REG - Whitbread PLC - Outcome of Business Review

WhitbreadAnnouncement

Today 07:02

For best results when printing this announcement, please click on link below:
https://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20260430:nRSd4871Ca&default-theme=true

RNS Number : 4871C  Whitbread PLC  30 April 2026

This announcement contains inside information

 

Refocused growth plans in UK and Germany to drive increased margins and
returns

Over £1bn reduction in net capital investment and recycling £1.5bn of
property to fund future growth

£2bn of free cash flow available for shareholder returns by FY31

 

 

Dominic Paul, Chief Executive, said:

 

"For over 280 years, Whitbread's success has been driven by continually
evolving to meet the needs of our guests. Today our business is built around a
world-class brand in Premier Inn, which is synonymous with great quality and
value, and has an unrivalled market position in the UK as well as a hugely
exciting opportunity in Germany.

 

"We always challenge ourselves to improve and, in light of significant cost
increases in the form of business rates and National Insurance, as well as the
implied market discount to our inherent value, we've looked hard at the
options open to us to maximise value creation over the medium and long-term.
This has been a rigorous process and we've approached all options with an open
mind.

 

"Our conclusion is that our model is the right one. Owning a significant
proportion of our property is a unique strength which powers the growth of
Premier Inn while supporting our resilience as a business, underpinned by a
strong balance sheet. But we can improve our approach. We will refocus our
capital spend and recycle more of our freehold real estate, driving increased
margins and returns, reducing our capital intensity and increasing cash
returns for shareholders. By making our assets work harder and focusing on the
highest returning projects, we will be able to continue to take advantage of
constrained supply to strengthen our position in both of our core markets,
whilst at the same time deliver attractive financial outcomes for
shareholders.

 

"Our New Five-Year Plan builds on our strengths and drives a significant
acceleration of our strategy.

 

"In the UK, by reallocating some of our capital spend and building on the
success of our Accelerating Growth Plan, we plan to convert all our remaining
branded restaurants to an integrated food and beverage offer that is preferred
by our hotel guests and will unlock the addition of more highly profitable
extension rooms. Our continued efforts to drive our commercial plan and
efficiencies will extend our market-leading position and allow us to take
share from our competitors, many of which are struggling to grow.

 

"In Germany, now that we have reached profitability, we are clear on what we
need to succeed in a market that has huge potential and where the Premier Inn
brand is increasingly recognised for its quality and value. We will focus on
formats and locations which we know deliver the best return, accelerating our
financial performance.

 

"We've already made great progress in the transformation of Whitbread, despite
external headwinds, and I'm excited by what's coming next. This plan will
transform Whitbread into a higher-margin, higher-returning pure-play hotel
business. We're going to go further and faster to deliver a great experience
for our guests and high-quality growth and returns for our shareholders."

 

New Five-Year Plan to FY31

The conclusions and outcomes of our review are:

·       We are uniquely placed to win in both the UK and Germany where
we have significant growth potential;

·       Our scale, brand, vertically integrated model, flexible
approach to property ownership and strong balance sheet are key sources of
significant competitive advantage, providing control and value creation across
key areas of the value chain;

·       Adapting our approach to property and capital allocation will
deliver a significant improvement in cash flow and returns;

·       By FY31 and compared with FY26, the new plan will(1):

o  Deliver £275m of incremental adjusted PBT(†) contribution from key
growth initiatives;

o  Reduce gross capex by £1bn and net capex by more than £1bn, with growth
capex to be funded through recycling £1.5bn of freehold real estate;

o  Increase Group ROCE(†) by 500bps;

o  Generate £2bn of free cash flow available for cash returns to
shareholders

 

The specific actions we are taking include:

 •     Refocusing our UK & Ireland growth plan (£110m incremental
 PBT(†) contribution(1) by FY31): we are reallocating capital spend to the
 highest returning opportunities whilst still growing open rooms (including
 extension rooms from the AGP) to 96,000 by FY31, maintaining our longer-term
 potential to reach up to 125,000 rooms thereafter;
 •     Extending the Accelerating Growth Plan ('AGP') to drive improved
 margins and stronger UK returns (£100m incremental PBT(†) contribution by
 FY31): following early positive results from completed sites and having agreed
 the sale of 51 branded restaurants for £50m and agreed terms for the sale,
 subject to conditions, on a further 60 sites, we are reallocating capital to
 extend our plan to replace all of the Group's remaining 197 branded
 restaurants with a more efficient integrated restaurant. Moving to a 100%
 integrated F&B offering will improve the guest experience and add more
 higher returning extension rooms and we will deliver 15% - 20% returns on
 capital by FY31. In FY27, there will be a £40m reduction in adjusted PBT(†)
 as we transition the remaining branded restaurants, which will more than
 offset positive progress from our original AGP, resulting in a net £10m
 reduction to adjusted PBT(†). These changes are subject to required employee
 consultation;
 •     Reducing our capital intensity by over £1bn: we will reduce gross
 capex by £1bn and recycle £1.5bn of our freehold property to fund future
 growth and increasingly look to grow on a leasehold basis. This will result in
 net capex of c.£200m - £250m per year, representing more than a £1bn
 reduction versus the previous Five-Year Plan. Whilst the Group will continue
 to benefit from owning a substantial amount of freehold real estate, we can
 reduce the proportion held from c.50% today to 30% - 40% over time without
 compromising our strong balance sheet or long-term growth prospects;
 •     Enhancing our commercial programme and increasing cost
 efficiencies to FY31: our commercial initiatives will drive positive UK
 like-for-like(†) sales momentum and help us to sustain our outperformance
 versus the rest of the UK M&E market. At the same time, we are increasing
 our cost efficiencies target to £250m by FY31;
 •     Accelerating the delivery of higher financial returns in Germany
 (£65m of incremental adjusted PBT(†) contribution by FY31): having reached
 profitability in FY26 and with an established national network, we are
 shifting our growth focus to accelerate free cash flow and return on capital.
 Whilst we are proposing to optimise our portfolio and improve the quality of
 our committed pipeline, we will still deliver room growth of over 50% to reach
 18,000 rooms by FY31;
 •     Increasing margins, profits and returns: the core elements of the
 plan, in aggregate, will deliver an incremental profit contribution of £275m
 by FY31 that, with lower capital intensity, will drive a 500bps increase in
 our Group return on capital employed(1); and
 •     Over £2bn free cash flow(1) by FY31: the steps outlined above
 will generate substantial free cash flow available for shareholder returns via
 dividends and share buy-backs (noting that the investment in extending the
 Accelerating Growth Plan means we will pause share buy-backs in FY27).
 •     For invited analysts and investors, the Group is hosting a Full
 Year 2026 Results presentation, including a briefing on our New Five-Year
 Plan, at 10.00am BST today, 30 April 2026. A live webcast of the presentation
 and briefing will be available from 10.00am BST via
 (www.whitbread.co.uk/investors (http://www.whitbread.co.uk/investors) ). To
 pre-register for the webcast, please visit: LINK. A copy of the slides as
 well as a replay of the presentation and briefing will be available on our
 website later today.

 

1: Versus FY26, assuming UK like-for-like sales and cost efficiencies offset
non-business rates inflation and finance costs over the life of the New
Five-Year Plan

 

 

For more information please contact:

Investor Relations - Whitbread
 
 

Peter Reynolds, Director of Investor Relations
 
     peter.reynolds@whitbread.com

Kirsten O'Reilly, Investor Relations Manager
 
       kirsten.oreilly@whitbread.com
(mailto:kirsten.oreilly@whitbread.com)

Kitty Hobhouse, Investor Relations
Manager
     kitty.hobhouse@whitbread.com

 

Media -
Brunswick
 
   whitbread@brunswickgroup.com (mailto:whitbread@brunswickgroup.com)

Tim Danaher
 
      +44 (0) 20 7404 5959

 

The person responsible for arranging the release of this announcement on
behalf of the company is Clare Thomas, General Counsel and Company Secretary.

 

(†)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.

 

Cautionary Statement

Nothing contained in this announcement is intended to constitute an offer,
invitation or inducement to engage in an investment activity for the purposes
of the prohibition on financial promotions under the Financial Services and
Markets Act 2000. In making this announcement available, Whitbread PLC makes
no recommendation to purchase, sell or otherwise deal in shares in Whitbread
PLC or any other securities or investments whatsoever and you should neither
rely nor act upon, directly or indirectly, any of the information contained in
this announcement in respect of such investment activity.

 

No representations, express or implied, are given in, or in respect of, this
announcement. To the extent permitted by law, Whitbread PLC, and its
subsidiaries (together, the "Group") and its and their shareholders,
affiliates, representatives, partners, directors, officers, employees,
advisors or agents shall not be liable for any direct, indirect or
consequential loss or loss of profit arising from the use of this
announcement, its content or otherwise arising in connection therewith.

 

Certain statements included or incorporated by reference within this
announcement may constitute "forward looking statements" in respect of the
Group's Whitbread PLC's operations, performance, prospects and/or financial
condition. Forward looking statements are sometimes, but not always,
identified by their use of a date in the future or such words as "momentum",
"transform", "plan", "continue", "pathway", "roadmap", "transition",
"anticipate" "intend", "expect", "target", "believe", "estimate", "may",
"will", "potential ", "outlook", "future" or "accelerate" (including in their
negative form) or similar terms and expressions. Such statements are made in
good faith, based on Whitbread PLC's current expectations and beliefs
concerning future events and are subject to a number of known and unknown
risks and uncertainties that could cause actual events or results to differ
materially from any expected future events or results referred to in these
forward looking statements. These risks include, but are not limited to:
macroeconomic uncertainty; changes in law and regulations affecting our
business; global supply chain disruptions; cyber and data security issues;
fluctuating customer demand; any future health crisis and related responses,
including government imposed travel or health-related restrictions; and other
risks inherent to the industry in which the Group operates. Such statements
are also based on numerous assumptions regarding the Group's Whitbread PLC's
present and future strategy and the environment in which it operates, which
may not be accurate. Whitbread PLC undertakes no obligation to update any
forward looking statements contained in this announcement or any other forward
looking statements it may make.

 

Nothing in this announcement should be construed as a profit forecast. Past
performance cannot be relied upon as a guide to future performance and persons
needing advice should consult an independent financial advisor.

 

Whitbread's formula for success

Premier Inn is the UK's largest and best-known hotel brand, with a 12% share
of the total UK hotel market, almost twice that of our closest competitor and
significantly ahead of the global midscale and economy ('M&E') hotel
brands. The Group also has a growing presence outside the UK and Ireland, with
Germany representing a significant opportunity to expand and diversify our
total addressable market and deliver attractive long-term returns.

 

Our success has been driven by capitalising on attractive growth drivers in
our core markets and by outperforming our competitors over the short, medium
and long-term.

 

Significant structural growth potential in core markets - We continue to
benefit from the structural growth in demand for branded budget hotels away
from the independent hotel sector and therefore continue to see significant
growth potential in the UK, especially in London, and also in Ireland. At the
same time, the UK supply backdrop remains benign with limited growth expected
over the next few years. In Germany, similar trends are reinforced by the fact
that the hotel market is large and fragmented, with no single brand commanding
more than a 3% share, creating a significant opportunity for the Group.

 

Driving sustained outperformance through the cycle - Our success is rooted in
a relentless focus on the guest and the delivery of a consistent, high-quality
experience at an affordable price. Our vertically integrated model provides
control across key areas of the value chain: brand, distribution and
commercial, operations as well as property. A flexible approach to property
ownership ensures access to the best locations, supporting profitable growth
and attractive long-term returns. A strong balance sheet remains a key source
of competitive advantage, allowing us to invest through the cycle and keep
financing costs low whilst also providing real commercial benefits so we can
maximise site profitability and returns through our property value creation
cycle.

 

Background to the business review

Since announcing our previous Five-Year Plan in October 2024, the Group has
faced two key challenges. First, unexpected changes to the prevailing fiscal
and trading environment, including higher than expected cost inflation and
significant increases in UK business rates, have impacted the financial
benefits of the Group's previous Five-Year Plan. Second, the Group's market
value has remained at a significant discount to the inherent value of our
business.

 

Against this backdrop, the Board announced that it was undertaking a
comprehensive business review in order to address these challenges. Working
with world class advisers, the Board reassessed how capital was being
allocated across the Group; reviewed the Group's current capital structure and
also challenged the merits of the Group's current business model versus other,
alternative models. Key tasks included:

 

(i)   reviewing all future plans to reflect the impact of recent changes to
the prevailing regulatory, fiscal and trading environment. Specifically, we
challenged whether:

•     we could further reduce costs and improve margins;

•     all of our capital programmes remain on course to deliver
attractive levels of return; and

•     our capital structure is optimised so that the execution of our
business strategy maximises value for shareholders over both the medium and
long-term;

 

(ii)   assessing the relative merits of our business model versus others to
maximise long-term value. Alternatives included fundamental changes to our
business model such as by: separating and selling all of our freehold
property; and realising value from the Premier Inn brand; as well as reviewing
all options to maximise the value of our German business.

 

The conclusion of this work is that while some models offer the potential to
create value in the short-term, they compromise many of the core drivers of
our competitive advantage that have underpinned the Group's long-term success.
These include: the cash generation of our vertically integrated model; our
ability to maximise the commercial opportunity from our property, including
our Accelerating Growth Plan; the consistency that flows from having full
control of our brand and product that is a key driver of high guest scores;
and the financial resilience from maintaining a strong balance sheet. As well
as carrying significant operational and financial risks, transitioning to one
of these models would create less value than our New Five-Year Plan and
undermine the Group's longer-term growth prospects.

 

While clear that our model is the right one for Whitbread, there remains a
significant value disconnect between the Group's market value and the inherent
value of the Group. While the Group is a high-quality operator, generating
strong cashflow, our return on capital has not increased materially despite
significant growth in the scale of our operations and market share. To address
this, the Group needs to either increase margins or reduce capital intensity,
and we strongly believe that we can do both.

 

New Five-Year Plan

 

Our New Five-Year Plan achieves both of these objectives and reflects the
output from the Board's business review with clear steps to drive a
significant increase in both margins and returns that will fund substantial
cash returns for shareholders. The planned steps to achieve this include:

 

•     maximising UK returns by reallocating capital spend and by
addressing lower-returning F&B operations through extending the AGP;

•     reducing and reallocating capital spend to focus on proven formats
to accelerate the delivery of free cash flow and higher financial returns in
Germany;

•     reducing and funding future room growth through recycling more of
the Group's freehold property; and

•     reducing the proportion of freehold assets held across the Group
whilst remaining investment grade.

 

Whilst our review concluded that, with our current footprint and position, the
Group's business model remains the best route to maximising medium and
long-term value, we remain open-minded and will continue to evaluate the
merits of alternative models and structures.

 

Expected outcomes from the plan by FY31 include:

 

•     increased margins, driven by incremental adjusted PBT(†)
contribution of £275m, including incremental adjusted PBT(†) contribution
from Germany of £65m, that becomes cash flow positive in FY29;

•     reduced gross capex by £1bn and with the recycling of £1.5bn of
freehold real estate, net capex will reduce by more than £1bn;

•     increased Group return on capital employed by 500bps(1); and

•     £2bn of free cash flow available(1) for cash returns to
shareholders via dividends and share buy-backs.

 

1: Versus FY26, assuming UK like-for-like sales and cost efficiencies offset
non-business rates inflation and finance costs over the life of the New
Five-Year Plan

 

Further details on each element of the New Five-Year Plan are set out below:

 

UK: Network expansion

We have reappraised all of our projects to ensure we are allocating and
prioritising capital spend optimally in order to maximise returns. Planned
actions include the proposed exit from a small number of sub-optimal sites in
our open portfolio as well as stepping away from sites in our pipeline where,
following the changes to UK business rates, the potential returns are no
longer attractive.

 

The new plan reduces our previously planned rate of UK room growth which
reduces expansionary capex, increases free cashflow and drives higher returns
on capital. Whilst our previous Five-Year Plan assumed we would add 8,000 more
new rooms and grow incremental adjusted PBT(†) by £120m by FY30, versus
FY26 our new plan will see us add 8,000 new rooms, of which c.66% will be
freehold but we also propose to exit approximately 1,500 lower returning rooms
and generate incremental adjusted PBT(†) contribution of £110m by FY31.

 

UK: Extending our Accelerating Growth Plan ('AGP')

We are now two years into our plan to optimise the delivery of F&B at a
number of our sites by converting some of our lower returning branded
restaurants into a higher margin and more efficient, integrated F&B
offering, whilst at the same time unlocking higher returning new extension
rooms.

 

Given the positive early results from sites that are now complete and having
concluded the sale of 51 branded restaurants for £50m, with a further 60
sites where we have agreed terms of sale subject to conditions, we are now
proposing to reallocate capital and extend the previous plan to include all of
the Group's remaining 197 branded restaurants. In FY26, these sites generated
F&B revenue of £284m but incurred a site level adjusted loss before tax
of £13m, plus associated central overheads of £10m.

 

The extension of the AGP has three key elements:

 

•     the replacement of all remaining 197 lower returning branded
restaurants with a new, higher margin and more efficient integrated
restaurant, unlocking additional higher returning extension rooms;

•     the sale of 110 of these branded restaurants which we intend to
sell as going concerns over the next 24 months; and

•     the simplification of the Group's operating model and supporting
infrastructure to reflect the shift to a pure-play hotel business with a
uniform and fully integrated F&B offering.

 

With over 500 integrated restaurants already operational across our UK estate,
it is clear that this F&B format is preferred by our hotel guests and
delivers better margins and returns than the branded restaurant format.
Drawing upon our learnings from having already completed and opened c.600 AGP
extension rooms, we are highly confident that once complete, our fully
integrated offer will continue to deliver high guest scores and deliver a
significant uplift in financial performance.

 

At the same time and against a backdrop of limited UK supply growth, we will
open a further  3,000 higher returning extension rooms (including the
original plan and the extension of the plan) that are being added in locations
where we know from our trading data that, at certain periods, demand outstrips
supply and so we are confident that these additional rooms will deliver highly
attractive financial returns.

 

Financial effects of the extended Accelerating Growth Plan

With the removal of all of the Group's remaining branded restaurants(1)
expected during the second half of FY27, the shift to a more streamlined
operating model and the addition of 3,000 higher returning extension rooms, it
is expected that, compared with FY26, the extended AGP will generate
incremental adjusted PBT(†) contribution of £100m by FY31 when the last of
the additional new extension rooms will be open and operating at maturity.

 

1 Subject to required employee consultation

 

In FY27, there will be a £40m reduction in adjusted PBT† as we transition
the remaining branded restaurants, which will more than offset positive
progress from our original AGP, resulting in a net £10m reduction to adjusted
PBT†. The removal of the remaining branded restaurants and the opening of
additional rooms that will continue to mature will deliver double digit
returns on capital by FY31.

 

The extension of the AGP will require additional capital so that the total
capital investment to deliver the incremental profit contribution, including
amounts already spent, rises to c.£660m from c.£500m previously. This will
be funded through the reallocation of some of our existing annual capital
expenditure programme and the recycling of freehold property over the life of
the plan.

 

With a total expected return on capital of 15% - 20%, extending the AGP is our
number one priority in terms of capital allocation.

 

It is estimated that the profile of incremental adjusted PBT(†) contribution
from the extended AGP versus FY26 will be as follows:

 

 Year  Incremental

       adjusted PBT(†)

       contribution

 FY27  £(10)m
 FY28  +£30m - £40m
 FY29  +£65m - £75m
 FY30  +£85m - £95m
 FY31  £100m

 

Supporting our teams

The plan we are announcing today is expected to result in a reduction of
around 3,800 roles out of a total UK and Ireland workforce of around
30,000. This proposal is still subject to employee consultation and we will
seek to find alternative opportunities wherever possible through new roles
created by this plan and if the proposal proceeds, our existing recruitment
process that makes c.15,000 hires each year. We expect to retain a significant
proportion of those affected and will be looking to redeploy as many of our
impacted colleagues as possible.

 

UK: Commercial programme

Our vertically integrated model is a key source of competitive advantage, with
the result that even relatively modest increases in like-for-like sales(†)
can generate significant profit growth. Whilst our commercial programme
stretches across a broad range of initiatives, each falls under one of the
following key headings:

 

•     Strengthening brand and demand - profitably broadening our reach
through new distribution channels whilst continuing to drive direct bookings
with support from a refreshed brand positioning that reinforces the value and
consistency of our offer and our delivery of a quality night's sleep;

•     Driving conversion and engagement - upgrading our proprietary
automated trading engine with the latest AI-enabled decisioning tools and
enhanced hotel listings, whilst increasing customer engagement and loyalty
across all channels. We will also drive non-room revenue through a series of
initiatives to increase 'value per stay' across areas such as retail, car
parking, wi-fi and electrical vehicle charging;

•     Investing in the guest experience - continuing focus on improving
the digital journey and on driving consistency across our estate through our
refurbishment programme and further roll-out of our latest room and ground
floor formats; and

•     Unlocking the full potential of 'hub by Premier Inn' -with 19
hotels open in the UK, we will increase hub revenue growth by building the hub
brand, expanding its distribution channels and evolving our guest proposition.
While only open in London and Edinburgh so far, it is clear that with higher
guest scores, hub has the potential to command similar room rates to Premier
Inn and we see significant potential to expand into other cities across the
UK, as well as in Germany.

 

These initiatives are underpinned by a series of technology-related programmes
that are helping to unlock significant potential for future revenue growth and
increased cost savings. As well as improving our day-to-day operations with an
increased volume of systems releases, improved platform stability and enhanced
security, we are also deploying a series of AI-enabled tools across several
areas of our business. Whilst several of these initiatives are at an early
stage of implementation, the early results are encouraging.

 

Whilst we cannot predict market RevPAR growth, with all of these initiatives
already underway, we are confident that we will drive positive like-for-like
sales(†) momentum and continue to outperform the M&E market over the
life of the plan.

 

UK: increasing cost efficiencies averaging £50m per annum to FY31

We are proud of our reputation as a low-cost, high value for money operator.
With ongoing inflationary pressures, we continue to look for ways to optimise
and reduce our UK cost base. Having already accelerated savings into both FY26
and FY27, we have again reviewed all of our initiatives and have extended our
programme to deliver £250m of savings between FY27 and FY31. These additional
savings are across a large number of initiatives including increased use of
technology, unlocking operational savings using increased automation and AI,
further procurement savings and by optimising F&B operations, all of which
have been carefully planned to ensure that there is no material impact on the
overall guest experience.

 

Germany: accelerating cash flow and returns

Since first entering the market in 2016, we have achieved a number of
important milestones in our journey towards becoming the number one budget
operator in Germany. Our product is popular with guests, we are steadily
increasing brand awareness and market share and several of our more
established sites, whilst not yet mature, are already highly profitable and
delivering double digit returns.

 

However, our journey to profitability has taken longer than expected and
whilst external factors contributed to this, we recognise that some sites
acquired before the pandemic have fallen short of expectations and some of our
early commercial choices also had an impact. Combined, these factors have held
back both profitability and returns.

 

We have since introduced a new commercial strategy and appointed a
locally-based leadership team, and are already seeing a marked improvement in
performance with a number of our hotels already delivering double digit
returns, confirming that our model is now working in Germany. While there is
no 'one size fits all' formula for success across Germany, we are now clear on
what works and what doesn't and have a clear path to achieving double-digit
returns on capital.

 

That path requires that we make some significant changes to our growth
strategy. We have reduced and reprioritised our capital spend in Germany
towards those formats which have proved most successful, and we plan to
optimise our current open estate. While this will reduce the pace of room and
profit growth to FY31, it will reduce our overall capital intensity, increase
cash flow and accelerate our returns on capital. Another significant shift is
that all future growth in Germany will now be funded through either the
recycling of existing freeholds or through new leaseholds.

 

While our previous Five-Year Plan assumed that we would almost double the size
of our open network to reach 20,000 open rooms by FY30, our new plan will see
Germany reach 18,000 rooms by FY31, becoming one of Germany's largest budget
hotel brands. More rooms and continued RevPAR growth to reach over €83 will
deliver an incremental adjusted PBT(†) contribution of £65m by FY31. As a
result of the steps we are taking, including the reduction in growth capex, it
is expected that Germany will turn cash flow positive(1) in FY29 and our open
estate will generate double digit returns on capital by FY31.

 

1 Free cash flow less capex, net of disposals

 

The estimated phasing of incremental adjusted PBT(†) contribution for
Germany versus FY26 is as follows:

 

 Year  Incremental

       adjusted PBT(†) contribution

 FY27  £10m*
 FY28  £15m - £25m
 FY31  £65m

 

* Before one-off costs of c.£10m primarily in relation to new openings in
FY27 associated with recent additions to our portfolio

 

Property strategy, capital allocation and leverage

Retaining a flexible approach to property ownership and maintaining a strong
balance sheet have allowed us to keep financing costs low whilst also
providing significant commercial benefits, in the form of a strong financial
covenant and being able to maximise site level profitability and returns
through our property value creation cycle.

 

This starts with our strong balance sheet which means we are well placed to
secure the best sites, both freehold or leasehold, on the most attractive
terms. The best sites generate strong cash flow and some freehold sites have
the potential to generate additional value through further development that
can then be realised and the proceeds recycled into higher returning
opportunities, such as the AGP.

 

Whilst there is no change to our previously announced capital allocation
framework, we are however making some significant changes to our previous
capital expenditure programmes and asset mix:

 

•     We will recycle £1.5bn of our freehold property to fund new
growth and will increasingly look to grow on a leasehold basis, resulting in
net capex of £200m - £250m per year, equating to a reduction of more than
£1bn versus the previous Five-Year Plan;

•     Whilst the Group will continue to benefit from owning a
substantial amount of freehold real estate, we will/expect to reduce the
proportion held from c.50% today to 30% - 40% over time; and

•     We will reduce and refocus our growth capital in Germany so as to
accelerate returns and become cash flow positive in FY29.

 

By maintaining a lower, but still significant level of freehold, the Group can
continue to benefit from the advantages outlined above, while also remaining
investment grade. Below a 30% - 40% freehold mix and in order to remain
investment grade, the Group would have to start holding increasing levels of
cash, creating a natural limit in terms of freehold/leasehold mix, beyond
which the balance sheet becomes increasingly inefficient.

 

With a reduced level of gross capital spend compared with the previous
Five-Year Plan and by maintaining average net capital spend at £200m - £250m
per annum to FY31, the Group is expected to maintain a lease-adjusted net debt
to adjusted EBITDAR ratio at or below 3.5x, thereby maintaining an investment
grade credit rating(1).

 

1. Fitch Ratings, February 2026

 

Shareholder returns

Our New Five-Year Plan is designed to maximise shareholder returns over the
medium and long-term. With a reduced level of capital intensity, a reduction
in the amount of freehold property held by the Group and the expected increase
in margins and returns over the life of the plan, it is expected that versus
FY26, this will deliver a 500bps uplift in Group return on capital employed(1)
by FY31.

 

This will generate £2bn of free cash flow available(1) for shareholder
returns through a combination of dividends and share buy-backs (noting that
the investment in extending AGP means we will pause share buy-backs in FY27).

 

1: Versus FY26, assuming UK like-for-like sales and cost efficiencies offset
non-business rates inflation and finance costs over the life of the New
Five-Year Plan

 

Appendix - summary of New Five-Year Plan guidance

 

                                                       Previous guidance            New guidance

for the five years to FY30

                                                                                    for the five years to

                                                                                    FY31
 Incremental PBT contribution - UK network expansion   +£120m                       +£110m
 Incremental PBT contribution - AGP                    +£100m                       +£100m
 Incremental PBT contribution - Germany                £80m                         £65m
 Free cash flow / returns (share buybacks/dividends)*  >£2bn                        >£2bn
 Total net capex                                       £2.5bn                       £1bn - £1.25bn
 Increase in Group ROCE*                               n/a                          +500bps
 Date cash flow positive in Germany                    n/a                          FY29
 Cost savings                                          +£250m                       +£250m
 New UK network expansion rooms                        +8,000                       +8,000
 New AGP rooms (including extension of plan)           +3,500                       +3,000
 Germany rooms by FY31                                 20,000                       18,000

 

* Assuming UK like-for-like sales and cost efficiencies offset non-business
rates inflation and finance costs over the life of the New Five-Year Plan

 

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
 or visit
www.rns.com (http://www.rns.com/)
.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
.   END  UPDEAALNALPKEAA



            Copyright 2019 Regulatory News Service, all rights reserved