Profitable growth
Introduction
Our strategy is designed to deliver outstanding results for all our stakeholders decade after decade. We intend to create shareholder value by delivering on our five-year growth milestones, growing like for like sales and driving returns on capital.
Growth
During 2011/12 we continued with our expansion plans in Hotels & Restaurants and opened 4,055 new bedrooms in 29 hotels as well as 12 new restaurants delivering our highest organic growth to date. There are now 619 hotels (47,274 rooms) in the UK and 387 restaurants, of which the great majority are adjacent to a Premier Inn. We plan to open a further 4,200 new rooms by the end of 2012/13. This, combined with the remainder of the committed pipeline of 6,300 rooms, puts us on track to achieve our milestone of 65,000 UK rooms by 2016.
As well as our expansion plans we also continue to invest in our existing estate and over the two financial years to February 2013 we plan to have invested around £70 million refurbishing some 13,000 rooms. This aligns with our strategy of delivering quality and consistency across our estate. Furthermore we have implemented a new cluster management system to enhance the efficiency and structure of our business and to strengthen our position for future growth.
Overseas, we now have four hotels in the Middle East and two hotels in India. We will continue to expand our presence in these markets, with five hotels in the pipeline. Beyond the pipeline, we will pursue a ‘capital right’ strategy to grow Premier Inn’s presence in international markets. This means increasingly concentrating new developments on management contracts once we have established our brand in each market with owned hotels.
In Costa, we had a strong store opening programme during the period and opened a total of 332 net new stores. Our international presence continued to grow as we opened 157 net new stores, including 69 in China while our UK business further strengthened through the addition of 175 net new stores. This increased our total number of stores to 2,203: 1,392 in the UK and 811 overseas.
Following the acquisition of Coffee Nation in March last year and subsequent launch of Costa Express, we are pleased by the progress made during the year with our growth plans ahead of our original expectations. We ended the year with 1,192 Costa Express units which included 622 conversions.
In early 2012, we organised Costa into four divisions: Costa UK Retail; Costa Enterprises (which includes our key contract businesses of wholesale, corporate franchise and Costa Express); Costa Europe, Middle East and India (EMEI); and Costa Asia. This reflects the increasing breadth and globalisation of Costa and supports our growth strategy for the future.
Return on capital
Our growth plans require a significant investment of capital and in 2011/12 we invested £307.9 million in new and existing units. It is important therefore that we invest this money well and deliver a good return for our shareholders. The hotels and restaurants that we have opened in the last three years are currently on track to deliver a ROCE in excess of 20% at maturity. In 2011/12 Costa delivered a ROCE of 32.4%, with Hotels & Restaurants delivering a ROCE of 12.4%.
Like for like growth
Whilst it is important that we deliver on our growth milestones and re-invest in our estate to maintain the quality of our customer proposition, it is equally important that we deliver good like for like growth.
In 2011/12, strong initiatives combined with our continued focus on customer propositions drove Group like for like sales up by 2.6%. Premier Inn delivered a like for like sales increase of 3.2% despite an overall slowdown in the hotel market in the second half of the year, particularly in the regions. Like for like revpar grew by 1.8% for the year. Revpar growth remains a key focus for Premier Inn and during the second half of the year we trialled our new pricing system for both Premier Saver and Premier Flexible rates. We are pleased with the success of this trial and plan to roll it out to the remainder of the estate during 2012/13.
Restaurants like for like sales fell by 0.2% for the full year with an improvement in the second half as management actions drove covers growth of 4.8%. Costa delivered another outstanding performance with like for like sales up 5.5%. Meanwhile, Costa’s international business continued to strengthen with positive like for like sales growth across all regions except Europe which has been affected by the financial crisis in Greece.
2011/12 performance
Whitbread delivered a good performance in 2011/12 amid a challenging economic backdrop for the UK of low consumer confidence and poor economic growth. For the full year total Group sales rose by 11.2% to £1,778.0 million and Group underlying profit before tax increased by 11.3% to £320.1 million.
Our hotels and restaurants achieved a solid performance during the year in an increasingly competitive and challenging environment. Total revenues increased by 5.3% to £1,239.0 million with underlying operating profit up 4.3% year on year to £295.6 million.
In the midscale and economy hotel market which became progressively more challenging, particularly outside of London, Premier Inn continued to outperform its competitive set and delivered a resilient performance with total sales up 8.3% to £755.9 million (2010/11: £697.8 million).
Overseas, Premier Inn continued to perform well with revpar and occupancy increasing across the board as the Premier Inn brand established its position within the Middle East and India.
Our restaurants made steady progress during the second half of the year. A key feature has been a more focused management team for our restaurants which are predominantly located alongside a Premier Inn. In addition we have improved our customer offering through better value food and drink.
Revenues have increased by 1.8% to £483.4 million (2010/11: £474.9 million) with covers growth of 1.5%. Costa has produced another excellent performance during the year, with total sales increasing by 27.5% driven by good like for like sales growth and a strong store opening programme. Following a strong top line performance, underlying operating profit increased by 38.0% to £69.7 million.
Total system sales, which are sales derived from Costa owned and franchise stores, were up 24.3% to £819.3 million.
WINcard performance
Hotels & Restaurants achieved its WINcard performance target for brand expansion, but missed its WINcard profit target for the year. Costa achieved its targets for brand expansion, profit and system sales. At a Group level, Whitbread achieved its expansion targets, but marginally failed to meet a stretching profit target.
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