Finance Director's Review
The policy of the Board is to manage its financial position and capital structure in a manner which is consistent with Whitbread maintaining its investment grade status.
Revenue
Group revenue in the year increased by 7.5% to £1,435.0 million.
Revenue by business segment
| £m | 2009/10 | 2008/09 | % Change |
|---|---|---|---|
| Hotels and Restaurants | 1,096.0 | 1,061.6 | 3.2% |
| Costa | 340.9 | 276.3* | 23.4% |
| Less:other** | (1.9) | (3.3) | |
| Revenue | 1,435.0 | 1,334.6 | 7.5% |
*Sales of £12.5 million to Costa franchise partners, which were previously recorded as other but are now included in Costa revenues.
**Predominantly inter-segment revenue.
The increase in revenue has come from growth in the number of units and like for like sales: Premier Inn added 15 new hotels and 2,240 rooms; five new restaurants were opened; and Costa opened 188 net stores in the UK and 35 overseas excluding the acquisition of Coffeeheaven which added a further 89 overseas stores. Like for like sales for the Group were down (0.5%) with Costa up 5.5% and Hotels and Restaurants down (1.8%). The trend in like for like sales performance improved as we went through the year.
Quarterly like for like sales performance 2009/10
| % | Q1 | Q2 | Q3 | Q4 |
|---|---|---|---|---|
| Premier Inn | (7.9) | (7.1) | (3.1) | 2.0 |
| Restaurants | 2.0 | 1.6 | 2.3 | 1.1 |
| WHR | (3.7) | (3.6) | (1.0) | 1.6 |
| Costa | 2.6 | 2.4 | 6.7 | 9.6 |
| Group | (2.7) | (2.7) | 0.3 | 3.1 |
Results
Last year we introduced an underlying profit measure on the face of the consolidated income statement.
The directors believe that this measure provides useful information for shareholders on the underlying trends and performance of the Group as it excludes exceptional items and the impact of volatile financial costs under IAS 19.
Underlying profit for the year is £239.1 million, up 6.6% on the prior year and underlying diluted earnings per share 96.7p (2008/09: 90.7p).
Total profit for the year is £160.0 million which compares to £90.3 million last year.
Exceptional items
Exceptional items are analysed in more detail in note 6. The principal items are the final costs of the £25 million cost reduction programme announced in 2008 amounting to £9.9 million, a net impairment charge of £1.5 million and a provision of £21.2 million for lease reversions offset by profits arising from the disposal of a number of properties (primarily relating to the sale and leaseback transaction) announced earlier in the year of £14.6 million. The lease reversions are largely in respect of the expected cost of leases arising as a result of the administration of First Quench Retailing Limited on 29 October 2009, a company to which the Group had previously transferred a significant number of leasehold properties. A provision has been made for the costs we will incur on approximately 130 properties until the leases expire or are reassigned.
Interest
The underlying interest charge is £25.7 million, a reduction of 16.0% on the previous year, reflecting lower interest rates that the Group has been charged during the year.
The total pre exceptional interest cost amounted to £41.2 million. Included within this figure is an IAS 19 pension charge of £15.5 million (2008/9 pension credit of £5.5 million). This charge represents the difference between the expected return on scheme assets and the interest cost of the scheme liabilities. In 2010/11 this is expected to be a pension charge of £11.5 million.
Tax
An underlying tax expense of £71.1 million represents an effective tax rate of 29.8% on the underlying profits, which compares with 30.3% last year. The year on year movement has been predominantly driven by the impact of the rising share price on the tax associated with share-based payments. An exceptional tax credit of £16.8 million occurred during the year as a result of a reduction of the deferred tax liability on rolled over gains.
Earnings per share
Diluted underlying earnings per share increased by 6.7% to 96.7p.
| EPS | 2009/10 | 2008/09 |
|---|---|---|
| Underlying (diluted) | 96.7p | 90.7p |
| Non GAAP adjustments: Pension finance cost | (6.4p) | 2.3p |
| Exceptional items | 1.9p | (40.2p) |
| Total operations (diluted) | 92.2p | 52.8p |
Details can be found in note 11 of the Consolidated accounts.
Dividend
A final dividend of 28.35p will, subject to approval at the AGM, be paid on 14 July 2010 to shareholders on the register at the close of business on 14 May 2010. The total dividend for the year at 38.0p is up by 4.0%. A scrip dividend alternative will again be offered.
Net debt and cash flow
During the year there was a cash flow inflow of £109.7 million reducing year end net debt to £513.4 million (2008/09 £623.1 million). The principal movements were:
| £m | 2009/10 | 2008/09 |
|---|---|---|
| Cash flow from operations* | 375.8 | 334.7 |
| Capital expenditure | (131.7) | (276.3) |
| Acquisitions / overseas investment | (42.0) | (47.5) |
| Pension contribution | - | (50.0) |
| Disposal proceeds | 41.8 | (1.0) |
| Interest, tax and dividends | (132.1) | (134.6) |
| Other | (2.1) | (22.6) |
| Net cash flow | 109.7 | (197.3) |
| Net debt bfwd | (623.1) | (425.8) |
| Net debt cfwd | (513.4) | (623.1) |
* This agrees to cash generated from operations in the accounts excluding the pension payments.
The improvement in cash generated from operations was as a result of increased profitability and an £18 million improvement in working capital. The disposal proceeds relate to a sale and leaseback of five properties undertaken in December 2009, plus proceeds from the sale of a number of standalone restaurants.
The weighted average net debt in the year was £569.2 million compared to £531.0 million last year.
As at 4 March 2010 the Group had committed revolving credit facilities of £1,155 million. The facilities reduce to £930 million in December 2010, £855 million in December 2011 and £455 million in December 2012 with the remaining facility maturing in March 2013. In 2010, subject to market conditions, we will begin to diversify our sources of financing.
The policy of the Board is to manage its financial position and capital structure in a manner which is consistent with Whitbread maintaining its investment grade status.
Capital expenditure and business acquisitions
Total Group cash capital expenditure during the year was £131.7 million with Hotels and Restaurants spend amounting to £111.6 million, Costa £15.2 million and Corporate £4.9 million. Capital expenditure on the businesses is split between acquisition expenditure, which includes the acquisition and development of properties (£65 million) and maintenance expenditure (£61 million). In addition £38.8 million (net of cash acquired) was spent on business acquisitions, including the acquisition of Coffeeheaven, and £3.2 million on international investments. This brings the total cash outflow on capital expenditure and business acquisitions, including the purchase of intangible assets, to £173.7 million.
Pensions
As at 4 March 2010 there was an IAS 19 pension deficit of £434.0 million, (£341.0 million after tax) which compares to £233.0 million (£167.8 million after tax) as at 26 February 2009.
During the year the Group entered into a transaction with Whitbread Pension Trustees described in further detail in note 32 of the Consolidated accounts.
In summary, the Group contributed £102 million to the Pension Fund which was then invested by Whitbread Pension Trustee into a newly formed partnership within the Group, Moorgate Scottish Limited Partnership ("Moorgate").
Moorgate used this investment from the Pension Fund together with further investments from other Whitbread Group companies to invest in a second partnership, Farringdon Scottish Partnership ("Farringdon") in which another Whitbread Group company also invested. Farringdon used the funds to acquire a number of hotels and restaurants from Group subsidiaries for around £221 million. These properties were leased back to the selling subsidiary and continue to be operated by that Group company. The assets and activities of the partnerships will be consolidated within the Group accounts of Whitbread PLC by virtue of the Group's interest in the controlling general partner of Moorgate and its interest in Farringdon.
The Pension Fund has received benefit through its interest in Moorgate as it now holds security over property and other assets as noted above. In addition, the Pension Fund will receive an annual payment for the duration of the lease arrangements, expected to be 15 years, being its share of the profits from its interest in Moorgate. This arrangement has replaced the previous charge over certain assets given to the Pension Fund prior to entering into the above transaction. At the end of these arrangements if there is a pension deficit, the Pension Fund will receive a cash payment of the amount of the deficit up to a maximum of £109.95 million.
As a result of the above transaction, the Group has received a current tax credit of £28.6 million in respect of its £102 million funding of the Pension Fund. There is a corresponding deferred tax charge of £28.6 million reflecting the lower tax deductions now available in future periods from the Group's funding of the deficit position.
Christopher Rogers
Finance Director
28 April 2010
