products being Software as a Service ('SaaS'). The
start date of these projects varies and as such we expect costs to be incurred
within this category over the next few financial years, with their strategic
benefit expected to last for multiple years.
Cash costs incurred on the programmes and presented within adjusting items in
the period were £9m with cumulative cash costs to date being £22m (FY23:
£14m). At this time, the Group expects to incur future costs, presented
within adjusting items across the current and future financial years, as
follows: for the second half of FY24 between £15m and £20m, during FY25
between £10m and £20m and during FY26 up to £5m.
Taxation
The statutory tax charge of £102m (H1 FY23: £74m) represents an effective
tax rate on statutory profit for the six-month period ended 31 August 2023 of
25.8% (H1 FY23: 20.4%). This is higher than the UK statutory corporate tax
rate of 25.0% (H1 FY23: 19.0%) primarily due to the impact of overseas tax
losses for which no deferred tax has been recognised.
Statutory profit after tax
Statutory profit after tax for the period was £293m in H1 FY24, compared to a
profit of £234m in H1 FY23.
Earnings per share
H1 FY24 H1 FY23 vs H1 FY23
Adjusted basic profit / earnings per share(†) 146.1p 107.0p 37%
Statutory basic profit / earnings per share 147.6p 115.7p 28%
Adjusted basic profit per share of 146.1p and statutory basic profit per share
of 147.6p reflect the adjusted and statutory profits reported in the period
and are based on a weighted average number of shares of 199m (H1 FY23: 202m).
The reduction in the weighted average number of shares reflects shares
purchased and cancelled as part of the Group's previously announced share
buy-back programme.
Dividend
The Board has declared an increased interim dividend of 34.1 pence per share
(H1 FY23: 24.4 pence), reflecting the Group's performance in the first half,
its strong balance sheet, continued current trading momentum and confidence in
the full year outlook. This will result in a total interim dividend payment of
£66m. The interim dividend will be paid on 8 December 2023 to all
shareholders on the register at the close of business on
3 November 2023. Shareholders will 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 8 to the accompanying financial statements.
Cashflow
£m H1 FY24 H1 FY23
Adjusted EBITDAR(†) 628 512
Change in working capital 4 29
Net turnover rent and rental income (1) 1
IFRS 16 interest and principal lease payments (149) (132)
Adjusted operating cashflow(†) 483 410
Interest (excl. IFRS 16) 9 (16)
Corporate taxes (26) (7)
Pension (3) (2)
Capital expenditure: non-expansionary (122) (82)
Capital expenditure: expansionary(1) (91) (222)
Disposal Proceeds 8 56
Non-cash other 6 13
Other (4) (4)
Cashflow before shareholder returns / receipts and debt repayments 260 144
Dividend (99) (70)
Shares purchased for Employee Share Ownership Trust ('ESOT') - (33)
Share buy-back (265) -
Net cashflow (104) 42
Opening net cash(†) 171 141
Repayment of long-term borrowings - -
Closing net cash(†) 67 182
1: H1 FY24 includes £nil payment of contingent consideration (£6.4m payment
of contingent consideration)
The Group's strong trading performance coupled with a focus on cost
efficiencies delivered a 23% increase in adjusted EBITDAR to £628m. Lease
liability interest and lease repayments increased by £17m to £149m
reflecting the increase in our leasehold estate in the UK and Germany. A
reduction in other debtors reflected a number of property transactions offset
by a decrease in creditors resulting in a £4m working capital inflow in the
period (H1 FY23: £29m inflow). This contributed to an adjusted operating
cashflow of £483m, £73m higher than H1 FY23.
The corporation tax net outflow in the period was £26m. This comprises
payments of £27m in the UK and £0.2m in Germany, net of a £1m repayment of
historic taxes.
Non-expansionary capital expenditure was £122m and reflected an increase in
refurbishment activity, our systems replacement projects and our bed
replacement programme. Expansionary capital expenditure was £91m, £131m
lower than last year which included three large freehold purchases in London
and Dublin. With additional freehold purchases already announced and planned
in the second half of the year, full year gross capex spend is expected to be
between £500m and £550m.
Disposal proceeds of £8m (H1 FY23: £56m) include the disposal of three
properties as the Group continues to optimise its estate when suitable
opportunities arise. The prior year includes £46m relating to the sale and
leaseback of a property in Marylebone. Additional property disposals, either
already announced or expected in the second half of FY24, mean we expect to
receive total disposal proceeds between £50m and £100m in FY24.
The £6m of other non-cash items includes inflows relating to share-based
payments of £9m (H1 FY23: £7m), and £3m representing non-cash pension
scheme administration costs (H1 FY23: £2m), partially offset by outflows
relating to £6m of net provision movements (H1 FY23: £3m inflow).
The increase in operating cashflow funded the capital expenditure in the
period and therefore resulted in a cash inflow before shareholder returns of
£260m (H1 FY23: £144m).
Following the strong financial and operating performance in FY23, the Board
recommended a final dividend of 49.8p per share on 25 April 2023. This
resulted in a payment of £99m which was paid on 7 July 2023. On 24 April 2023
the Board approved a £300m share buy-back to be completed by 18 October 2023.
In the period 8m shares were repurchased and cancelled for consideration of
£265m with the remaining shares to be repurchased before the completion date.
Following the payment of the increased final dividend and share buy-back, the
net cash outflow was £104m and net cash at the end of the period was £67m.
Debt funding facilities & liquidity
£m Facility Utilised Maturity
Revolving Credit Facility (775.0) - 2028
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 1,061
Total facilities utilised, net of cash(1) 61
Net cash(†) 67
Net cash and lease liabilities(†) (3,882)
The Group's objective is to manage to investment grade metrics and
specifically to a lease-adjusted
net debt : adjusted EBITDAR(†) ratio of less than 3.5x over the medium
term(2). We received confirmation of an upgrade to our investment grade status
on 17 August 2023 from BBB- to BBB. During the first half, the Group's
lease-adjusted net debt was £2,529m (H1 FY23: £2,217m) and the
lease-adjusted net debt : adjusted EBITDAR ratio was 2.5x (H1 FY23: 2.8x).
As at 31 August 2023, £35m of the £775m Revolving Credit Facility is
carved-out as an ancillary guarantee facility for the Group's use in Germany.
This facility replaces an existing credit line previously made available to
the Group outside of the RCF. Guarantees totalling €23m were in issue at 31
August 2023 (March 2023: €22m).
1: Excludes unamortised fees associated with the debt instrument
2: This measure has been changed to align to Fitch methodology on an adjusted
EBITDAR basis and as a result has reset the leverage threshold to 3.5x
lease-adjusted net debt : adjusted EBITDAR (previously 3.7x)
Capital investment
£m H1 FY24 H1 FY23
UK maintenance and product improvement 120 81
New / extended UK hotels(1) 39 182
Germany and Middle East(2) 54 42
Total 213 304
1: H1 FY24 includes £nil capital contributions to joint ventures (H1 FY23:
£nil)
2: H1 FY24 includes £nil payment of contingent consideration (H1 FY23:
£6.4m)
Total capital expenditure in H1 FY24 was £213m, which was approximately £90m
lower than the previous year. UK maintenance and product improvement spend was
£120m, £39m higher than H1 FY23, reflecting hotel refurbishments,
systems-related projects and the Group's ongoing bed replacement programme. UK
expansionary expenditure included £39m on developing new sites. This was
£143m lower than in H1 FY23 that included the purchase of freehold properties
in London and Dublin. In Germany, capital spend was driven by the purchase of
a freehold property in Lindau and the continued development of our committed
pipeline. As a result, gross capital expenditure in FY24 is now expected to be
between £500m and £550m with between £50m and £100m expected to be
received from disposals.
Property, plant and equipment of £4.6bn was higher than H1 FY23 (£4.5bn),
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 57%:43% 55%:45%
Premier Inn Germany 22%:78% 24%:76%
Group 53%:47% 51%:49%
1: Open plus committed pipeline
The current UK estate is 57% freehold and 43% leasehold, a mix that is
expected to change to 55% freehold and 45% leasehold as the existing pipeline
is brought onstream. 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 £3.5bn (H1 FY23: £3.3bn) and lease
liabilities increasing to £3.9bn (H1 FY23: £3.7bn).
Return on Capital(1) - Premier Inn UK
Returns H1 FY24 H1 FY23
Group ROCE(†) 12.6% 9.0%
UK ROCE(†) 14.9% 11.0%
1: Germany ROCE not included as losses were incurred in the year
The strong revenue and profit performance meant that Group ROCE increased to
12.6% and UK ROCE increased to 14.9% and we remain confident in being able to
deliver long-term sustainable returns on incremental investment. We believe
that our vertically integrated business model means we are particularly
well-placed to capitalise on the significant structural opportunities in both
the UK and Germany. Despite ongoing inflationary pressures, we believe that
such headwinds can be mitigated through a combination of continued estate
growth, our longstanding efficiency programme and our ability to drive ARRs
through improvements to our proprietary automated trading engine and the
continuous evolution of our product.
Pension
The Group's defined benefit pension scheme, the Whitbread Group Pension Fund
(the 'Pension Fund'), had an IAS19 Employee Benefits surplus of £236m at the
end of the period (H1 FY23: £429m). The change in surplus was primarily
driven by increases in gilt yields which, due to the liability hedging
strategies in place for the Fund, resulted in a lower value being placed on
the assets as at 31 August 2023 compared to 1 September 2022. This was
partially offset by increases in corporate bond yields, and therefore the
discount rate, which reduces the value of the pension obligations.
There are currently no deficit reduction contributions being paid to the
Pension Fund, however annual contributions continue to be paid to the Fund
through the Scottish Partnership arrangements which amount to approximately
£11m per annum. The Trustee holds security over approximately £532m 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. The Pension Fund is
currently in the process of conducting the triennial actuarial valuation of
the Fund as at
31 March 2023.
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 ('Annual Report') 2022/23 remain relevant for the remaining half of
the financial year, when read together with the following considerations.
The overall risk environment continues to be uncertain with global economic
weakness, political tensions and environmental events increasing complexity
and changing the nature of current and emerging risks. As previously noted,
Whitbread's risks have a high degree of inter-connectivity (e.g. securing
talent or surety of supply chain) which amplifies any movements and can result
in significant costs to the business. The most significant risk remains the
economic outlook including geopolitical risks and the resulting impact on
inflation across key costs and cost-of-living pressures potentially subduing
demand.
We remain vigilant surrounding cyber risk and the highly dynamic nature and
increasing sophistication of attacks enabled by Artificial Intelligence
('AI'). Internally, we recognise the increased risks driven by an accumulation
of change via programmes and strategic priorities, especially during the next
six months as we roll-out a new reservation system across our hotels. The
likelihood that the property market stagnation slows growth has increased as
we see less developer led opportunities, conversely this reduces the
likelihood of brand challenges impacting demand from supply therefore
balancing the overall risk to Whitbread.
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 macro-economic 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;
· Cyber and data security - reduces the effectiveness of systems or
results in loss of data;
· Technology-led business change and interdependencies - ability to
execute the significant volume of change under time-bound pressures, for
example, the replacement of legacy systems;
· Germany profitable growth - the inability to successfully execute
our strategy in Germany;
· Increased and extended focus on the proposition in Restaurants -
driven by a divergence in performance of accommodation and F&B sales;
· Extended stagnation of the UK Property market slows UK growth;
· Talent attraction and retention - continued pressure following
structural changes to the labour market with functional and geographical
specific challenges, a reduction in our talent pools and low levels of senior
diversity;
· Third party arrangements and supply chain rigour - business
interruption as a result of the withdrawal of services below acceptable
standards or reputational damage as a result of unethical supplier practices;
· Brand challenges impacting demand - driven by brand oversupply,
new budget competitors and the threat of disruptors exploiting current
consumer price sensitivity, resulting in a 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 impact our ability to deliver on our
commitments.
Our Board and 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 62 to 66 of the Annual
Report 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 JP Morgan 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 profit / earnings per share, net cash / (debt), net
cash / (debt) and lease liabilities, adjusted 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
Dominic Paul Hemant Patel
Chief Executive Chief Financial Officer
Interim consolidated income statement
(Reviewed) (Reviewed)
6 months to 31 August 2023 6 months to 1 September 2022
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 1,574.0 - 1,574.0 1,350.4 - 1,350.4
Other income 3 4.3 3.3 7.6 1.7 - 1.7
Operating costs (1,132.7) 0.4 (1,132.3) (1,008.6) 35.5 (973.1)
Operating profit before joint ventures 445.6 3.7 449.3 343.5 35.5 379.0
Share of loss from joint ventures (0.3) - (0.3) (0.3) - (0.3)
Operating profit 445.3 3.7 449.0 343.2 35.5 378.7
Finance costs 5 (87.7) - (87.7) (84.2) - (84.2)
Finance income 5 33.8 - 33.8 12.9 - 12.9
Profit before tax 391.4 3.7 395.1 271.9 35.5 307.4
Tax expense 6 (101.1) (0.8) (101.9) (55.5) (18.0) (73.5)
Profit for the period attributable to parent shareholders 290.3 2.9 293.2 216.4 17.5 233.9
Earnings per share (Note 7)
Basic (pence) 146.1 1.5 147.6 107.0 8.7 115.7
Diluted (pence) 145.0 1.5 146.5 106.4 8.6 115.0
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
31 August 2023 1 September 2022
£m £m
Profit for the period 293.2 233.9
Items that will not be reclassified to the income statement:
Remeasurement loss on defined benefit pension scheme 11 (96.4) (100.6)
Current tax on defined benefit pension scheme 0.5 0.3
Deferred tax on defined benefit pension scheme 23.5 24.8
(72.4) (75.5)
Items that may be reclassified subsequently to the income statement:
Net loss on cash flow hedges (0.8) -
Deferred tax on cash flow hedges 0.8 -
Net gain/(loss) on hedge of a net investment 4.4 (21.4)
Deferred tax on hedge of a net investment - 2.5
Current tax on hedge of a net investment (0.6) -
Cost of hedging 0.5 0.5
4.3 (18.4)
Exchange differences on translation of foreign operations (21.8) 24.6
Deferred tax on exchange differences on translation of foreign operations - (2.1)
Current tax on exchange differences on translation of foreign operations 2.7 -
(19.1) 22.5
Other comprehensive loss for the period, net of tax (87.2) (71.4)
Total comprehensive income for the period, net of tax 206.0 162.5
Interim consolidated statement of changes in equity
6 months to 31 August 2023 (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 2 March 2023 164.9 1,026.6 50.2 5,230.1 35.0 (2,395.4) 4,111.4
Profit for the period - - - 293.2 - - 293.2
Other comprehensive loss - - - (72.4) (14.8) - (87.2)
Total comprehensive income/(loss) - - - 220.8 (14.8) - 206.0
Ordinary shares issued on exercise of employee share options - 1.5 - - - - 1.5
Loss on ESOT shares issued - - - (6.0) - 6.0 -
Accrued share-based payments - - - 9.3 - - 9.3
Tax on share-based payments - - 0.6 - - 0.6
Equity dividends paid (Note 8) - - - (99.3) - - (99.3)
Share buyback and commitment (Note 13) (6.0) - 6.0 - - (301.3) (301.3)
At 31 August 2023 158.9 1,028.1 56.2 5,355.5 20.2 (2,690.7) 3,928.2
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 13) - - - - - (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
Interim consolidated balance sheet
(Reviewed) (Reviewed) (Audited)
31 August 2023 1 September 2022 2 March 2023
£m £m £m
Notes
Non-current assets
Goodwill and other intangible assets 189.5 165.9 179.6
Right-of-use assets 3,476.8 3,310.1 3,504.6
Property, plant and equipment 4,616.3 4,465.8 4,554.2
Investment in joint ventures 45.2 47.2 48.2
Derivative financial instruments 10 0.8 - -
Defined benefit pension surplus 11 236.4 429.2 324.7
8,565.0 8,418.2 8,611.3
Current assets
Inventories 22.1 20.8 21.7
Derivative financial instruments 10 0.3 - -
Trade and other receivables 123.8 138.2 141.8
Cash and cash equivalents 1,061.3 1,174.8 1,164.8
1,207.5 1,333.8 1,328.3
Assets classified as held for sale 7.1 5.8 3.2
Total assets 9,779.6 9,757.8 9,942.8
Current liabilities
Lease liabilities 153.6 138.8 144.1
Provisions 8.9 24.6 20.2
Derivative financial instruments 10 0.8 - -
Current tax liabilities 12.2 13.9 4.6
Trade and other payables 640.8 578.5 676.7
Other financial liabilities 13 36.6 - -
852.9 755.8 845.6
Non-current liabilities
Borrowings 9 994.3 992.7 993.4
Lease liabilities 3,795.1 3,610.0 3,814.3
Provisions 8.8 10.1 8.3
Derivative financial instruments 10 1.3 2.8 7.8
Deferred tax liabilities 6 199.0 178.3 158.2
Trade and other payables - 1.3 3.8
4,998.5 4,795.2 4,985.8
Total liabilities 5,851.4 5,551.0 5,831.4
Net assets 3,928.2 4,206.8 4,111.4
Equity
Share capital 13 158.9 164.8 164.9
Share premium 13 1,028.1 1,025.0 1,026.6
Capital redemption reserve 13 56.2 50.2 50.2
Retained earnings 5,355.5 5,319.1 5,230.1
Currency translation reserve 20.2 28.4 35.0
Other reserves (2,690.7) (2,380.7) (2,395.4)
Total equity 3,928.2 4,206.8 4,111.4
( )
( )
Interim consolidated cash flow statement
Notes (Reviewed) (Reviewed)
6 months to 6 months to
31 August 2023 1 September 2022
£m £m
Cash generated from operations 12 638.6 554.2
Payments against provisions (4.1) (1.0)
Pension payments 11 (2.7) (2.4)
Interest paid - lease liabilities (75.1) (68.6)
Interest paid - other (15.2) (21.4)
Interest received 23.7 5.4
Corporation taxes paid (26.0) (6.5)
Net cash flows generated from operating activities 539.2 459.7
Cash flows used in investing activities
Purchase of property, plant and equipment (194.5) (282.6)
Proceeds from disposal of property, plant and equipment 8.3 55.5
Investment in intangible assets (18.7) (15.2)
Payment of deferred and contingent consideration - (6.4)
Net cash flows used in investing activities (204.9) (248.7)
Cash flows used in financing activities
Proceeds from issue of shares on exercise of employee share options 1.5 0.3
Payment of facility fees (0.8) (4.0)
Net lease incentives received 0.4 2.0
Payment of principal of lease liabilities (73.8) (65.4)
Purchase of own shares for ESOT - (32.5)
Purchase of own shares, including transaction costs 13 (264.7) -
Dividends paid 8 (99.3) (70.1)
Net cash flows used in financing activities (436.7) (169.7)
Net (decrease)/increase in cash and cash equivalents (102.4) 41.3
Opening cash and cash equivalents 1,164.8 1,132.4
Foreign exchange differences (1.1) 1.1
Closing cash and cash equivalents 1,061.3 1,174.8
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 17 October
2023.
The financial information for the year ended 2 March 2023 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 31 August 2023 and the comparatives to 1 September 2022 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 2
March 2023.
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:
· net charges associated with the strategic review of the Group's hotel and
restaurant property 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/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;
· transformation and change costs associated with the implementation of the
Group's strategic IT programmes;
· 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 Group income statement is presented in a columnar format to enable users
of the accounts to see the Group's performance before adjusting items, the
adjusting items, and the statutory total on a line-by-line basis. 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.
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 2 March 2023.
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.
During the period, there were no indicators of impairment or impairment
reversals and as such, no impairment assessment was deemed necessary.
Accordingly, no impairment disclosures are provided within these interim
condensed consolidated financial statements.
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 11 describes the sensitivity of the defined
benefit pension obligation to changes in key assumptions.
2. Segmental analysis
The Group provides services in relation to accommodation, food and beverage
('F&B') in both 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.
The following tables present revenue and profit information regarding business
operating segments for the six months to 31 August 2023 and 1 September 2022.
6 months to 31 August 2023 6 months to 1 September 2022
Revenue UK & Ireland Germany Central and other Total UK & Ireland Germany Central and other Total
£m £m £m £m £m £m £m £m
Accommodation 1,084.1 81.1 - 1,165.2 940.0 44.5 - 984.5
Food, beverage and other items 395.0 13.8 - 408.8 358.0 7.9 - 365.9
Revenue 1,479.1 94.9 - 1,574.0 1,298.0 52.4 - 1,350.4
6 months to 31 August 2023 6 months to 1 September 2022
Profit/(loss) UK & Ireland Germany Central and other Total UK & Ireland Germany Central and other Total
£m £m £m £m £m £m £m £m
Adjusted operating profit/(loss) before joint ventures 471.6 (3.8) (22.2) 445.6 379.5 (18.7) (17.3) 343.5
Share of loss from joint ventures - - (0.3) (0.3) - - (0.3) (0.3)
Adjusted operating profit/(loss) 471.6 (3.8) (22.5) 445.3 379.5 (18.7) (17.6) 343.2
Net finance (costs)/income (64.9) (10.2) 21.2 (53.9) (62.4) (6.2) (2.7) (71.3)
Adjusted profit/(loss) before tax 406.7 (14.0) (1.3) 391.4 317.1 (24.9) (20.3) 271.9
Adjusting items (Note 4) 3.7 35.5
Profit before tax 395.1 307.4
6 months to 31 August 2023 6 months to 1 September 2022
Other segment information UK & Ireland Germany Total UK & Ireland Germany Total
£m £m £m £m £m £m
Capital expenditure:
Property, plant and equipment - cash basis 140.7 53.8 194.5 247.3 35.3 282.6
Property, plant and equipment - accruals basis 120.3 53.5 173.8 241.8 33.2 275.0
Intangible assets 18.7 - 18.7 15.2 - 15.2
Cash outflows from lease interest and payment of principal of lease 123.0 25.9 148.9 116.5 17.5 134.0
liabilities
Depreciation - property, plant and equipment 76.8 7.1 83.9 74.2 5.3 79.5
Depreciation - right-of-use assets 69.7 19.7 89.4 65.8 15.1 80.9
Amortisation 8.8 0.1 8.9 8.6 0.1 8.7
Segment assets and liabilities are not disclosed as they are not reported to,
or reviewed by, the Chief Operating Decision Maker.
3. Other income
6 months to 6 months to
31 August 2023 1 September 2022
£m £m
Rental income 1.6 1.7
Government payments(1) 2.5 -
Other 0.2 -
Other income before adjusting items 4.3 1.7
Legal claim settlement 3.3 -
Other income 7.6 1.7
(1)£2.5m has been released during this period from a brought forward
provision relating to Government payments claimed in Germany during previous
periods.
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
31 August 2023 1 September 2022
£m £m
Adjusting items were as follows:
Other income:
Legal Claim Settlement(1) 3.3 -
Adjusting other income 3.3 -
Operating costs:
Net impairment reversals - property, plant and equipment, right-of-use assets - 33.5
and other intangible assets(2)
Gains on disposals, property and other provisions(3) 8.9 2.0
Strategic IT programme costs(4) (8.5) -
Adjusting operating costs 0.4 35.5
Adjusting items before tax 3.7 35.5
Tax adjustments included in reported loss after tax, but excluded in arriving
at adjusted loss after tax:
Tax on adjusting items (0.6) (10.5)
Effect of in-year rate differential/change in tax rates (0.2) (7.5)
Adjusting tax expense (0.8) (18.0)
(1 ) During the period, the Group received a settlement of
£3.3m in relation to a legal claim made against a payment card scheme
provider.
(2 ) During the period, there were no indicators of
impairment or impairment reversals and as such, no impairment assessment was
performed.
During the comparative period, an impairment review of assets held by the
Group was undertaken, resulting in a total net impairment reversal of £35.9m.
The net impairment reversal was comprised of £23.4m relating to property,
plant and equipment and £12.5m relating to right-of-use assets. In addition,
an impairment charge of £2.4m was recorded in relation to assets classified
as held for sale.
(3 ) From FY18 to FY20, the Group established a provision for
the performance of remedial works on cladding material at a small number of
sites. During the period the Group has received reimbursements of costs of
remedial works on cladding material from property developers totalling £2.4m.
In addition, during the period, the Group made a profit on other property
disposals of £2.1m (HY23: £0.6m) and released provisions of £4.4m (HY23:
£nil) relating to historic indirect tax matters.
During the comparative 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.
(4 ) The Group has assessed the presentation of costs
incurred in relation to the current and future strategic IT programme
implementations. The programmes currently scheduled include the Group's Hotel
Management System and HR & Payroll System. These represent significant
business change costs for the Group rather than replacements of IT systems
with the System products being Software as a Service (SaaS). The start date of
these projects varies and as such we expect costs to be incurred within this
category over the next few financial years, with their commercial and
strategic benefit seen as lasting multiple years.
Cash costs incurred on the programmes and presented within adjusting items in
the period were £8.5m with cumulative cash costs to date being £22.3m (FY23:
£13.8m). At this time the Group expects to incur future costs presented
within adjusting items across future financial periods as follows: for the
second half of the financial year ended 2024 between £15.0m and £20.0m,
during the financial year ended 2025 between £10.0m and £20.0m and during
the financial year ended 2026 up to £5.0m.
5. Finance (costs)/income
6 months to 6 months to
1 August 2023 1 September 2022
£m £m
Finance costs
Interest on bank loans and overdrafts (2.3) (2.9)
Interest on other loans (11.9) (12.1)
Interest on lease liabilities (75.1) (68.6)
Interest capitalised 2.1 0.1
Unwinding of discount on contingent consideration - (0.2)
Cost of hedging (0.5) (0.5)
(87.7) (84.2)
Finance income
Bank interest receivable 25.8 6.1
IAS 19 pension net finance income (Note 11) 8.0 6.8
33.8 12.9
Total net finance costs (53.9) (71.3)
6. Taxation
The Group effective tax rate applied to the profit before tax before adjusting
items for the six months to 31 August 2023 is 25.8% (H1 FY23: 20.4%).
The tax charge for the six months to 31 August 2023 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 29
February 2024.
A UK current tax rate of 24.5% and a deferred tax rate of 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 as the Group does not currently deem it appropriate to
recognise a deferred tax asset. The impact on the effective tax rate from the
non-recognition of German tax losses in the current period is 0.7% (HY23:
3.1%).
Consolidated income statement 6 months to 6 months to
31 August 2023 1 September 2022
£m £m
Current tax:
Current tax expense 36.6 20.9
Adjustments in respect of previous periods (0.4) -
36.2 20.9
Deferred tax:
Origination and reversal of temporary differences 65.5 45.2
Effect of in-year rate differential/change in tax rates 0.2 7.5
Adjustments in respect of previous periods - (0.1)
65.7 52.6
Tax reported in the consolidated income statement 101.9 73.5
Deferred tax
The major deferred tax (liabilities)/assets 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 2 March 2023 (87.2) (93.8) (116.4) 44.3 97.5 (2.6) (158.2)
(Charge)/credit to consolidated income statement (25.1) 0.4 (1.4) (1.5) (33.6) (4.5) (65.7)
Credit to statement of comprehensive income - - 23.5 - - 0.8 24.3
Credit to statement of changes in equity - - - - - 0.3 0.3
Foreign exchange and other movements - - - (0.6) 0.5 0.4 0.3
At 31 August 2023 (112.3) (93.4) (94.3) 42.2 64.4 (5.6) (199.0)
The UK's main corporation tax rate increased to 25% on 1 April 2023. All UK
deferred tax balances have been recognised at this rate.
The Group has unrecognised German tax losses of £208.5m (March 2023:
£199.9m) 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 tax group at the reporting period
and does not currently deem it appropriate to recognise any German deferred
tax asset in excess of deferred tax liabilities. Recognition of German
deferred tax assets in their entirety would result in an increase in the
reported deferred tax asset of £66.6m (March 2023: £63.8m).
Finance (No. 2) Bill 2023, that includes Pillar Two legislation, was
substantively enacted on 20 June 2023 for IFRS purposes. The Group has applied
the exemption from recognising and disclosing information about deferred tax
assets and liabilities related to Pillar Two income taxes as required by the
amendments to IAS 12 - International Tax Reform - Pillar Two Model Rules,
issued in May 2023.
7. Earnings per share
The basic earnings per share (EPS) figures are calculated by dividing the net
profit 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 nil (H1 FY23:
1.1m) 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
31 August 2023 1 September 2022
million million
Basic weighted average number of ordinary shares 198.7 202.1
Effect of dilution - share options 1.5 1.2
Diluted weighted average number of ordinary shares 200.2 203.3
The profits used for the earnings per share calculations are as follows:
6 months to 6 months to
31 August 2023 1 September 2022
£m £m
Profit for the period attributable to parent shareholders 293.2 233.9
Adjusting items before tax (Note 4) (3.7) (35.5)
Adjusting tax expense (Note 4) 0.8 18.0
Adjusted profit for the period attributable to parent shareholders 290.3 216.4
6 months to 6 months to
31 August 2023 1 September 2022
pence pence
Basic EPS on profit for the period 147.6 115.7
Effect of adjusting items before tax (1.9) (17.6)
Effect of adjusting tax expense 0.4 8.9
Basic EPS on adjusted profit for the period 146.1 107.0
Diluted EPS on profit for the period 146.5 115.0
Diluted EPS on adjusted profit for the period 145.0 106.4
8. Dividends
6 months to 31 August 2023 6 months to 1 September 2022
pence per share £m pence per share £m
Equity dividends on ordinary shares:
Final dividend for prior year 49.80 99.2 34.70 70.1
99.2
Dividends on other shares:
B share dividend 2.60 0.1 0.10 -
Total dividends paid 99.3 70.1
An interim dividend of 34.1p per ordinary share (2023: 24.4p) amounting to a
total dividend of £65.7m (2023: £49.0m) was declared by the directors on 17
October 2023. 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 FY23: 2.0m) B shares in issue. The Group
paid a dividend of 2.6p per share (H1 FY23: 0.1p per share) during the period.
9. Borrowings, net debt and liquidity risk
Amounts drawn down on the Group's borrowing facilities are as follows:
Current Non-current
31 August 2023 31 August 2023
£m 2 March 2023 £m 2 March 2023
£m £m
Revolving credit facility (£775.0m) - - - -
Senior unsecured bonds - - 994.3 993.4
- - 994.3 993.4
Revolving credit facility
In May 2023 the Group signed an extension to the existing 5 year £775.0m
multicurrency Revolving Credit Facility Agreement, extending the final
maturity date by one year to now expire on 25 May 2028. The facility's other
terms remain consistent, being a Multicurrency Revolving Facility Agreement
and having variable interest rates with GBP being linked to SONIA and EUR
being linked to EURIBOR.
The revolving credit facility agreement contains one financial covenant ratio,
being:
Net Debt/Adjusted EBITDA <3.5x
As at 31 August 2023, £35.0m of the £775.0m Revolving Credit Facility is
carved-out as an ancillary guarantee facility for the Group's use in Germany.
This facility replaces an existing credit line previously made available to
the Group outside of the RCF. Guarantees totalling €22.5m were in issue at
31 August 2023 (March 2023: €21.6m).
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
2 March Share buyback commitments including transaction costs Cash flow Net new lease liabilities Foreign exchange Amortisation of premiums and discounts 31 August 2023
2023
£m £m £m £m £m £m £m
Cash and cash equivalents 1,164.8 - (102.4) - (1.1) - 1,061.3
Liabilities from financing activities
Borrowings (993.4) - - - - (0.9) (994.3)
Lease liabilities (3,958.4) - 73.8 (92.4) 28.3 - (3,948.7)
Committed share buyback - (301.3) 264.7 - - - (36.6)
Total liabilities from financing activities (4,951.8) (301.3) 338.5 (92.4) 28.3 (0.9) (4,979.6)
Less: lease liabilities 3,958.4 - (73.8) 92.4 (28.3) - 3,948.7
Less: committed share buyback - 301.3 (264.7) - - - 36.6
Net cash 171.4 - (102.4) - (1.1) (0.9) 67.0
Liquidity Risk
The Group has re-presented the time bands to better reflect the maturity
profile that it monitors in its liquidity management activities and has
amended the comparative total lease liability amount. The tables below
summarise the Group's financial liabilities at 31 August 2023 and 2 March 2023
based on contractual undiscounted payments, including interest:
31 August 2023 Less than 12 months Between 1 and 3 years Between 3 and 10 years Between 10 and 20 years More than 20 years Total
£m £m £m £m £m £m
Non-derivative financial liabilities:
Interest-bearing loans and borrowings 29.8 509.6 594.6 - - 1,134.0
Lease liabilities 305.8 606.6 2,058.4 2,200.1 1,523.0 6,693.9
Other financial liabilities 36.6 - - - - 36.6
Trade and other payables 187.7 - - - - 187.7
559.9 1,116.2 2,653.0 2,200.1 1,523.0 8,052.2
Derivative financial assets/liabilities:
Cross currency swaps:
Derivative contracts - receipts (15.2) (480.4) - - - (495.6)
Derivative contracts - payments 9.4 466.0 - - - 475.4
(5.8) (14.4) - - - (20.2)
Total 554.1 1,101.8 2,653.0 2,200.1 1,523.0 8,032.0
2 March 2023 (re-presented) Less than 12 months Between 1 Between 3 and 10 years Between 10 and 20 years More than 20 years Total
£m and 3 years £m £m £m £m
£m
Non-derivative financial liabilities:
Interest-bearing loans and borrowings 29.8 509.6 609.3 - - 1,148.7
Lease liabilities 301.6 604.6 2,044.0 2,232.3 1,578.0 6,760.5
Trade and other payables 198.9 3.8 - - - 202.7
530.3 1,118.0 2,653.3 2,232.3 1,578.0 8,111.9
Derivative financial assets/liabilities:
Cross currency swaps:
Derivative contracts - receipts (15.2) (480.4) - - - (495.6)
Derivative contracts - payments 9.8 481.7 - - - 491.5
(5.4) 1.3 - - - (4.1)
Total 524.9 1,119.3 2,653.3 2,232.3 1,578.0 8,107.8
( )
10. 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.
31 August 1 September 2 March
2023 2022 2023
£m £m £m
Financial assets
Derivative financial instruments - level 2 1.1 - -
Financial liabilities
Derivative financial instruments - level 2 (2.1) (2.8) (7.8)
Deferred and contingent consideration - level 3 (3.6) (19.9) (3.8)
There were no transfers between levels during any period disclosed.
11. Defined benefit pension surplus
During the six-month period to 31 August 2023, the defined benefit pension
scheme has moved from a surplus of £324.7m to £236.4m. The key movements in
the surplus are as follows:
£m
Pension surplus as at 2 March 2023 324.7
Remeasurement due to:
Changes in financial assumptions 57.3
Return on plan assets lower than discount rate (153.7)
(96.4)
Contributions from employer 2.6
Net interest on pension liability and assets 8.0
Benefits paid direct by the company in relation to an unfunded pension scheme 0.1
Administrative expenses (2.6)
Pension surplus as at 31 August 2023 236.4
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.
With the pensioner buy-in policy purchased in June 2022, the defined benefit
scheme has now insured around 50% of pensioners, under which the benefits
payable to defined benefit members covered under the policy became fully
insured, thus reducing the Group's exposure to changes in longevity, interest
rates inflation and other relevant factors.
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 31 August 2023 for IAS 19 Employee Benefits purposes were:
31 August 2 March
2023 2023
% %
Pre-April 2006 rate of increase in pensions in payment 3.10 3.20
Post-April 2006 rate of increase in pensions in payment 2.10 2.20
Pension increases in deferment 3.10 3.20
Discount rate 5.30 5.00
Inflation assumption 3.30 3.30
The mortality assumptions are based on standard mortality tables which allow
for future mortality improvements. The mortality improvements assumption has
been updated to use the CMI 2021 model (2022: CMI 2020). The CMI 2021 model
parameters include some weighting for 2021 mortality experience. The
assumptions are that a member currently aged 65 will live on average for a
further 19.7 years (March 2023: 19.7 years) if they are male and for a further
22.4 years (March 2023: 22.4 years) if they are female. For a member who
retires in 2043 at age 65, the assumptions are that they will live on average
for a further 20.7 years (March 2023: 20.7 years) after retirement if they are
male and for a further 23.6 years (March 2023: 23.6 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:
Decrease/(increase) in gross
defined benefit liability
31 August 2 March
2023 2023
Discount rate
2.00% increase to discount rate 337.0 357.0
2.00% decrease to discount rate (512.0) (548.0)
Inflation
0.25% increase to inflation rate (36.0) (39.0)
0.25% decrease to inflation rate 36.0 38.0
Life expectancy
One-year increase to life expectancy (69.0) (71.3)
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.
12. Analysis of cash flows given in the cash flow statement
6 months to 6 months to
31 August 2023 1 September 2022
£m £m
Cash generated from operations
Profit for the period 293.2 233.9
Adjustments for:
Tax expense 101.9 73.5
Net finance costs (Note 5) 53.9 71.3
Share of loss from joint ventures 0.3 0.3
Depreciation and amortisation 182.2 169.1
Share-based payments 9.3 7.4
Net impairment reversals - (33.5)
Gains on disposals, property and other provisions (Note 4) (2.1) (2.0)
Other non-cash items (3.6) 5.0
Cash generated from operations before working capital changes 635.1 525.0
Increase in inventories (0.5) (1.4)
Decrease in trade and other receivables 19.8 8.7
(Decrease)/Increase in trade and other payables (15.8) 21.9
Cash generated from operations 638.6 554.2
Other non-cash items include an outflow of £6.1m (H1 FY23: inflow of £2.7m)
as a result of net provision movements, an outflow of £0.1m (H1 FY23: inflow
of £0.2m) representing bad debt charges and an inflow of £2.7m (H1 FY23:
£2.0m) representing non-cash pension scheme administration costs.
13. Share capital and reserves
The Company purchased and cancelled 7.8m shares with a nominal value of £6.0m
under the share buyback programme which commenced on 25 April 2023.
Consideration of £263.4m together with associated fees and stamp duty of
£1.3m was paid during the period. The buyback represents an irrevocable
commitment and therefore the liability to purchase the remaining shares of
£36.6m is recorded as a liability on the consolidated balance sheet. As at 3
October 2023, this share buyback programme was completed.
14. Related party disclosure
In Note 33 to the Annual Report and Accounts for the year ended 2 March 2023,
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 31 August 2023 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 29
February 2024. All transactions with subsidiaries are eliminated on
consolidation.
15. Capital expenditure commitments
Capital expenditure commitments for which no provision has been made are set
out in the table below:
31 August 1 September 2 March
2023 2022 2023
£m £m £m
Property, plant and equipment 90.6 85.1 125.4
Intangible assets 9.7 11.0 7.7
16. Events after the balance sheet date
The Board of Directors approved a share buy-back on 17 October 2023 for
£300.0m and is in the process of appointing the relevant brokers to undertake
the programme in accordance with that approval.
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
31August 2023 which comprises the consolidated income statement, the
consolidated statement of comprehensive income, consolidated statement of
changes of equity, the consolidated balance sheet, the consolidated cash flow
statement and related notes 1 to 16.
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 31 August 2023 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
17 October 2023
Glossary
Adjusted property rent
Property rent less a proportion of contingent rent. Property rent is defined
as 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.
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 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.
Operating profit
Profit before net finance costs and tax.
OTAs
Online Travel Agents
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.
The APM titled cohort of established German hotels adjusted profit before tax
is no longer reported as the Group does not see this as a useful APM going
forwards. The nature of a maturity profile is such that the cohorts will
evolve over time in comparison to the fixed nature of an APM meaning that
there is not a consistent basis on which to report. The APM titled funds from
operations is no longer reported as the Group's credit rating agency no longer
utilises this measure in calculating leverage. The APM titled three-year UK
like-for-like revenue growth is no longer reported as the Group's comparative
period no longer contains the impact of the COVID-19 pandemic.
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
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 31 August 2023 6 months to 1 September 2022
UK Accommodation sales (£m) 1,084.1 940.0
Number of rooms occupied by guests ('000) 12,885 12,783
UK average room rate (£) 84.13 73.54
Germany Accommodation sales (£m) 81.1 44.5
Number of rooms occupied by guests ('000) 1,135 805
Germany average room rate (£) 71.44 55.27
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 31 August 2023 6 months to 1 September 2022
UK like-for-like revenue growth 13.3% 93.4%
Contribution from net new hotels 2.0% 8.0%
UK Accommodation sales growth 15.3% 101.4%
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 31 August 2023 6 months to 1 September 2022
UK Accommodation sales (£m) 1,084.1 940.0
Available rooms ('000) 15,264 15,067
UK RevPAR (£) 71.02 62.39
Germany Accommodation sales (£m) 81.1 44.5
Available rooms ('000) 1,771 1,268
Germany RevPAR (£) 45.79 35.06
APM Closest equivalent IFRS Adjustments to reconcile to IFRS measure Definition and purpose
INCOME STATEMENT MEASURES
Adjusted(1) 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(1) tax Tax charge/credit Adjusting items Tax charge/credit before adjusting items.
(Note 4) Reconciliation: Consolidated income statement
Adjusted(1) profit/loss before tax Profit/loss before tax Adjusting items Profit/loss before tax and adjusting items.
(Note 4) Reconciliation: Consolidated income statement
Adjusted(1) 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 7
Profit/PBT 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 cash/debt Total liabilities from financing activities Exclude lease liabilities, other financial liabilities and derivatives held to Cash and cash equivalents after deducting total borrowings. The directors
hedge financing activities consider this to be a useful measure of the financing position of the Group.
Reconciliation: Note 9
Adjusted net cash/debt Total liabilities from financing activities Exclude lease liabilities, other financial liabilities and derivatives held to Net cash/debt adjusted for cash, assumed by ratings agencies to not be readily
hedge financing activities, adjusted for cash assumed by ratings agencies to available, and excluding unamortised debt related fees. The measure has been
not be readily available amended in the year to exclude unamortised debt related fees. The directors
consider this to be a useful measure as it is aligned with the method used by
ratings agencies to assess the financing position of the Group.
Reconciliation As at As at
31 August 2023 1 September 2022
£m £m
Net cash (67.0) (182.1)
Less: Unamortised debt costs 5.7 7.3
Restricted cash adjustment 10.0 10.0
Adjusted net cash (51.3) (164.8)
Unamortised debt costs of £5.7m including arrangement fees of £2.3m are
included within the carrying value of borrowings.
Lease-adjusted net debt/cash Cash and cash equivalents less total liabilities from financing activities Exclude lease liabilities and derivatives held to hedge financing activities. In line with methodology used by credit rating agencies, lease-adjusted net
Includes an adjustment for cash assumed by ratings agencies to not be readily debt includes lease debt which is calculated as 8x adjusted property rent. The
available directors consider this to be a useful measure as it forms the basis of the
Group's leverage targets.
Reconciliation As at As at
31 August 2023 1 September 2022
£m £m
Adjusted net cash (51.3) (164.8)
Lease debt 2,580.8 2,381.5
Lease-adjusted net debt 2,529.5 2,216.7
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 31 August As at 1 September
2023 2022
£m £m
Net cash (67.0) (182.1)
Lease liabilities 3,948.7 3,748.8
Net cash and lease liabilities 3,881.7 3,566.7
APM Closest equivalent IFRS Adjustments to reconcile to IFRS measure Definition and purpose
CASH FLOW MEASURES
Lease-adjusted net debt to adjusted EBITDAR for leverage No direct equivalent Refer to definition This measure is a ratio of lease-adjusted net debt compared against the
Group's adjusted EBITDAR. The Directors use this to monitor the leverage
position of the Group. This measure may not be directly comparable with
similarly titled measures utilised by credit rating agencies, however on a
normalised basis these measures would be expected to move proportionally in
the same direction.
Reconciliation 12 months to 31 August 2023 12 Months to
£m 1 September
2022
£m
Lease-adjusted net debt 2,529.5 2,216.7
Rolling 12 month adjusted EBITDAR 1,004.3 806.0
Lease-adjusted net debt to adjusted EBITDAR for leverage 2.5x 2.8x
Adjusted(1) operating cash flow Cash generated from 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 31 August 2023 6 months to 1 September 2022
£m £m
Adjusted operating profit 445.3 343.2
Depreciation - right-of-use assets 89.4 80.9
Depreciation - property, plant and equipment 83.9 79.5
Amortisation 8.9 8.7
Interest paid - lease liabilities (75.1) (68.6)
Payment of principal of lease liabilities (73.8) (65.4)
Net lease incentives received 0.4 2.0
Movement in working capital 3.5 29.2
Adjusted operating cash flow 482.5 409.5
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(1) 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(1) EBITDA (pre-IFRS 16) and
Adjusted EBITDA (pre-IFRS 16) is further adjusted to remove rent expense.
Adjusted(1) 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 31 August 2023 6 months to 1 September 2022
£m £m
Adjusted operating profit 445.3 343.2
Depreciation - right-of-use assets 89.4 80.9
Depreciation - property, plant and equipment 83.9 79.5
Amortisation 8.9 8.7
Adjusted EBITDA (post-IFRS 16) 627.5 512.3
Variable lease payment expense 2.1 1.1
Rental income (1.6) (1.7)
Adjusted EBITDAR 628.0 511.7
Rental expense, variable lease payments and rental income (143.1) (131.2)
Adjusted EBITDA (pre-IFRS 16) 484.9 380.5
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.
Reconciliation 12 months to 12 months to
31 August 2023 1 September 2022
UK & Ireland UK & Ireland
Total Total
£m £m £m £m
Adjusted operating profit 645.6 470.0
Depreciation - right-of-use assets 174.3 158.8
Rent expense (281.7) (253.6)
Adjusted operating profit pre-IFRS 16 538.2 563.7 375.2 410.5
Net assets 3,928.2 4,206.8
Net cash (67.0) (182.1)
Current tax liabilities 12.2 13.9
Deferred tax liabilities 199.0 178.3
Pension surplus (236.4) (429.2)
Derivative financial assets (1.1) -
Derivative financial liabilities 2.1 2.8
Lease liabilities 3,948.7 3,748.8
Right-of-use assets (3,476.8) (3,310.1)
Other financial liabilities 36.6 -
IAS 17 rent adjustments (65.0) (65.0)
Adjusted net assets 4,280.5 3,780.8 4,164.2 3,722.1
Return on capital employed 12.6% 14.9% 9.0% 11.0%
(1) 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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