Finance Director's review
Group structure
In February 2008 Whitbread announced that the divisional management of the Hotels and Restaurants businesses would be combined. At the heart of this restructuring was a desire to eliminate duplication, save costs and better align the management teams to the businesses, particularly, as many hotel and restaurants operated as joint sites.
As a result Whitbread now only reports two trading segments: Hotels and Restaurants and Costa. The comparatives have been changed to reflect this structure.
Revenue
Group revenue from continuing operations in the year increased by 9.7% year on year to £1,334.6 million.
Revenue by business segment
| £m | 2008/09 | 2007/08 | % Change |
|---|---|---|---|
| Hotels & Restaurants | 1,061.6 | 973.9 | 9.0% |
| Costa | 263.8 | 216.3 | 22.0% |
| Less: inter-segment | (3.6) | (2.4) | |
| Other | 12.8 | 28.9 | (55.7)% |
| Revenue from continuing operations | 1,334.6 | 1,216.7 | 9.7% |
Like for like sales grew by 4.9%, with the remainder of the turnover growth coming from a net increase in outlets, predominantly in Premier Inn and Costa.
Results
Pre-exceptional profit from continuing operations for the year is £229.9 million, up 9.3% on last year.
Total profit for the year is £90.3 million. This compares to £557.1 million last year which included the results of David Lloyd Leisure and other businesses for the period of our ownership up to 2 August 2008 of £20.7 million, and the profit on its disposal as well as other businesses of £440.8 million.
Underlying profits
This year we have introduced an underlying profit measure on the face of the consolidated income statement. This is a measure which excludes exceptional items, the impact of the volatile finance costs of IAS 19, the finance cost of ineffective elements of cash flow hedges and the impact of straight line recognition of future minimum rental uplifts.
The directors believe that this measure provides additional useful information for shareholders on the underlying trends and performance of the Group and we intend to focus on underlying profit as a measure in future periods.
Underlying profits for the year are £228.2 million compared to £203.8 million last year, and underlying diluted earnings per share 92.2p compared to 76.4p last year.
Restatement
As reported at the half year, the abolition of Industrial Building Allowances for hotel buildings enacted in July 2008, IAS 12 Income Taxes has been re-interpreted and as a result the deferred tax provisions for hotel buildings have been re-appraised to use a methodology better representing the manner of recovery of the assets. This gives rise to a restatement of the deferred tax liability as at 28 February 2008, reducing it by £79.3 million; increasing retained earnings by £55.3 million and reducing goodwill by £24.0 million. The effect of this restatement on the 2007/08 income statement has been to increase net profit from continuing operations by £12.3 million. Of this £12.3 million, £6.1 million relates to pre-exceptional profit.
Exceptional items
Net exceptional loss amounted to £70.0 million for the year. This amount is analysed in more detail in note 7. The significant items included within this category are noted below.
1. Organisational review
In line with the announcement last year a number of reorganisation projects have taken place during the year.
The divisional management of the Hotels and Restaurants businesses have been combined.
The in house logistics operation was outsourced to Kuehne + Nagel who set up a new facility and we commenced migration of the activity from May 2008. From October 2008 the entire network was migrated to Kuehne + Nagel who in February 2009 commenced taking on additional supply chain activities, which were previously outsourced to other third party distributors.
In February 2009 we completed the outsourcing of our transactional accounting team to Steria.
Further work on the simplification of the systems supporting our businesses will take another 12 months to complete and by the end of 2010/11 we will reach the targeted savings of £25 million announced last year. Of this £25 million, £7 million was secured in 2008/9 and c£13 million will be achieved in 2009/10 with the balance in 2010/11.
In the year £13.3 million has been charged in relation to reorganisation costs, and a further c£10 million will be charged in 2009/10.
2. Premier Inn rebranding
As previously announced we have rebranded our hotels business from Premier Travel Inn to Premier Inn at a total cost of £12.7 million (previously estimated at £13.0 million), £7.0 million of which was spent in the second half of last year.
3. Impairment
The Group has recognised a net impairment charge of £16.7 million following an assessment of the recoverable amount of each of its property assets. The assessment was calculated on the higher of the fair value of the assets less disposal costs or their value in use based on a review of the discounted cash flows generated by the business undertaken at each property.
4. Exchange transaction
On 19 September 2008 the Group acquired 21 hotels, which traded under the Express by Holiday Inn brand from Mitchells & Butlers plc in exchange for 44 Whitbread branded restaurants. The disposal of the branded restaurants at a fair value of £78 million generated a profit on disposal of £6.4 million.
5. Tax
The deferred tax charge of £44.1 million arises as a result of the enactment by the UK Government in July 2008 of the abolition of Industrial Buildings Allowances for hotel buildings.
Interest
Pre-exceptional net interest costs of £25.1 million were 28.1% more than last year. The weighted average net debt in the year was £531.0 million in compared to £448.9 million last year.
Included in interest costs was a pension credit of £5.5 million (2007/08 £7.0 million). This represents the difference between the expected return on scheme assets and the interest cost of the scheme liabilities. In 2009/10 this is expected to be a pension cost of £15.5 million.
Tax
The tax expense of £108.3 million represents an effective tax rate of 30.2% on the continuing businesses before exceptional items, which compares with 29.0% last year. The charge includes deferred tax and the year on year movement in the rate has been predominantly driven by the deferred tax associated with share based payments which has been impacted by the fall in the share price.
Earnings per share
Diluted pre-exceptional earnings per share for continuing operations increased by 18% to 93.0p.
| EPS | 2008/09 | 2007/08 |
|---|---|---|
| Continuing pre - exceptional (diluted) | 93.0p | 78.8p |
| Exceptional items | (40.2)p | (28.2)p |
| Discontinued business (DLL) | - | 242.4p |
| Total operations (diluted) | 52.8p | 293.0p |
Details can be found in note 13.
A final dividend of 26.90p, will, subject to approval at the AGM, be paid on 10 July 2009 to all shareholders on the register at the close of business on 8 May 2009. The total dividend for the year at 36.55p is up by 1.5%.
Capital expenditure and business acquisitions
Total Group cash capital expenditure on property, plant and equipment during the year was £275.7 million with Hotels and Restaurants spend amounting to £241.5 million, Costa £30.1 million and Corporate £4.1 million. Capital expenditure is split between acquisition expenditure, which includes the acquisition and development of properties and maintenance expenditure. In addition £30.4 million was spent on business acquisitions and £17.1 million on international investments.
Financing
Net debt at the full year was £623.1 million, compared to £425.8 million last year. The significant non-trading items resulting in the increase were business acquisitions of £30.4 million, the cost of the share buy back programme of £20.0 million and a £50.0 million payment into the pension scheme, as agreed with Whitbread Pension Trustees Limited in April 2003.
As at 26 February 2009 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.
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. We aim to run our current operations on a cash flow neutral basis in 2009/10.
Pensions
IAS 19 Pension Deficit
As at 26 February 2009 there was an IAS 19 pension deficit of £233.0 million, which compares to £33.0 million as at 28 February 2008.
Triennial valuation
The Group has reached agreement in principle with Whitbread Pension Trustees Limited on the triennial valuation, which was based on the position as at 31 March 2008, and the associated recovery plan. This valuation showed a deficit on a funding basis of £388 million. The deficit on this basis uses assumptions which are more conservative than under the requirements of IAS 19 and therefore produce a greater deficit. The recovery plan will provide for deficit contributions until 2018. The deficit contribution payments, which will start from August 2011, will be £55 million each year until 2013, then £65 million in 2014 and 2015, £70 million in 2016 and £80 million in 2017 and 2018. In addition the Group has agreed to grant security over £150 million of its property assets in favour of Whitbread Pension Trustees Limited and to update and renew the financial covenant which has been in place since 2003. All these arrangements are subject to appropriate consents, due diligence and final documentation.
Christopher Rogers
Finance Director
27 April 2009
