Revenue by business segment

Profits

Interest

Exceptional Items

Taxation

Earnings per share

Dividend

Net debt and cashflow

Capital expenditure

Pensions

Funding and financial status

Return on Capital

Whitbread has delivered another strong financial performance, with revenue for the year at £2,030.0 million up by 14.2% on last year, underlying profits before tax up 11.4% to £356.5 million and operating cash flow before pension payments up 10.0% to £526.0 million.

Revenue by business segment

Hotels and Restaurants

Revenue rose to £1,360.1 million, up 9.7%, with Premier Inn growing by 13.1% to £853.8 million and Restaurants by 4.5% to £506.3 million. Premier Inn and Restaurants both benefitted from new openings with 4,242 net additional Premier Inn rooms and ten new restaurants on joint sites.  Although Premier Inn International did not open any new rooms in the year, it benefitted from a full year of sales on the 375 net rooms opened in the previous year.

Like for like sales growth for UK Hotels and Restaurants was 2.8%, with Premier Inn at 3.1%. This growth was driven by maintaining the quality of the rooms, with 5,979 rooms refurbished in the year, investment in our online distribution and the continued development of dynamic pricing. This enabled us to outperform our Midscale and Economy sector competitors, with revpar growth of 1.7%.

Restaurants like for like sales grew 2.3%, led by improvements to our menu offering and the growing customer base staying at the adjacent hotels. Through our continued focus on the customer and by delivering value for money, the number of like for like covers increased 3.0% compared to last year.

Costa

Costa's revenue increased to £672.4 million up by 24.1% on last year. Costa opened 324 net new coffee shops in the year, with a net 186 in the UK and net 138 in overseas markets.  Like for like sales in the UK grew 6.8% as we benefitted from the innovation in new food and beverage ranges and the growing customer preference for the Costa brand. Costa Enterprises also grew strongly with 1,368 net new Costa Express coffee machines taking the total to 2,560.  

Profits

Whitbread's underlying profit before tax at £356.5 million was up by 11.4% on last year.  Underlying profit before tax excludes the pension interest charge, the amortisation of acquired intangibles and exceptional items.

Both business segments increased underlying operating profit with Costa up 29.3% to £90.1 million and Hotels and Restaurants up 5.9% to £313.1 million maintaining the Group's strong performance over the last five years.

Hotels and Restaurants profit in the UK was up 6.3% to £319.2m. Profit growth was lower than sales growth of 9.7%, predominantly due to the higher rent costs as we increase the mix of leasehold properties. Rent costs increased to £69.5 million, up 26% on last year which was approximately in line with sales growth from leasehold properties. International hotel losses were £6.1m, with the continued planned investment in establishing our South East Asia operations and preparing our Middle East business for further expansion.  This was partially offset by an improvement in our trading results, particularly in the Middle East.

Costa's strong performance was led by the UK where profits increased 34.7% to £87.7million with good growth in both UK Retail and Enterprises. Costa's international profits reduced to £2.4 million from £4.6 million as we invested in our future growth. We experienced good profit progression in the Middle East and from our European franchises.   In China, where we increased investment in our infrastructure, we expect to achieve profitability on a monthly basis in the first half of the year. The adverse economic environment in Poland resulted in a like for like sales decline, reducing our profitability year on year. We expect the Polish market to remain tough over the next year and we will be affected by a recent increase in VAT rates on milk based drinks that will raise the VAT charge by roughly £2 million.

Central costs were £23.1 million, up £3.2 million on last year, principally arising from increased share based payment costs, a significant part of which was attributable to the strong performance of the share price during the year.

Total profit for the year after tax and exceptional items was £301.3 million, up 13.3% on last year.

Interest

The underlying interest charge for the year was £23.6 million, a reduction of £1.7 million compared to last year. This resulted from the decrease in the level of fixed interest rate debt following the maturity of a number of fixed rate swaps, which lowered the underlying effective interest rate to 4.8% from 5.7%.

The total pre-exceptional interest cost amounted to £41.6 million and included the IAS 19 pension charge of £18.0 million (2011/12: £14.0 million). This charge represents the difference between the expected return on scheme assets and the interest cost of the scheme liabilities. In 2013/14 this charge is expected to increase to approximately £26.0 million following the changes to IAS 19(2011) that limit the expected return on investments that are applied to the scheme's assets to the same rate as that applied to the scheme's liabilities.

Exceptional items

Exceptional items for the year amounted to a benefit of £52.1 million. 

There are three significant items. The first, a £15.3 million profit on the sale of property, investments and businesses, predominantly relates to the sale and leaseback transaction undertaken in December 2012, which gave rise to a profit on disposal of £19.7 million. This transaction is a useful reminder of the value created from our freehold developments and the strong asset backing within Whitbread's balance sheet. The second item relates to the refund of tax and release of accruals, which had been charged in previous periods, of £13.5 million and the related interest of £10.8 million. The third major exceptional item is the release of £16.8 million of deferred tax liability, predominantly due to the reduction in corporation tax rates to 23% following the enactment of the Finance Act 2012.

Taxation

Underlying tax for the year amounts to £91.5 million at an effective tax rate of 25.7% , which compares to 26.4% last year. The major reason for the change in tax rate is the reduction in corporation tax rates for 2013, partly offset by increased overseas tax losses for which the Group has recognised no tax benefit.

Earnings per share

Underlying basic earnings per share for the year is 150.45p up 12.0% on last year and underlying diluted earnings per share for the year is 149.19p up 11.3% on last year.

Dividend

The recommended final dividend is 37.90p representing an increase on last year of 12.3% making a total dividend for the year of 57.40p up 12.0% on last year, in line with the Group's basic earnings per share growth.

Net debt and cashflow

The principal movements in net debt are as follows:

*This agrees to cash generated from operations in the financial statements excluding the pension payments

Cash generated from operations before pension payments increased by 10.0% to £526.0 million. This strong cash flow is enabling Whitbread to fund its growth from internal resources. Investment in capital expenditure was up £35.7 million on last year to £343.6 million, ensuring that the Group continued to grow its market share through new site developments and investments whilst improving its existing property estate. In addition, contributions to capital and loans to joint ventures increased by £3.2 million to £4.8 million.

As mentioned above, during the year the Group successfully completed a sale and leaseback transaction of seven sites with proceeds of £51.0 million in cash. The transaction provided funds, alongside the operating cash flow, to support the investment of £134.0 million in new freehold properties in the year.

The payment into the pension fund was £45.7 million, a reduction of £49.7 million on last year, following the decision made in 2011/12 to make a one off advanced payment of £25 million. In 2013/14 the pension deficit payments will revert back to the original 2011 triennial scheduled payments of £55 million together with c£9million contribution from the properties held as security in favour of the pension scheme.

Dividend payments amounted to £77.8 million. In the year there was a significantly higher take up of the scrip dividend than last year at 17.7%. The gross dividend payment without the scrip dividend would have been £94.5 million.

Our underlying effective profit and loss corporation tax rate was 25.7% for the year. On a cash basis, the Group benefitted from a refund of approximately £18.4m in the year relating to overpayments of taxes in previous years and from the timing of scheduled tax payments, as we anticipate that in the first half of next year we will pay approximately £38 million in respect of this year to HMRC. It is not expected that material refunds will be received in 2013/14.

As a result of the free cash inflow the net debt as at 28 February 2013 reduced by £33.2 million to £471.1 million (2011/12 £504.3 million)

Capital expenditure

The Group's cash capital expenditure was £343.6 million, with £261.3 million in Hotels and Restaurants and £80.1 million in Costa. Capital expenditure is split between expansionary expenditure (which includes the acquisition and development of properties) and maintenance expenditure.

Expansionary expenditure increased by £24.1 million to £220.1 million. Of this, £158.2 million related to Hotels and Restaurants, supporting the 4,272 gross new room openings and the ten new restaurants in the year. As mentioned earlier, this included an investment of £134.0 million in freehold property.  

Freehold properties are Whitbread's preferred route to market, where possible, for Hotels and Restaurants. They provide operational flexibility to develop the property to specific requirements and give financial benefits in retaining more of the value created from the hotel's performance, avoiding inflationary rent and capturing development gains. They also offer a choice on how to fund the future growth, by capitalising on these development profits through the option of sale and leasebacks where the proceeds can be recycled back into new freehold properties.

Costa spent £61.9 million on the opening of its 404 gross new coffee shops.

Maintenance capital was £123.5 million. A significant amount of this was spent on ensuring our products continue to meet customers' expectations and stay ahead of the competition. To that effect £103.1 million was spent on maintenance in Hotels and Restaurants and £18.2 million in Costa, a considerable amount of which supported the 5,979 rooms and 120 coffee shops refurbished in the year.

Our current plans for 2013/14 indicate that the Group's capital expenditure will be approximately £350 million. This is particularly sensitive to the timing of transactions and opportunities that arise within the freehold market.

Pensions

As at 28 February 2013 there was an IAS 19 pension deficit of £541.7 million, a reduction of £57.0 million year on year. The main reasons for the reduction in the deficit were the increase in the value of assets under investment and the cash contributions of £45.7 million from the Company which were only partially offset by increased liabilities due to the higher inflation rate assumption.  

In the year, the triennial pension agreement between the Company and the Pension Trustee for the year ended 31 March 2011 was completed. Under the agreement there were no significant amendments to the Company's cash contributions to the scheme as agreed under the 2008 agreement. As part of the agreement, further security in the form of a charge over properties with a market value totalling £180 million was agreed to be given in favour of the pension scheme. This takes the total value of property security in favour of the scheme to £408 million.

From next year there are two changes to pension accounting standards that affect the Group's accounts. Firstly, the changes under IAS 19(2011), as mentioned in the Interest section above, that will increase the pension finance charge from £18 million to approximately £26 million. Secondly, certain pension administration costs of c£2.8 million will be reported through operating profit rather than as part of the pension finance income.

Funding and financial status

Whitbread aims to maintain its financial position and capital structure consistent with retaining its investment grade status. To this end, we work within the financial framework of net debt to EBITDA (pension and lease adjusted) of less than 3.5 times.

The Group remains well funded with a broad source of funds and a good spread of maturity dates. The principal sources of funds are:

• The Group's strong cash flow from operations, which it uses as its primary source of funds for capital expenditure to achieve growth milestones.

• Whitbread also enters into leasehold agreements to fund its expansion. Although the Group prefers the benefits that freehold properties provide to its hotel business, leasehold agreements are less capital intensive and allow us to gain distribution in locations where freehold acquisitions may not be available, such as in many city centres and in particular in London.  Leases are also more suitable to the Costa business model where short leases allow flexibility in reacting to the changing dynamics of the high street.  At the year end, with the growth in Costa Retail and the mix of leasehold hotel rooms increasing 5%pts to 31% of the estate, the undiscounted lease commitment for the Group as at 28 February 2013 was £2,460.5 million (2011/12 £1,987.2 million).

• Sale and leaseback transactions are used to release capital, allowing Whitbread to crystallise profit on property investments and recycle the proceeds into new freehold property.

• The Group has funded its medium term requirements through £258.2 million of US Private Placements maturing between 2017 and 2022, together with a £650.0 million bank revolving credit facility maturing in December 2016.

Return on Capital

A prime focus for the Group is return on capital. The Group calculates return on capital by dividing underlying profit before interest and tax for the year by net assets at the balance sheet date adding back debt, taxation liabilities and the pension deficit. In the year, return on capital increased by 0.4%pts to 14.0%.

The improvement was a result of Costa's strong trading resulting in a return on capital improvement of 2.3%pts to 34.7% and its increased proportion of the Group.

Within Hotels and Restaurants, where strong returns were maintained at 12.4%, there was progress on the underlying trading returns and there was a benefit from the higher proportion of leasehold properties.  This progress was offset by the investments we made in the Hotels and Restaurants fast growing digital channels, the Restaurants management team and the infrastructure of the international hotels.

Nicholas Cadbury

Finance Director
30 April 2013