Chief Executive's review
Whitbread outperformed its markets and increased profits in 2009/10, despite the challenging economic backdrop.
Whitbread has performed strongly in the most challenging hotel and restaurant trading conditions for a generation. Underlying profits have been increased by virtue of outperforming our markets and improving operating efficiency. We have achieved a significant reduction in net debt while, at the same time, increasing the number of new sites acquired for our future development.
Group underlying profit before tax increased by 6.6% to £239.1 million (2008/09: £224.4 million), with underlying earnings per share (diluted) increasing by 6.7% to 96.7p. We achieved our three stated priorities: to outperform the market; to reduce operating costs; and to achieve cash flow neutrality.
Group revenue grew year on year by 7.5% to £1,435.0 million, driven by the growth in the number of hotels, restaurants and coffee shops despite a modest decline in like for like sales of 0.5%. At Premier Inn, sales rose 4.7%, with like for like sales declining 4.3%. Sales at our restaurants rose 1.3%, with like for like sales up 1.7%. At Costa, sales increased by 23.4%, with like for like sales up 5.5%.
Trading in the first half of the year was impacted by the challenging operational environment, but this improved in the second half. In the last quarter of 2009/10 all our businesses demonstrated positive momentum with Group like for like sales growth of 3.1%.
At the year end, net debt was reduced by £109.7 million to £513.4 million compared to £623.1 million last year.
The Board recommends a final dividend payment of 28.35p per share, making a total dividend for the year of 38.0p per share. The final dividend will be paid on 14 July 2010 to shareholders on the register at the close of business on 14 May 2010. A scrip dividend alternative will again be offered.
Successfully achieving our three key priorities
Whitbread is a focused hospitality company with brand leadership in attractive, value for money sectors. In 2009/10 we set out a clear action plan with three priorities to manage through the downturn. We have successfully achieved all these priorities and have become a stronger, more competitive and efficient business.
1. Outperforming the market
Premier Inn outperformed its competitors during 2009/10. Regional revpar was down 6.4% during the year, compared to a decline of 8.5% in the regional budget hotel sector and a decline of 9.6% across the whole regional hotel market. We set out a commercial action plan to reinforce our status as the preferred hotel brand for corporate travellers and to attract more leisure customers. We are pleased to report good progress on all fronts.
Our restaurants have continued to achieve like for like growth, consistently outperforming the market. Customers have been attracted to the great value for money food and drink, offered in well-maintained environments.
Costa has seen 32 consecutive quarters of like for like sales growth. Costa achieved a 59.5% increase in pre exceptional operating profit in 2009/10 and grew like for like sales by 5.5%. The key drivers behind this outstanding performance are Costa's clear position as the coffee lovers' preferred brand and our continued expansion in the UK and overseas.
2. Reducing operating costs
We have reduced overheads by streamlining management, improving the efficiency of our back-office processes and delivering a series of procurement initiatives. As we expand our outlet numbers, we have been able to offer over 1,200 new jobs for frontline employees.
3. Achieving cash flow neutrality
We have exceeded our cash flow targets by £109.7 million. Tight management of working capital, lower capital spend and rescheduled payments to the pension fund have all contributed to the improved position. Net debt at the year end has therefore reduced to £513.4 million (2008/09: £623.1 million). The Group's total debt facilities currently stand at £1,155 million and provide ample headroom for the future.
Looking ahead: building market share
Growth from a relentless focus on our customers
- Premier Inn - growing like for like occupancy back to 80%.
- Restaurants - driving a value strategy to gain volume.
- Costa - market innovation to strengthen leading position.
Improving momentum during the year was seen from our engines of growth: Premier Inn, with its restaurant joint site model; and Costa, the great food and beverage success story, both at home and internationally. There are significant further growth opportunities across all our brands by building brand preference and from outlet expansion. We will leverage these opportunities using a sophisticated approach towards understanding our customers.
In 2009/10 we set out a commercial action plan for Hotels and Restaurants, to build on our competitive edge for the business market and to attract more leisure customers. We put in place four key levers: focused advertising; increased sales activity; Premier Offers; and widening reservation distribution. This work will continue during the course of 2010/11 as we make an additional £8 million marketing investment and realise the full benefits of dynamic pricing.
Our value for money restaurants have never been more relevant to today's family dining needs. Our well established meal deal offers, such as two meals for £9 at Brewers Fayre, have achieved significant success and now over a quarter of all diners take up these attractively priced menu options.
At Costa, our fundamental proposition is the quality of our hand made coffee, served in a welcoming environment. A strong driver of success was our breakthrough marketing campaign derived from independent customer research showing 7 out of 10 coffee lovers preferred Costa's cappuccino. Costa also used its understanding of customer preference to introduce the new Flat White coffee, which has been an excellent contributor to incremental sales since its launch in January 2010. At the start of the new financial year Costa launched a new points-based loyalty card which has exceeded initial targets.
Expanding our network
We have clear short and medium term growth plans:
- Premier Inn to increase room numbers in 2010/11 by over 2,500 rooms (+6%) and target a 32% increase to 55,000 rooms in the UK by the end of 2014/15, as well as international expansion; and
- Costa to increase store numbers in 2010/11 by net 250 stores (+16%) and target an 88% increase to 3,000 stores by 2014/15, maintaining market leadership in the UK and building five key overseas businesses; in China, India, Russia, the Middle East and Central Europe.
We benefit from our robust balance sheet and strong freehold asset base. We have grown our secured future pipeline of hotel sites to 10,000 rooms by taking advantage of the reduced property market prices.
This pipeline underpins our stated strategy to expand Premier Inn to 55,000 rooms in the UK by the end of 2014. In 2010/11 the target opening schedule is 29 new Premier Inns (over 2,500 rooms), which include ten new restaurants on joint sites.
Costa is the UK's largest coffee shop brand, and has grown to become the second largest international coffee shop business with 1,600 stores worldwide. In the UK, we plan to open around 130 stores during 2010/11. This growth includes opening in new high street locations, adding stores in established retail outlets, such as our partnership with Tesco, and bringing the Costa experience to hospitals and universities.
Our international business will be the focus of the next phase of Costa's growth, boosted by the acquisition of Coffeeheaven. This transaction completed in the last quarter of 2009/10 and added 89 new stores in the important Central European region. Costa plans to increase overseas outlet numbers by around 120 stores during 2010/11 in the key target markets of China, India, Russia, the Middle East and Central Europe.
Good Together corporate responsibility programme
Whitbread has always put a high value on being a responsible business. In January 2010 we launched Good Together, the umbrella programme for company- wide initiatives to drive sustainable performance and further deepen our corporate responsibility. We have set targets for CO2 reduction, sustainable sourcing and waste management. We will open the UK's frst totally new build green hotel and restaurant in the autumn. We have also reaffirmed our commitment to offer career enhancement to our people through apprenticeships and professional skills attainment. We aim to lead the hospitality sector towards a more sustainable way of working and create an important differentiator, valued by our customers, in the future.
Current trading and outlook
We are confident we have the right hospitality brands, positioned to offer value for money in attractive, underpenetrated and growing segments of the market. The fundamentals of Whitbread are strong and provide a firm foundation for sustained profitable growth in both the short and medium term. This growth will be delivered through our expansion plans as well as by relentlessly focusing on meeting the needs of our customers. While the level of economic recovery remains unclear, the first seven weeks of the financial year have started well, with positive momentum across the business.
Leading Whitbread
As you know, I announced in March this year that I will retire from the Company in November 2010. When I became Chief Executive of Whitbread in June 2004, Whitbread was a very different company. We had ten businesses, including David Lloyd Leisure and a number of brands that we didn't own such as T.G.I. Friday's, Pizza Hut and Marriott.
Six years on we are the UK's largest hotel and restaurant group focused on our joint site Premier Inn and restaurant model and the extremely successful Costa brand. In 2004 we had 302 budget hotels under the Travel Inn name and less than 19,000 rooms. Today we have over 42,000 rooms in 588 Premier Inn hotels. The growth of Costa during the last six years has been exceptional and the 1,600 stores we have today compares to 346 in 2004. Costa is now the largest coffee shop business in the UK and the second largest international coffee shop business.
Whilst continuing to expand our Premier Inn and Costa businesses in the UK, we have also started to exploit opportunities overseas. We now have hotels operating in the Middle East and India and Costa stores can be found in 24 different countries. I am very proud of the progress that has been made to make the Company what it is today.
I am delighted that we have been able to deliver excellent results for our shareholders, with £2 billion returned to date, whilst transforming the Company. This would not have been possible without the fantastic support of Whitbread's people. It has been a privilege to work alongside such a committed group of people throughout the organisation and I'd like to thank all of them for their continuing contribution to the Company.
When I retire, I will be handing over the reins to Andy Harrison. I was very pleased when Andy accepted the role and I am confident that he will be an outstanding Chief Executive for Whitbread. I would like to take this opportunity to wish Andy and everyone at Whitbread every success for the future. In the meantime, I am looking forward to the coming six months or so and to continuing the Whitbread Way Forward.
Alan Parker
Chief Executive
28 April 2010
