Whitbread plc

Hello and welcome to the Whitbread Q1 FY 2025 trading update. My name is Elliot and I'll be coordinating your call today. If you would like to register a question during today's event, please press star followed by one on your telephone keypad. And I'd like to hand over to Dominic Paul, Chief Executive Officer. Please go ahead.

Thank you, Elliot. Good morning, everyone. And thank you for joining the call for our Q1 trading update this morning. I'm joined by Hemant Patel, our Group CFO. We look forward to answering your questions shortly. Hopefully, you've had a chance to review the Q1 release this morning. I'll start with a brief overview for those who haven't seen it, and then we'll open up the call for Q&A. Before I touch on the first course performance, I want to start with a reminder of a number of key strategic initiatives that are going to drive our business over the next few years. We're going to continue to extend our market-leading position in the UK through our strong commercial program and accelerating growth plan. to optimise our food and beverage offer whilst adding over 3,500 rooms to our UK estate at a time when our competitors aren't able to do so. Continue our journey towards becoming the number one hotel brand in Germany and leverage our upgraded technology stack and deliver our biggest ever cost efficiency programme to allow us to become more digitally agile whilst operating a lean cost base. Together, these initiatives are set to deliver a step change in our profits, margins, and returns. In the first quarter, which ran to the 30th of May, group total sales were 1% ahead of last year, led by a strengthening performance in the UK and continued encouraging progress in Germany. As expected, trading performance improved during the quarter, and total UK accommodation sales were in line with what was a particularly strong trading period last year. This was still up 55% versus pre-pandemic, reflecting the favourable UK supply backdrop and the progress we have made over the past few years. The strength of our brand and vertically integrated operating models meant that we continued to outperform the mid-scale and economy sector, maintaining a healthy REVPAR premium of £5.62. In Germany, we delivered another strong performance, with total accommodation sales 15% ahead of last year, led by the increasing maturity of our estate and continued room growth. We're particularly pleased with our cohort of more established hotels, which continue to outperform the market, and we are making good progress towards reaching break-even on a run rate basis later this year. Whilst our normal booking patterns mean that forward visibility is limited, our forward booked position is positive and we remain confident in the full year outlook. This reflects a more encouraging performance in the UK as a result of our strong commercial programme and increased cost efficiencies, as well as our good progress in Germany. With an improved consumer outlook and significant growth potential in both the UK and Germany, supported by the structural reduction in supply and our asset-backed balance sheet, A longer-term strategic plan is set to deliver a step change in our performance. I'll now hand back to Elliot to host the Q&A. As you know, we have our AGM today, and we only have half an hour this morning, giving us only a few weeks since our last update. Could I please ask you to limit your questions to two per person? Thank you.

Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If you would like to withdraw your question, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. Our first question comes from Jamie Rollo with Morgan Stanley. Your line is open. Please go ahead.

Thanks. Morning, everyone. The first question is just really how should we read your outlook, your positive forward position? It's sort of slightly different language to what you used in late April where you were ahead of last year. Do you sort of feel better or worse, Dominic? And any pointers on sort of rev par expectations given Q2 is our toughest comp on a sort of FY20 basis? And then the other question on the cost guidance is, the better end of 3% to 4% looks like it's more about self-help than less cost pressure. How much more is left in the can this year if things do get worse in terms of top line? Thank you.

Yeah, thanks, Jamie. I would say we feel about the same as we did. I mean, it was only... I think six weeks since our last call, we feel about the same. On the call six weeks ago, we basically talked about the fact that we felt that the quarter would likely strengthen. We've seen that. Business demand continues to be resilient. Peak leisure demand continues to be resilient. There is a bit of softness around this soft peak leisure, but I think that's factored in. So I would say we feel about the same as we did six or seven weeks ago. You know, we're comfortable with the full year guidance that's out there. We've got a lot of levers at our disposal. We've got this new technical stack, which is enabling us to really pull our commercial levers off of the reason for the outperformance in the market. And, you know, generally, as we go into busier peak times, that is where our vertically integrated model performs the best. And then the other side of it, I think, is, as you say, about the efficiency program, which is that Hemant has done a fantastic piece of work over the last 12 to 18 months. We got well ahead of this early on. We've got a net inflation um discussion um so you know kind of net net um we actually feel comfortable about this year moving forward but i suppose the bigger point for us as well is we feel really confident about the levers we've got to put in this business over the next few years as well because that accelerating growth program the continued driving of the efficiency program and our and our progress in germany which i think is really encouraging So overall, yeah, 36 weeks since the last call. But, you know, I think overall we're feeling encouraged.

You wouldn't be as bold as to suggest that Q2 could inflect positive after the broadly flat rest part of your last six weeks?

I don't, I mean, I just don't think we want to get into that at this stage, Jamie. I mean, this is obviously, you know, there's not, I mean, there's just, I don't think it's worth speculating on that at this stage. I think the key thing for us is we've got levers to pull to continue to drive that market out of performance. The market supply is down. We can see overall that's a really nice underpinning for the hotel market in the UK and progress in Germany is really encouraging and that's why we feel good about the overall guidance from you.

Thank you very much.

We now turn to Vicky Stern with Barclays. Your line is open. Please go ahead.

Morning. Just wanted to hone in a little bit on the Revpar outlook specifically. So I think consensus has the UK at around about a percent for the full year. How are you feeling about that now based on what you see today with regard to the outlook and then following the sort of minus 1.6 percent in Q1? And then related to that, I think you touched on it there, Dominic, in terms of the levers that you can pull. But Would you still be sitting here today expecting that from a rev par perspective, you can start to now outperform the market again as we go into Q2 and Q3, those stronger demand periods? I think you'd probably slightly underperform perhaps on a rev par the last quarter or so. Thanks.

Yeah, thanks, Vicky. I mean, as we said in the release, of course, forward visibility of bookings is always relatively low at this stage, but we remain hooked ahead of where we were same time last year. I think we, you know, overall, in terms of the guidance overall, we can only look at the data that we've got now. You know, we maintain this really strong 55% ahead of full year 2020, and that's fairly consistent. So that hasn't encouraged it. We've got some tailwinds, we think, that the things like the business demand we believe will hold up. The peak measure demand is looking good. And I think we are getting better and better at pulling our commercial levers as well. So, yeah, I think it looks achievable. That's all we've said. But we also have this efficiency focus. which enables us to kind of pull the efficiency lever as well. And I think we're doing that in a really smart way. We've planned this really carefully. That's enabling us to pull some efficiency forward into the year. It all underpins the fact that we're a budget value business having an advantage cost base. It's going to give us a real competitive advantage moving forward. And then, of course, on top of that, we're going to have the accelerating growth strategy, which I think will deliver a step change in our performance over the next few years. So in terms of the trading week by week, month by month, of course things bob around a bit. You'd expect that in a market. But we've got structural reasons to believe why we can continue to outperform our competitors. And actually, we're really excited about the levers. Things like the new digital stack we've got gives us an amazing opportunity over the next 12 to 18 months to really drive our performance in the market. And we're really excited about it. And as I said to Jamie's question earlier, that Germany performance is encouraging and Germany moving from effectively a kind of financial headwind into a tailwind, I think it's going to really help us over the next few years. And I'll just add to that, Vicky, as well.

I mean, this time last year, we were hugely outperforming the market. And accumulatively from before COVID, we've significantly outperformed the market in terms of ARR and occupancy. versus the market through the rest of the year, we should be in a better position. So naturally, we think the maps will help us in absolute terms, but also versus the market, a lot with the commercial programme that Dominic's outlined.

Very clear. Thanks very much.

Our next question comes from Leo Carrington with the City. Your line is open. Please go ahead.

Good morning. Thank you. If I could follow up on the demand, the midweek demand, is this pricing and the mix of rate types rather than occupancy growth driving the best performance? Or are there still extra rooms to fill with the new business travel initiatives? And then separately on food and beverage, was that relationship versus the accommodation sales as you would have expected? I know it's lagged slightly, the CoffeePeach data, but obviously it depends on your hotel. So any thoughts? That would be interesting. Thank you.

Yeah, thanks, Leo. I mean, let me begin the answer. And if Hemant's got any bills, he'll add it. Yeah, I mean, the primary opportunity in business is effectively a rate opportunity. Our opportunity midweek with business customers is really strong. However, the more business customers we get, for example, the flexible tickets when they book later, it actually drives a higher range. So we've got a really good program in place now to accelerate penetration of the business market, both through a combination of smaller businesses with our in-business program, but also larger businesses working with more travel management companies. And we see a nice opportunity there to drive increased revenue to business customers. And effectively attracting more business customers, the net impact of that is rate impact. So whether that's upgrading to Premier Plus or booking a bit later or just having a bit more demand than supply, that will help support us drive overall rate. So we think that's a really nice opportunity there. And then in terms of your F&B question, I would say it's bang in line with what we expected. We're actually pleased with the progress and performance, so bang in line with what we expected. And then in terms of the Accelerating Growth Programme, obviously it's only six weeks since we updated, but again, we are bang on plan with our execution of the Accelerating Growth Programme as well. So I would say overall, again, encouraged.

Thank you, Dominic.

Thank you. We now turn to Jaina Mistry with Jefferies. Your line is open. Please go ahead.

Hi, thank you for taking my questions. Two questions from me. Number one is on OPEX inflation and specifically this year. How should we think about the phasing of OPEX inflation between H1 and H2 and then the phasing of any AGP costs as well? And then my second question is around Germany. Specifically, It's not a question around your expectations, but really I wanted to ask around the moving parts to becoming profitable in FY26. What would you need to see? What conditions would you need to see in order to be profitable in FY26 in Germany? Thank you.

So if I start with your question on inflation, Jaina. Yeah, I mean... But the phasing, I mean, it's fairly, in terms of the input inflation, it will actually improve through the year. So it's a gross inflation in the week, slightly more inflation in the first half of the year. We expect that that will, as we can see, how that's going to improve through the year, as we've seen those slightly lower than expectations in terms of the increase in cost prices coming through, the phasing of utilities, year-on-year as well, particularly the unwinding hedges last year and how that will phase. Similarly, the cost saving as well, in terms of the net inflation, a lot of that is loaded into the second half of the year. So we're still very confident, as we said in the release, that we're going to be at the higher end of the expectations in terms of our efficiency programme because And we've been able to get to higher numbers with the initiatives that we've got in place, that we've planned and continue to plan in detail. We've also accelerated some of that in front, you know, going forward as well. So we expect to see a significant improvement in the second half of the year versus the first half of the year because of those two things. Entity peak costs, the bulk of the cost, you know, the disruption part of that will hit in the kind of second half of the year, but, you know, it's fairly easily phased. half one to half two overall. I'll start on it in terms of just Europe-Germany. I mean, there may be three parts there. I think, as you'd expect me to say, it is the red part. increase. That's by far the most important thing. Cost is really important. We're always refining our operating model, our support centre model as well. All of these things we'll be refining over time and growing as a business without obviously allowing those costs to increase significantly will help our possibility. But by far the most important thing is the vet part that we are improving. We need our more mature sites to fully mature so there's an element of maturing um, individual sites, the brand maturing as well, uh, with the, um, uh, with the, the brand program that we've got in place that, um, that will help the brand mature over time, which is for marketing, um, and above the line program that we have. um so but part of the most important thing is is letting those sites mature we would expect those to naturally mature you know we've also got a very immature set of sites at the moment even our most mature sites still haven't fully traded for more than like you know two to three years postcode and so you know we haven't quite we don't fully understand where we're going to end up in terms of maturity in germany because obviously we've not matured a hotel fully in germany we know it takes 45 years in the uk so we would expect that those the most mature sites start maturing over the next couple of years and get to their end position and therefore their end return targets as well over that time period but by far the most important thing is that we've

And I think Jane is just building on a couple of points that Hemant made. I mean, we're doing a number of things in Germany now. As we've matured, we've understood the market different to what we were doing 12 months ago. So we've trialed widening our distribution, which is actually really encouraging. We're getting better and better at optimizing our pricing and yield management for the German market and managing events. We've got our first brand campaign now live in Germany and results are really efficiency and really encouraging. And then our scale is also giving us efficiency as well. So I suppose the reason why we sound probably more optimistic about Germany as we've progressed in the last 12 months is we're testing and trialing different activities and different actions and results are encouraging. So we're thinking about the progress we're making.

Very clear. Thank you.

We now turn to Muneeba Kiani with Bank of America. Your line is open. Please go ahead.

Good morning. Just two follow-ups, please. Firstly, on the cost guidance. So what exactly are you doing that's made you kind of more confident on the lower end of the net inflation guide for this year? And then secondly, just On the UK, so then how are you managing your booking process for the peak summer months, given the softness and the short leisure demand that you talked about?

Yeah, good question. So let me just, I'm going to give a really brief intro on the efficiency program, and then I'll hand over to Hemant, because he's modest, so he won't do this himself. Which is, Hemant has stood over a really, detailed efficiency program over the last 12 to 18 months where we have literally done a routine branch review of all aspects of the business. We've always been a well-run business and we've got budget and value at the heart. But any large business with a lot of moving parts has got opportunity to drive efficiency. We've done a lot of time promotion studies through our hotels, through our beverage operations. We've looked at where technology can help us. So we've had a very, very detailed program. And that's one of the key drivers of being able to, one, have confidence and be able to announce our largest ever efficiency programs focused on cell business, but also giving us confidence of bringing forward some of those efficiency programs.

Excellent. Yeah. Hi, Maneva. Yeah. And so what's given us more confidence as we've gone through the year, clearly, I mean, two things. One, we've seen what's happening in terms of inflation. So, you know, the gross inflation numbers, as I say, are coming in at the bottom end of our guidance. And we've actually seen most numbers land with, you know, renegotiated contracts and the commodity pricing. And then in terms of the programme, clearly we've done a lot of planning as we are starting to implement and getting closer to implementing the various different initiatives, which, as Dominic said, there are lots of initiatives across every area of the business. We get more confident in them. We can see the actual numbers once we've fully planned out where to execute. And hence, you know, our confidence grows as we go through the year. I mean, we would expect... As we said, to be at the bottom end of that three to four percent net inflation guidance because of that, if not slightly ahead. Clearly, we'll strive to do the best we can and bring forward as many of our initiatives as possible to improve our possibly good this year.

And then booking, UK booking.

Yeah, and then booking. I mean, this is kind of our bread and butter in terms of training. In an ideal world, if everything were the same as last year, it's very easy for the booking engine to predict what is going to happen. It's based on last year's outturn. We can see where we, on a particular night, a particular site, we can see where we've either outformed or underformed the market, whether that's because we priced too high, priced too low. we change prices too early, so there's the shape of the curve, where it's the start of prices, the end points of prices, all of those things we can assess if everything, if behaviour is exactly the same as previous year. Obviously behaviour isn't, and this year we've seen slightly more shortly weakness in terms of weekends, we can modify our thinking, reset our strategies, and adjust for that as we start to see that, and we can see that coming in. So, you know, these kind of things we can react to, you know, again, we can see our performance on the performance of the market, so we can see where the opportunities lie. Because of our fully integrated business, our fully integrated business, because we have the teams of pricing analysts available in quite a unique way across the industry, we're able to analyze those and take advantage of all those opportunities. So hence our confidence and our ability to price really well now for the market with the roads we have in place.

Thank you.

Our next question comes from Richard Clark with Bernstein. Your line is open. Please go ahead.

Hi, good morning. Thanks for taking my questions. I guess Q2 is shaping up to be quite an event-filled quarter. You've got the Euros presumably benefiting your F&B and your German business. You've got Taylor Swift in both UK and Germany and then the UK election. Just maybe any comments on what you're seeing and how much of a boost those various events may have to your numbers across Q2?

Yeah, I mean, thanks, Richard. I mean, You know, you're right. For Germany, euros should be a tailwind for our performance in Germany. I think for me, the biggest impact, though, in Germany is the double maturity impact we're beginning to see. So the hotels maturing, but also the brand maturing and our customers. ability to execute and operate well in Germany, maturing as well. So, effectively, you've got a combination of things in Germany, which is overall lifting our performance and giving us confidence. I don't think that's surprising. Obviously, as businesses... get into markets and they figure out how best to operate, you do get material benefits as the business matures and also how you perform better. In the short term, yes, the euros will help. But actually, I suppose what I feel more encouraged about is I think we're really learning how to operate optimally in that market. And I maintain confidence that the German market is going to be a really good market for us. I think in the UK, I think there are a combination of things out there. There are overs and there are unders. You're right, there's a bit of uncertainty because of the election process. On the other hand, there's some events going on. The Euros has, you know, you could argue that one way or the other. I guess part of our observation over the last few months is the market's got very very focused in on kind of weekly weekly str data and weekly market data and we understand why that is but um weeks will always go up and down months will always go up and down to some extent i suppose what we're reiterating today is look as we look overall at the overall year and we look at our ability to pull levers We feel comfortable in the position we're in, and we feel really excited about the next few years as well, because we've got strategic shifts which are going to drive significantly increased margins in returns we've received over the next few years. Having said all of that, I think we're unique in the sense that we have more levers that we're able to pull to drive our outperformance versus the market, and we're very focused on doing that.

Okay, and maybe just as my second question, it looks like net unit growth in the first quarter reasonably slow, maybe just one or two hotels opened. Is that full range of 750 to 1250 rooms still the full range? And does a slower net unit growth impact that inflation guidance at all? Is that being factored in?

Yeah, I mean, yeah, the range still applies to the year. we're really happy that we will open that number of rooms in the UK. We have opened one hotel So far this year, it's a hotel in Turkey, 120 rooms. But, you know, just to remind you, we did open just before the year end. In the last period of last year, we opened, you know, two hotels with 650 rooms between them. So it could have quite easily fallen into this year. So we're not worried about the phasing of that. We talked about why it's slightly low phasing of rooms this year and potentially to next year because of that kind of a hangover. But we're still really happy that we've got, you know, a pipeline of that we've got built into the AGP program. So there's nothing particularly there that's good to worry about. Inflation, the inflation numbers we're giving are on the cost base for last year. So it still sounds we're not changing our room guidance, we're not changing anything in terms of how we apply inflation guidance, apart from saying it's at the bottom of the expectation.

Okay, wonderful. Thank you.

Thanks, Richard.

As a reminder, if you'd like to ask a question. Sorry, go ahead.

Sorry, Alex.

Our next question comes from Tim Barrett from Deutsche Neumis. Your line is open. Please go ahead.

Thank you. Hi, both of you. Just quickly, I want to just double check out, I just want to check I understand the cost guidance. You're talking about phasing, bringing more into this year. Is that with an increase in the £150 million through your target as well? So just some thoughts on that. And then on AGP, I know it's only two months since you went public on that, but it was quite high profile. So what kind of interest are you getting in the £126 million sale? estate, and how many have now transacted, please?

Yeah, if I start with the cost guidance, and then have a comment for the AGP question. Yeah, I mean, all we're saying at this stage, I mean, we only talked about £150 million a few weeks ago. We're still, and it's a three-year programme. I'm still happy that, you know, £150 million is very achievable over that time period. Yes, we'll be trying to pull forward and, you know, get to, you know, the lower end of expectations in terms of net inflation, higher end of expectations in terms of our efficiency programme this year. Clearly, if we can get to a higher number than £150 million over the next few years, we'll be informing you of that. But at this stage, we're not changing our cost values. We think that in three years' time, that £150 million will make a big difference to our profitability and contribute towards offsetting any inflation that we're seeing.

And then, Tim, just on the kind of update. Sorry, did you have a follow-up?

No, no, thank you.

Yeah, okay. Just to follow up on the question about the Accelerating Growth Programme. And as I said at the beginning, obviously, it's only six weeks since we last updated. As a reminder, when we made our full-year announcement, we said that we had already sold 21 sites for £28 million today. I would describe our progress on accelerating growth as bang on to where we would expect and want it to be at this stage. As you said, there are 126 sites that we are now actively marketing. We've actually had expressions of interest in the majority of the sites. Obviously, these things take time. We factor that into our planning. And I would say we are exactly where we would expect and want to be at this stage.

Okay. Thank you both.

Our final question today comes from Joe Thomas from HSBC. Your line is open. Please go ahead.

Good morning, Dominic. Good morning, Hemant. Thanks for squeezing me in. Just one question with the election in mind. I'm thinking about labour cost inflation further out. Can you just remind us where you are versus minimum wage, where you are on sort of banding of the age categories and where you are on things like zero-hours contracts, just trying to sort of get a sense of the risks and how that might impact the cost-saving programme going forward. Thanks a lot.

Yeah, thanks, Joe. I mean, a couple of things to point out, I suppose. We are above minimum wage. All our people are above minimum wage. We have no zero-hour contracts. All our people actually earn above a real living wage. National living wage. So all our people earn above national living wage. We've actually given a strong pay increase to our people this year. Our hourly team members have got just over 9%. pay increase, and we've done that to make sure that we maintain a healthy gap to national minimum wage. And there are a couple of things to point out from that. One, we recruit really well. Obviously, we offer a career to our people, so we don't find it challenging to recruit. We get a lot of applications. Our turnover is materially lower than our key competitors. And, you know, we generally have relatively low vacancies. Actually, we have slightly higher vacancies at the moment because we're trying to ensure that the number of actual redundancies for accelerating growth are as low as possible. So I think we're in a really good place with all of those factors. We're a good employer and we take that seriously. Obviously, there is an unknown factor, which is if there's a government change, what will that mean? We've actually seen a big increase to that median point which they're trying to get to um i know it's our standard answer but it's true we're 280 we've been around for 280 years we've seen quite a few government changes we're very good i think we're very good at rolling with that um and i think the fact that we are generally the absolute right side a lot of these kind of policies and procedures to be honest puts us in a stronger position versus a lot of our competitive set i think

Ladies and gentlemen, this concludes our Q&A. I'll now hand back to Dominic Paul for closing remarks.

Okay. Thanks, Elliot. I appreciate all your time today. Thanks for the good questions. And I appreciate your support. Any follow-up questions, you know where we are. So I'm always happy to answer them. Thank you very much. Appreciate your time. Thank you.

Ladies and gentlemen, today's call has now concluded. We'd like to thank you for your participation. You may now disconnect your lines.