Whitbread plc

Hello, everybody, and welcome to the WIPRED FY27 Q1 Trading Update. My name is Elliot, and I'll be coordinating your call today. If you'd like to ask a question during today's event, please press star followed by one on your telephone keypad. I will now hand it over to Dominic Paul, Chief Executive Officer. Please go ahead.

Good morning, everyone. Thank you for joining the call for our Q1 Trading Update. I'm joined today by Hemant Patel, our Group CFO, and we look forward to answering your questions shortly. Hopefully you've had a chance to read the Q1 release, which we published this morning. I'm going to start with a very brief overview for those who haven't seen it, and then we'll open up the call for Q&A. It's been a strong start to the year. In the UK, trading has been positive, with total accommodation sales up 3% and rev car up 2% versus last year. Reflecting the strength of our brand commercial program, we increased our outperformance versus the market on both accommodation sales and red bar growth, delivering a healthy red bar premium. In Germany, we continue to make good progress and significantly outperform the wider market, which has been softer due to a lower number of high-impact events this year. Total accommodation sales grew by 16%, driven by the opening of six leasehold hotels in the period and the benefit of our commercial initiatives. While sustainability remains limited, our forward book position in both the UK and Germany is ahead of last year, supported by strong measured bookings, and we remain confident in the full year outlook. Before moving to Q&A, I wanted to just say a few words on our new five-year plan. As a reminder on the 30th April just six weeks ago, Following a comprehensive review of all options to maximise value creation, we outlined our plans that will accelerate our strategy, enhance the quality of our business and deliver significant value for shareholders. We are executing each of our key initiatives at pace and our plan will increase margins and returns, reduce capital intensity by a billion pounds and generate two billion pounds of free cash flow available for shareholder returns by full year 31. Now, as you probably know, we have our AGM today, so we only have half an hour this morning for questions. Given it's only been a few weeks since our last update, I please ask you to limit yourselves to just two questions. Thank you. I'll now hand back to Elliot to host the Q&A.

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 a question, please ensure your device is unmuted locally. First question comes from with JP Morgan. Your line is open. Please go ahead.

Hi. Good morning. Just two questions. Wanted to ask on cost inflation in the UK and Germany. I mean, since you presented at the end of April, just wanted to check if there was anything worth flagging more recently that makes you think your guidance is, I don't know, perhaps too conservative. And I have just another question. I mean, the environment, I mean, given, you know, how things are looking and airline tickets are getting cheaper, I guess. Any signs of increased vacation in the UK this summer that could further support trading momentum?

Thanks, Michelle. Let me take the second part of your question and then I'll hand back to, I'll hand over to Hemant about the cost of inflation. I mean, as you can see, we've had a strong start to the year, healthy demand in the UK, and we're outperforming the market strongly. It's interesting. It's a mix of leisure and business demand. So we're seeing good leisure demand, but also seeing good business demand as well. And obviously business demand generally comes in much later. We're in a good position for this summer. We've looked ahead of where we were last year. And should more people stay in the UK this summer, we'll be well-placed to maximise revenue from that. I think you're right about airline prices. They are high for the summer. Quite a bit of capacity has come out. So if more people do choose to stay in the UK, I think we're well-placed for that. And obviously, you have the same kind of situation in Germany as well, airline prices there out of Germany also similarly high. I think we've shown a really strong track record of maximising revenue where demand is strong and we're very focused on that as we lead into the summer, but overall we're feeling good about the year ahead. And from a cost inflation point of view, nothing to call out specifically. We're well aged for this year, but just hand over. Yeah.

So, Estelle, no change going to this stage. We previously guided to a range of 6.5% to 7.5% on our gross cost inflation. That included £35 million of impact, obviously, from business rates, as we talked about earlier this year. So net inflation, therefore, net of the £60 million cost efficiencies, which again, we're on target for, ends up in the 3% to 4% range at the top end of that range. Internally, I think at this stage, as Dominic mentioned, we're fully hedged, substantially hedged on the UK and Germany in terms of utilities for this year. So there's no change there. And instead, obviously, we'll see what happens if, you know, with this, you know, change in the status of the war, how that continues, whether oil prices remain at lower rates going forward, whether that hasn't impacted the inflation in particular. But in this case, we're not changing our thoughts. We'll update at the half unit.

Okay, thank you. Thanks, Estelle. Thank you.

We now turn to China Mystery with Barclays. Your line is open. Please go ahead.

Hi, Dominic. Hi, Helen. Two questions for me as well. I noticed you put a line in around business rates, and I wondered if you could just update us on your thoughts and whether there's any incremental confidence on whether there could be changes to policy coming up and, you know, any timelines on when you expect to hear an update from the government there. And then the second question is around the AGP. Can you update us on how many sites you've exited and also kind of the phasing requirements of ATP progress over the year. Thank you.

Yeah, thanks, Jay. That's nice to hear from you. On business rates, as we spoke about six weeks ago at Capital Markets Day, that's a significant part of the inflation that we're facing over the next few years. We've had a really strong... example to give the government of what happens when there are significant tax increases like business rates, because it's been one of the drivers of announcing our extended accelerating growth plan. And that, obviously, we're in the process of consultation at the moment with our people, but that's very likely to result in quite significant job losses. And I think the government understands that the implication of increased taxation does need companies to take, you know, tough commercial decisions. And we've been at the forefront, I'd say, of showing them that and working hand in glove with UK hospitality on that point as well. Whether that means the government ends up adjusting their business rates plans Thank you for 27 and 28. It's hard to know, and time will tell, but we've been very clear in messaging that to the government, showing them the implications of policies like this, and we will continue to do that. If the business rates situation doesn't change, we've laid out a really clear five-year plan that more than mitigates the increases in business rates, leading to a focused hotel business, significantly increased returns and profitability over the next few years. So even if the business rate situation stays as it is, we have laid out a super strong plan that's going to see significant increased profits and returns. And should the government adjust their position, then that will be a very welcome upside for us as a business. But the short answer is we continue to push the government hard on understanding the implications from decisions like the life business rose. From the Accelerating Growth Programme, I'll hand over to Hemant. But let me just say a couple of points overall. I mean, we are very pleased with the progress of the first phase of Accelerating Growth. We've now got 66 of the new food and beverage spaces open. We signalled six weeks ago on the number of spots that we've exchanged on. We're making good progress in that area. And the guest feedback from the new spaces is very strong. And financially, this is categorically transformative for us. And, you know, we can see that very clearly. The new extension rooms are now coming online. We've got circa 600 extension rooms open. The revenue performance in those extension rooms, remember, is one of our highest returning ways of adding rooms is adding extension rooms. are coming in well and it gets feedback both from the extension rooms but also from the new food and beverage space that's really strong. So we feel super comfortable that this extended accelerating growth programme that Phase 2 is categorically the right direction for us to be going as a business and genuinely transforms our return on investment and profitability over the next few years.

Yeah, there's not much to add there because as Dominic says, we are still in consultations with our team members, so we haven't enacted anything yet until that phase goes through, so there won't be a moment to sort of propose change. In terms of the first phase of the programme, as Dominic mentioned, we have, and we mentioned it at the market stage, we've sold 51 of those restaurants and we've got another 60 sites that are under offer. We've agreed terms as well that there's conditions at this stage. With the extended program, we would then, you know, we would add another 190,000 branded restaurants overall and 110 of those we would be looking to sell. But that will, you know, that will happen over the next two years. In terms of the revenue impact from the phasing revenue impact, it will build over to the end of the summer. where we'll get to more of a steady state in terms of that revenue impact. But, you know, we'll update more in the half year once, you know, we, you know, if we go through consultation and that proposal.

Thank you very much. But the plans are coming together really well and we're feeling good about progress.

Thank you. We now turn to Richard Clarke with Bernstein. Your line is open. Please go ahead.

Hi, good morning both. I guess two questions for me. First of all, I guess if I look at your comps, aesthetically they get about 5% harder from Q1 to Q3. That's in the UK. Are you sort of confident that there's been a shift in seasonality, that those comps won't matter and you can maintain the current sort of trading pace through the next couple of quarters? And then secondly, I guess one of your shareholders, reacted fairly aggressively against your five-year plan and wrote a letter suggesting you should stop all CapEx and put the business up for sale and otherwise would nominate a new slate of directors. Given it's your AGM today, just, you know, your response to that letter, are there any director nominations that you're seeing and any changes you're making or any discussions you're having in relation to that letter?

Oh, hi, Richard. Thanks. Let me take the trading question first. I mean, last summer, we also had relatively higher comps to lap, and we ended up having a good summer. As we said in the release, we're feeling good about our books position for the summer. We're ahead of where we were last year. The events calendar does shift around a bit. So it'll be, you'll see slightly bumpy STR data probably. Reminder, we're comfortably outperforming the market and feel good about being able to continue that. But there are events coming up as well. So this Harry Styles, for example, has just started. Bad Bunny, who I'm sure, Richard, you are both aware of and enjoy, will be kicking off shortly. And then there's the other point about just general demand in the UK feeling pretty positive. So we're a relatively late booking business. We don't guide on it. But as we stand here today, we're feeling good about the position that we're in. To your point about the activist investor feedback that we had a few weeks ago about the five-year plan, I mean, obviously, we spent a lot of time with our shareholders, both before we outlined the five-year plan and post that, and generally really supportive from our shareholders, very understanding of the fact there'd be some macroeconomic shots, particularly on business rates and some of the other increase, but also, I think, very... pleased that we're taking pretty radical action in terms of extending our operating growth program to become a focused hotel business, reducing our gross capex overall, recycling more of our freehold property to fund future growth, and really quite rapidly adjusting the German plan, becoming more leasehold moving forward, driving higher returns, becoming free cash flow by full year 29. So, a very strong set of actions to drive very material increases in profits and returns. Obviously, this year is a challenging year because extending our acceleration growth program means we have to go a bit backwards in order to get significantly forward. But investors with a medium-term timeframe are understanding of that and do believe we're making the right kind of decisions. And actually, if you look at what the activist investor Corvex laid out, we agree on the key point, which is that extending the Accelerating Growth Programme is the right thing to do. Now, that is one of the big drivers to our capital expenditure, actually, over the next few years. So it's good that we're aligned on that. In terms of reducing UK CapEx further, we think the plan we've laid out is the right plan. I mean... We are focused very much on opening hotels, which is going to be very high returning. A lot of our future growth, as we laid out, is coming in London. We're currently under-invested. You have seen in the numbers we outlined today, London continues to do really well. So we feel very positive about adding this capacity in London. And stopping that kind of investment would not be the right thing to do. These hotels are generally profitable from day one. and drive very high returns. So we're very comfortable about investing that money in the UK. And in terms of Germany, we've laid out a plan which is quite significantly changed from the original plan for Germany. And again, that's going to drive returns and profitability in that market. So, of course, there are elements with a plan that people agree with and elements they don't. What we're really confident is the plan that we've laid out is going to supply very significantly increased returns and profitability of the media term of the business. And it's important that we both keep reinforcing that, but also show the momentum that we're building in the business. And although it's only the first quarter, this first quarter points to that. I think it's our third consecutive quarter of worthwhile growth. And it shows the momentum building both in terms of the underlying trading driven by our commercial programme, the progress we're making on accelerating growth and the progress we're making in Germany overall. So we're very focused on delivering that plan and we're making good progress.

Thanks Richie.

We now turn to Tim Barrett with Deutsche Bank. Your line is open, please go ahead.

Thanks, the first question was actually on London. A lot of the outperformance for the group has come there. Can you just talk a bit about how you're achieving that and, I suppose, just to get an idea of the sustainability? And then secondly, on Germany, if I'm right, constant currency REVPAR went a little bit backwards. It feels that you're going to need REVPAR growth for the year to offset that £10 million of recent additions costs. How do you feel about that at this stage? Thanks very much.

Yeah, thanks, Tim. So let me take the second part of the question, the question first on Germany. I mean, the first quarter for Germany overall as a market, there were quite significantly fewer events. Remember, it's a very events-driven market. Music, business, fairs, it's a very, very kind of idiosyncratic element of the German market. Being able to trade events well is a critical part of driving revenue and occupancy in that market. The events calendar in quarter one was certainly softer than last year, but the events calendar moving forward gets richer. And we've got really good at trading events. We've completely adjusted our commercial strategy for trading events, and we're seeing really good evidence of that. And one of the ways you can see that is our overall market outperformance is significantly growing in Germany. So the year looking forward has got more events. Overall, actually, we're feeling good about Germany. And the new leasehold hotels that we've just opened are actually trading very well already and building very strong momentum in them. So overall, we feel good about the position that we've got in Germany. To answer your question about London, I mean, we've felt very positive about London for a while. And I think I've said that on pretty much every call that we've had. London is just this amazing market of a lot of domestic demand, both leisure and business. and a lot of inbound demand. And the gift that we've got is we under-index in London, which is why a lot of our future growth comes from London. The reason this is such good news for us is the London hotels are generally the most profitable, have the highest rep part, and very strong average room rate, and very strong accommodation, and therefore high rep part. So the fact that we under-index in London is a gift for us. and we're taking advantage of that. The commercial strategy we've got from London is very clear. It's mixed up. It's made up of a strong mix of maximizing leisure demand at certain periods in weekends, for example, and holiday times in London. All pricing strategies to support that. Really harvesting the business demand. Midweek demand in London is very strong. And then also maximizing events demand as well. We see a lot of that. And then Adding in on top of that, getting more of the inbound market, which is a great opportunity for us. So overall, we don't think this is a flash in the pan, the London performance. We've seen a strong London market for quite a while now. The under-index there, a lot of our growth is coming to London. This will be a really good tailwind for us as we execute the plan.

Okay. Thanks, Dominic. Thanks, Dave.

We now turn to Jared Castle with UBS. Your line is open. Please go ahead. Jared, your line is open.

Thank you, Howard. Hello. Sorry about that. I was just... Do you have any comments in terms of, you know, the markets as it currently stands in terms of recycling hotels, you know, what demand is when you put your hotels up for, you know, disposal or sale and lease back at the moment? And then, you know, any comments on kind of, you know, various taxes? I see some kind of mayors already pushing things through if there's been any impact on your business. But, yeah, just any views on that. Thanks.

Yeah, thanks, Joe. I mean, the said and leased back market for us has been strong, actually, and we're seeing that continue. I mean, it's one of the key benefits that we've got as a business. We've got a strong balance sheet. We've got an excellent covenant. Investors like hotels, particularly hotels that belong to a business with an extraordinarily strong brand, very strong market position and a strong financial covenant. So we're seeing that market continue. I think there are reasons to believe over the next few years that that market will probably get stronger as interest rates potentially go down. But actually, we are seeing a good market for that and we can be picky and choosy about the deals that we do. It's one of the reasons why we feel positive about the plan that we've got to recycle some of that freehold property into higher-returning growth.

I would say, Gerard, that we're really happy with the guidance we've got this year. It's one and a half billion pounds of recycling over the next five years. We'll manage that carefully and make sure we get the right pricing. We have different types of assets, different types of buyers. We're mashing those very carefully. It's not an excessive strength of our company, so we'll get the best possible pricing. So we're very happy with that.

And then on the tourist taxes, I mean, no one likes high and more taxes, do they? We've worked very closely with UK hospitality. You might have seen some of the social media that they've been doing on that. They call it holiday tax. And there is certainly kind of quite strong consumer support for the pushback on those tourist taxes. You're right that they are already in place in a number of cities, like Edinburgh, for example. We're not the place the most we got ahead of this a little while ago from a technical point of view, which means we can show the tax listed separately from a financial point of view. And so, you know, whilst no one wants more taxes and more tourist taxes, I think we're better placed than most to deal with that. And, you know, the strength of our brand helps offset those things. Remember, this is something that will affect all businesses in a similar way. So we're not fans of it, but we are well-placed to set ourselves up to deal with it if it's great into further cities. And we believe they're the place in the African-American nations.

Great. Thanks very much. Thanks a lot. Thanks.

We are going to Alex Brignall with Rothschild. Your line is open. Please go ahead.

Morning. Thanks for taking the question.

Just one in the interest of time. Obviously, Fitch downgraded the rating after the full years. Did you get feedback from them on your plan? Obviously, a big driver of the increased capital generation is shifting from owned assets to long-term liability leases. Has there been any push back on that problem.

Thanks. Yeah, thanks, Alex. Yeah, we've been on, you know, triple B flat with a negative watch through pretty much all of last year. The, you know, we obviously engage the fish and, you know, we've been talking to them as we develop our biodegradable plan. And what's encouraging is although we were downgrade to triple B negative, it's stable. And, you know, they're very much emphasised that, actually, that they were, they understood the plan that we had. We expressed our confidence. They've modelled it in a, obviously couldn't think of it, but in the way that we would expect to. And the sign of, the sign is that actually they understand the plan. So actually, again, I think we feel pretty confident in terms of where we are, in terms of leverage, how that will manage going forward, and really go to the entities to view our plan going forward.

Thanks, Alex. Thank you.

And our final question today comes from Kate Dow with Bank of America. Your line is open. Please go ahead.

Thank you very much for taking my question. I just have one left on cost inflation. We've heard recently from some catering companies about on this fund, and their perspective is because of the supply chain and how, you know, oil price inflation flows through the agricultural supply chain, it's more likely to have an inflationary impact into the second half of this calendar year. because of the, I guess, the transmission, the timing of the transmission. I was just wondering if this is something you see as well. Maybe it's more stable currently, but there might be a knock-on effect into the second half of the year. Thank you.

Thank you. Thanks for the question.

Yes, that's okay. So, yeah, I mean, that was when we guided. at the four-year results to this year. We talked about getting the top end of our gross inflation range. We said 6.5% to 7.5%. We've never been to the top end of that because of the impact of the war, including the knock-on impact on fertilised prices and food and beverage inflation. So I guess we've taken account of that. We were expecting it to remain high through this year. If obviously it falls away, and we expect, you know, if we see it fall away, we would, you know, let, you know, the heartbeat results, we'd guide it that stage. But, yeah, this is, that's not a further risk to the guidance we've given. Potentially it would have been upside, depending on what does happen, but, you know, we've assumed a proven case.

It also, thank you, it also reinforces the importance of our overall efficiency program that we've got, that we outlined when we were tilling 50 million pounds worth of efficiencies over the next five years. We're all very glad we got well ahead of that program a few years ago. That helps offset some of these inflationary pressures that are being seen. It also reinforces the strategic shift that we're making. Remember, as we move into a phase two of AGP, we have much lower exposure to food and beverage inflation moving forward. In a typical brand restaurant, in the evening, 70% of the guests, 70% of the customers are not guests at the hotel. Moving forward, we'll have integrated food and beverage areas where the guests in the food and beverage areas are just our hotel guests. That means we have a lower exposure to things like food and beverage inflation. Moving forward as we go through the plan, it's one of the drivers of becoming higher profit, higher margin business, and one of the benefits of becoming a focused hotel company. I think we're probably on time. Really appreciate everybody being succinct with their questions. Thank you very much. As you've seen today, we've made a really strong start to the year, and we feel really good about the momentum that we're building overall. So thank you for your time. We do appreciate it. Any follow-up questions you've got, you know where we are. We'll be happy to help. 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.