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Why invest in Whitbread

Finance Director's review 2015 - 2016

Whitbread has continued its good financial performance, with total revenue up 12.0% to £2,921.8 million, underlying profit before tax up 11.9% to £546.3 million, cash generated from operations of £782.2 million and underlying basic earnings per share up 11.7%.  Profit before tax, after exceptional and non underlying adjustments was £487.7 million, up 5.2%.

2015/16 is reported as 53 weeks to 3 March 2016, the comparative period for 2014/15 is 52 weeks to 26 February 2015.  To aid comparison, we have shown the year on year percentage change both as reported and on a 52 weeks basis, to 25 February 2016.

Revenue by Business Segment

£m 2015/16 2014/2015 Change
Change - 52
week comparative 
Hotels & Restaurants 1,822.0 1,659.2 9.8% 7.8%
Costa 1,103.2 951.9 15.9% 14.0%
Less: inter-segment (3.4) (3.0)
Revenue 2,921.8 2,608.1 12.0% 10.1%

Whitbread Hotels and Restaurants

Hotels and Restaurants revenue rose to £1,822.0 million, up 9.8%.

Premier Inn grew its market share through new hotel openings and good like for like sales growth in the UK, with total sales growth of 12.9% to £1,260.1 million.  In the UK, we opened 40 new hotels with 5,461 new rooms, increasing our number of rooms to 64,599 and rooms available by 9.8%.  Like for like sales grew by 4.2% driven by an increase in the like for like revenue per available room of 2.6%, benefitting from the good performance in the Regions, and additional revenue from hotel extensions.

Restaurants total sales grew by 3.5% and like for like sales grew by 0.8%. Four net new restaurants were opened during the year.


Costa's revenue grew by 15.9% to £1,103.2 million.  Costa's UK sales grew to £975.9 million, up 16.3%, with retail like for like sales increasing by 2.9% and 103 net new coffee shops.  International sales grew to £127.3 million, up 12.7% (13.7% in constant currency) with 94 net new stores.  Costa Express performed well with 924 net coffee machines installed taking the total to 5,216, of which 492 are overseas.


(£m) 2015/16 2014/15 Change
Change - 52 
week comparative
Hotels & Restaurants - UK and Ireland 451.5 406.6 11.0% 8.3%
Hotels & Restaurants - International (4.6) (5.2) 11.5% 11.5%
Totals Hotels & Restaurants 446.9 401.4 11.3% 8.6%
Costa - UK 151.0 131.4 14.9% 12.5%
Costa - International 2.5 1.1
Costa 153.5 132.5 15.8% 13.3%
Profit from operations 600.4 533.9 12.5% 9.8%
Central costs (31.6) (29.5) (7.1)% (6.4)%
Underlying operating profit 568.8 504.4 12.8% 10.0%
Interest (22.5) (16.3) (38.0)% (36.2)%
Underlying profit before tax 546.3 488.1 11.9% 9.1%
Exceptional items and non underlying adjustments (58.6) (24.3)
Profit before tax 487.7 463.8 5.2% 2.2%
Profit impact of 53rd week £m
Hotels and Restaurants 11.0
Costa 3.4
Underlying profit before tax 13.9

Whitbread's underlying profit before tax was up 11.9% to £546.3 million.  Underlying profit before tax excludes the pension interest charge, amortisation of acquired intangibles and exceptional items.

Hotels and Restaurants profits grew to £446.9 million up 11.3%, with UK profits of £451.5 million, up 11.0%.  Margins improved from 24.2% to 24.5% in 2015/16, principally driven by like for like sales growth, partially offset by inflation and investment in our teams and systems.  Rent costs increased, ahead of sales growth, by 14.8% to £123.4 million (2014/15: £107.5 million), reflecting the higher mix of leasehold properties.

We continue to improve our customer propositions and develop the capabilities and platform to support future growth.  During 2015/16, we increased the number of full room refurbishments to around 3,700 rooms, completed the roll out of our 'best ever' bed and installed around 2,000 air-conditioning units.  We increased our revenue investment in technology and process improvements to enable us to grow our digital capabilities and evolve our systems.  This continued improvement in our products and capabilities will amount to an approximate £9 million net incremental revenue spend in 2016/17.

International hotel losses reduced to £4.6 million (2014/15: loss of £5.2 million), with our Middle East hotels continuing to be profitable in a more challenging market, whilst India has seen good like for like growth, albeit from a low base.  We continue our investment in building our South East Asia operation and opened our first hotels in Thailand and Indonesia.

Costa's good performance was led by the UK, where profits increased 14.9% to £151.0 million, with good growth in our UK retail business and continued strong growth from Costa Express.  Costa International made a profit of £2.5 million (2014/15: profit £1.1 million) with a good performance in our international franchise business and in our mature stores in China, partially offset by start-up investments in Costa Express in Canada and Costa retail in China and France.

In Costa, as with Hotels and Restaurants, we are investing in our future growth, building the platforms of our international businesses and ensuring the continued success of our core UK business. In 2015/16, we completed the re-branding of our Polish stores from Coffeeheaven to Costa and this year, we will continue to invest in our international and digital talent capabilities, new store formats with the launch of Fresco and Pronto, and in food and beverage innovation.  We are investing in our systems, customer loyalty through the Costa Pay & Collect trial, and our new Roastery, to ensure we can meet future capacity requirements to deliver great coffee to our customers worldwide. These revenue investments will amount to approximately £6 million net incremental spend in 2016/17.

Profit before tax was £487.7 million (2014/15: £463.8 million), up 5.2% and after taxation, statutory profit for the year was £387.3 million, up 5.8% on last year.

Exceptional items

Exceptional items and non underlying adjustments for the year, including tax related adjustments, amounted to a charge of £42.9 million (2014/15: a charge of £17.1 million).

This year's exceptional items primarily relate to an increased provision for onerous leases on historically disposed businesses (£14.7 million), accelerated amortisation on IT intangibles where there is no future economic benefit arising from these assets (£10.1 million) and charges for the closure and impairment of loss making Costa stores principally in China and Europe (£11.6 million).  This is offset by a tax credit of £13.0 million due to the change in the tax rate from 20.0% to 18.0%.

Non underlying adjustments also include amortisation of acquired intangibles (£4.3 million) and the IAS 19 income statement charge for pension finance cost (£17.2 million).


The underlying interest charge for the year was higher than last year at £22.5 million (2014/15: £16.3 million) due to a higher mix of fixed rate debt following the £450 million bond issue in May and higher average net debt as a result of the increase in capital expenditure.  Whilst we have a balanced interest rate policy concerning the fixed to variable proportions, the Group decided to take advantage of the low interest rate environment at the time of the bond issue.  The bias towards fixed interest rate debt with 89% fixed at year-end will continue for the short-term.

The effective interest rate on average net debt increased from 4.3% to 4.7%.

The total interest cost including exceptional and non underlying interest costs, was £40.4 million (2014/15: £37.1 million) including the IAS 19 pension finance charge of £17.2 million (2014/15: £21.6 million). 


Underlying tax for the year amounted to £116.1 million at an effective tax rate of 21.3% (2014/15: 21.5%).  

Earnings per share

Underlying basic earnings per share for the year were 238.65 pence, up 11.7% on last year, and underlying diluted earnings per share for the year were 236.82 pence, up 11.9% on last year. 


The recommended final dividend is 61.85 pence, an increase on last year of 8.6%, making the total dividend for the year 90.35 pence, a growth of 10.0%.  With the final dividend, we will offer our shareholders the option to participate in a dividend reinvestment plan.  

Net debt and free cash

The principal movements in net debt are as follows:

£m 2015/16 2014/2015
Cash generated from operations 782.2 714.2
Productive improvement and maintenance capital* (214.8) (175.7)
Operating cash flow after maintenance capital 567.4 538.5
Interest (25.0) (18.3)
Tax (85.1) (82.8)
Pensions (84.3) (81.4)
Dividends (155.1) (130.6)
Other (34.4) (27.4)
Cash flow before expansionary capital 183.5 198.0
Expansionary capital (510.1) (389.6)
Net cashflow (326.6) (191.6)
Net debt brought forward (583.2) (391.6)
Net debt carried forward (909.8) (583.2)
*Total capital expenditure 724.9 565.3

Cash generated from operations was strong at £782.2 million, an increase of 9.5% on last year. 

Total capital expenditure, including business combinations, rose to £724.9 million (2014/15: £565.3 million).  This resulted from our continued investment in our hotel room pipeline including freehold property purchases, along with further investments in our existing estate and IT systems.  Within this, there were also investments and business combinations of £9.1 million for our hotel acquisition of Pattaya in South East Asia.

Pension payments totalled £84.3 million; these payments are in line with our agreed schedule of contributions which was based on the last triennial review in March 2014.

Dividend payments amounted to £155.1 million (2014/15: £130.6 million), the increase in this year's dividend payments is consistent with the Group's basic earnings per share growth.

Corporation tax paid in the year was £85.1 million (2014/15: £82.8 million).

We maintained our adjusted net debt to EBITDAR ratio (see financial status and funding) with net debt as at 3 March 2016 of £909.8 million (2014/15: £583.2 million).

Capital expenditure

On an accruals basis, the Group's capital expenditure, including business combinations, was £751.8 million (2014/15: £567.5 million).  The Group's cash capital expenditure was £724.9 million (2014/15: £565.3 million), including business combinations. Capital expenditure is split between expansionary (which includes the acquisition and development of properties) and product improvement and maintenance.

Hotels and Restaurants cash capital expenditure was £622.3 million (2014/15: £483.1 million), with expansionary expenditure increasing to £455.2 million (2014/15: £333.3 million) as we opened a record number of rooms and maintained our gross pipeline at  c.13,900 rooms (net 12,700 rooms), including c.5,400 in London.  Within this, we acquired £209.6 million of freehold property (2014/15: £191.8 million) and now our freehold pipeline is at 52% of the total pipeline compared to 41% at the end of 2014/15.  Premier Inn Germany accounted for £61.6 million of expansionary capital as Frankfurt opened in February 2016 and we exchanged on two further sites in Munich and Leipzig.  Product improvement and maintenance cash expenditure in Hotels and Restaurants was £167.1 million (2014/15: £149.8 million).  This was an increase on the previous year as we stepped up the number of full refurbishments, and increased the investment in our hotels technology infrastructure and in our systems.

Costa cash capital expenditure was £102.6 million (2014/15: £82.0 million) with £54.9 million on expansionary capital as we opened 197 new coffee shops and installed 924 net new Costa Express machines.  Costa product improvement and maintenance expenditure was £47.7 million (2014/15: £25.9 million), the majority of which was spent on re-imaging 139 Costa stores and on investment in our systems and our new Roastery.

In 2016/17, we expect our gross cash capital expenditure to be around £700 million and around £550-600 million net of the proceeds of around £100-150 million from sale and lease back transactions.  Hotels and Restaurants spend is expected to be c.£560 million, with around 4,000 to 4,500 room openings, and the higher freehold and extensions pipeline mix maintained.  Within this, we expect to spend c.£60 million acquiring German hotel sites to add to our pipeline, following the opening of our first hotel in Frankfurt in February.  Hotels and Restaurants product improvement and maintenance investment will be maintained, as we continue to improve our customer experience and competitive edge and continue to improve our digital and systems capabilities.  Costa cash capital expenditure will increase by c.£40 million to around £140 million.  Included within this is c.£25 million that we expect to spend on our new Roastery and c.£45 million on refurbishments and product improvement.  Costa is planning to open around 230 -250 coffee shops and to install c.1,000 Costa Express machines.

In addition to capital expenditure, our leasehold commitments increased by £64.0 million to £2,896.7 million with Hotel and Restaurants at £2,567.6 million (2014/15: £2,464.1 million) and Costa £282.0 million, (2014/15: £283.8 million).

Return on capital

Return on capital is a prime focus for Whitbread.  In the year, the Group's return on capital of 15.3% (2014/15: 15.7%) delivered a good premium to our cost of capital.  Costa's returns were up 3.6% pts to 49.9% and Hotels and Restaurants returns were strong at 12.9%.  Hotels and Restaurants returns were down 0.6% pts on last year due to the increased investment in freehold developments for future hotel openings in the UK and Germany.  Excluding this investment returns in Hotels and Restaurants would have been 1.5% pts higher at 14.4%.


As at 3 March 2016, there was an IAS 19 pension deficit of £288.1 million (2014/15: £553.8 million).  The main movements during the year were the payments of the pension contributions of £84.3 million and an increase in the discount rate from 3.30% to 3.70%.

The 2014 triennial funding valuation and recovery plan agreed in the prior year maintains the schedule of Company contributions agreed in the 2011 recovery plan up to 2018 and extends the contributions to 2022.  The recovery plan schedule of Company contributions are £70 million in 2016, £80 million per annum for 2017 to 2021 and £7.6 million in 2022.  The payments will be accelerated by up to £5 million per year where increases in ordinary dividends exceed RPI.  The annual payment previously paid in August will be phased across the year in equal monthly payments.

The Company also makes payments of c.£9-10 million per year into the pension fund through the Scottish Partnership arrangements.

Financial Status and funding

Whitbread aims to maintain its financial position and capital structure consistent with retaining its investment grade debt status.  To this end, we work within the financial framework of net debt to EBITDAR (pension and lease adjusted) of less than 3.5 times.  The net debt to EBITDAR for 2015/16 was 3.1 times, providing us with comfortable headroom on our debt facilities.

The Group has sufficient facilities to finance our short and medium-term requirements with total committed facilities of c.£1.7 billion, compared to net debt as at 3 March 2016 of £909.8 million.  On top of the existing US Private Placement loans of £258 million (at the hedged rate), and as announced in May 2015, we issued a £450 million bond with a coupon of 3.375% and a maturity of October 2025.  In addition, in September 2015 Whitbread renegotiated the terms and tenure of its syndicated bank revolving credit facility ("RCF") with both existing and new banking partners.  The revised RCF gives a total available credit of £950 million and runs until September 2020 with the option of two one-year extensions potentially taking the facility to September 2022.

Going concern

A combination of the strong operating cash flows generated by the business and the significant headroom on its credit facilities supports the directors' view that the Group has sufficient funds available for it to meet its foreseeable working capital requirements.  The directors have concluded that the going concern basis remains appropriate.

Trading updates

We will be changing the regularity with which we provide market updates, moving to two trading statements in addition to the Interim and Preliminary announcements.  The first update will be in June for 13 weeks of trading with the Interim results in October remaining as previously announced.  There will be an update in January for the third quarter extended to 44 weeks to include the key December trading period and the full year announcement in April.

Post balance sheet events

A final dividend of 61.85p per share (2014/15: 56.95p) amounting to a total of £112.4 million was declared by the Board on 25 April 2016.

Nicholas Cadbury

Finance Director

26 April 2016


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