Strategy
Our clear strategy underpins our aim of building the best large-scale hospitality brands in the world by becoming the most customer-focused organisation there is.
Our strategy has remained very clear and constant - to increase our leadership position in the hotels, restaurants and coffee shop markets in the UK and to become number one or two in our chosen overseas markets.
The scale of the growth of our hotels since 2003/04 from 18,000 rooms to over 42,000 rooms (136%) demonstrates our commitment to this strategy. This is mirrored in the growth of Costa from 346 stores to 1,600 (362%) in the same period. This is supported by our financial strength and the skills of our development and operating teams.
We have continued to grow in the last two years, despite the more difficult economic conditions. We took the decision to reduce the number of hotel rooms being opened during the last year while we assessed the length and depth of the recession and its effect on the business. In the meantime we have been buying land ready for future development and we have a secured pipeline of 10,000 rooms.
In 2009/10 we highlighted three clear priorities in response to the turbulent economic conditions.
| 2009/10 strategic priorities | Action | Result |
|---|---|---|
| Outperform market | Developing detailed action plans to focus on our customers' needs, and particularly on establishing our value for money credentials. | All our businesses have outperformed in their markets. |
| Reduce operating costs | Streamlining management, improving the efficiency of back office processes and delivering a series of procurement initiatives. | On track to achieve £25 million of annual savings, with £20 milllion realised to date. |
| Achieve cash flow neutrality | Prioritising cash management and working capital together with the sale and leaseback of five properties. | Positive cash flow for the year of £109.7 million, with net debt reducing to £513.4 million. |
There is still room for significant growth in the UK for our hotels business with our current target of 55,000 Premier Inn rooms. This is supported by the projected growth in the total hotels market and our view of the potential of the budget hotel sector within that market. We have detailed analysis of every town in the UK which looks at the population in the area and the suitability for our brands. This analysis has also been carried out for our restaurants and coffee shops.
We have assessed overseas markets both for our ability to win, together with their growth prospects, and developed clear plans to work in those markets at the appropriate time.
In terms of the overseas development of our hotels, we will continue to concentrate on the Middle East and India in order to demonstrate the commercial and economic model and create value in those territories.
We are more advanced in coffee shops where Costa is already represented in 24 overseas countries. Costa's international growth has been augmented by the Coffeeheaven acquisition in Central Europe.
Next year we plan to continue with our disciplined growth with 29 new hotels (2,500 rooms) and ten new pub restaurants. In Costa we plan to open 130 new stores in the UK and 120 overseas.
We continue to believe that our property ownership should be predominantly on a freehold basis, although it is possible that we may selectively use our property as an alternative source of funding for our pipeline of developments.
At present 84% of our Hotels and Restaurants estate is freehold, although this mix is changing as many of the new sites we have acquired are leasehold. During the year we undertook a small sale and leaseback of five properties which was very successful both in terms of investor interest and the price achieved (an initial yield of around 5.5%).
We believe that a key part of building and maintaining our leadership position, as well as the trust and loyalty of our customers, is corporate responsibility. For this reason we launched our Good Together programme in 2009. To learn more about this initiative please read our Good Together Report.
