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WHITBREAD DELIVERS RESILIENT FIRST HALF RESULTS
13/10/2009
Whitbread PLC interim results for the six months ended 27 August 2009Financial Highlights
- Total revenue up 3.1% to £703.3 million (2008/09: £682.2 million)
- Group like for like sales down 2.7%
- Underlying profit1 before tax of £118.2 million down 2.7% (2008/09: £121.5 million)
- Profit before tax and exceptional items down 10.4% to £110.5 million (2008/09: £123.3 million)
- Underlying diluted EPS 47.33p (2008/09: 49.14p)
- Pre-exceptional diluted EPS 44.17p (2008/09: 49.89p)
- Half year net debt at £606.6 million (versus £623.1 million at 26 February 2009); current facilities of £1.16 billion
- Interim dividend 9.65p (2008/09: 9.65p)
Statutory
- Profit for the period £73.1 million (2008/09: £39.9 million)
- Total basic EPS 42.32p (2008/09: 23.31p)
Achievements
- Successful launch of Premier Offers to attract new leisure customers
- Robust trading in pub restaurants
- Outstanding results at Costa, sales up 21% and pre-exceptional operating profits up 73%
- Gross margins maintained, cost inflation well managed
- Cash flow neutrality achieved, with a net cash inflow of £17 million
- Opened over 1,000 rooms and 100 Costa stores
- Secured hotel pipeline of 10,000 rooms
Anthony Habgood, Chairman of Whitbread PLC said:
“Whitbread is coming through a difficult period relatively well. Total revenues at our hotels and restaurants business were marginally lower while at Costa they were up more than 20%. We remain focused on managing the business tightly during these challenging times and ensuring the Company is well-placed to benefit when conditions improve.”
Alan Parker, Chief Executive of Whitbread PLC, said:
“In the face of the toughest trading conditions for years, we have taken strong management actions to outperform the market and reduce costs. Encouraging progress has been made, which has continued into the second half of the year. Whitbread's value for money brands have considerable appeal for today's price conscious customers. We remain confident about the outturn for the year, subject to any marked deterioration in the economic environment."
For further information contact:
| Whitbread | | | | Christopher Rogers, Group Finance Director | | 020 7806 5491 | | Tabitha Aldrich Smith, Director of Communications | | 01582 844439 | | | | | | Tulchan | | | | Andrew Grant/David Allchurch | | 020 7353 4200 |
¹ Underlying profit
Underlying profit excludes exceptional items and the impact of the volatile pension finance cost/credit as accounted for under IAS19.
For photographs and videos, please visit the corporate media library:
http://www.whitbreadimages.co.uk/
A presentation for analysts will be held at The London Stock Exchange,
10 Paternoster Square, London, EC4M 7LS. The presentation is at 9.30am and a live audio webcast of the presentation will be available on the investors' section of
the website at: http://www.whitbread.co.uk//.
Alternatively, you can listen to the presentation by dialing: +44 (0)20 7162 0125, enter the pass code: 845911 and quote The Whitbread Interim Results Presentation.
This will be available as a replay for 30 days and will be available from approximately 12:00 noon on 13 October. Dial: +44 (0) 20 7031 4064 and enter the pass code: 845911
CHIEF EXECUTIVE’S REVIEW
Whitbread is now established as a focused hotel and restaurant business, with a high quality estate and strong brands offering excellent value for money.
The economic backdrop remains challenging and we have been managing the business tightly during the period. We are delivering on our objectives - to outperform our competition, to achieve cash flow neutrality and to reduce costs. These remain our operational focus.
Group revenue for the first six months of the year grew by 3.1% to £703.3 million. Like for like sales were down 2.7%. At Premier Inn sales increased by 0.4%, with like for like sales declining by 7.5%. Sales in pub restaurants were up 6.5%*, with like for like sales up 1.8%. Costa sales increased by 20.6%, with like for like sales up 2.5%.
Group profit before tax and exceptional items on an underlying basis fell by 2.7% to £118.2 million (2008/09: £121.5 million), with (diluted) earnings per share decreasing by 3.7% to 47.33p.
The interim dividend has been maintained at 9.65p (2008/09: 9.65p) and will be paid on 5 January 2010 to all shareholders on the register at the close of business on 23 October 2009. A scrip alternative will be offered.
Outperforming our competition
Premier Inn, with revpar down 9.2%, has again outperformed the hotel market which was down 11.0%. Premier Offers, which has reinforced its value for money proposition and the breadth of Premier Inn’s locations, continue to drive the business forward. We have widened our online booking distribution channels, bringing in new revenue streams and introducing new leisure customers to the brand.
We have developed a strong platform for further growth and have successfully tested dynamic pricing in a series of locations. Dynamic pricing delivers automated, flexible pricing appropriate to each hotel and will be rolled out to the whole estate by the end of the year.
Pub restaurants have continued to deliver a robust performance as customers appreciate our attractive value propositions. We have refreshed menus across all brands with the twin objectives of carefully managing margins and offering price conscious customers tempting meal deals such as rump steak and chips for £5.95 at Beefeater. Standing the test of time, Beefeater is celebrating its 35th anniversary this month. We also believe the quality of our estate is crucial to remaining ahead of the competition. We have continued to invest in our ongoing refurbishment programme, with 65 pub restaurants upgraded during the period.
Costa has grown to be a significant business with nearly 1,000 stores in the UK and over 400 stores overseas. It now delivers 22% of group sales, having grown at an average compound rate of 19% per year over the last five years. Costa has seen increased transaction volumes following our ‘7 out of 10 coffee lovers prefer Costa’ marketing campaign and good value meal bundles.
* Down (3.0)% including the 44 sites exchanged for hotels in September 2008
Achieving cash flow neutrality
We have exceeded our cash flow targets for the half year with net debt at £606.6 million compared to £623.1 million at the start of the year. Average net debt during the first half of the year was £599.7 million. The Group's total facilities currently stand at £1,155 million and are in place until December 2010 when they reduce to £930 million. The facilities reduce to £855 million in December 2011.
As previously announced, we have moderated our rate of expansion in the current year while developing a pipeline and landbank for the future. Capital expenditure including overseas investment for the 2009/10 financial year will be c£165 million, 50% down on the previous year.
Reducing operating costs
As a result of the early action taken at the start of 2008, the Group is achieving its target to take out £25 million of structural costs by the end of 2010/11. This year the incremental saving will be £13 million, bringing the total savings at the end of this year to £20 million per annum.
In addition, we have tightly managed labour costs in our operating units. Labour ratios in hotels and pub restaurants have been broadly held whilst in Costa labour ratios have improved materially. Our work on procurement has also enabled us to maintain gross margins across all business units.
Preparing for the future
We will be well prepared to increase the rate of expansion when the time is right.
Including this year's openings, we have a pipeline of around 10,000 rooms, of which 7,000 are committed and 3,000 are in a landbank. This is equivalent to our total room expansion over the last three years. Our commitment includes recently announced plans to build four new hotels (1,570 rooms) at London airports. The hotels at Heathrow, Gatwick and Stansted will be opened on a phased basis from 2011.
Taybarns, the self-service family dining concept, has completed its first year of trading. The response is encouraging and we are developing plans for further expansion of the brand in the next financial year.
Costa is a well differentiated coffee shop brand and has grown to become the UK market leader as well as operating in 24 countries around the world.
Our balance sheet remains robust and our strong freehold asset base gives us the financial flexibility to grow the business going forward.
Current trading and outlook
Our assumption is that the economic conditions will remain difficult for the foreseeable future.
In the nine weeks since the pre-close statement (13 August 2009), Group momentum seen in the second quarter has continued. Costa has traded strongly and there has been a robust performance in our pub restaurants. There is an improving trend now evident at Premier Inn. In the absence of a marked deterioration in the economic environment, we remain confident about the outturn for the year.
Hotels and Restaurants
| Hotels and Restaurants | H1 2009/10
£m | H1 2008/09
£m | %
Change | | | | | | | | | | | | Premier Inn revenues | 312.1 | 311.0 | 0.4 | | Restaurants revenues | 236.7 | 244.1 | (3.0) | | Total Revenues | 548.8 | 555.1 | (1.1) | | Premier Inn like for like sales % | (7.5) | 10.1 | | | Restaurants like for like sales % | 1.8 | 4.5 | | | Operating profit, pre-exceptional | 127.4 | 139.2 | (8.5) | | Operating profit, post exceptional | 127.8 | 133.9 | (4.6) |
Hotels and Restaurants has traded with relative resilience in a challenging operating environment. Total revenues decreased by 1.1% to £548.8 million with pre-exceptional operating profit down 8.5% year on year to £127.4 million. Against tough comparatives, like for like sales were down 3.6%. Managing costs and driving sales were the priorities during the first half.
Premier Inn is outperforming the hotel market, demonstrating the flight to value by both business and leisure customers. Total sales at Premier Inn increased by 0.4% to £312.1 million (2008/09: £311.0 million) with like for like sales down by 7.5 %. Revpar stabilised during the half and was down by 9.2% on a like for like basis.
Premier Inn continues to attract business customers, with 15% more members joining our Business Account scheme year-on-year. Although overall spend on the Account is down by 4%, as smaller businesses cut back on travel, our top 300 managed accounts have increased their spend by 16%.
Premier Offers was launched in June to expand our share of the leisure market. We have made more than one million rooms available to the end of the calendar year at rates from £29. The offer has enhanced weekend occupancy and has since been extended throughout the week during holiday periods.
We have commenced the roll out of dynamic pricing, with over 100 hotels now live. We are continuing to develop ways of widening our booking distribution, particularly online.
Premier Inn is the UK's largest hotel chain and as such offers the widest choice of locations. We opened seven new hotels in the UK and 1,077 rooms in the first six months of this year. In the second half we will continue our growth bringing the UK total for the year to over 1,600 rooms. Overseas, we opened a hotel in Dubai and we will open our first hotel in Bangalore, India later this month.
Our pub restaurants, Beefeater, Brewers Fayre, Table Table and Taybarns, have delivered a robust performance as we remain focused on providing great value for money, family dining in comfortable surroundings. Revenues have decreased by 3.0% to £236.7 million (2008/09: £244.1 million). However, excluding the 44 sites exchanged for hotels in September 2008, sales increased by 6.5% and we attracted 6.8% more customers. Like for like sales rose by 1.8% with average like for like spend per head on food of £8.83.
We have continued to invest in the quality of our pub restaurant estate. In the last six months we have refurbished 50 Brewers Fayre and 15 Beefeater pub restaurants at an average cost of £125,000 per unit.
We have 375 pub restaurants in total, with 331 on joint sites with a Premier Inn. Our joint sites generally deliver industry leading returns and, together with our 44 stand alone pub restaurants, contribute nearly two thirds of Whitbread Hotels and Restaurants' profit before overheads.
Costa
| Costa | H1 2009/10
£m | H1 2008/09
£m | %
Change | | Revenues | 155.4 | 128.9 | 20.6 | | Like for like sales % | 2.5 | 3.7 | | | Operating profit, pre-exceptional | 12.6 | 7.3 | 72.6 | | Operating profit, post exceptional | 12.2 | 7.3 | 67.1 |
Costa has achieved an outstanding performance in the first half of the year. Total revenues were up by 20.6% at £155.4 million and pre-exceptional operating profit up 72.6% at £12.6 million (2008/09: £7.3 million). Sales in the UK and overseas franchise units were £92 million, an increase of 27% on 2008/09.
Costa’s market leading sales performance is derived from both new openings and transaction volumes which, in the like for like estate, increased by 3.9%. Food capture is 42.1%.
The strength behind the Costa brand is the quality of its coffee, served by trained Baristas in welcoming and comfortable stores. Its '7 out of 10 coffee lovers prefer Costa' marketing campaign continues to drive transaction volumes.
Tight cost control and finding the best locations are also fundamental to Costa's success. In terms of cost controls Costa has been employing its 'right person, right place' initiative to manage labour ratios. Capitalising on the weakness in the high street property market, we have also been able to negotiate better, more flexible rental terms and reduce build costs on new stores by some 10%. These measures, along with the strong sales performance, have contributed to the profit margin in the first half.
We have continued to grow the business in the first half of this year, keeping our portfolio balanced across high streets, retail parks, rail, airports and other travel hubs. Net 93 new stores were opened in the UK, net 72 of which were franchises. Our franchise partnerships continue to enable us to open up new areas of growth for Costa and we have opened two concessions in Hilton Hotels, 11 in Moto service areas and five with Compass Group in hospitals.
Internationally, we have moved into profit and are focusing on bringing key markets such as China, Russia and Central Europe to scale.
FINANCE REVIEWRevenue
Group revenue in the first half increased by 3.1% year on year to £703.3 million.
Revenue by business segment
| £m | 2009/10 | 2008/09* | % Change | | Hotels and Restaurants | 548.8 | 555.1 | (1.1) | | Costa | 155.4 | 128.9 | 20.6 | | Less: inter-segment | (0.9) | (2.1) | | | Other | - | 0.3 | | | Revenue | 703.3 | 682.2 | 3.1 |
* Restated for sales to Costa franchisees which were previously recorded as other as they related to Whitbread Food logistics sales to third parties.
On a like for like basis sales declined 2.7%. New openings in the year drove total sales growth with eight new hotels (1307 rooms), three pub restaurants and over 100 new Costa stores.
Results
Last year we introduced an underlying profit measure on the face of the consolidated income statement. We have continued with this measure but have refined it so that it now excludes only exceptional items and the impact of the volatile pension finance cost/credit as accounted for under IAS19 (see Interest below).
The Directors believe that this measure provides additional useful information for shareholders on the underlying trends and performance of the Group.
Underlying profit before tax for the half year is £118.2 million, down 2.7% on last year.
Total profit for the half year is £73.1 million, up 83.2% compared to £39.9 million last year.
Exceptional items
Net exceptional loss amounted to £3.3 million for the half year compared to £46.5 million last year which included £43.9 million in respect of the tax arising from the abolition of HBA's. These amounts are analysed in more detail in note 3 but the charge in this half year largely relates to the £25 million cost reduction programme announced in 2008.
Interest
The pre-exceptional interest cost of the first half is £20.3 million compared to £12.1 million and includes a pension finance cost of £7.7 million which was a credit of £1.8 million last year. This charge represents the difference between the expected return on scheme assets and the interest cost of the scheme liabilities set at the beginning of the year.
Excluding the pension finance cost, the underlying net interest cost for the half year was £12.6 million compared to £13.9 million last year. This reduction reflects the lower interest rate that the Group has achieved on floating interest rate debt, offset by the increase in average debt levels from £457.3 million in the first half of last year versus £599.7 million in this half year.
Tax
The underlying tax expense of £36.3 million represents an effective tax rate of 30.7% on the underlying profits, which compares with 30.0% last year. The year on year movement in the rate has been predominantly driven by increased overseas losses which are not tax deductible.
Earnings per share
Diluted underlying earnings per share decreased by 3.7% to 47.3p. An analysis of the impact of exceptional and pension finance costs is as follows:
| EPS | 2009/10 | 2008/09 | | Underlying | 47.3p | 49.1p | | Exceptional items | (1.9)p | (26.6)p | | Pension finance cost/credit | (3.1)p | 0.8p | | Total operations (diluted) | 42.3p | 23.3p |
Further details can be found in note 6.
Dividend
An unchanged interim dividend of 9.65p, will be paid on 5 January 2010 to all shareholders on the register at the close of business on 23 October 2009. A scrip alternative will be offered.
Capital expenditure and Business Acquisitions
Total Group cash capital expenditure on property, plant and equipment during the first half was £78 million with Hotels and Restaurants spend amounting to £68 million and Costa £10 million, the balance relating to Group activity. Capital expenditure is split between acquisition expenditure, which includes the acquisition and development of properties, and maintenance expenditure. In addition £6 million (£10 million in 2008/09) was invested in our international joint ventures.
Financing
In the first half the Group reduced net debt by £16.5 million to £606.6 million as a result of a reduced capital expenditure programme and stronger cash management.
As at 27 August 2009 the Group had committed revolving credit facilities of
£1,155 million. The facilities reduce to £930 million in December 2010, £855 million in December 2011 and £455 million in December 2012 with the remaining facility maturing in March 2013.
The policy of the Board is to manage the Group’s financial position and capital structure in a manner consistent with maintaining investment grade status. The Group aims to run current operations on a cash flow neutral basis for the remainder of this year.
Pensions
As at 27 August 2009 the IAS 19 pension deficit has increased by £175 million to £408 million. This was driven by the declining discount rate (which is based on AA corporate bonds) where the yield fell 1.2% to 5.4% since the year end, offset by an increase in the market value of the pension fund investments of £133 million.
Responsibility StatementWe confirm that to the best of our knowledge:
a) The condensed set of financial statements has been prepared in accordance with IAS 34;
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
Alan Parker
Chief Executive | | Christopher Rogers
Group Finance Director |
To view the full statement including financial statements, click the link below.
 Full statement - PDF
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