· Total revenue up 11.5% to £1,599.6 million (2009/10: £1,435.0 million)
· Group like for like sales up 6.6% in the year
· Underlying profit1 before tax up 20.1% to £287.1 million (2009/10: £239.1 million)
· Whitbread Hotels and Restaurants operating profits up 14.7% to £283.4 million, delivering a return on capital2 of 12.3% (2009/10: 10.9%)
· Costa operating profits up 38.4% to £50.1 million, delivering a return on capital2 of 42.2% (2009/10: 36.7%)
· Underlying diluted EPS up 20.1% to 116.1p (2009/10: 96.7p)
· Year end net debt reduced to £487.9 million compared to £513.4 million last year
· Final dividend up 17.3% to 33.25p (2009/10: 28.35p); full year dividend up 17.1% to 44.50p (2009/10: 38.00p)
· Profit after tax and exceptional items for the year up 38.8% to £222.1 million (2009/10: £160.0 million)
· Total basic EPS 127.2p up 37.7% (2009/10: 92.4p)
Building on Success
· 2011/12 Growth Plans
o Premier Inn to grow number of UK rooms by approximately 9% (around 4,000 additional rooms and 14 new restaurants)
o Costa to grow number of stores by approximately 15% (around 300 new stores)
o Around 2,500 new jobs to be created in the UK
· New five year growth milestones
o Premier Inn to accelerate growth and increase its UK capacity by 50% to at least 65,000 rooms, with a committed pipeline of 10,500 rooms
o Costa to double to 3,500 stores worldwide and £1.3 billion system sales
o Costa Express to be expanded to 3,000 units
· Continuing and increased focus on capital efficiency to improve returns
o Sale and leaseback of approximately £50 million planned for second quarter of 2011/12
Anthony Habgood, Chairman of Whitbread PLC, said:
"Whitbread achieved strong revenue, profits and EPS growth in 2010/11 despite market conditions which have become progressively more challenging. Our increasingly focused strategy and drive to meet the needs of our customers enabled us to deliver another excellent set of results with a 17% higher dividend and position us well to accelerate our expansion plans."
Andy Harrison, Chief Executive of Whitbread PLC, said:
"These results demonstrate the strength of Whitbread's competitive position and market opportunity, with an 11.5% growth in sales and a 20.1% increase in underlying profits. Growth in our like for like sales remains firmly positive, although at a lower level than that achieved in the fourth quarter of 2010/11. Despite a more challenging consumer economy, we are confident that we will continue to outperform, based on the strength of our brands and our customer propositions. Our emphasis is on giving customers value for money, winning market share and keeping a tight control of costs.
We see a significant opportunity for Whitbread, building on our good returns on capital and the availability of quality sites. We are already growing faster and will add around 4,000 new Premier Inn UK rooms and around 300 Costa stores this year and we have set new five year milestones. These milestones will increase the number of Premier Inn UK rooms by 50% to 65,000 and double the size of Costa to 3,500 stores worldwide over the next five years, in addition to our existing goal of expanding Costa Express to 3,000 units. This is an exciting and profitable plan to build on Whitbread's success and to create substantial value for our shareholders."
CHIEF EXECUTIVE'S REVIEW
Whitbread delivered good sales and profit growth in 2010/11 despite the challenging economic environment and tougher comparatives in the second half of the year. Group total sales grew strongly by 11.5% to £1,599.6 million with Premier Inn up 10.9% to £698.6 million, Costa up 24.7% to £425.0 million and Restaurants up 2.7% to £478.7 million.
Group underlying profit before tax increased by 20.1% to £287.1 million (2009/10: £239.1 million), with underlying diluted EPS increasing by 20.1% to 116.1p.
Like for like sales increased across all businesses. At Group level, like for like sales grew by 6.6%, Premier Inn increased by 8.6% and Restaurants by 3.3%. Costa delivered a like for like sales increase of 7.8%.
At the year end, net debt was £487.9 million compared to £513.4 million last year.
The Board recommends a final dividend payment of 33.25p per share, making a total dividend for the year of 44.50p per share an increase of 17.1%. The final dividend will be paid on 13 July 2011 to shareholders on the register at the close of business on 13 May 2011. A scrip dividend alternative will be offered again.
A successful year
Whitbread is the UK's largest hotel and restaurant group with brand leadership in hotels and coffee shops. In the UK our 35,000 employees serve over ten million customers each month, in some 2,000 outlets. I would like to take this opportunity to thank all our employees for their hard work and contribution to our success.
Premier Inn's strategy to drive occupancy by targeting leisure customers has proven successful with our like for like occupancy improving 6.6 percentage points to 76.2%, leading to a revpar increase of 8.2%. The strategy focuses on four key levers: increased advertising and promotion, dynamic pricing, widened reservation distribution and increased sales activity. We are on track to achieve our occupancy target of 80% and have driven an increase in like for like occupancy both midweek, by 4.5 percentage points, and at the weekend, by 9.7 percentage points. The drive to improve leisure performance has resulted in a mix change with increased like for like occupancy at the weekend (now 69.4%) which has slightly reduced our average room rate by 1.2% to £54.19.
Our restaurants have delivered like for like sales growth of 3.3% in the year, driven by like for like covers growth of 5.1%. We have continued to focus on value for money offers, including 2 for £10 in Brewers Fayre, 2 for £11 in Table Table and meal deals at Beefeater. Last year these value offers saw a growth of 10.9% and accounted for over 30% of all covers. We completed the refurbishment of 130 restaurants last year. Return on capital2 in our Hotels and Restaurants business in 2010/11 stands at 12.3%, up from 10.9% in 2009/10.
Costa has continued its outstanding performance, with pre exceptional operating profits up 38.4% to £50.1m, worldwide system sales up 27.8% at £659.0 million and an increase in like for like sales of 7.8%. Costa's return on capital2 has risen from 36.7% to 42.2%.
In March 2011, we announced the acquisition of Coffee Nation for £59.5 million and our plan to launch a new brand, Costa Express, targeting the self-serve coffee bar sector. Consumer research has identified that the number one driver of purchase is convenience and Costa Express will directly target those customers who want great tasting coffee 'on the go'. It provides Costa with access to new types of location and creates a growth opportunity in the UK's emerging self-serve coffee bar sector. This sector currently comprises around 2,000 units, of which Coffee Nation operates approximately 900. We have set a target of 3,000 Costa Express units across the UK over the next five years.
During 2010/11, we continued to invest in disciplined growth. Premier Inn opened 22 hotels, 2,138 rooms and eight new restaurants. As announced in September 2010, 633 rooms left the estate following our decision to exit our ten year agreement on 14 hotels run by Roadchef plus one run by Moto. Our total UK portfolio at the year end was 590 hotels and 43,219 rooms. Our international business now has five hotels (1,076 rooms) with 816 rooms in Dubai, 105 in Bangalore, and 155 in Dublin. Occupancy in the three Dubai hotels has risen from 38% in 2009/10 to 55% in 2010/11. We have a further committed pipeline of four hotels with two in Abu Dhabi, one in Qatar and one in India.
In Costa we expanded significantly in the UK and internationally. In the last year, Costa opened a total of 347 stores taking the total number of stores to 1,217 in the UK and 654 internationally. In the UK we opened 148 (net) new stores in the year, of which 79 are company operated and 69 are franchise stores. Overseas, we opened 123 (net) new stores of which 47 are equity and 76 are franchise. The integration of Coffeeheaven, the Central European business we acquired last year, has gone well and the performance in the key Polish market is ahead of our expectations with like for like sales up by 6.1%. We now have 73 stores in Poland and expect to have approximately 100 stores in 2012/13.
Building on Success
We will continue to build and grow our strong brands as we seek to strengthen our customer proposition and accelerate the expansion of our network to win market share and increase profits. In 2011/12 we are increasing our rate of expansion with around 4,000 new room openings, 14 restaurants and 300 Costa stores worldwide. Total capital expenditure in 2011/12 will be around £350 million, up from £202 million in 2009/10.
Looking ahead, key areas of activity include:
· Improving our insight to deliver a better customer experience;
· Stronger value-led offers;
· Innovating across our brand propositions; and
· Making our brands more accessible through increased distribution channels.
We continue to build brand preference amongst consumers with both Premier Inn and Costa ranked number one in their sector by YouGov. Better customer insight is fundamental to our strategy to build strong brands and we use a number of mechanisms to determine and analyse customer needs and satisfaction.
A key tool within our hotels and restaurants is the 'Guest Recommend Survey' that captures feedback from over 800,000 customers annually. Costa's loyalty programme, the Coffee Club card, provides rich data on over 1.2 million active cardholders offering valuable demographic information and promotional opportunities. The card is now used in 41% of all transactions, with cardholders' average spend 6% above non card holders.
Our value-led offers have helped drive market outperformance during challenging economic times. Targeted at the leisure customer, Premier Inn's 'Premier Offers', with rates from £29, sold over one million room nights in 2010/11 which is more than double 2009/10. We have also successfully trialled a £19 price point to drive occupancy and secure incremental revenue in periods of low demand.
We continue to enhance our dynamic pricing system to improve our capability to manage rates to maximise market demand. We will be using this increasingly sophisticated tool to achieve more efficient pricing across the estate, enabling us to improve midweek revpar and extend Premier Offers.
The increased occupancy in our hotels has also had a positive impact on restaurant sales, enhanced by our Premier Inn £22 Meal Deal, which accounted for over £10 million of sales in our hotels and restaurants.
We have had good success in value for money food promotions in our restaurant brands. We will apply the same strategy to drink and continue innovating our food and drink offers to attract more customers and encourage greater spend. We believe our restaurants have the potential to be 'best in class'. To achieve this objective we have appointed a Managing Director of Restaurants, within Whitbread Hotels and Restaurants, to drive strategic focus and operational excellence.
Innovation is critical to building strong brands and we have a number of new concepts which are being rolled out in 2011/12. Premier Inn's automated check-in kiosks are proving a success. They are currently in 33 hotels and will be installed in all new build solus hotels.We are also developing a new 'mini solus' format, which is typically between 60-80 rooms with smaller public area space giving us access to a broader range of locations.
Costa continues to revamp its store format. Its 'Metro' design is achieving strong results across six stores in central London. The first Metro store outside London will open in Leeds in Summer 2011 and a further seven stores are planned to open in the UK in 2011/12. Costa has also opened a new 'Provincial' format in Nottingham and Oxford, with plans to roll out elements of the design across the estate.
Improving our distribution channels is a key focus as we work to make our brands easily accessible to both existing and potential customers. In Premier Inn, the Business Account Card enables us to increase our brand footprint and build a higher quality customer base. It has attracted major corporate accounts such as RWE npower and Balfour Beatty. We currently have over 16,600 accounts and since 2006/07, revenue from Business Accounts has grown from £75 million to £180 million (ex VAT).
We continue to increase the number of bookings via automated channels (including Premierinn.com), which now account for over 70% of all reservations. In January 2011, we launched the Premier Inn App which has generated over £1.3 million of revenue in its first four months.
We have a broad distribution system in Costa with a balanced portfolio across high streets, retail parks, concessions, airports, rail and other travel hubs as well as an increasing number of stores in new locations such as universities and hospitals. In addition to the traditional full store format, we are also developing more innovative distribution channels, such as Costa Express and Drive Thru, which will enable us to extend the brand's reach and increase accessibility for the customer.
New growth milestones
We have conducted a thorough assessment of the growth potential for Premier Inn and Costa. As a result we believe there is opportunity to grow faster and further and we have set new milestones for the next five years of at least 65,000 Premier Inn UK rooms and 3,500 Costa stores worldwide. We have a committed pipeline of 10,500 Premier Inn UK rooms including 4,000 scheduled to be built in 2011/12. We anticipate that around 40% of our growth will come from new catchment areas where Premier Inn is not currently present. A significant proportion of rooms growth will be via the joint site model and therefore we expect to open between 80-100 new restaurants over the next five years.
There is a medium term growth opportunity for Premier Inn internationally and, building on our current five hotels in India and the Middle East, our newly appointed Managing Director of Premier Inn International is developing a more detailed strategy for growth. This strategy will comprise a new capital 'lite' approach to improve our return on capital and better manage our risk.
Costa is the nation's favourite coffee shop brand and has grown to become the sector leader within the UK and the second largest international coffee shop operator. We have set a new target to double the size of the business in the next five years, with system sales growth to around £1.3bn and 3,500 stores worldwide. We expect continuing rapid growth in our UK store network with even faster international growth. Our equity business model will grow somewhat faster than our franchise business.
The Group's planned capital expenditure of around £350 million in 2011/12 is indicative of the level of investment in subsequent years, which will be funded from existing operating cash flow and facilities.
Good Together corporate responsibility programme
Our corporate responsibility programme, which we call Good Together, encompasses a range of objectives to ensure that Whitbread is a force for good in our communities. In November 2010 we opened our second 'green' hotel and our first low carbon restaurant, a 220 cover Beefeater Grill in Burgess Hill, Sussex. Costa opened its first energy efficient store in Basingstoke in October which we anticipate will reduce energy consumption by 30%. In March this year we were awarded the 'Best Initiative' for a large business at the Climate Week Awards for our innovative landfill diversion initiative.
Whitbread employees have achieved around 2,500 qualifications through the apprenticeship and skills for life programmes. As we grow our outlet numbers, we continue to offer jobs and training opportunities and in 2011/12 we will create approximately 2,500 new jobs in the UK.
Current trading and outlook
Growth in our like for like sales remains firmly positive, although at a lower level than that achieved in the fourth quarter of 2010/11. Despite a more challenging consumer economy, we are confident that we will continue to outperform, based on the strength of our brands and our customer propositions. Our emphasis is on giving customers value for money, winning market share and keeping a tight control of costs.
We see a significant opportunity for Whitbread, building on our good returns on capital and the availability of quality sites. We are already growing faster and will add around 4,000 new Premier Inn UK rooms and around 300 Costa stores this year and we have set new five year milestones. These milestones will increase the number of Premier Inn UK rooms by 50% to 65,000 and double the size of Costa to 3,500 stores worldwide over the next five years, in addition to our existing goal of expanding Costa Express to 3,000 units. This is an exciting and profitable plan to build on Whitbread's success and to create substantial value for our shareholders.
Our hotels and restaurants have achieved strong growth during the year. Total pre exceptional revenues increased by 7.0% to £1,172.7 million with pre exceptional operating profit up 14.7% year on year to £283.4 million. Like for like sales continued their positive momentum up 6.4% (2009/10: (1.8)%).
During the year Premier Inn delivered a strong performance with total sales up 10.9% to £698.6 million (2009/10: £629.8 million) and like for like sales up by 8.6%. Regional revpar increased by 6.7% and London saw growth of 12.1%.
Our Restaurants continued to attract more customers looking for great value food and drink in a comfortable and welcoming environment. Revenues have increased by 1.7% to £474.1 million (2009/10: £466.2 million), (2.7% to £478.7 million including exceptional revenue), with like for like sales growth of 3.3% and like for like covers up 5.1%.
During the year, Premier Inn opened 2,138 new rooms and 22 hotels. Our total estate at the end of the year stood at 44,295 rooms of which 1,076 are located in our international markets of India, Dubai and Ireland. We opened eight new restaurants, all of which were adjacent to a Premier Inn, and now have 379 restaurants in the estate. We remain committed to maintaining our hotels and restaurants to the highest standards and have not cut back on our ongoing refurbishment programme during the recession. We refurbished around 10,000 hotel rooms and 130 restaurants this year.
Costa has continued its excellent performance and has enjoyed another strong year. Pre exceptional operating profit grew by 38.4% to £50.1 million. UK like for like sales increased by 7.8% and the international business continued to grow profitability contributing £2.9 million (2009/10: £0.2 million).
Total system sales, which are sales from Company owned and franchise stores combined, were up 27.8% to £659.0 million. International Costa franchise store sales were up by 23.8% to £107.3 million and total UK franchise store sales were up by 35.3% to £172.0 million.
Costa operates in 25 countries and is the number two international coffee shop operator with 1,871 stores: 1,217 in the UK and 654 overseas. We opened 271 (net) stores during the year, including 126 company operated stores (79 in the UK and 47 internationally) and 145 franchise stores (69 in the UK and 76 internationally). In 2010/11 we refurbished 78 UK equity stores and have seen a significant uplift in sales following these refurbishments.
FINANCE DIRECTOR'S REVIEW
Group revenue increased by 11.5% year on year to £1,599.6 million.
The growth in revenues has come from improved sales from like for like units, new openings and the acquisition of Coffeeheaven at the end of 2009/10, which had revenues in the year of £29.1 million (2009/10: £1.0 million). Within Hotels and Restaurants, Premier Inn opened 2,138 new rooms and 22 new hotels and like for like sales grew by 8.6%. The like for like sales growth was as a result of our strategy to improve occupancy which increased by 6.6 percentage points year on year to 76.2% on a like for like basis. Within restaurants eight new units were opened in the year and like for like sales growth was 3.3%. At Costa, 148 net new units were opened in the UK and 123 net new units overseas. Costa's UK equity retail like for like sales grew by 7.8%.
Underlying profit before tax for the year is £287.1 million, up 20.1% on last year and underlying diluted earnings per share is 116.1p compared to 96.7p last year, up 20.1%.
Total profit for the year is £222.1 million which compared to £160.0 million last year, up 38.8%.
Exceptional items are analysed in more detail in note 5 with a resulting credit of £27.0 million. This is made up of £31.4 million of exceptional tax credits, £9.0 million of exceptional charges and a £4.6 million exceptional VAT receipt relating to gaming machines. Included within the exceptional tax credits is £7.6 million arising from a reassessment of the Group's prior capital allowance claims, £16.7 million due to a reduction in deferred tax on capital gains rolled over into the acquisition cost of new assets and £8.4 million arising from the reduction in corporation tax rates from 28% to 27% contained within Finance (No 2) Act 2010. Offsetting the above items is a £1.3 million charge for corporation tax on the exceptional VAT receipt of £4.6 million.
The exceptional charges of £9.0 million include impairment charges of £5.3 million and losses of £2.4 million arising from the disposals of the loss making Czech and Bulgarian Coffeeheaven businesses.
The £4.6 million refund of VAT on gaming machine income follows the ruling that the application of VAT to certain types of gaming machine income contravened the European Union's principle of fiscal neutrality. As HM Revenue and Customs have appealed against this ruling there is a contingent liability for the amount of the refund plus interest.
The underlying interest charge is £24.3 million reflecting the reduced levels of average debt in the period compared to last year which fell by 20.6% to £451.8 million. The total pre exceptional interest cost amounted to £35.8 million. Included within this figure is an IAS 19 pension charge of £11.5 million (2009/10: £15.5 million). This charge represents the difference between the expected return on scheme assets and the interest cost of the scheme liabilities.
An underlying tax expense of £83.7 million represents an effective tax rate of 29.2% on the underlying profits, which compares with 29.8% last year. The excess over the statutory tax rate of 28% is predominantly driven in both years by the impact of losses arising in overseas subsidiaries and the impact of share based payments. In 2011/12 the effective tax rate is expected to be around 27%.
A recommended final dividend of 33.25p, an increase on last year of 17.3%, will be paid on 13 July 2011 to all shareholders on the register at the close of business on 13 May 2011. The total dividend for the year at 44.50p is up 17.1%. A scrip dividend alternative will again be offered.
We have taken the decision to rebalance the interim and final dividend payments to better reflect the earnings profile through the year. As from 2011/12, we will seek to make the interim dividend around 35% of the overall payment, up from around 25%.
Net debt and cashflow
The Group has generated strong cash flows from operations in the year which are up on last year by £39.4 million (10.5%) to £415.2 million. During the year the Group has increased its investment in new units by increasing capital expenditure to £202.2 million, up 53.5%. On 2 March 2011, Costa Limited acquired the entire share capital of Coffee Nation Holdings Limited for a cash consideration of £59.5 million. Coffee Nation operates approximately 900 self serve coffee bars.
The total cash outflow for interest, tax and dividends benefited from a £34.0 million cash tax reduction due to the pension arrangements which are set out below in more detail.
Taken together for the year there was a net cash inflow of £25.5 million with net debt reduced from £513.4 million to £487.9 million by the year end. The weighted average net debt in the year was £451.8 million compared to £569.2 million last year, a £117.4 million reduction partially offset by the acquisition of Coffee Nation at the year end.
During the first half of the year, the Group issued private placement loan notes in both US$ and £ sterling. These loan notes were issued in three series with maturities of 7 and 10 years and coupons from 4.55% to 5.23%. The US$ component was swapped to £ sterling with the total transaction giving a value of £101.8 million and £ sterling interest rates fixed ranging from 5.19% to 5.23% and variable rates with a spread over LIBOR of between 1.715% and 1.755%. The proceeds were used to repay drawings under the shorter maturity bank debt. More details of this transaction are set out in note 22 of the financial statements. This issue is the first step the Group has taken to diversify the tenure and sources of funding and there will be further action taken in 2011/12.
In addition to the loan notes set out above, the Group had committed revolving credit facilities of £930 million as at 3 March 2011. The revolving credit facilities reduce to £855 million in December 2011 and £455 million in December 2012 with the remaining facility maturing in March 2013.
The policy of the Board continues to be to manage its financial position and capital structure in a manner that is consistent with Whitbread maintaining its investment grade status.
Total Group cash capital expenditure on property, plant and equipment and intangible assets during the year was £202.2 million with Hotels and Restaurants spend amounting to £169.2 million and Costa £33.0 million. Capital expenditure is split between development expenditure, which includes the acquisition and development of properties (£131m) and maintenance expenditure (£71m).
In 2011/12 capital expenditure is expected to rise to around £350 million which will be financed from existing cash flow and facilities. The incremental contribution in 2011/12 from new space opened by Hotels and Restaurants and Costa in 2010/11 and 2011/12 is expected to be around £20m.
As at 3 March 2011, there was an IAS 19 pension deficit of £488 million, which compares to £434 million as at 4 March 2010. The main movement in the deficit from year to year is the actuarial losses in the year on the scheme's assets and liabilities.
Following on from the £102 million contribution to the Pension Scheme made by the Group in the year ended 4 March 2010, an additional contribution was made in the year of £39 million on the same basis. The total contribution of £141 million does not meet the definition of a plan asset under IAS 19 and therefore is not reflected in the pension deficit of £488 million.
The additional contribution by the Group to the Pension Scheme of £39 million will reduce the Group's cash tax payments by £10.9 million in total, split equally over the two years ending March 2012. Further details of this transaction are set out in note 32 of the financial statements.
Read the complete earnings release, including financial charts.