Whitbread plc (WTB) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Whitbread H1 F1 '24 (sic) [ FY '24 ] Interim Results Live Q&A Session Conference Call. I am Sandra the Chorus Call operator. [Operator Instructions] and the conference is being recorded. The conference will not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Dominic Paul, Chief Executive Officer. Please go ahead, sir.

Thank you, Sandra. Good morning, everyone. Thank you very much for joining myself and Heman Patel, our Group CFO, for our half year results call for financial year 2024. I'd like to apologize for the delay on starting the call this morning, it took some time for people to get on to the call, so we wanted to wait until we had the majority of attendees on the line. So thank you for your patience. I do hope you've all had the chance to read through release that we sent out this morning. I thought I'd begin by pulling out some of the key highlights before opening up the call for Q&A, where -- when Heman and I will be happy to answer your questions. I mean these are a fantastic set of results. Even after a particularly strong year last year, revenues, profits, margins and returns all grew strongly. The strength of our customer proposition that is founded on both quality and value, our unique business model and the execution of our business strategy are enabling us to continue to invest in our business, improve the quality and breadth of our offer to consumers whilst also funding growing returns for shareholders. Premier Inn U.K. remains the nation's favorite hotel brand and with the engine driving our growth in the first half. Strong demand, coupled with a constrained supply backdrop helped drive U.K. accommodation sales 15% ahead of last year. F&B sales were also ahead, up 10% versus last year. Given the inherent strengths of our operating model, coupled with our focus on operational excellence, and delivering meaningful cost savings meant that despite inflation, group profit before tax increased by 44% versus last year, and U.K. margins were 27.5%, and in Germany, we've continued to make good progress. We've now got 57 hotels opened and have secured prime locations in all of the major cities. Our ongoing expansion and the progressive maturity of our more established hotels meant that revenues were well ahead of last year. Despite a relatively soft market over the summer months, our losses in the year halved versus last year, and we remain on track. We're continuing to evolve our commercial strategy and have already learned a huge amount, and we're applying those learnings across our estate as we progress towards our 10% to 14% returns target. The strong uplift in group profit converted into significant free cash flow that is funding our ongoing expansion in the U.K. and Germany, continued investment in our product, systems and people as well as increasing returns to shareholders in the form of both dividends and share buybacks. And looking ahead, with a strong current trading performance, and an encouraging forward book position. We've got real momentum as we enter the second half of the year, and we remain confident in the full year outlook. Further ahead, our analysis shows that the total supply of hotel rooms in the U.K. will not get back to pre-pandemic levels for at least 5 more years, creating a significant opportunity for us to take share and grow returns further. And whilst there is much work still to do in Germany, we're encouraged by our performance to date, and we remain on track. Of course, we remain vigilant regarding the macroeconomic environment. However, our strong market position, customer proposition and balance sheet, coupled with a favorable supply backdrop, means we remain confident in our long-term prospects. We have, therefore, recommended an increased interim dividend and a further GBP 300 million share buyback. I'm now going to hand back to Sandra so we can open up the call for questions.

The first question comes from Jamie Rollo from Morgan Stanley.

Three questions, please. First, it's clear you're seeing no sign of any demand slowdown yet. If you do see that, will your strategy be to maximize occupancy by sort of reducing rate or vice versa? How do you sort of feel about that trade-off? Secondly, in terms of margins, clearly, a very strong first half in the U.K. If we look to next year, it looks like your costs will probably be up at least mid-single digit and RevPAR starting to plateau. So what sort of confidence level about maintaining these record margins? And do you have any additional savings that could come through? And finally, just on Germany, quite a bit of talk about commercial refinement on pricing and distribution and so on. I mean are you flagging bigger problems here or just sort of standard operational improvements? And what's your confidence level on breaking even next year, please?

Thanks, Jamie. Good questions. I'm going to handle question 1 and 3, and then I'll hand question 2 to Heman. So, I take it in a slightly different order. So let's talk about the demand, the demand picture first. So as you said, we've seen very resilient demand noting that our business is beautifully balanced between business and leisure. And within each of those segments, we're actually very well balanced within the segment. So for example, we have both corporate, big corporate customers on the business side. We've also got a large number of smaller business and trades people as well. The reason that's important is because part of the demand resilience is our very broad customer base. We are not dependent on one particular customer segment, and that actually creates a huge amount of resilience within our model. The second thing I'd point out is the supply point, which we talked about when we did our prelim results 6 months ago. we have done a really detailed granular piece of work on the supply backdrop in the U.K. market, and it's -- it's very interesting work. It basically says that supply is not going to get back to pre-pandemic for at least 5 more years. And what is particularly interesting is the majority of the supply that's gone out of the market is independent hotels. And we believe 70% of that supply is not coming back because those hotels have been put to alternative use. For example, for residential. So from a demand -- of course, demand is important, we feel good about the future demand outlook because there's a very varied customer base that we've got and then the second point is, we think there's this underpin of supply going down. We also, looking forward, we think there are multiple levers for us to continue to pull. So for example, we've got more Premier Plus rooms coming in, which drive rate. We've got opportunities to load our pricing that curves slightly differently as we see that demand, all of which helps support a growing average room rate strategy. So we feel good about the demand environment looking forward. I think even if you're a bear on the demand environment, the reduction in supply creates a really interesting underpin. And 6 months on the call, 6 months ago, we talked about the fact that we think this is a very, very interesting point in the hotel cycle for us. And I think that the numbers today that we've presented underline that. The third point -- the third question you had was about Germany. Actually, we feel good about Germany. I mean as you've seen, we've grown very quickly. We went into the pandemic with 6 hotels. We're now at 57 hotels. This is really the first summer that we've traded those hotels in an environment where kind of no COVID restrictions have been in place, and we've learned a lot over the summer. So I'll give you some examples. Events are a very important part of the German trading cycle. And I think we've learned over the summer, how to trade those events better. We use Booking.com at various parts of our journey to maturity in the U.K. We don't now use Booking.com in the U.K., but we have used them at various times as we've grown in the U.K. We haven't been using third-party distributors in Germany, and we're currently doing a trial on using Booking.com, which we believe could add incremental customers. But by overall, we feel good about the opportunity in Germany. The reasons to believe in Germany are very strong. You've seen some of our hotels in Germany. We've got great quality hotels, our guest numbers, our guest scores are really good, so customers love that. What we've got to do now is trade the hotels and build the brand awareness and preference in Germany, which we're on the journey of doing. And I think we've learned really good lessons in over the summer. So we're feeling confident -- we've been confident about Germany. That's why we said today, we still believe we're on track for our long-term goals here.

And Jamie, regarding your question about whether we can retain margins into next year. Clearly, it's a bit early for us to give any sort of guidance on cost inflation at this stage but making that supposition, I mean there's 3 factors, obviously, that are going to impact our ability to retain the levels of margin we've attained this year. First of all -- I mean, Dominic's actually covered the first 2, the external environment in terms of demand and supply. And of course, we are positive about the former and very positive about the supply environment. The second factor is what we can do internally to continue to drive RevPARs, including things like Premier Plus Room, our marketing strategies, the new formats we have, et cetera. And we feel that there's an awful a lot we can do to continue to drive like-for-likes and RevPARs with our internal commercial programs. And then obviously, how we combat costs. Whatever that level of inflation is, we've got a successful record of being able to combat costs. Historically, we saved GBP 235 million between FY '17 and FY '21. And committed to another GBP 140 million over -- between FY '22 and '25. We still have the opportunity across labor. It doesn't take much but taking a very small amount of time out of a housekeeping routine makes quite a big difference to our overall labor bill, things like our new ID5 room, which is a real RevPAR driving benefit, but also we've designed that room to be much more effective and efficient to clean, which will help our cost savings targets in the future. We're investing in technology, whether it's our management of energy on site, whether it's equipment such as [ toasters residents ] that are -- with high efficiency, but that's a really good payback for some energy investments we're making. And then how we work with all our suppliers, whether the laundry suppliers or other suppliers we're working here. We have a strong procurement program looking at renegotiating deals, reducing the number of products and SKUs that we're using and combining volumes by doing that, potentially combining suppliers as well. We still feel that we've got a really strong -- with a lot of headroom still to improve our cost despite the fact we think we are a very efficient business. All of those things will decide whether we're able to maintain margins. We're confident at the moment that we have enough in our lock to be able to do that, even if there were any pressure on demand going forward.

That's very helpful. And Sorry, just on Germany, your confidence level of next year's breakeven target specifically?

Yes, we said -- we've said breakeven on a run rate basis. And again, we feel good about that. I mean we're now the fastest growing hotel brand in Germany. We've got sites in every single major city in Germany. We've got a mix of freehold and leasehold. They're quality sites. Again, you've seen some of them. We are creating value in Germany. We've got great guest scores. And actually, our momentum is building. We've recruited a new senior leadership team in Germany. We've got the scale now where it makes sense do that. I think the team has done an amazing job to get us to this point, but it now makes sense to have a local leadership team in Germany. And that's one of the benefits of getting to a scale that you can start doing things like that. So yes, I think we feel great about the opportunity in Germany moving forward and I think it will turn out to be a great value driver for Whitbread overall.

The next question comes from Jarrod Castle from UBS.

Just on the U.K. pipeline, obviously, it's down year-over-year. I realize you have delivered some 1,200-room growth net. But can you talk a little bit about replenishing the U.K. pipeline as it currently stands, especially given supply constrained environment, I would have thought probably easier to find opportunities. Then just any update on your strategic review of restaurants in terms of potential disposals of nonintegrated restaurants? Just how you're thinking there? And then -- just in terms of the reservation system, it looks like you're using Oracle, you're using one of the GDSs like Amadeus. Can you just give a little bit of color of what does this offer versus GDS? Or what additional does it offer?

Thanks, Jarrod. So let me -- sorry. Yes. Thanks, Jarrod. Let me start with the U.K. pipeline question. So I mean, what I find really -- I mean, we -- as I talked about at the beginning, we think we're at a really interesting point of the hotel cycle. All the hotel businesses in the U.K. have got relatively smaller pipelines than have been the case historically. And that's now been the case for a number of years, which is why we feel so confident in the fact that it's going to take a long time for supply to get back. If you look at our pipeline of rooms in the U.K., it's actually more than our -- all of our key competitors put together. So whilst our pipeline is somewhat lower than it has been historically, it's great than all of our competitors put together. The second thing I'd say is that we take a really returns-led focus on our pipeline. So we want to continue to build that pipeline, but we will only do on site that we're confident are going to return -- strong returns over time. And I think that's exactly the kind of financial discipline we should have. And it feels good to have that level of discipline. And I think it gives us real confidence of where to grow very successfully over the next few years. The third thing to point out is we are able now to get access to sites that other competitors can't because of our funding model, because of our balance sheet, we're able, for example, to do freehold purchases like Fenchurch Street, prime site, we feel confident we'll deliver great returns over time. We are able to do a deal like that. So when it makes sense from a returns perspective, we're able to move on these sites at a time that our competitors can't, either because their balance sheets aren't as strong, they actually can't afford the funding in the current market. So in a very disciplined way, we believe this gives -- creates a great opportunity for us. We're also looking at how we could look at extension program, for example, to add more rooms over time. So we think we've got a few different levers to pull to build that pipeline, we'll do it in a very, very disciplined way. But we think that we've got a real opportunity now to continue to take quality market share in the market, which is going to drive real value for Whitbread over time. I guess the second part of your question, Jarrod, was the F&B question. I mean we talked about before on the call. We've got the branded restaurants, which are circa 450. And then we have a similar number of what we call Solus restaurants, which is restaurants that are in our existing estate. The first thing to say is, actually, food and beverage is important for our guests, particularly breakfast. We get great guest scores, they've continued to get better the guest scores, which is really encouraging. And food and beverages is important to that. The breakfast is a very important part of our proposition. And a lot of our guests have dinner in our hotels. So we've said that we will look, however, to optimize our food and beverage offering. We're continuing to do that. You can see some encouraging signs of that, 10% like-for-likes in the results today. We will continue to look at how we optimize that, but we'll look at it through the lens of -- through 2 different lenses. Firstly, the lens of protecting the guest experience because that's important. And obviously, that drives our revenue per available room. And the second lens that we'll look through is financial returns. So through those 2 lenses, we'll look at optimizing our food and beverage estate over time, and we'll update you as we go through that process. The third quick part of the question was about the reservation system. You're right, we're moving to a system called OPERA Cloud. So it's a cloud-based system. It's a system that's already in place. We are actually replacing a legacy system that we have of our own. The good news about that is the legacy system we're replacing is not time-barred. Which means that we can move over to the system in our own time which is really important because it means that we can do it in a very, very measured and controlled way, which is exactly what we're doing. And we're making good progress. So now all of our German hotels are already on OPERA. We have about 100 hotels in the U.K. already on it. Early indications are really good. What OPERA will enable us to do over time is actually it opens up opportunities to drive more commercial benefit over time. So for example, you can sell different rooms at different rates within a hotel. It speeds up some of the online journey, for example, which should improve conversion rates. So there are good strong reasons to believe that it's going to be one of our unlocks in the future. At the moment, we're focused on rolling that system out in a really measured and controlled way, and I'm pleased to say that that's going well so far.

The next question comes from Victoria Lee Stern from Barclays.

Just firstly, on the supply study, just came for a few more details on the basis of that view that supply won't get back the 2019 levels for 5 years. The breakdown between what supply you see coming on stream versus how much more you're expecting to exit. And also does that include any assumptions for hotel supply being taken out for refugee housing. And on that last point, I think that's press article suggesting something like 4% to 5% of U.K. supply could be used for refugee rooms at the moment. Any views on whether that sort of number is accurate. Second one is on price. So last year, you underperformed the market on price because I think you were going with the super occupancy strategy. Obviously, in the first half, you've now grown price faster than the market. So just curious whether you think you can continue to outperform the market from a pricing standpoint? You've always shown us like you got survey where Premier Inn is somewhat off the chart in value for money scores. So just are you strategically happy to now sort of eat into some of that gap versus peers on value for money. And then finally, on cost inflation into next year? I know you obviously don't formally guide on it until next year. But back in June, haven't you seemed fairly optimistic that inflation could return to the sort of 3% to 5% level next year. How you're feeling about that now? I guess it looks like we might get a 7% increase in National Living Wage again, but potentially a quite nice tailwind from utilities. Just your initial thinking there would be great.

Yes. Thanks, Vicki. I mean, overall, we're -- obviously, we're really pleased with the numbers we've presented today. The supply side, I mean the team has done a very detailed piece of work on it. I think it is -- it surprised some people as to how much supply has gone after the market. We did say on the call 6 months ago that we expected it would take at least 3 years of supply to get back. Today, we've said that actually, we think it's going to take at least 5 years. And actually, if you look at the pipelines of most of our competitors at the moment, you might say it could take longer than that, but we just can't see, we just can't see that far out. As I said, on the previous question, 70% of that supply that's come out of the independent supply isn't coming back because it's been taken out for permanent reasons. To your point about the migrants, there are a number of hotels being used for to house migrants. We're not sure the exact -- we don't think it's as high as you said on 4% to 5%. And it's generally in hotels that aren't in our competitive set. It's normally hotels with kitchen facilities, generally much older properties. And so we don't -- and actually, we don't see that changing anytime soon. So we don't think that's a material risk. And even if all of that hotel supply came back on the market, it would still be well below where we were in 2019. And I don't think it's all going to come back on the market and it's -- most of them are the type of hotels that are not actually in our competitive set. Then I think your point also was then about the pipeline. We did clean our pipeline up a bit in COVID, we were able to do that. So we've got out of deals that turned out as we went through COVID we thought actually, they're not absolute optimum deal. So we can really clean up. So, we have a very high-quality pipeline moving forward. We'll add to that pipeline, as we said before, in a really disciplined way now. I think we've got an opportunity to drive more room growth than all of our competitors put together. But we'll do that through a returns lens, which should give us real confidence about increasing our returns over time. I think -- I think the second -- I'll hand the cost inflation question to Heman. The second part of your question was about pricing and then the out -- how we've outperformed the competitors. I mean, obviously, we don't control how our competitors' price. But what we can see is the strength of our brand and the strength of our distribution is definitely giving us benefits. And as we roll things like Premier Plus rooms out, for example, it is -- and as we increase our number of hotels in London, we can see benefit from that. What's really interesting, you mentioned the YouGov chart. What's really interesting is actually our guest satisfaction scores have increased, and our value-for-money scores have increased. So although our prices have gone up, average room rates have gone up GBP 10 versus last year. They're actually still slightly down in real terms versus 2009 and only 3% higher than 2019. So we believe that scope to continue to drive price. But of course, we do price for demand. But we believe that our business is in a really strong position. The brand is cutting through very, very strongly. The distribution works very well. I guess, satisfaction scores are increasing. So they are all reasons to believe to be confident and it's underpinned by this reduction in supply.

And Vicki, on the cost inflation question, you're right. I'm not ready really yet to give any specific guidance. I think over the long term, we've seen levels of inflation in that kind of 3% to 5% range. And I suppose there's no reason to think that we won't retain that kind of level at a certain point. It just depends on when the cycle that happens. The moving parts for us -- and as you mentioned, living wage is a big driver of our labor bill. We pay above the minimum wage for all of our team members. But as a base point, it does drive -- increase in that does drive our overall level of hourly labor inflation across our sites in particular. Yes, it's likely that that's going to be about kind of like 5% to 7% range based on what the kind of the noise we're hearing from government at the moment. Envelope commission report, it could be slightly higher. Offsetting that, it's likely, as you say, the energy inflation is likely -- actually likely potentially to deflate as it has been. We are unwinding our hedges as well through this year from last year where we were able to mitigate the significant increases in energy costs we saw last year, and we are 30% hedged for FY '25. So that's likely to be a tailwind. Food and beverage inflation, I think, has been improving. It's a bit difficult to know exactly what's going to happen in the future. Both things being equal, you would expect that to mitigate down to lower levels and no reason to think not. But of course, there are so many geopolitical kind of externalities and things at the moment that might impact that we can't really say. So I'll get some more solid cost guidance when we get to January when we do our Q3 results because I think we have a much better idea at that point and then we can inform you calling later.

That's really helpful. Can I just follow up on the first part of the question. Just on the forward-looking part of the supply study, what sort of exit pace are you assuming? I think historically, independents have come out on sort of 1% per rate over the last cycle. Is that the sort of level you assume, or you think the independent exits will be at a higher pace in that 5-year period?

That's kind of the level we've been achieving. We've been quite prudent about that because obviously, we've seen such an acceleration through COVID. But generally, we think over the long term, there's no reason to think that rate wouldn't continue, again, all things being equal, after a bit of a tail. We still think there's -- that makes our thinking as we say, it's going to be another 4 to 5 years before we're back to those kind of pre-2019 levels. We think there's a little bit more to come out through this year net before pipelines start refilling over the next 2 to 3 years, and we start to see that come back up. So there will be, we think, at least another couple of years at this low level of hotel rooms in the market.

The next question comes from Leo Carrington from Citi.

Firstly, on the approach to driving better pricing. The comments in the release this morning, we're referring to reducing the number of rooms sold at less than GBP 80, I think, implies the benefits mostly towards the end of the curve. Can you sort of outline how you see that -- how you see that and how you see that tying into your desire to deliver value for money. And then 2 follow-ups on existing questions. Firstly, on the U.K. hotel growth. You've referenced the bigger developments like Fenchurch Street or Trafalgar Square -- something -- your reference to extensions is well taken. But beyond that, U.K. freehold growth primarily in these larger development opportunities? Or are there also reflagging opportunities that we could expect to? And then lastly, in terms of optimization of the existing estate, seems the pace of the rollout of Premier Plus rooms is slowing now. Is that because you're reaching the right level of these rooms now? Or is this just a timing feature?

Thank you, Leo, so let me take the first kind of question comment about the pricing. And then the second question really about the U.K. hotel growth, and then I'll hand over to Heman for the optimization of the stay part of the question. So on the pricing side, I mean, our average room rate is still really attractive from a value perspective. So GBP 84. And that's gone up GBP 10, year-over-year. The beauty of our business, I said before, with a very balanced business and leisure. And so we can take a really segmented approach to our pricing. We've also had some room growth in London, which generally drives higher rates. And of course, Premier Plus generally have a higher rate. So we can increase our average room rate without necessarily the most value-conscious customer paying a lot more. Having said that, you're right, we have shifted our curve slightly to the right, which means that fewer of our customers pay absolutely the lowest fare. But we can do that with confidence because we know the hotel is going to be full or very close to full. And actually, the increases that customers are paying at those lower price rates are relatively low. It's a few pounds on the room rate, for example. But of course, with the size and scale of our business, when you multiply that up, that actually has quite a material impact on revenue. So we stay very focused on the value side of the business. As I said to Vicki, we've seen our guest scores increase. We've seen our value-for-money scores increase. So we know we're doing good, we're doing the job. We're not complacent. We can be smart about pricing and still drive this value message. We also see great opportunity in the business segment. We're doing a lot of work in our business proposition overall. We just won U.K.'s best business hotels, the fifth year running. And the reason why I think that's really important is we see an opportunity, one, to retain our existing customers. I think you probably saw in the release, 86% of our customers in the first half will repeat customers. Really that tells us all we need to know about our loyalty. But actually, we also see an opportunity for customers trading down into Premier Inn in a value environment, every business at the moment is looking to keep their costs low, but they also want to get out and drive sales. So we're seeing a lot of business people out and about. We see a great opportunity for customers to trade down from the 4-, 5-star hotels to Premier Inn. And actually, our pricing gap between where we are and the 4 and 5 Star hotels has actually widened. So although our room rate has gone up, last year, the gap to 4-, 5-star hotels was GBP 50, this year it's GBP 60. So we're actually better value relatively than we were last year, and that creates a great opportunity for us within the business segment. And we similarly, we have this ongoing opportunity within the leisure segment and our brand strength really helps from that point of view. So we have shifted the curve slightly, right? We've done it in a really measured control way. I would describe our pricing approach, our yield management approach, the system we have, what we call our long trading engine is absolutely best in class. We're not complacent. We continue to improve it. But for example, we link our pricing into our digital marketing. So for hotel rates, if we're seeing that curve shifts like the left, we open the taps a bit from a digital marketing perspective to then drive that room rate increase. We need to being able to do that because we are vertically integrated. And believe me, we are making sure we're taking advantage of the fact that we're vertically integrated to really drive strong growth, strong market share growth. And then the second question was about the kind of the future growth. Yes, you're right. We've signposted the Trafalgar Square site. We've signed posted the Fenchurch Street site. But actually, we're seeing site opportunities all over the U.K. our regions are highly profitable for us. We will look at every single opportunity that comes up. As I said before, we take a very return to led focus, and we will walk away from sites and opportunities, we don't think the economics stack up for us. But actually, we see opportunities around the U.K., and we feel that we'll be able to rebuild that pipeline over time, even though we'll take a disciplined approach. And as you mentioned, we'll also look at opportunities within the extension space, which are generally really highly returning growth opportunities for us.

Yes. And just to add to that point that our room target or -- getting to 125,000 rooms, there is significant part of that outside of London and Southeast, even though it is more ponderance towards London and Southeast. And we're very confident that once we put rooms into those catchments will get really good returns that make sense. On your third point about optimizing state in Premier Plus in particular, yes, I mean, the Premier Plus is really working well for us as a concept, it is a relatively small upgrade between kind of GBP 10, GBP 20, GBP 25 on a room. It's the footprint of the room is the same as our standard room. There are slightly different offer, slightly lesser Bathroom suite, sites and furniture, nicer coffee, consumables, toiletries, et cetera. That is a relatively low investment cost for us to put in and to run for a really nice upgrade in terms of the room premium. That means we get a really strong return. And it's a very helpful way for us to make our refurbishments more profitable and better returning, which are generally in the past will have been more about maintaining this day. But actually, this is another way of actually driving returns through the estate as we go through the safe refurbishing it. We tend to do -- we tend to put Premier Plus in when we refurbish our hotel because it's a lot less costly doing that, than doing it just at how when we're not in that hotel anyway. And then we can actually make sure that for the rooms we're going to refurb anyway, we can understand what the incremental capital and therefore, incremental return, we're able to achieve Premier Plus is. At the moment, we've got about 5% of our rooms as Premier Plus rooms. Generally, when we refer the hotel, we put in 15% on average of Premier Plus rooms. The factors that drive that -- there are physical factors that drive that in terms of segregating the rooms. It might be that particular corridor or particular floor might work best. But also, we're conscious of the fact that although it works for leisure customers, it works particularly well for business customers. So we're talking about the kind of hotels that we're putting it in, but it is working very well overall in virtually every hotel we put it in. We're also making sure that roughly that level of roughly 15% of rooms in new hotels as well against Premier Plus. So we are gradually converting estate. Logic would tell you, therefore, we'd probably get to something like 15% in the long run. We've got 3x as many rooms we have now where we could get to. But it will very much depend as we put more and more rooms into a catchment, we might see slightly different behavior. So we'll monitor that to make sure we're getting the returns that we want. So there's nothing really to see in terms of slowing the pace. It will be based on the refurb program. That will continue pace, and we will continue to put Premier Plus rooms down as soon as we can.

The next question comes from Richard Clarke from Bernstein.

Just want to start by following up on your U.K. supply survey. I guess one of the conclusions from that is a fairly negative picture for the U.K. overall. You've suggested that U.K. suppliers come out to the order of about 5%. It looks like U.K. occupancy is running about 1 percentage point lower, so U.K. demand must be down by about 6%. That looks a lot worse than almost any other country in the world. I'm just wondering why you think U.K. has been hit so hard and where you have that confident maybe that demand returns to growth? And then maybe the second question, on your Slide 25, I know these are very round numbers, but it looks like you've gained about 1% of share the rest of budget branded has gained about 2% of share. Just wondering who in there is gaining that share? Is it bigger brands? Is it local brands? Is the quality of your competition beginning to improve? And then just the third question around cash. Obviously, you're announcing another buyback increase. Should we think about that, you're just returning back to a more normalized level of cash -- you said about GBP 0.5 billion of cash on the balance sheet you've got billion at the moment, you're getting down to that? Or can you kind of [indiscernible] kind of rolling buyback program at that kind of level?

Thanks, Richard. So let me take the first part of the question, which is about supply. Actually, don't recognize the demand numbers that you've said, and we're happy to take that off-line and talk you through the supply side. But a couple of points I'll pull out. I mean if you look at our performance versus full year 2020, for example, our U.K. accommodation sales are up 55% versus full year '20. Our occupancy. And bear in mind, we are a bigger state with a lot of hotels and already very high occupancy. Our occupancy up 6 percentage points versus 2020. So we have taken -- we've taken -- we've got a lot more customers now in our hotels, and they are paying higher prices. So we're not bearish on the overall demand picture in the U.K. And I think that's supported by, you can see by the pricing increase I think if pricing was flat and demand -- and supply had gone down. I think you could come to that conclusion. But pricing is strong. It continues to be strong, and occupancy is up very materially since full year 2020. So we are seeing strong demand signs overall in the U.K. market.

Yes. Yes. So Richard, regarding your second question on share. I mean you're pointing out Slide 25, I think, you can see that our share of the overall number of rooms in the U.K. has gone up from 9% in 2015 to 12% in 2022. I mean obviously, the rounded numbers. So I think you're reading a little bit too much into what we're saying. But I mean, you can see there that we got from 9% to 12% the rest of the branded budget market is on 15% to 19%. So it's roughly in proportion. So in line with the rest of the branded budget market. Clearly, we've got some strong competition with travelers in particular, who are trading really well, as well. But I think the biggest factor here is there's still a significant chunk of supply in the independent sector here in the 40% to 45% 2022 and we think coming downwards as well over that since then, and we'll continue to do so. That's where I think we are still going to continue to have the ability to grow where we're competing against the independent sector who will have struggled with levels of inflation. Cost inflation we're seeing with labor shortages and just generally have to compete with much more efficient larger hotels with the strong branded budget sector we've got in the U.K. And that's why we continue to think that there's a significant opportunity for us to continue to grow in the market. And we're very confident that at the moment, we might have 12% of the rooms in the U.K., our implied target of 125,000 rooms means that we could get to something like 17% in the U.K. That is very much based on our understanding of what is happening at a micro market level. If you look at the high level, that's a very, very high market share. We're already a very high market share in terms of number of rooms for a single brand. But we know that in micro markets, we are able to sustain higher market shares than that. And what we're doing is comparing what we're able to do in some markets with the ability to achieve exactly the same in other markets where we don't have as many rooms where we might not have any rooms at all or where we think we've got extension opportunities or the opportunity to reconfigure our hotels into a new larger number of rooms. So we're still confident in that. And then your third point on cash and the buyback situation. I'm going to refer you back to our capital allocation framework. The point of the capital allocation framework was to actually give us the flexibility. We are a -- to allocate capital in the right kind of way. We're a business that has a significant ability to generate cash. And we're generating almost GBP 0.5 billion of cash in the first half of this year, I think GBP 483 million. And we're doing this in a business that's generating 14.9% return on capital in the U.K. That means that we have to be very thoughtful about the level of cash -- capital that we're allocating and how we're allocating it in order to maintain those really strong returns that the shareholders are looking for. We talked about remaining investment grade. We know that's really important. We want to continue to invest in new rooms in the U.K., whether they are completely new hotels, whether they are extensions and also new rooms in Germany, all of which will give attractive levels of return. We want to also maintain our estate whilst putting in office such as Premier Plus that will continue to drive returns as well. We want to invest in systems. We've already talked about our new reservation system, the benefits that's going to bring. All of that, though, might mean we still have cash available to distribute to shareholders, whether it's through dividends or share buybacks, it will very much depend on point in time where we can look forward, where we understand and where we've got a good visibility of what might happen in terms of future booking levels and the economic stability. And also, of course, bolt-on M&A opportunities, which we'll be to manage and which we're always looking for, particularly in Germany as well. So I guess the answer is, it's not -- there's no hard and fast rule. It's not a point that we've got to a level of cash on the balance sheet that we're happy with. We want to run an efficient balance sheet, but we also want to make a really strong capital discipline amongst that -- within that capital allocation framework. And so we will decide clearly, the priority would be to put money into new rooms if the cash is able to do that. If those opportunities aren't available, and we have excess funds, we would be returning money to shareholders in the future. The Board is committed to reapplying that capital allocation framework on a regular basis, and we'll continue to do so.

Okay. Maybe just quickly reverting back on the first question. So I'm looking at the U.K. STR data that seems to imply that occupancy in the U.K. is down year-on-year versus 2019. And so if I add that to your supply -- your supply math, it would look like there's quite a big overall demand disruption. You're saying that potentially STR is getting that occupancy trend wrong, and actually, there has been supply demand growth versus supply contraction. Is that your conjecture?

No, the STR doesn't have data into every single hotel site or BNB, for example, in the U.K. So it's not a -- it's never going to be completely perfect data -- completely perfect data set. I would say from an overall -- from an overall demand perspective, we see demand is continuing to be strong. If demand is down slightly, for example, versus pre-pandemic levels. We haven't seen that, but I think it probably reinforces the -- we haven't seen it, you can see that from our results, but it probably reinforces the opportunity that we see in the sense that should support a really interesting point of the hotel cycle for us because to your point, there could be demand headroom -- there could be demand headroom in that. And I think there have been some comments about the U.S. market. What's really different between the U.S. market and the U.K. market is that the percentage of independents in the U.K. market is materially higher than the U.S. So the branded competitive set is much greater in the U.S. than the U.K. Our independent hotel market in the U.K. is generally of more mixed quality and doesn't have the brand strength, distribution or, in fact, the P&L strength that we ourselves do. So that creates an opportunity for us moving forward.

And just a follow-up on it, Richard. I mean you've got to also take into account, obviously, the pricing that the market has taken. We can't comment on what the rest of the market is doing. Clearly, what we can see is that we have both improved and increased occupancy over this last 3 years from pre-COVID. We've added more rooms in at the same time as well, significant number of rooms much more than anyone else and we've taken price, slightly less than the market up to last year, but more year-on-year that market is slightly more than this year. All those factors we take into account mean that we're trading really, really well, and we're still very confident. Because the strength of our brand that we'll be able to trade more strongly going forward. What we can comment on is the market overall and how they've taken. But clearly, the more price you take, the more you're likely to dampen demand. So your question is about demand as such based on occupancy. Clearly, there's a price impact that the market is having on demand as well, which really isn't -- not our concern. What we're trying to do for us obviously is to maximize the revenue that we can, based on our pricing systems and the hotel rooms that we have in a particular catchment.

Richard, the other thing I think what you'd see in a market like this traditionally where demand is -- demand overall is strong relative to the supply. And pricing is going up as you would see an increase in -- a rapid increase in supply into a market. Any kind of sector that's seeing those kinds of dynamics, you'd see rapid increases in supply. The opportunity for Whitbread and Premier Inn is it takes, as we said already, it takes years to build that supply. And the financial markets at the moment are not conducive to people opening hotel rooms. So interest rates, as we all know, are historically at a high level. Funding for businesses that they don't have very strong balance sheet is challenging. And that's why our competitors' forward pipeline -- why our pipeline is greater than our competitors' forward pipeline put together. What that means is that supply isn't going to come into the market in the short term, we think for at least 5 years. That's very unusual for a sector. It takes a long time to build a hotel. And obviously, if you can't get the funding, you can't access those pipelines, which is why we think from a hotel cycle point of view, it's a really good opportunity for us as a business.

The next question comes from Alex Brignall from Redburn, Atlantic.