Whitbread PLC Preliminary Results: Profit and cashflow soar with Premier Inn UK success

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Whitbread PLC (LON:WTB) has announced its preliminary results announcement.

Record levels of profit and cashflow delivered by Premier Inn UK with continued progress in Germany
Increased dividend plus further £150m share buy-back in H1 FY25
Optimisation of F&B to unlock 3,500 room extensions and drive increased margins and returns

Throughout this release all percentage growth comparisons are made comparing the current year (FY24) performance for the 52 weeks to 29 February 2024 with FY23 (52 weeks to 2 March 2023).

Overview

• Premier Inn UK delivered record adjusted profit before tax with 15.5% return on capital employed^† (‘ROCE’) and continues to outperform the UK midscale and economy (‘M&E’) market¹

• In Germany, we are encouraged by our recent performance and remain on track to break-even on a run-rate basis in 2024 as we progress towards our long-term target of 10% – 14% return on capital

• The Board is recommending a 26% increase in the final dividend per share to 62.9p and intends to commence a further £150m share buy-back, to be completed during H1 FY25

• Cost efficiencies of £50m delivered in FY24; launch of new efficiency programme to deliver £150m of cost savings over the next three years

• Accelerating Growth Plan (‘AGP’) will optimise our food and beverage (‘F&B’) offer through converting 112 and exiting 126 branded restaurants; we plan to unlock 3,500 new room extensions that will see us reach at least 97,000 open rooms in the UK by FY29

• We have significant growth potential in both the UK and Germany; the plans outlined today will deliver a step change in our margins and returns, further underpinning our confidence in the medium-term outlook for the Group

FY24 Group Financial Summary

£m	FY24	FY23	*vs FY23*
Statutory revenue	2,960	2,625	13%

Adjusted EBITDAR^†	1,057	888	19%

Adjusted profit before tax^†	561	413	36%
Statutory profit before tax	452	375	21%
Statutory profit after tax	312	279	12%

Adjusted basic EPS^†	206.9p	162.9p	27%
Statutory basic EPS	161.0p	138.4p	16%
Dividend per share	97.0p	74.2p	31%

Group ROCE^†	13.1%	10.5%	260bps

Net (debt) / cash^†	(298)	171	(274)%
Lease-adjusted leverage^†	2.9x	2.6x	n/a

Financial highlights

• Group statutory revenue grew by 13%, driven by strong growth in the UK and continued progress in Germany

• Premier Inn UK: total accommodation sales up 12%; RevPAR up 10% with total accommodation sales 3.1pp and RevPAR £5.95 ahead of the M&E market

• UK F&B sales up 7% driven by strong occupancy in our hotels that has supported strong breakfast sales

• UK adjusted pre-tax profit margins^† increased to 21.2% (FY23: 19.6%), reflecting the strength of our commercial strategy, vertically integrated operating model and cost efficiency programme

• Record levels of UK ROCE^† that increased to 15.5%, up from 12.9% in FY23

• Premier Inn Germany: total sales up 62%, driven by network expansion and the increasing maturity of our estate that delivered a reduced adjusted loss before tax^† of £36m (FY23: £50m); our cohort of 17 more established hotels performed ahead of the M&E market²

• Group: adjusted profit before tax† was up 36% to £561m (FY23: £413m) and statutory profit before tax was £452m (FY23: £375m) after charging £109m of adjusting items (FY23: £39m) including a non-cash, net impairment charge of £107m, most of which relates to the write-down of UK branded restaurants held for sale in connection with our AGP, the impairment of seven German properties and £27m of costs relating to the Group’s strategic IT programmes

• Group: adjusted EBITDAR^† up 19% to £1,057m (FY23: £888m) driven by our strong profit performance

• Total cash returned to shareholders via dividends and share buy-backs in FY24 of £756m (FY23: £119m)

• Strong balance sheet: lease adjusted leverage† increased to 2.9x (FY23: 2.6x) and net debt† was £298m (FY23: net cash of £171m); pension fund surplus was £165m at the end of the year (FY23: £325m)

Segment highlights

Premier Inn UK

£m	FY24	FY23	*vs FY23*
Statutory revenue	2,770	2,508	10%
Adjusted profit before tax^†	588	492	19%
Revenue per available room (£)^†	65.56	59.45	10%

Premier Inn Germany

£m	FY24	FY23	*vs FY23*
Statutory revenue	190	118	62%
Adjusted loss before tax^†	(36)	(50)	28%
Revenue per available room (£)^†	44.44	37.04	20%

Current trading (seven weeks to 18 April 2024)

• Premier Inn UK:

o As evidenced by the published market data, whilst midweek demand has been robust, the phasing of public holidays impacted weekend demand in certain leisure locations; this meant that total accommodation sales were 1% behind FY24

o However, the strength of our brand and commercial programme meant that we continued to outperform the M&E market³ with total accommodation sales 1.2pp ahead and a RevPAR premium of £5.68

o We are expecting a positive step-up in demand across business and leisure over the next few weeks supported by our forward booked revenue position which is ahead of last year. This, together with our strong commercial programme, means that we remain confident in continuing to outperform the market

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• UK F&B: sales were 2% behind FY24, with a strong performance in our integrated restaurants offset by softer trading in a number of our branded restaurants

• Premier Inn Germany: total accommodation sales up 21% versus FY24 and RevPAR was €54; RevPAR for our cohort of 17 more established hotels was €57, ahead of the wider M&E market⁴

1: STR data, standard basis, 3 March 2023 to 29 February 2024, UK M&E market excludes Premier Inn

2: STR data, standard basis, 3 March 2023 to 29 February 2024, Germany M&E market excludes Premier Inn

3: STR data, standard basis, 1 March 2024 to 18 April 2024, UK M&E market excludes Premier Inn

4: STR data, standard basis, 1 March 2024 to 18 April 2024, Germany M&E market excludes Premier Inn

Accelerating Growth Plan (‘AGP’)

• Optimisation of our F&B offer to enhance the proposition for our hotel guests and increase efficiencies through:

o converting 112 lower-returning branded restaurants into new hotel rooms having first transferred the delivery of F&B to an integrated restaurant; and

o exiting 126 lower-returning branded restaurants; they will continue to operate as they do now so that they can be sold as going concerns and we have already agreed to sell 21 of these restaurants for £28m

• We plan to unlock 3,500 new room extensions, that will see us reach at least 97,000 open rooms in the UK by the end of FY29; the plan will require c.£500m of investment over the next four years which will be funded through our existing annual capital expenditure programme

• AGP will result in the reduction of around 1,500 roles out of a total UK workforce of 37,000. While these plans are still subject to consultation, we will seek to find alternative opportunities wherever possible through the roles created by this plan and our existing recruitment process that makes c.15,000 hires each year

• This plan will drive increased margins and returns for our UK business. A one-off impact of £20m – £25m reduction to UK adjusted PBT in FY25 will be fully recovered in FY26 and deliver incremental adjusted PBT of £30m – £40m in FY27; by FY29 the plan should deliver increased adjusted PBT of £80m – £90m

FY25 guidance

• As previously announced, we continue to expect net inflation on our £1.72bn UK cost base of between 3% and 4% in FY25, after £40m – £50m of efficiency savings

• In Germany, we remain on course to break-even on a run-rate basis during calendar year 2024

• Expected £20m – £25m reduction in net finance income versus FY24 reflecting lower cash balances and based on the current outlook for Bank of England rates

• In FY25 we expect to open 750 – 1,250 rooms in the UK and c.400 rooms in Germany

• We expect gross capital expenditure in FY25, including our AGP to be between £550m – £600m, partially offset by proceeds from property transactions of £175m – £225m, including sale and leasebacks and disposals

Medium-term outlook

We remain confident about the Group’s prospects. We are the clear market leader in the UK and have a number of strategic and commercial initiatives, as set out in the Business Strategy section below, that will strengthen our position further. In Germany, we are building a business of real scale and remain on course to become the number one hotel brand¹ achieving our long-term target of 10% – 14% return on capital. Together with our new efficiency programme, these initiatives will deliver a step change in our profitability, margins and returns.

1: Based on number of open hotel rooms

† Signifies an alternative performance measure (‘APM’) – further information can be found in the glossary and reconciliation of APMs at the end of this document

Commenting on today’s results, Dominic Paul, Chief Executive, said:

“We have delivered an outstanding set of results in FY24, led by the strength of our UK hotels business. Our increased levels of profitability, operating cashflow and return on capital reflect the power of our unique operating model. Our freehold-backed balance sheet, together with our strategy of continuing to invest, is allowing us to take advantage of the significant structural growth opportunity that exists following the decline in UK hotel supply.

“Against this backdrop, we are increasing our momentum to deliver long-term profitable growth. In addition to our strong commercial programme, we plan to optimise our F&B offer at a number of our sites to unlock up to 3,500 room extensions that will enhance the service for our hotel guests and deliver increased operational efficiencies. We recognise that our transition will impact some of our team members so we will be providing support throughout this process and we are committed to working hard to enable as many as possible of those affected to remain with us. The short-term impact on our profit performance this year will be more than offset by an uplift from FY27 with further increases thereafter in both margins and returns as we open more of the new extensions.

“In Germany, we are encouraged by our progress to date and the opportunities we now have to both build our brand awareness and refine our trading strategies further. We are on track to break-even on a run-rate basis during calendar year 2024 and with 10,500 rooms now open and a further 6,000 in the pipeline, we are on course to fulfil our ambition of becoming the number one hotel brand in Germany.

“Our scale and vertically integrated model mean we have the commercial and operational levers to underpin long-term profitable growth, strong cashflow and increasing returns on capital. We are on course to deliver a step change in our performance and look forward with confidence, as reflected by our increased recommended final dividend and proposed further share buy-back.”

A webcast for investors and analysts will be made available at 8:00am on 30 April 2024 and will be followed by a live Q&A teleconference at 9:15am. Details of both can be found on Whitbread’s website (www.whitbread.co.uk/investors).